6

ABOUT THIS PROSPECTUS

Throughout this prospectus, unless otherwise designated or the context suggests otherwise,

·all references to the “Company,” the “registrant,” “GameWorks,” “we,” “our,” or “us” in this prospectus mean GameWorks, Inc.; 

·assumes an initial public offering price of our common stock of $[●] per share, the midpoint of the estimated range of $[●] to $[●] per share; 

·all references to the “offering” refer to the offering contemplated by the IPO Prospectus; 

·“year” or “fiscal year” mean the Company’s 4-4-5 operating calendar, which divides an operating year into four quarters; each quarter has thirteen weeks, which are grouped into two four-week months and one five-week month; the Company’s current reporting period starts on December 30, 2019 and ends on December 27, 2020 (“fiscal 2020”); prior reporting periods referenced in this prospectus include the fiscal years ended December 29, 2019 (“fiscal 2019”) and December 30, 2018 (“fiscal 2018”); 

·all dollar or $ references when used in this prospectus refer to United States dollars; and 

·all share and per share information relating to our common stock in this prospectus has been adjusted to reflect a 1-for-10,000 forward stock split implemented by the Company immediately prior to this offering. 

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal Company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this prospectus. 

7

Cautionary Note Regarding Forward-Looking Statements

This prospectus contains “forward-looking statements.” Forward-looking statements reflect the current view about future events. All statements, other than statements of historical facts, regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management or other financial items are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:

·Since our inception in August 2017, we have experienced three consecutive fiscal years (four accounting periods due to an intervening change in ownership during 2018) of losses in aggregate totaling $28,875,290 as of June 28, 2020 and may not be able to achieve profitability in the near term or at all. 

·The economic uncertainty in the United States impacts our business and financial results, and a new recession could materially affect us in the future. 

·Our growth strategy depends on our ability to open new venues and operate them profitably. 

·Our expansion into new markets may present increased risks due to our unfamiliarity with the area. 

·Our quarterly results of operations are subject to fluctuations due to the seasonality of our business and other events. 

·Our operations are susceptible to the availability and cost of food and other supplies, in most cases from a limited number of suppliers, which subject us to possible risks of shortages, interruptions and price fluctuations. 

·Instances of foodborne illness and outbreaks of disease, as well as negative publicity relating thereto, could result in reduced demand for our menu offerings and reduced traffic in our venues and negatively impact our business. 

·We may be unable to operate our venues, or obtain and maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results of operations or financial condition. 

·Changes in laws, regulations and other requirements could adversely affect our business, results of operations or financial condition. 

·We face potential liability with our gift cards under the property laws of some states. 

·We may face labor shortages that could slow our growth and adversely impact our ability to operate our venues. 

·Local conditions, events, terrorist attacks, public health (pandemic) related shutdowns, adverse weather conditions and natural disasters could adversely affect our business. 

·We face uncertainty as to the opening, and reduced capacity, of our venues due to COVID-19. 

·We face uncertainty with respect to the degree to which our expenses incurred during the COVID shutdown period qualify for forgiveness under the provisions of the Paycheck Protection Program. 

·Damage to our brand or reputation could adversely affect our business. 

·Our marketing programs may not be successful. 

8

·We may be unable to renew real property leases on favorable terms, or at all, which may require us to close a venue or relocate, either of which could have a material adverse effect on our business, results of operations or financial condition. 

·Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic and industry conditions and could limit our operating and financial flexibility. 

·Changes to estimates related to our property, fixtures and equipment or operating results that are lower than our current estimates at certain venue locations may cause us to incur impairment charges on certain long-lived assets, which may adversely affect our results of operations. 

·We may be unable to adequately protect our intellectual property. 

·Failure to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business and operating results. 

·Disruptions in our information technology systems or security breaches of confidential customer information or personal employee information could have an adverse impact on our operations. 

·The esports business is new and evolving, and it is uncertain how or if it will evolve. 

·We believe that success in the esports business will require that we enter into joint ventures and alliances with third parties, which we may be unable to do successfully or at all. 

·We will need to expand or refine our marketing efforts in order to attract customers to our esports offering. 

·We may not be able to compete favorably in the highly competitive out-of-home and home-based entertainment and restaurant markets, which could have a material adverse effect on our business, results of operations or financial condition. 

·Our procurement of games and amusement offerings is dependent upon a few suppliers. 

·We depend on the services of key executives, the loss of whom could materially harm our business and our strategic direction if we were unable to replace them with executives of equal experience and capabilities. 

·Our stock price may fluctuate significantly, and you may be unable to resell your shares at or above the offering price. 

·There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity. 

·We do not anticipate paying dividends on our common stock in the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it. 

·If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline. 

·You may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise. 

·Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price of our common stock and may dilute your voting power and your ownership interest in us. 

·Our costs could increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations. 

·We are an “emerging growth company” and elect to comply with certain reduced reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors. 

·The price of our common stock may be volatile and you could lose all or part of your investment. 

9

·If you purchase shares in this offering, you will suffer immediate and substantial dilution. 

·Failure to maintain effective internal control over financial reporting in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and stock price. 

·Our indebtedness could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our financial obligations. 

·Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements. 

·The terms of our security agreement and other debt documents restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations. 

·After this offering, our principal stockholder will continue to have substantial control over us. 

·We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, qualify for, and will rely on, exemptions from certain corporate governance requirements that provide protection to the stockholders of companies that are subject to such corporate governance requirements. 

·Conflicts of interest may arise because some of our directors are principals of our principal stockholder. 

Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

10

PROSPECTUS SUMMARY

This summary provides a brief overview of the key aspects of our business and our securities. The reader should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.” Some of the statements contained in this prospectus, including statements under this section and “Risk Factors”, are forward-looking statements and may involve a number of risks and uncertainties. Our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus.

Overview

GameWorks is an esports and entertainment destination built around the central theme of gaming, both competitively and for amusement. Every location, which has a footprint ranging (on average) from approximately 20,000 to 35,000 square feet, features a wide variety of the latest and most popular arcade and video games as well as esports and other activities. Our entertainment centers attract millennials, teens and families. We also host many corporate events. At GameWorks, there is something for everyone. We offer a broad guest audience fun, competition, and great food. Our venues feature numerous specialty entertainment offerings, including esports lounges, video/arcade/redemption games, laser tag, bowling and/or billiards, and even traditional board games. Among consumer operators of esports tournaments with fixed venues, we are the largest national entertainment concept for esports based on revenue. Our distinctive esports lounges consist of organized, multi-player video game venues for participating in competitions between players across varying skill levels as well as casual play amongst friends. They feature the latest and most popular video game offerings on multiple formats (PC, Xbox, PS4). Our venues feature spacious lounge set-ups, which include comfortable couches, offering gamers a welcoming, relaxing and entertaining environment. Every esports lounge provides full-service restaurant and bar service to enjoy while playing or watching. All locations are also ideal places to watch sporting events. Visitors are surrounded by multiple big screens, high-definition televisions and 40-foot video walls.

Our seven GameWorks locations feature The Works Kitchen, an eclectic, chef-driven restaurant concept imagined and created by Chef Tony Leitera. Guests can enjoy selections from a varied menu that takes a modern American spin on bar classics while also featuring hearty specialties and healthful options. The upscale food offering incorporates a contemporary approach to traditional favorites across a large variety of appetizers, handhelds (specialty burgers and sandwiches), salads and desserts. Menu creations include, among many others, The Works’ very own “Twists”, an array of Bavarian pretzels; hand-stretched artisanal pizzas; savory snacks, dry-rubbed wings and handheld specialties. To top off a meal, there are several signature milkshake creations that combine unlikely ingredients to create delicious indulgences.

GameWorks employees are trained to engage with our customers in a friendly and genuine way to provide a memorable personalized experience. We believe that a great customer experience is paramount to winning a repeat customer who will continue to return. We believe that a key to our past and future success is our culture. Superior customer service is borne from within. Our people are our greatest asset. At GameWorks, we lead by example and treat our people with kindness, respect and courtesy. We strive to be a fun, friendly and hardworking group who enjoy taking care of our customers and one another.

Tabletop Tap House is a popular restaurant, bar and social game hall in San Francisco serving modern American tavern-style fare created by GameWorks Executive Chef, Tony Leitera. Equipped with a video wall, billiards tables, tabletop board games, and ample upscale dining and event space, Tabletop Tap House is a prime location for hosting private parties, special occasions, corporate events, and viewing popular televised events of all varieties.

Company and Other Information

GameWorks, Inc. was incorporated in the State of Delaware on August 18, 2017 in order to purchase the subsidiaries through which it operates. Our principal executive offices are located at 111 Maiden Lane, Suite 740, San Francisco, CA 94108 and our mailing address at 5670 Wilshire Boulevard, 18th Floor, Los Angeles, CA 90036. Our main telephone number is (747) 253-0057. Our corporate website address is: www.gameworks.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus and should not be relied upon with respect to this offering.

GameWorks®, the GameWorks logo and any other current or future trademarks, service marks and trade names appearing in this prospectus are the property of GameWorks Inc. and its subsidiaries. Other trademarks and trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

11

This Prospectus Summary highlights information contained elsewhere and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes included elsewhere in this prospectus. You should also consider, among other things, the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case appearing elsewhere in this prospectus.

Nasdaq Listing Application and Proposed Symbol

We have filed an application to have our common stock listed on the Nasdaq under the symbol “GMWX” No assurance can be given that our application will be approved. If our application is not approved or we otherwise determine that we will not be able to secure the listing of our common stock on the Nasdaq, we will not complete the offering.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we have elected to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

·the requirement that we provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; 

·reduced disclosure about our executive compensation arrangements; 

·an exemption from the requirement that we hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and 

·an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. 

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold securities.

Forward Stock Split

In connection with this offering, we effected a 1-for-10,000 forward stock split of our issued and outstanding shares of common stock. All shares of our common stock referred to in this prospectus reflect the forward split.

12

Going Concern

Our financial statements appearing elsewhere in this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the twenty-six weeks ended June 28, 2020, we generated net revenues of $7,243,020 and incurred a net loss of $(13,112,939). During the fiscal year ended December 29, 2019, we generated revenues of $29,268,857 and incurred a net loss of $(10,634,980). During the fiscal year ended December 30, 2018 we generated revenues of $27,065,106 and incurred a net loss of $(9,156,736). We have primarily funded these losses through a combination of cash flows from operations in seasonally strong months, drawing on a line of credit extended by ExWorks (including two officers of the Company who hold participating interests in such line), and convertible notes issued to management, directors and other insiders of the Company and their related parties.

In March 2020, two months after the World Health Organization declared that the COVID-19 outbreak constituted a Public Health Emergency of International Concern, public health concerns relating to COVID-19 took hold in the U.S., prompting federal, many state and local authorities to broadly institute mitigation restrictions, which have temporarily shut down our entire platform of eight venues since mid-March. After more than thirteen weeks of suspended operations, on a staggered basis, local authorities are gradually beginning to permit a scaled return back to business. These developments have caused a material adverse impact on our subsequent revenues, results of operations and cash flows, including our ability to meet our obligations when due. Recovery from these conditions will be based in part on the duration of the store closures, the timing and extent of customers re-engaging with the brand, and the overall recovery of the broader economy. At this time, we are unable to determine the duration or extent to which COVID-19 will continue to affect our business. Our inception to date operating results coupled with COVID-19 related uncertainties have raised concerns with respect to our liquidity.

Other than the $8.0 million impairment charge against the carrying value of our goodwill and trade name in our financial statements for the twenty-six months ended June 28, 2020, our financial statements do not include any adjustments that might result from these uncertainties. In a letter to our independent registered public accounting firm dated May 11, 2020, ExWorks expressed its intention to provide support to us to ensure we continue as a going concern. On that basis, the accounting firm did not include an explanatory paragraph in its report on our consolidated financial statements as of and for the fiscal year ended December 29, 2019, with respect to these matters. However, there can be no assurance that ExWorks will continue to fund any of our capital needs.

To address these uncertainties, we have undertaken several immediate and decisive steps to reduce operating costs, conserve cash, confirm the ongoins support of ExWorks, and secure additional liquidity through the government Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

THE OFFERING

(1)Does not include shares of our Common Stock underlying the underwriters’ over-allotment option. 

(2)The number of shares of common stock outstanding after this offering, as set forth in the table above, is based on [●] shares of our common stock outstanding as of [●][●], 2020, which excludes, as of that date, the following: 

·stock options to purchase 1,890,000 shares of our common stock at an exercise price of $2.35 per share, granted to certain of our officers and certain members of our board of directors under our 2019 Equity Incentive Plan;  

·520,000 shares of our common stock issuable upon the vesting of outstanding restricted stock units, granted to certain of our officers and certain members of our board of directors under our 2019 Equity Incentive Plan; 

13

·100,000 shares of our common stock available for future issuance under our Equity Incentive Plan; 

·warrants to purchase 210,000 shares of our common stock at an exercise price of $0.05965 per share to a key contractor advising management on business development opportunities and capital markets; and  

·warrants to purchase up to [●] shares of our common stock issuable to the underwriters in connection with this offering. 

Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws in connection with this offering.

RISK FACTORS

An investment in our securities involves a high degree of risk. Before making an investment decision you should carefully consider the risks described below and the risks and uncertainties described in this prospectus and the other information set forth or incorporated by reference in this prospectus. Additional risks and uncertainties that we are unaware of or that we believe are not material at this time could also materially adversely affect our business, financial condition or results of operations. In any case, the value of our common stock could decline, and you could lose all or part of your investment. You should also refer to our financial statements and the notes to those statements, which are incorporated by reference in this prospectus. See also the information contained under the heading “Cautionary Note Regarding Forward Looking Statements” above.

Risks Related to Our Business

We have experienced losses since our inception in 2017 and may be unable to achieve profitability in the near term or at all.

We have experienced losses since our inception in 2017. To become profitable, we must increase our revenues while controlling expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus and our failure to open profitable new venues or expand and improve our entertainment options. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown events. We can make no assurances that we will be able to achieve, sustain or increase profitability in the future. Failure to achieve and maintain profitability could have an adverse impact on the trading prices of our common stock and our ability to continue as a going concern over the long term.

The economic uncertainty in the United States impacts our business and financial results, and a new recession could materially affect us in the future.

Any significant decrease in consumer confidence, or periods of economic slowdown or recession, could lead to a curtailing of discretionary spending, which in turn could reduce our revenues and results of operations and adversely affect our financial position. Our business is dependent upon consumer discretionary spending and, as a result, is affected by consumer confidence as well as the future performance of the United States economy. As a result, our results of operations are susceptible to economic slowdowns and recessions. Increases in job losses, home foreclosures, investment losses in the financial markets, personal bankruptcies, credit card debt, and home mortgage and other borrowing costs, declines in housing values, and reduced access to credit, among other factors, may result in lower levels of customer traffic in our venues, a decline in consumer confidence and a curtailing of consumer discretionary spending. We believe that consumers generally are more willing to make discretionary purchases during periods in which favorable economic conditions prevail. If economic conditions worsen, whether in the United States or in the communities in which our venues are located, we could see deterioration in customer traffic or a reduction in the average amount customers spend in our venues. A reduction in revenues will result in downward pressure on our profit margins or increase losses.

Our growth strategy depends on our ability to open new venues and operate them profitably.

As of June 28, 2020, there were seven GameWorks-branded venues and one restaurant operating under the name Tabletop Tap House in the United States. A key element of our growth strategy is to open additional venues in locations that we believe will provide attractive returns on investment. We have identified a number of additional sites for potential future GameWorks venues. Our ability to open new venues on a timely and cost-effective basis, or at all, is dependent on a number of factors, many of which are beyond our control, including our ability to:

·find quality locations; 

·reach acceptable agreements regarding the lease or purchase of locations; 

·competition in new markets, including competition for appropriate sites; 

·comply with applicable zoning, licensing, land use, and environmental regulations; 

·raise or have available an adequate amount of cash or currently available financing for construction and opening costs; 

14

·timely hire, train, and retain the skilled management and other employees necessary to meet staffing needs; 

·obtain, for acceptable cost, required permits and approvals, including liquor licenses; and 

·efficiently manage the amount of time and money used to build and open each new venue. 

If we succeed in opening new venues on a timely and cost-effective basis, we may nonetheless be unable to attract enough customers to new venues because potential customers may be unfamiliar with our venues or concept, or our entertainment and menu options might not appeal to them. New venues may even operate at a loss, which could have a significant adverse effect on our overall operating results. Opening a new venue in an existing market could reduce the revenue at our existing venues, if any, in that market. Historically, new venues experience a decline in revenues after their first year of operation. This drop may be temporary, but there can be no assurance that this will be the case or that a new venue will succeed in the long term.

Our expansion into new markets may present increased risks due to our unfamiliarity with the area.

Our new venues will likely be located in areas where we have little or no meaningful experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new venues to be less successful than venues in our existing markets. In addition, our brand is not nationally recognized, and we do not have a national advertising program. The lack of market awareness of the GameWorks® brand can pose an additional risk in expanding into new markets. Venues opened in new markets may experience lower revenues, or higher costs, than venues in existing markets. Sales at venues opened in new markets may take longer to reach average venue revenues, if at all. Any new venue may not achieve market acceptance, operate profitable, or maintain compliance with changing business and regulatory requirements of new markets. If we cannot expand, or if our new venues are not profitable, we could experience a material adverse effect on our business, financial condition and results of operations.

Our quarterly results of operations are subject to fluctuations due to the seasonality of our business and other events.

Our operating results fluctuate significantly from quarter to quarter as a result of seasonal factors. Typically, we have higher first and fourth quarter revenues associated with the spring and year-end holidays. Our third quarter, which encompasses the back-to-school fall season, has historically posted lower revenues as compared to the other quarters.

We expect seasonality will continue to be a factor in our results of operations. As a result, factors affecting peak seasons could have a disproportionate effect on our results. For example, the number of days between Thanksgiving and New Year’s Day and the days of the week on which Christmas and New Year’s Eve fall affect the volume of business we generate during the December holiday season and can affect our results for the full fiscal year. In addition, adverse weather during the winter and spring seasons can have a significant impact on our first and fourth quarters, and therefore our results for the full fiscal year.

Our operating results may also fluctuate significantly because of non-seasonal factors, such as economic factors, new venue openings, venue closings and factors specific to the location of one or more venues. Due to our relatively limited number of locations, poor results of operations at any single venue could materially affect our overall profitability.

Our operations are susceptible to the availability and cost of food and other supplies, in most cases from a limited number of suppliers, which subject us to possible risks of shortages, interruptions and price fluctuations.

Our profitability depends in part on our ability to anticipate and react to changes in product costs. Cost of food and beverage as a percentage of total food and beverage revenue was 22.9% in fiscal 2019 and 24.1% in fiscal 2018. Costs of entertainment and other costs as a percentage of entertainment and other revenue were 9.1% in fiscal 2019 and 10.6% in fiscal 2018. If we have to pay higher prices for food or other supplies, our operating costs may increase, and, if we are unable or unwilling to pass such cost increases on to our customers, our operating results could be adversely affected.

The unplanned loss of a major supplier could adversely affect our business by disrupting our operations as we seek out and negotiate a new distribution contract. We could also be harmed by shortage or recall of food or other supplies. We currently do not engage in futures contracts or other financial risk management strategies with respect to potential price fluctuations in the cost of food and other supplies.

We may be unable to anticipate and react to changing food, beverage and amusement costs by adjusting purchasing practices or menu and game prices, and a failure to do so could have a material adverse effect on our operating results.

15

Instances of foodborne illness and outbreaks of disease, as well as negative publicity relating thereto, could result in reduced demand for our menu offerings and reduced traffic in our venues and negatively impact our business.

Our supply chain and food safety controls and training may not be fully effective in preventing all food safety issues at our venues, including any occurrences of foodborne illnesses such as salmonella, E. coli and hepatitis A. In addition, we rely on third-party vendors, making it difficult to monitor food safety compliance and increasing the risk that foodborne illness would affect multiple locations rather than a single venue. Some foodborne illness incidents could be caused by third-party vendors and distributors outside of our control.

New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of foodborne illness in any of our venues or markets or related to food products we sell could negatively affect our venue sales nationwide if highly publicized on national media outlets or through social media. This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our venues. A number of restaurant chains have experienced incidents related to foodborne illnesses that have had material adverse effects on their operations. The occurrence of a similar incident at one or more of our venues, or negative publicity or public speculation about an incident, could reduce customer visits to our venues and negatively impact demand for our menu offerings.

We may be unable to operate our venues, or obtain and maintain licenses and permits necessary for such operation, in compliance with laws, regulations and other requirements, which could adversely affect our business, results of operations or financial condition.

We are subject to various federal, state and local laws affecting our business. Each venue is subject to licensing and regulation by a number of governmental authorities, which may include alcoholic beverage control, amusement, health and safety, and fire agencies in the state, county or municipality in which the venue is located. Each venue is required to obtain a license to sell alcoholic beverages on the premises from a state authority and, in certain locations, county and municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. In some states, the loss of a license for cause with respect to one location may lead to the loss of licenses at all locations in that state and could make it more difficult to obtain additional licenses in that state. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each venue, including minimum age of patrons and employees; hours of operation; advertising; wholesale purchasing; inventory control; and handling, storage and dispensing of alcoholic beverages. The failure to receive or retain a liquor license, or any other required permit or license, in a particular location, or to continue to qualify for, or renew licenses, could have a material adverse effect on operations and our ability to obtain such a license or permit in other locations.

As a result of operating certain entertainment games and attractions, including skill-based games that offer redemption prizes, we are subject to amusement licensing and regulation by the states, counties and municipalities in which our venues are located. These laws and regulations can vary significantly by state, county, and municipality and, in some jurisdictions, may require us to modify our business operations or alter the mix of redemption games and simulators we offer. Moreover, as more states and local communities implement legalized gambling, the laws and corresponding enabling regulations may also be applicable to our redemption games. Furthermore, regulators may create new licensing requirements, taxes or fees, or restrictions on the various types of redemption games we offer.

Changes in laws, regulations and other requirements could adversely affect our business, results of operations or financial condition.

We are also subject to federal, state and local environmental laws, regulations and other requirements. More stringent and varied requirements of local and state governmental bodies with respect to zoning, land use and environmental factors could delay or prevent development of new venues in particular locations. Environmental laws and regulations also govern, among other things, discharges of pollutants into the air and water as well as the presence, handling, release and disposal of and exposure to hazardous substances. These laws provide for significant fines and penalties for noncompliance. Third parties may also make personal injury, property damage or other claims against us associated with actual or alleged release of, or exposure to, hazardous substances at our properties. We could also be strictly liable, without regard to fault, for certain environmental conditions at properties we formerly owned or operated as well as at our current properties.

16

In addition, we are subject to the Fair Labor Standards Act (which governs such matters as minimum wages and overtime), the Americans with Disabilities Act, various family-leave mandates, and other federal, state and local laws and regulations that govern working conditions. From time to time, the U.S. Congress and the states consider increases in the applicable minimum wage. Several states in which we operate have enacted increases in the minimum wage over the past several years and further increases are anticipated. We expect increases in payroll expenses as a result of federal and state mandated increases in the minimum wage. In general, we have been able to substantially offset cost increases resulting from changes in minimum wage rates by increasing menu prices, improving productivity, or through other adjustments. However, we are uncertain of the repercussions, if any, of increased minimum wages on other expenses. For example, our suppliers may be more severely impacted by higher minimum wage standards, which could result in increased costs to us. If we are unable to offset these costs through increased costs to our customers, our business, results of operations and financial condition could be adversely affected. Moreover, although none of our employees have been or are now represented by any unions, labor organizations may seek to represent certain of our employees in the future, and if they are successful, our payroll expenses and other labor costs may be increased in the course of collective bargaining, and/or there may be strikes or other work disruptions that may adversely affect our business.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), as well as other healthcare reform legislation being considered by Congress and state legislatures, may have an adverse effect on our business. Although the Affordable Care Act does not mandate that employers offer health insurance to all employees who are eligible under the legislation, penalties may be assessed on employers who do not offer health insurance that meets certain affordability or benefit coverage requirements. Providing health insurance benefits to employees in compliance with the Affordable Care Act, or the payment of penalties if the specified level of coverage is not provided at an affordable cost to employees, will increase our expenses. Additionally, our distributors and suppliers also may be affected by higher health care-related costs, which could result in higher costs for goods and services supplied to us. We believe our plans will meet these requirements, however, providing health insurance benefits to our employees, or the payment of penalties if the specified level of coverage is not provided at an affordable cost to employees, could have a significant, negative impact on our business.

The Affordable Care Act also requires us to comply with federal nutritional disclosure requirements. The Food and Drug Administration (“FDA”) has finalized regulations to implement the nutritional menu labeling provisions of the Affordable Care Act. Restaurants chains with more than 20 locations doing business under the same name and offering substantially the same menu items must post certain nutritional information on their menus. Although we are currently not required to comply with the Affordable Care Act requirements, if we expand to 20 or more restaurants, we will be required to publish the total number of calories of standard menu items on menus, along with a statement that puts this calorie information in the context of a total daily calorie intake.

The Affordable Care Act will also require us to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item and provide a statement on menu item about the availability of this information. The Affordable Care Act also permits the FDA to require us to make additional nutrient disclosures, such as disclosure of trans-fat content. An unfavorable report on, or reaction to, our menu ingredients, the size of our portions, or the nutritional content of our menu items could negatively influence the demand for our offerings. We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends and eating habits. The imposition of menu-labeling laws could have an adverse effect on our results of operations and financial position as well as the hospitality industry in general.

There is also a potential for increased regulation of certain food establishments in the United States, where compliance with a Hazard Analysis and Critical Control Points (“HACCP”) approach may now be required. HACCP refers to a management system in which food safety is addressed through the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution, and consumption of the finished product. Many states have required restaurants to develop and implement HACCP Systems, and the United States government continues to expand the sectors of the food industry that must adopt and implement HACCP programs. For example, the Food Safety Modernization Act (the “Food Safety Act”), signed into law in January 2011, granted the FDA authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. Although restaurants are specifically exempted from or not directly implicated by some of these new requirements, we anticipate that the new requirements may impact our industry. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, resulting in adverse publicity or require us to take actions that could be costly for us or otherwise impact our business.

Our sales and results of operations may be adversely affected by climate change and the passage of other environmental legislation and regulations. The costs and other effects of new legal requirements cannot be determined with certainty. For example, new legislation or regulations may result in increased costs directly for our compliance or indirectly to the extent that such requirements increase prices charged to us by vendors because of increased compliance costs. At this point, we are unable to determine the impact that climate change and other environmental legislation and regulations could have on our overall business.

17

We face potential liability with our gift cards under the property laws of some states.

Our gift cards, which may be used to purchase food, beverages, merchandise and game play credits in our venues, may be considered stored value cards. Certain states include gift cards under their abandoned and unclaimed property laws and require companies to remit to the state cash in an amount equal to all or a designated portion of the unredeemed balance on the gift cards based on certain card attributes and the length of time that the cards are inactive. To date we have not remitted any amounts relating to unredeemed gift cards to states based upon our assessment of applicable laws. We recognize income from unredeemed cards when we determine that the likelihood of the cards being redeemed is remote and that recognition is appropriate based on governing state statutes.

The analysis of the potential application of the abandoned and unclaimed property laws to our gift cards is complex, involving an analysis of constitutional, statutory provisions and factual issues. In the event that one or more states change their existing abandoned and unclaimed property laws or successfully challenge our position on the application of its abandoned and unclaimed property laws to our gift cards, or if the estimates that we use in projecting the likelihood of the cards being redeemed prove to be inaccurate, our liabilities with respect to unredeemed gift cards may be materially higher than the amounts shown in our financial statements. If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net income could be materially and adversely affected.

Customer complaints or litigation on behalf of our customers or employees may adversely affect our business, results of operations or financial condition.

Our business may be adversely affected by legal or governmental proceedings brought by or on behalf of our customers or employees. In recent years, a number of restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, and a number of these lawsuits have resulted in the payment of substantial damages by the defendants. We could also face potential liability (which could be material) if we are found to have misclassified certain employees as exempt from the overtime requirements of the federal Fair Labor Standards Act and state labor laws, or if we are found to have failed to provide or continue health insurance or benefits to our employees in violation of the Employee Retirement Income Security Act or the Affordable Care Act. We have had -- from time to time and now -- such lawsuits pending against us. In addition, from time to time, customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to a venue. We are also subject to a variety of other claims in the ordinary course of business, including personal injury, lease and contract claims. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.

We are also subject to “dram shop” statutes in certain states in which our venues are located. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes. Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, results of operations or financial condition. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from operations and hurt our financial performance. A judgment significantly in excess of our insurance coverage or not covered by insurance could have a material adverse effect on our business, results of operations or financial condition.

As approximately 47.5% and 46.9% of our revenues were from food and beverage, which included the sale of alcoholic beverages during fiscal 2019 and fiscal 2018, respectively, adverse publicity resulting from these allegations may materially affect our venues and us. For the twenty-six months ended June 28, 2029, the food and beverage mix has shifted to 42.0% in large part due to COVID-19 mitigation restrictions and mandated reopening requirements altering consumer spending behavior.

We may face labor shortages that could slow our growth and adversely impact our ability to operate our venues.

The successful operation of our business depends upon our ability to attract, motivate and retain a sufficient number of qualified executives, managers and skilled employees. From time to time, there may be a shortage of skilled labor in certain of the communities in which our venues are located. Shortages of skilled labor may make it increasingly difficult and expensive to attract, train and retain the services of a satisfactory number of qualified employees and could delay the planned openings of new venues or adversely impact our existing venues. Any such delays, material increases in employee turnover rates in existing venues or widespread employee dissatisfaction could have a material adverse effect on our business and results of operations. Competition for qualified employees could require us to pay higher wages, which could in turn result in higher labor costs and could have a material adverse effect on our results of operations.

18

Local conditions and events, civil unrest, terrorist attacks, adverse weather conditions, public health emergencies and natural disasters could adversely affect our business.

Certain of the regions in which our venues are located have been, and in the future may be, subject to adverse local conditions and events, civil unrest, terrorist attacks, adverse weather conditions, wildfires or natural disasters, such as earthquakes, floods and hurricanes. For example, our venues in Nevada and Washington, and the venue we manage in San Francisco, are particularly subject to earthquake risk, and our venue in Virginia particularly subject to hurricane risk. Depending upon its magnitude, a natural disaster could severely damage our venues, which could adversely affect our business, results of operations or financial condition. We currently maintain property and business interruption insurance through the aggregate property policy for each of the venues. However, such coverage may not be sufficient should a major disaster occur. In addition, upon the expiration of our current insurance policies, adequate insurance coverage may not be available at reasonable rates, or at all. Additionally, public health emergencies, such as the recent COVID-19 pandemic, could cause our in-venue business to be temporarily closed and could adversely affect our business and/or limit the maximum number of people permitted in a venue, either of which could adversely affect our business.

Damage to our brand or reputation could adversely affect our business.

Our brand and our reputation are among our most important assets. Our ability to attract and retain customers depends, in part, upon the external perception of our Company, the quality of our food service and facilities as well as our integrity. Multi-store businesses, such as ours, can be adversely affected by unfavorable publicity resulting from poor food quality, illness or health concerns, or a variety of other operating issues stemming from one or a limited number of venues. Adverse publicity involving any of these factors could make our venues less appealing, reduce our customer traffic and/or impose practical limits on pricing. If one or more of our venues were the subject of unfavorable publicity, our overall brand could be adversely affected, which could have a material adverse effect on our business, results of operations and financial condition.

Also, there has been a marked increase in the use of social media platforms and similar devices, including blogs, social media websites, and other forms of Internet-based communications which allow individuals access to a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate as is its impact. Many social media platforms immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. Information posted may be adverse to our interests or inaccurate, each of which may harm our performance, prospects, or business. In sum, the dissemination of information online could harm our business, prospects, financial condition and results of operations, regardless of the information’s accuracy.

Our marketing programs may not be successful.

We incur costs and expend other resources in our marketing efforts to attract and retain customers. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues. Additionally, some of our competitors have greater financial resources, which enable them to spend significantly more on marketing and advertising than we can. Should our competitors increase spending on marketing and advertising or our marketing funds decrease for any reason, or should our advertising and promotions be less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.

We may be unable to renew real property leases on favorable terms, or at all, which may require us to close a venue or relocate, either of which could have a material adverse effect on our business, results of operations or financial condition.

All eight venues operated by us as of June 28, 2020 are operated on leased property. The leases typically provide for a base rent plus additional rent based on a percentage of the revenue generated by the venues on the leased premises once certain thresholds are met. A decision not to renew a lease for a venue could be based on a number of factors, including an assessment of the area in which the venue is located. We may choose not to renew, or may be unable to renew, certain of such existing leases if the capital investment then required to maintain the venues at the leased locations is not justified by the return on the required investment. If we are not able to renew the leases at rents that allow such venues to remain profitable as their terms expire, the number of such venues may decrease, resulting in lower revenue from operations, or we may relocate a venue, which could subject us to construction and other costs and risks, and, in either case, could have a material adverse effect on our business, results of operations or financial condition.

19

Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic and industry conditions and could limit our operating and financial flexibility.

Payments under our operating leases account for a significant portion of our operating expenses. For example, total rental payments, including additional rental payments based on sales at some of our venues, under current operating leases, were approximately $5.6 million, or 19.0% of our total revenues, in fiscal 2019. In addition, as of June 28, 2020, our facility operating leases requiring future minimum lease payments aggregating approximately $13.3 million through the next two years and approximately $153.4 million thereafter. We expect that we will lease any new venues we open under operating leases. Our substantial operating lease obligations could have significant negative consequences, including:

·increasing our vulnerability to general adverse economic and industry conditions; 

·limiting our ability to obtain additional financing; 

·requiring a substantial portion of our available cash to be applied to pay our rental obligations, thus reducing cash available for other purposes; 

·limiting our flexibility in planning for or reacting to changes in our business or the industry in which we compete; and 

·placing us at a disadvantage with respect to our competitors. 

We depend on cash flow from operations to pay our lease obligations and fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under bank loans or from other sources, we may be unable to service our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would have a material adverse effect on us.

Changes to estimates related to our property, fixtures and equipment or operating results that are lower than our current estimates at certain venue locations may cause us to incur impairment charges on certain long-lived assets, which may adversely affect our results of operations.

In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regard to individual venue operations, as well as our overall performance, in connection with our impairment analyses for long-lived assets. When impairment triggers are deemed to exist for any location, the estimated undiscounted future cash flows are compared to its carrying value. If the carrying value exceeds the undiscounted cash flows, an impairment charge equal to the difference between the carrying value and the sum of the discounted cash flows is recorded. The projections of future cash flows used in these analyses require the use of judgment and a number of estimates and projections of future operating results. If actual results differ from our estimates, additional charges for asset impairments may be required in the future. We have experienced significant impairment charges in past years. If future impairment charges are significant, our reported operating results would be adversely affected.

As discussed in the notes to the condensed consolidated financial statements, the outbreak of the COVID-19 virus in 2020 required the Company to temporarily shut down all of its venues in compliance with COVID-19 public health restrictions. The condensed consolidated financial statements for the twenty-six months ended June 28, 2020 include an impairment charge of $8.0 million against the carrying value of our goodwill and trade name.

We may be unable to adequately protect our intellectual property.

Our intellectual property is essential to our success and competitive position. We use a combination of intellectual property rights, such as trademarks and trade secrets, to protect our brand and certain other proprietary processes and information material to our business. The success of our business strategy depends, in part, on our continued ability to use our intellectual property rights to increase brand awareness and further develop our branded products in both existing and new markets. If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. If third parties misappropriate or infringe our intellectual property, the value of our image, brand, and the goodwill associated therewith may be diminished; our brand may fail to achieve and maintain market recognition; and our competitive position may be harmed, any of which could have a material adverse effect on our business, including our revenues. Policing unauthorized use of our intellectual property is difficult, and steps we have taken may fail to prevent the violation or misappropriation of such intellectual property rights by others. To protect our intellectual property, we may become involved in litigation, which could result in substantial expenses, divert the attention of management and adversely affect our revenue, financial condition and results of operations.

20

We cannot be certain that our products and services do not and will not infringe on the intellectual property rights of others. Any such claims, regardless of merit, could be time-consuming and expensive to litigate or settle, divert the attention of management, cause significant delays, materially disrupt the conduct of our business and have a material adverse effect on our financial condition and results of operations. As a consequence of such claims, we could be required to pay a substantial damage award, take a royalty bearing license, discontinue the use of third-party products used within our operations, and/or rebrand our business and products.

Failure to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business and operating results.

Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping prevent financial fraud. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. Any failure to remediate deficiencies noted by our management or our independent registered public accounting firm or to implement required new or improved controls or difficulties encountered in their implementation could result in failure to meet our reporting obligations or result in material misstatements in our financial statements.

Disruptions in our information technology systems or security breaches of confidential customer information or personal employee information could have an adverse impact on our operations.

Our operations are dependent upon the integrity, security and consistent operation of various systems and data centers, including the point-of-sale and amusement operations systems in our venues, data centers that process transactions, communication systems and various other software applications used throughout our operations. Disruptions in these systems could have an adverse impact on our operations. We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in our business operations.

In addition, our information technology systems are subject to the risk of infiltration or data theft. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage information technology systems change frequently and may be difficult to detect for long periods of time. As such, we may be unable to anticipate these techniques or implement adequate preventive measures. The hardware, software, or applications we develop or procure from third parties may also contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other methods of deceiving our team members, contractors and temporary staff. Data security could be compromised, confidential information could be misappropriated or system disruptions could occur in the future. Even though our cyber insurance may mitigate damages, this could cause significant harm to our reputation, lead to a loss of sales or profits or cause us to incur significant costs to reimburse third parties for damages.

Our esports business is new and evolving, and it is uncertain how or if it will evolve.

Many of our venues have esports facilities in which customers can play popular video games on various platforms, alone or with others, for a fee. We may also use these esports venues to host parties and events. Many of our new customers are attracted to our venues by our esports offerings, but the esports aspect of our business is relatively new and unproven. The extent to which the esports business will contribute to our ability to attract and retain customers and generate revenue and appropriate margins is uncertain and subject to various risks, including the following:

·The success of our esports offerings will depend upon the willingness of video game players, who primarily play at home or at the homes of friends, to spend money in order to play games in collective or social environments. The market for esports venues is not established, and it is uncertain if, or how fast, the market will grow. 

·Even if a market for esports offerings develops, we have limited experience in setting up and establishing esports facilities or sponsoring esports events. If we do not execute on our business plan or our existing and planned offerings do not appeal to video game players, our esports business may not contribute to our revenue and profitability.  

·The tastes and preferences of video game players continually evolve over time. We may invest in platforms, such as PCs, Playstation or Xbox consoles, as well as games or software that may become obsolete. The costs of keeping our esports offerings current with the tastes of users may be significant. 

·Existing and potential competitors, which are much larger than we are and have stronger brand name recognition, better technology and more operational and marketing resources, may create offerings with which we cannot effectively compete, including those involving exclusive relationships with key game developers or with respect to certain popular games. In addition, our venues are limited in size, and it is possible that video game players may be attracted to larger venues that are dedicated solely or primarily to esports.  

21

If the markets for esports venues similar to those we offer does not expand, or we are not able to target our offerings in a manner that is attractive to gamers or competitive in the market, the esports aspect of our business may not increase revenue or may not contribute to profits.

Our business is highly dependent on the success and availability of video game platforms manufactured by third parties, as well as our ability to develop commercially successful products for these platforms.

We derive a portion of our revenues from our customers playing video games on platforms manufactured by third parties, such as Sony's PS4, Microsoft's Xbox One and Nintendo's Switch. The success of our esports business is driven in large part by our ability to accurately predict which platforms will be successful in the marketplace and our ability to develop commercially successful products for these platforms. We also rely on the availability of an adequate supply of these video game consoles and the continued support for these consoles by their manufacturers. We also rely on the availability of third-party developers to continue to develop and improve games for such consoles. If third-party platform providers or game developers do not continue to support, improve and expand their underlying businesses, our revenues, profitability and ability to expand our business may be harmed.

We believe that success in the esports business will require that we enter into joint ventures and alliances with third parties, which we may be unable to do successfully or at all.

We believe that the most successful esports offerings will involve alliances or joint ventures with multiple parties, such as those between an esports team and a venue, or between a game developer and a venue. We are in discussions with various parties about a range of possible joint ventures. We expect that our competitors are also in discussions with the same or similar parties about various joint ventures. We will have to form alliances and joint ventures with the appropriate partners and successfully execute on those ventures to succeed in the esports business.

We will need to expand or refine our marketing efforts to attract customers to our esports offering.

We may need to alter the substance of our marketing campaigns and the channels through which we market to attract esports enthusiasts. We market to gamers through many advertising and promotional platforms including desktop and mobile based advertising, digital marketing via websites and apps, tournament and event promotion, direct communication with the community, social media marketing, and in-store point of sale marketing. Attracting gamers will involve partnership creation with esports communities, esports leagues and teams, and active promotion of esports gameplay options. If we are unable to continually improve our ability to connect with esports enthusiasts, we may be unable to expand our esports business.

Marketing-related risks that may materially impact our business and consequently harm operating results include but are not limited to the following:

·development of amateur community partnerships to drive community member participation within our venues may not materialize or may have inconsistent participation levels; 

·partnerships with esports leagues, teams and players may not drive increased participation within our venues or may create inconsistent participation levels; 

·our marketing to gamers through our various platforms may not generate adequate traffic or conversion rates to our venues; 

·gamers that we attract to the venues may not generate sufficient revenue via gameplay and alternative purchases; and 

·changes in the preferences of gamers, changes in privacy and data protection laws, platform and technology changes, game title popularity, gameplay style, and competition may adversely impact our ability to effectively and efficiently reach gamers and promote our venue as a top destination that meets the gamers needs. 

22

We may be unable to compete favorably in the highly competitive out-of-home and home-based entertainment and restaurant markets, which could have a material adverse effect on our business, results of operations or financial condition.

The out-of-home entertainment market is highly competitive. We compete for customers’ discretionary entertainment dollars with theme parks as well as with providers of out-of-home entertainment, including localized attraction facilities such as movie theatres, sporting events, bowling alleys, nightclubs and restaurants. Many of the entities operating these businesses are larger and have significantly greater financial resources, a greater number of venues, have been in business longer, have broader name recognition and are better established in the markets where our venues are located or are planned to be located. As a result, they may be able to invest greater resources than we can in attracting customers and succeed in attracting customers who would otherwise come to our venues. We also face competition from local establishments that offer entertainment experiences similar to ours and restaurants that are highly competitive with respect to price, quality of service, location, ambience and type and quality of food. We also face competition from increasingly sophisticated homebased forms of entertainment, such as internet and video gaming and home movie delivery. Our failure to compete favorably in the competitive out-of-home and home-based entertainment and restaurant markets could have a material adverse effect on our business, results of operations and financial condition.

Decreases in the availability or quality of new game and amusement offerings may negatively impact our business.

We acquire gaming software from major gaming software developers, of which there are a limited number in the market. Our ability to continue to acquire new games may be negatively impacted by any consolidation or other reduction in the number of gaming software developers, or in reductions in the product offerings.

Furthermore, any increase in cost or decrease in availability of new amusement offerings that appeal to customers could adversely impact the cost to acquire and operate new amusements which could have a material adverse effect on our operating results. We may be unable to anticipate and react to the changing costs of amusement offerings by adjusting purchasing practices or game prices. Failure to do so could have a material adverse effect on our operating results.

We depend on the services of key executives, the loss of whom could materially harm our business and our strategic direction if we were unable to replace them with executives of equal experience and capabilities.

Our future success significantly depends on the continued service and performance of our key management personnel. We cannot prevent members of senior management from terminating their employment with us. Losing the services of members of senior management could materially harm our business until a suitable replacement is found, and such replacement may not have equal experience and capabilities. In addition, we have not purchased life insurance on any members of our senior management.

Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.

Technology changes rapidly in the interactive entertainment industry, including the esports industry. We must continually anticipate and adapt our products, distribution channels and business models to emerging technologies and delivery platforms to stay competitive. Forecasting our revenues and profitability for these new products, distribution channels and business models is inherently uncertain and volatile, and if we invest in the development of interactive entertainment products or distribution channels incorporating a new technology or for a new platform that does not achieve significant commercial success, whether because of competition or otherwise, we may not recover the often substantial "upfront" costs of developing and marketing those products and distribution channels, or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, thereby creating products that are technologically superior to ours, more appealing to consumers, or both.

If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms, or otherwise elect not to pursue new business models that achieve significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products incorporating that technology or for that platform or against companies using that business model.

23

Competition within, and to, the interactive entertainment industry is intense, and competitors may succeed in reducing our sales.

Within the interactive entertainment industry, we compete with other providers of interactive entertainment software, both within and outside the United States. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have. Our larger competitors may be able to leverage their greater financial, technical, personnel and other resources to provide larger budgets for development, licensing and marketing and make higher offers to licensors and developers for commercially desirable properties, as well as adopt more aggressive pricing policies to develop or license more commercially successful video game products than we do. In addition, competitors with large product lines and popular games typically have greater leverage with retailers, distributors and other customers, who may be willing to promote products with less consumer appeal in return for access to those competitors' more popular games.

Additionally, we compete with other forms of entertainment and leisure activities. As our business continues to expand in complexity and scope, we will experience increased exposure to additional competitors, including those with access to large existing user bases and control over distribution channels. Further, it is difficult to predict and prepare for rapid changes in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities. Failure to adequately identify and adapt to these competitive pressures could negatively impact our business.

Risks Related to this Offering

Our stock price may fluctuate significantly, and you may be unable to resell your shares at or above the offering price.

The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, including:

·market conditions in the broader stock market; 

·actual or anticipated fluctuations in our quarterly financial condition and results of operations, or those of other companies in our industry; 

·actual or anticipated strategic, technological, or regulatory threats, whether or not warranted by actual events; 

·whether any securities analysts cover our stock; 

·issuance of new or changed securities analysts’ reports or recommendations, if any; 

·investor perceptions of our Company, the restaurant industry or the and entertainment and esports industries; 

·the volume of trading in our stock; 

·changes in accounting standards, policies, guidance, interpretations, or principles; 

·sales, or anticipated sales, of large blocks of our stock; 

·additions or departures of key management personnel, creative, or other talent; 

·regulatory or political developments, including changes in laws or regulations that are applicable to our business; 

·litigation and governmental investigations;  

·sales or distributions of our common stock by eSports Holdings, LLC, the entity through which our controlling shareholder holds its investment, or other insiders; 

·a food-borne illness outbreak; 

·natural disasters and other calamities; and 

·macroeconomic conditions. 

24

Furthermore, the stock market has experienced extreme volatility that in some cases has been unrelated or disproportionate to the operating performance of particular companies. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and it may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the Company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.

Prior to this offering, there has not been a public market for our common stock. An active market for our common stock may not develop following the completion of this offering, or if it does develop, may not be maintained. If an active trading market does not develop, or if the volume of trading in that market is limited, you may have difficulty selling any of our common stock that you purchase. The initial public offering price for the shares of our common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may be unable to sell shares of our common stock at prices equal to or greater than the price you paid in this offering.

We do not anticipate paying dividends on our common stock in the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We do not anticipate paying any dividends in the foreseeable future on our common stock. We intend to retain all future earnings for the operation and expansion of our business and the repayment of outstanding debt. Our credit documents contain, and any future indebtedness likely will contain, restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to pay dividends and make other restricted payments. As a result, capital appreciation, if any, of our common stock may be your major source of gain for the foreseeable future. While we may change this policy at some point in the future, we cannot assure you that we will make such a change.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business (or the absence of such research or reports). If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price could decline and such decline could be material.

You may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise.

We had 20,000,000 shares of common stock authorized of which 7,380,000 were unissued on a fully-diluted basis immediately after completion of the forward stock split completed in conjunction with this offering. Our amended and restated certificate of incorporation authorizes us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our Board of Directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved 2,720,000 shares for issuance upon the vesting of restricted stock awards and the exercise of outstanding warrants or stock options under the 2019 GameWorks Equity Incentive Plan, (the “Equity Plan”). Any common stock that we issue, including stock issued under our Equity Plan or other equity incentive plans that we may adopt in the future, as well as under outstanding options would dilute the percentage ownership held by the investors who purchase common stock in this offering.

25

Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price of our common stock and may dilute your voting power and your ownership interest in us.

If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress our market price. As of [●], 2020, we had 10,000,000 shares of common stock outstanding. We, our directors, executive officers and significant stockholders are subject to the lock-up agreements described in “Underwriting” and also to the Rule 144 holding period requirements described in “Shares Eligible for Future Sale.” Following the expiration of the lock-up period, our principal stockholders will have the right, subject to certain conditions, to require us to register the sale of their shares of our common stock under the Securities Act. After this offering (assuming no exercise of the underwriters’ option to purchase additional shares from us) and the expiration of the lock-up period, additional shares will be eligible for sale in the public market. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse or when we are required to register the sale of our stockholders’ remaining shares of our common stock. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

Our costs could increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

As a public company, and particularly after we cease to be an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), we could incur significant legal, accounting and other expenses not incurred in previous years. In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rules promulgated by the Securities and Exchange Commission (“SEC”) and NASDAQ, require us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations may increase our legal and financial compliance costs.

Sarbanes-Oxley, as well as rules and regulations subsequently implemented by the SEC and NASDAQ, have imposed increased disclosure and enhanced corporate governance practices for public companies. Our efforts to comply with evolving laws, regulations and standards are likely to result in increased expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. We may not be successful in continuing to implement these requirements and implementing them could adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our financial results on a timely and accurate basis could be impaired.

We are an “emerging growth company” and elect to comply with certain reduced reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

As an “emerging growth company,” we plan to take advantage of certain exemptions from various reporting requirements that are applicable to other public 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 Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we chose to rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We choose to avail ourselves of this extended transition period and defer adoption of certain changes in accounting standards.

As described in Section 101 of the JOBS Act, the “emerging growth company” classification can be retained for up to five years following our IPO or until the earlier occurrence of the following:

1.the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we deemed to be a large accelerated filer, which means the market value of our common stock is that is held by non-affiliates exceeds $700 million as of the prior June 30^th; or  

2.the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. 

If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active market for our common stock and our stock price may be more volatile.

26

If you purchase shares in this offering, you will suffer immediate and substantial dilution.

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the book value of your stock, because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire. The pro forma as-adjusted net tangible book value per share, calculated as of [●], 2020 and after giving effect to the offering at an estimated initial public offering price of $[the midpoint of the price range set forth on the cover page of this prospectus], is $[●] , resulting in dilution of your shares of $[●] per share.

You will experience additional dilution upon the exercise of options and warrants to purchase our common stock, including those options currently outstanding and possibly those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial additional dilution. See “Dilution.”

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and stock price.

We are required to comply with certain SEC rules that implement Sections 302 and 404 of Sarbanes-Oxley, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. Though we are required to disclose changes made in our internal control procedures on a quarterly basis, we take advantage of certain exceptions from reporting requirements that are available to “emerging growth companies” under the JOBS Act, each independent registered public accounting firm that performs an audit for us has not been required to attest to and report on our annual assessment of our internal controls over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company” as defined in the JOBS Act. While we expect to be ready to comply with Section 404 of Sarbanes-Oxley by the applicable deadline, we cannot assure you that this will be the case. Furthermore, we may identify material weaknesses that we may be unable to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of Sarbanes-Oxley. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may be unable to conclude that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. If we are unable to implement the requirements of Section 404 of Sarbanes-Oxley in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could have a material adverse effect on our business, prospects, results of operations, and financial condition.

Our management has broad discretion as to the use of the net proceeds from this offering.

Our management will have broad discretion in the application of the net proceeds. Accordingly, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds from this offering in ways that holders of our common stock may not desire or that may not yield a significant return or any return at all. Our management not applying these funds effectively could harm our business. Pending their use, we may also invest the net proceeds from this offering in a manner that does not produce income or that loses value. Please see “Use of Proceeds” below for more information.

We may not be able to satisfy listing requirements of Nasdaq or obtain or maintain a listing of our common stock on Nasdaq.

If our common stock is listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we violate Nasdaq listing requirements, our common stock may be delisted. If we fail to meet any of Nasdaq’s listing standards, our common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.

27

If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.

Risks Related to Our Capital Structure

Our indebtedness could adversely affect our ability to raise additional capital to fund operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our financial obligations and our creditors have broad remedies in the event of default.

As of June 28, 2020 and December 29, 2019, we had total liabilities of $22,878,008 and $18,436,751, respectively, of which $10,069,970 and $9,114,270, respectively, was held by ExWorks Capital Fund I, L.P. (“ExWorks”), an affiliate of our sole stockholder, and all of which is due upon termination of the Loan and Security Agreement on October 21, 2020 or upon default by the Company. Any interest accrued through February 28, 2019 was added to principal balance. Since April 2019, we have been required to make monthly principal payments of $41,319 and $12,500, respectively, plus interest on these senior and junior notes. The interest rates applicable to these two notes are 7.5% and 12%, respectively. In the current state of emerging from government-imposed COVID-19 mitigation restrictions, we currently do not generate enough free cash flow to make the required payments under these outstanding notes. Currently, we are in default under the ExWorks notes.

These ExWorks notes are secured by a security interest in substantially all of our assets, and our security agreements includes broad remedies in favor of ExWorks, including the right to foreclose on pledged assets in connection with an event of default. As we are currently in default under the ExWorks notes, ExWorks may foreclose at any time. Moreover, even where ExWorks waives the existing events of default under the notes, ExWorks would still have the right under the notes to call all of the outstanding debt thereunder due and payable at any time. Where ExWorks calls the notes due and payable, we would be unable to pay such debt, a new event of default for failure to make such repayment would occur and ExWorks could exercise the remedies available to it, including foreclosing on all of our assets. Following such foreclosure, our common stock would most likely have no value.

If we cannot generate sufficient cash flow from operations to service our debt, we may need to further refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to do any of this on a timely basis or on terms satisfactory to us, or at all.

Our substantial indebtedness could have important consequences, including:

·our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions, new venue growth and general corporate or other purposes may be limited; 

·a portion of our cash flows from operations will be dedicated to the payment of principal and interest on the indebtedness and will not be available for other purposes, including operations, capital expenditures and future business opportunities; and 

·we may be vulnerable in a downturn in general economic conditions or in business or may be unable to carry on capital spending that is important to our growth.  

28

Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

The terms of our security agreement and other debt documents restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.

Our security agreement and other debt documents contain, and any future indebtedness will likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

·incur additional debt; 

·pay dividends and make other restricted payments; 

·create liens; or 

·sell our collateral, other than inventory in the ordinary course of business. 

We have issued demand notes, and our creditor could elect to declare all amounts outstanding to be due and payable at any time. If the creditor were to issue such a demand, or otherwise accelerate our indebtedness, our assets would not be sufficient to repay this indebtedness in full, and the creditor would be permitted to exercise broad secured creditor remedies.

After this offering, our principal stockholder will continue to have substantial control over us.

After the consummation of this offering, eSports Holdings will beneficially own approximately [●]% of our outstanding common stock, and approximately [●]% of our outstanding common stock if the underwriters’ over-allotment option is exercised in full. As a consequence, eSports Holdings and its affiliates will be able to substantially influence matters requiring stockholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction. The interests of eSports Holdings may not always align with our interests or the interests of our other stockholders. For instance, this concentration of ownership may have the effect of delaying or preventing a change of control otherwise favored by our other stockholders and could depress our stock price.

We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, qualify for, and will rely on, exemptions from certain corporate governance requirements that provide protection to the stockholders of companies that are subject to such corporate governance requirements.

Upon completion of this offering, eSports Holdings, will continue to beneficially own more than 50% of the voting power for the election of members of our board of directors common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the Nasdaq rules. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain of Nasdaq’s corporate governance requirements.

As a controlled company, we will rely on certain exemptions from the Nasdaq standards that may enable us not to comply with certain Nasdaq corporate governance requirements. Accordingly, we have opted not to implement a stand-alone nominating and corporate governance committee and our compensation committee will not be fully independent. As a consequence of our reliance on certain exemptions from the Nasdaq standards provided to “controlled companies,” you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Global Market. See “Our Management—Controlled company exception.”

29

Conflicts of interest may arise because some of our directors are principals of our principal stockholder.

eSports Holdings or its affiliates could invest in entities that directly or indirectly compete with us. As a result of these relationships, when conflicts arise between the interests of eSports Holdings or their affiliates and the interests of our other stockholders, these directors may not be disinterested. The principals of eSports Holdings on our Board of Directors, by the terms of our amended and restated certificate of incorporation, are not required to offer us any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors.

Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, including claims under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

We estimate that we will receive net proceeds of approximately [$15 million] (or approximately [●] if the underwriters’ over-allotment option is exercised in full) from the sale of the common stock offered by us in this offering, based on an assumed public offering price of [●] per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase or decrease in the assumed public offering price of [●] per share (the midpoint of the range set forth on the cover page of this prospectus), would increase or decrease the net proceeds to us from this offering by [●], assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 100,000 shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase or decrease net proceeds to us from this offering by [●], assuming no change in the assumed public offering price of [●] per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility as well as our visibility in the marketplace and create a public market for our common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, sales and marketing activities and general and administrative matters, as more fully described in the table below. In addition, we may utilize the net proceeds to pay outstanding principal of [●] plus accrued but unpaid interest to the holder of our outstanding indebtedness, which indebtedness bears interest at the rate of [●] per annum and is due on [●]. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments.

We will retain broad discretion in the allocation of the net proceeds from this offering and could utilize the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock.

30

The table below sets forth the manner in which we expect to use the net proceeds we receive from this offering. All amounts included in the table below are estimates.

The foregoing information is an estimate based on our current business plan. We may find it necessary or advisable to re-allocate portions of the net proceeds reserved for one category to another, and we will have broad discretion in doing so. Pending these uses, we intend to invest the net proceeds of this offering in a money market or other interest-bearing account.

We have never declared or paid any dividends on our common stock and do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on our financial condition, results of operations and capital requirements as well as other factors deemed relevant by our board of directors.

CAPITALIZATION

The following table sets forth our cash and capitalization, as of June 28, 2020 on:

·an actual basis; and 

·a pro forma as-adjusted basis, giving effect to the issuance and sale of [●] shares of our common stock in this offering, at the assumed public offering price of [●] per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. 

·the pro forma presentation also reflects the intended recapitalization of certain outstanding debt as outlined below: 

·the issuance of [●] shares of our common stock to ExWorks Capital Fund I, L.P. at the assumed public offering price of [●] per share, the midpoint of the range set forth on the cover of this prospectus, for the conversion of two lines of credit of $3,788,443 and $633,139¹, respectively, and a junior note of $995,214, totaling $5,413,796 (see Note 6—Debt and Interest Expense of the condensed consolidated financial statements); 

·the issuance of [●] shares of our common stock to a group of accredited investors, including all four named executive officers, a board member, and other Company insiders, at the assumed public offering price of [●] per share, the midpoint of the range set forth on the cover of this prospectus, for the conversion of convertible notes totaling $815,000 (see Note 6—Debt and Interest Expense of the condensed consolidated financial statements); and 

·the issuance of [●] shares of our common stock to an unrelated accredited investor at a 25% discount to the assumed public offering price of [●] per share, the midpoint of the range set forth on the cover of this prospectus, for the conversion of a convertible note of $400,000 (see Note 6—Debt and Interest Expense of the condensed consolidated financial statements). 

_____________________________

¹ $500,000 of the $600,000 line of credit is held pro rata by the CEO and CFO of the Company.

31

The following table should be read in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included in this prospectus.

(1)A $1.00 increase (decrease) in the assumed initial public offering price of $[●] per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders’ (deficit) equity and total capitalization on a pro forma as adjusted basis by approximately $[●], assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of [●] shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders’ (deficit) equity and total capitalization on a pro forma as adjusted basis by approximately $[●], assuming the assumed initial public offering price of $[●] per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. 

The actual, pro forma and pro forma as adjusted information set forth in the table excludes:

·stock options to purchase 1,890,000 shares of our common stock at an exercise price of $2.35 per share, granted to certain of our officers and certain members of our board of directors under our 2019 Equity Incentive Plan;  

·520,000 shares of our common stock issuable upon the vesting of outstanding restricted stock units, granted to certain of our officers and certain members of our board of directors under our 2019 Equity Incentive Plan; 

·100,000 shares of our common stock available for future issuance under our 2019 Equity Incentive Plan; 

·warrants to purchase 210,000, shares of our common stock issued to a key contractor in connection with this offering and advising management on business development opportunities; and  

·warrants to purchase up to [●] shares of our common stock issuable to the underwriters in connection with this offering.  

_____________________________

² Includes accrued interest.

32

Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws in connection with this offering.

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

·Our historical net tangible book value (deficit) as of June 28, 2020 was $(13,494,272), or $[●] per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and convertible preferred stock, which is not included within our stockholders’ (deficit) equity. We do not currently have any shares of, or securities convertible into, preferred stock outstanding. Historical net tangible book value per share represents historical net tangible book value (deficit) divided by the number of shares of our common stock issued as of June 28, 2020. This data is solely based on the historical amounts as shown in our balance sheet as of June 28, 2020. 

Our pro forma net tangible book value (deficit) as of June 28, 2020 was $[●], or $[●] per share of our common stock. Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities.

·After giving further effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $[●] per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 28, 2020 would have been approximately $[●], or approximately $[●] per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $[●] to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value per share of approximately $[●] to new investors purchasing common stock in this offering. Dilution per share to new investors purchasing common stock in this offering is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis: 

A $1.00 increase (decrease) in the assumed initial public offering price of $[●] per share would increase (decrease) our pro forma as-adjusted net tangible book value by $[●], the pro forma as-adjusted net tangible book value per share after this offering by $[●] and the dilution per share to new investors by $[●], assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of [●] shares in the number of shares offered by us would increase (decrease) our pro forma as-adjusted net tangible book value by $[●], the pro forma as-adjusted net tangible book value per share after this offering by $[●] and the dilution per share to new investors by $[●], assuming the assumed public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

If the underwriters exercise their option to purchase additional shares of common stock in this offering in full at the assumed initial public offering price of $[●] per share, the midpoint of the price range set forth on the cover of this prospectus and assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma as adjusted net tangible book value per share after this offering would be $[●] per share, and the dilution in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering would be $[●] per share.

The following table summarizes, on a pro forma as adjusted basis (including to reflect the forward stock split of 10,000 to one effected immediately prior to this offer) as of June 28, 2020, the number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by new investors in this offering at an assumed initial public offering price of $[●] per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

33

The table above assumes no exercise of the underwriters’ over-allotment option in this offering. If the underwriters’ over-allotment option is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to [●]% of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors participating in the offering would be increased to [●]% of the total number of shares outstanding after this offering.

A $1.00 increase (decrease) in the assumed initial public offering price of $[●] per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $[●] and, in the case of an increase, would increase the percentage of total consideration paid by new investors by [●] percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by [●] percentage points.

The tables above do not include:

·stock options to purchase 1,890,000 shares of our common stock at an exercise price of $2.35 per share, granted to certain of our officers and certain members of our board of directors under our 2019 Equity Incentive Plan;  

·520,000 shares of our common stock issuable upon the vesting of outstanding restricted stock units, granted to certain of our officers and certain members of our board of directors under our 2019 Equity Incentive Plan; 

·100,000 shares of our common stock available for future issuance under our 2019 Equity Incentive Plan; 

·warrants to purchase 210,000 shares of our common stock issued to a key contractor advising management on business development opportunities and capital markets; and  

·warrants to purchase up to [●] shares of our common stock issuable to the underwriters in connection with this offering.  

Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws in connection with this offering.

To the extent that outstanding options and warrants are exercised or shares are issued under our 2019 Equity Incentive Plan, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.

34

FINANCIAL INFORMATION

Presented on the following pages are consolidated balance sheets as of December 29, 2019 (Successor) and December 30, 2018 (Successor), and the consolidated statements of operations and cash flows are presented from January 1, 2018 to June 10, 2018 (Predecessor), June 11, 2018 to December 30, 2018 (Successor), and year ended December 29, 2019 (Successor).

Consolidated Balance Sheets

35

Consolidated Statements of Operations

36

Consolidated Statements of Cash Flows

37

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The unaudited pro forma consolidated statement of operations has been prepared in accordance with Article 11 of Regulation S-X. The following unaudited pro forma consolidated financial information reflects adjustments to the Company’s historical financial results as reported under U.S. Generally Accepted Accounting Principles (“GAAP”) in connection with the June 11, 2018 change in control event in which ExWorks acquired control of GameWorks as more fully described in Note 3 of the accompanying consolidated financial statements for the year ended December 29, 2019. The unaudited pro forma consolidated statement of operations for the fiscal year ended December 30, 2018 has been prepared with the assumption that the change in control occurred as of January 1, 2018.

The “as reported” columns in the unaudited pro forma consolidated statements of operations reflect the Company’s historical financial statements for the periods presented and do not reflect any adjustments related to the change in control event. Assumptions and estimates underlying the pro forma adjustments column are described in the accompanying notes.

The unaudited pro forma consolidated financial information does not purport to be indicative of the results of operations that would actually have resulted if the change in control actually occurred on the date presented or to project our results of operations for any future period. This financial information may not be predictive of the future results of operations of the Company, as the Company’s future results of operation may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The unaudited pro forma financial information has been prepared by the Company based upon assumptions deemed appropriate by the Company’s management and are based upon information and assumptions available at the time of filing the Company’s Form S-1. The following unaudited pro forma financial information should be read in conjunction with: (i) the accompanying notes to the unaudited pro forma consolidated financial information; and (ii) the audited consolidated financial statements of the Company, which are included elsewhere in this prospectus.

38

Unaudited Pro Forma Consolidated Statement of Operations

for the fiscal year ended December 30, 2018

*A business combination occurred during the year ended December 30, 2018, bifurcating the year into Predecessor and Successor periods. For year-over-year comparability with the year ended December 29, 2019, the Predecessor and Successor periods have been combined into a pro forma 52-week period, including applicable adjustments, and presented as Pro Forma to enhance comparability between annual periods in the Management Discussion and Analysis of Financial Condition and Results of Operations section.  

39

Notes to the Unaudited Pro Forma Consolidated Statement of Operations

The historical consolidated statement of operations has been adjusted to in the unaudited pro forma consolidated statement of operations to give effect to pro forma adjustments directly attributable to the change in control that occurred on June 11, 2018. The following pro forma adjustments have been reflected in the unaudited pro forma consolidated statement of operations:

A.Reflects the adjustment to general and administrative expenses for the fair value adjustment to lease intangibles acquired, replacing $51,769 per month of lease intangible amortization in the historical Predecessor period with lease intangible amortization of $52,277 per month for the fair value adjustment of lease intangibles acquired resulting in a net pro forma adjustment of $2,539. 

B.Reflects the adjustment to depreciation and amortization expense for the fair value adjustment to property and equipment acquired, removing depreciation and amortization expense of $2,417,642 in the historical Predecessor period and adding depreciation and amortization expense of $2,441,837 for the fair value adjustment of property and equipment acquired resulting in a net pro forma adjustment of $24,195. 

C.Reflects the adjustment to interest expense for the conversion of ExWorks notes payable to equity resulting in a pro forma reduction of interest expense of $1,150,999. 

40

SELECTED FINANCIAL DATA

Set forth below are our summary consolidated historical and as adjusted financial and other data for the periods ending on and as of the dates indicated. Generally accepted accounting principles in the United States (“GAAP”) requires operating results for GameWorks, Inc. prior to its acquisition by ExWorks Capital Fund I, L.P., completed on June 10, 2018, to be presented as the results of the Predecessor in the historical consolidated financial statements. Operating results of GameWorks, Inc. subsequent to the acquisition are presented as the results of the Successor and include all periods including and subsequent to June 10, 2018.

The consolidated balance sheet data as of December 29, 2019 (Successor) and December 30, 2018 (Successor), and the consolidated statement of operations and cash flows data for the Predecessor period from January 1, 2018 to June 10, 2018, the Successor period from June 11, 2018 to December 30, 2018, and the fiscal year ended December 29, 2019 (Successor) were derived from our audited consolidated financial statements included elsewhere in this prospectus. The pro forma consolidated statement of operations for the fiscal year ended December 30, 2018 was derived from our unaudited pro forma consolidated statement of operations included elsewhere in this prospectus. The consolidated statement of operations and cash flows data for each of the twenty-six-week periods ended June 28, 2020 and June 30, 2019, and the balance sheet data as of June 28, 2020, was derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary to present fairly the data for such periods and as of such dates.

The Company operates on a 52- or 53-week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks. The fiscal years ended December 29, 2019 and December 30, 2018 each consisted of 52 weeks.

Our historical results are not necessarily indicative of future results of operations. The summary of historical financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and the notes related thereto, included elsewhere in this prospectus.

41

1Represents increase or (decrease) to accrued liabilities established for future game play and other fulfillment obligations.  

2Represents stock compensation expense under our 2019 Equity Incentive Plan. 

42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and related notes for the fiscal years ended December 29, 2019 and December 30, 2018 and interim periods June 28, 2020 and June 30, 2019, included in this prospectus.

We own and operate seven GameWorks entertainment centers in the United States and one Tabletop Tap House restaurant concept in San Francisco, California. Our chief operating decision maker is our Chief Executive Officer. Based on how our Chief Executive Officer reviews financial performance and allocates resources on a recurring basis, the Company has eight operating segments aggregated into one reportable segment.

Overview

We are among the leading entertainment concepts for esports, attracting over a million guests annually. Our distinctive esports lounges (PC and console gaming centers within GameWorks locations) consist of organized, multi-player video game stations for participating in competitions between players across varying skill levels and casual play amongst friends or individuals. Our esports lounges have the latest and most popular video game offerings, boasting (on average) over 100 game options, 40 Personal Computers and 20 (Xbox One and/or PlayStation 4) gaming consoles. Our venues feature spacious lounge set-ups, which include comfortable couches or gaming chairs, offering gamers a welcoming, relaxing and entertaining environment. Every esports lounge provides full-service restaurant and bar service to enjoy while playing or watching.

Esports affords guests a distinctive experience and opportunity to engage and play games in an intimate atmosphere where they can:

·Pay-for-play by the hour;  

·Socialize with other players and fans; 

·Learn how to play better, sometimes from world-ranked players; 

·Choose from a vast selection of games;  

·Participate in and/or be a member of the audience for weekly tournaments/competitions;  

·Receive waiter/waitress restaurant and bar service while playing or watching; and 

·Hang out in an area with like-minded guests and choose their own level of participation.  

We offer guests several other distinctive specialty entertainment choices, which vary by location, such as laser tag, bowling, billiards and special attractions. Our sophisticated laser tag arenas differ from those of competitors based on size, split levels of play and special features. Other locations stand out because of state-of- the-art, smoke-free, bowling alleys. All of our locations are ideal places to watch sporting events, as visitors are surrounded by multiple big screens, high-definition televisions and 40-foot video walls.

Key Measures of Our Performance

In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures we evaluate include the following:

Comparable Store Sales

Comparable store sales are a year­over­year comparison of sales at venues open at the end of the period which have been open for at least 18 months as of the beginning of each fiscal year. This key performance indicator, which is widely used within the industry, highlights the performance of existing venues and the impact of new venues. This indicator is also a barometer of the market acceptance of our offering as well as local economic and consumer trends. Our comparable venues consisted of eight venues as of the end of the fiscal years ended December 29, 2019 and December 30, 2018 and the twenty-six weeks ended June 28, 2020 and June 30, 2019, respectively.

New Venue Openings

Our ability to expand our business and reach new customers is influenced by the opening of additional venues in both new and existing markets. The success of our new venues is indicative of our brand appeal and the efficacy of our site selection and operating models.

43

Before we open new locations, we incur pre­opening costs, which are defined below. In the entertainment and retail sectors, new venues sometimes experience a start­up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. While sales volumes can be higher during the initial opening period, new venues can and also often experience normal inefficiencies in the form of higher cost of sales, labor and other direct operating expenses, resulting in venue­level profit margins that could be lower during the start­up period of operation than those normally experienced in established venues. As a result of the substantial revenues associated with a new venue and the seasonality of our business, the number and timing of new venue openings could result in significant fluctuations in quarterly results.

We did not open any new venues during the twenty-six weeks ended June 28, 2020, or fiscal years ended December 29, 2019 and December 30, 2018. In response to the COVID-19 pandemic-induced business disruption, plans to open new venues during the fiscal year ending December 27, 2020 have been temporarily postponed until the following fiscal year.

EBITDA and EBITDA Margin

We define “EBITDA” as net income (loss), plus net interest expense, provision (benefit) for income taxes, depreciation and amortization expense. “EBITDA Margin” is defined as EBITDA divided by total net revenues. We believe that EBITDA is another useful measure of evaluating our operating performance because it isolates operating performance by stripping away the various effects of capital structure, tax policy and planning, capital intensity, and the non-cash impact of acquired intangibles. EBITDA Margin allows us to evaluate the relative operating performance of our platform of stores internally and externally without regard to the number of stores in the platform. While EBITDA and EBITDA Margin are measures of productivity, efficiency and performance, the exclusion of interest, taxes, depreciation, and amortization expense also limit EBITDA and EBITDA Margin in evaluating overall consolidated financial performance.

Adjusted EBITDA and Adjusted EBITDA Margin

We define “Adjusted EBITDA” as net income (loss), plus net interest expense, provision (benefit) for income taxes, depreciation, amortization expense, pre­opening and store closure costs, share-based compensation, changes in deferred revenue, and non-recurring general and administrative costs. “Adjusted EBITDA Margin” is defined as Adjusted EBITDA divided by total net revenues. By further adjusting for non-recurring expenses, non-cash charges for share-based compensation, and deferred revenue obligations, we believe Adjusted EBITDA provides investors with useful information regarding our financial performance from continuing operations and our capacity to incur and service debt and fund capital expenditures.

Presentation of Results of Operations

The Company operates on a 52 or 53-week fiscal year that ends on the Sunday closest to December 31. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks. The fiscal years ended December 29, 2019 and December 30, 2018 each consisted of 52 weeks.

As a result of a business combination that occurred in June of 2018, results for fiscal 2018 have been bifurcated into a predecessor period (pre-acquisition) and a successor period (post-acquisition). Aside from the adjustment of assets and liabilities to fair value as required by GAAP, the platform and number of operating venues remained the same before and after the acquisition date. To enhance comparability between fiscal 2019 and 2018, purposes of this management discussion and analysis section, Predecessor and Successor operating results for fiscal 2018 are presented in the aggregate as a pro forma 52-week period for greater year-over-year comparability.

Key Line Item Descriptions

Revenues

GameWorks generates revenues primarily from entertainment and amusement and food and beverage (both alcoholic and non-alcoholic) sales. For the twenty-six weeks ended June 28, 2020, we derived 58.0% of our total revenue from entertainment and amusement and 42.0% from food and beverage sales. For the fiscal year ended December 29, 2019, we derived 52.5% of our total revenue from entertainment and amusement and 47.5% from food and beverage sales. For the fiscal year ended December 30, 2018, we derived 53.1% of our total revenue from entertainment and amusement and 46.9% from food sales and beverage sales.

Revenue growth is primarily influenced by growth in comparable store sales. Comparable store sales growth reflects the change in year­over­year revenue for the comparable venue base and is an important measure of venue performance. Comparable venue sales growth can be generated by increases in average dollars spent per customer and improvements in customer traffic.

44

Cost of Revenues

Cost of revenues includes the cost of food, beverages and redemption items. Cost of revenues is driven by product mix and pricing movements from third-party suppliers. We continually strive to gain efficiencies in both the procurement and use of products while maintaining high product quality standards.

Payroll and Benefits

Payroll and benefits consist of salaries, wages, and performance incentives, employer taxes, and benefits for venue and headquarter personnel. We continually review the opportunity for efficiencies, principally through scheduling refinements.

Selling, General and Administrative Expenses

Selling, general and administrative expense is comprised of venue-related operating expenses, including advertising, marketing and promotional costs, occupancy (rent, common area maintenance and real estate taxes), utilities, supplies and outside service expenses, repairs and maintenance. Also included are the costs associated with the various departments of our corporate headquarters that support the development and operation of our venues, including facilities, insurance, travel expenses, legal and professional fees and other related headquarter costs.

Depreciation and amortization

Depreciation and amortization includes the depreciation of fixed assets and amortization of capitalized leasehold improvements.

Pre­opening Costs

Pre­opening costs include costs associated with the opening and organizing of new venues, including occupancy costs incurred from when we take site possession to shop opening, staff training and recruiting, and travel costs for employees engaged in such pre­opening activities. Pre­opening costs are expensed as incurred.

Interest Expense

Interest expense includes the cost of our debt obligations including the amortization of loan fees and original issue discounts, net of any interest income earned or interest expense capitalized.

Provision (Benefit) for Income Taxes

Provision (benefit) for income taxes represents taxes for federal, state and foreign current and deferred income.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

45

Twenty-six Weeks Ended June 28, 2020 Compared to Twenty-six Weeks Ended June 30, 2019

Results of Operations

The following table presents select data for the periods noted. Unless otherwise noted, percentages represent a percentage of total revenues. All information is derived from our unaudited consolidated statements of operation included elsewhere in this prospectus:

The following information is derived from the accompanying unaudited consolidated statements of operations for the periods noted. Unless otherwise noted, percentages represent a percentage of total revenues. The following table presents the results of operations for the twenty-six weeks ended June 28, 2020 and the twenty-six weeks ended June 30, 2019:

46

Reconciliations of Non­GAAP Financial Measures - EBITDA and Adjusted EBITDA

The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods indicated:

1Represents increase or (decrease) to accrued liabilities established for future game play and other fulfillment obligations.  

2Represents stock compensation expense under our 2019 Equity Incentive Plan. 

1Represents increase or (decrease) to accrued liabilities established for future game play and other fulfillment obligations.  

2Represents stock compensation expense under our 2019 Equity Incentive Plan. 

Revenues

Nine weeks into the first quarter of 2020, comparable store sales were up 11.8%, primarily attributable to strong guest engagement in esports and the associated pull-through food and beverage and amusement revenue. Total revenues for the twenty-six weeks ended June 28, 2020 were down $7,976,459 or 52.4%, $7,243,020 compared to $15,219,479 for the twenty-six weeks ended June 30, 2019. The year-to-date decrease was entirely attributable to COVID-19 related mitigation restrictions shutting down our entire platform of venues since mid-March with only two venues being permitted to reopen commencing in mid-June.

For the twenty-six weeks ended June 28, 2020 comparable store entertainment and amusement revenues were $4,199,142, a decrease of $3,745,381 or 47.1% compared to $7,944,523 for the twenty-six weeks ended June 30, 2019. The decline was entirely attributable to the COVID-19 induced business disruption.

47

For the twenty-six weeks ended June 28, 2020 comparable store food and beverage revenues were $3,043,878, a decrease of $4,231,078 or 58.2% compared to $7,274,956 for the twenty-six weeks ended June 30, 2019. The decline was entirely attributable to the COVID-19 induced business disruption.

Cost of Revenues

The total cost of revenues was $1,037,554 for the twenty-six weeks ended June 28, 2020 and $2,348,339 for the twenty-six weeks ended June 30, 2019. Cost of revenues decreased fractionally by 55.8% or $1,310,785, solely attributable to decreased sales due to the COVID-19 induced shutdown. Total cost of revenue as a percentage of revenues decreased by 110 basis points from 15.4% in 2019 to 14.3% in 2020.

For the twenty-six weeks ended June 28, 2020, the cost of entertainment and other revenue decreased by $408,124 to $314,150 compared to $722,274 for the twenty-six weeks ended June 30, 2019. The cost of entertainment and other revenue for the twenty-six weeks ended June 28, 2020 averaged 10.3% of entertainment and other revenue increasing from 9.9% in the twenty-six weeks ended June 30, 2019. The 39-basis point increase in the cost of revenues is primarily attributable to the mix in redemption prizes skewing toward higher-cost products.

For the twenty-six weeks ended June 28, 2020, the cost of food and beverage decreased by $902,661 to $723,404 compared to $1,626,065 for the twenty-six weeks ended June 30, 2019. The cost of food and beverage for the twenty-six weeks ended June 28, 2020 averaged 23.8% of food and beverage revenue increasing from 22.4% in the twenty-six weeks ended June 30, 2019. The 142-basis point increase in the cost of food and beverage is primarily attributable to an increase in spoilage during the shutdown period and the loss of efficiencies of scale due to the significant decline in volume.

Payroll and Benefits

Payroll and benefits decreased by $3,108,642 or 43.9% to $3,964,674 for the twenty-six weeks ended June 28, 2020 compared to $7,073,316 for the twenty-six weeks ended June 30, 2019. The decrease is primarily attributable to employee furloughs and salary reductions in response to the COVID-19 induced business disruption and the selective elimination of positions no longer required.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $1,462,770, or 18.7%, to $6,375,599 for the twenty-six weeks ended June 28, 2020 compared to $7,838,369 for the twenty-six weeks ended June 30, 2019. The decrease in general and administrative expenses is attributable to reductions in most categories of selling, general and administrative expenses primarily driven by cost containment measures in discretionary areas and the shutting off of certain operational expenses in response to the COVID-19 business disruption nominally offset by small increases in marketing and advertising and other taxes and licenses.

Presented in the table below is the composition of selling, general and administrative expenses:

48

Depreciation and amortization

Depreciation and amortization decreased by $1,302,906, or 55.7%, to $1,034,601 for the twenty-six weeks ended June 28, 2020 compared to $2,337,507 for the twenty-six weeks ended June 30, 2019. The decrease is attributable to certain types of property and equipment having reached the end of their depreciable lives in 2019.

Pre­opening Costs

During the twenty-six week period ended June 28, 2020, prior to the COVID-19 induced business disruption, we incurred $3,637 of pre-opening costs toward an anticipated venue opening in the second half of fiscal 2020. No pre-opening costs were incurred during the twenty-six week period ended June 30, 2019.

Interest Expense

Interest expense decreased by $82,156 to $313,026 for the twenty-six weeks ended June 28, 2020 compared to $395,182 for the twenty-six weeks ended June 30, 2019. The decrease is primarily attributable to a reduction in the cost of borrowing. With the reductions of the prime rate in the second half of 2019 and the first quarter of 2020, certain long-term debt with variable rates of interest pegged to the prime rate benefited from the lower cost of borrowing.

Provision (Benefit) for Income Taxes

Income tax provision for the twenty-six weeks ended June 28, 2020 was a $222,465 tax benefit compared to $9,375 tax expense for the twenty-six weeks ended June 30, 2019. Our effective tax rate differs from the statutory rate primarily due to the uncertainty of the timing of realizing the benefit of deferred tax assets resulting in the establishment of a valuation allowance.

49

Fiscal 2019 Compared to Fiscal 2018 (Pro Forma)

Results of Operations

The following information is derived from the accompanying consolidated statements of operations for the periods noted. Unless otherwise noted, percentages represent a percentage of total revenues. The following table presents the results of operations for the year ended December 29, 2019 and the periods from January 1, 2018 to June 10, 2018 (Predecessor) and from June 11, 2018 to December 30, 2018 (Successor):

50

The following information is derived from the accompanying consolidated statements of operations for the periods noted. Unless otherwise noted, percentages represent a percentage of total revenues. The following table presents the results of operations for the year ended December 29, 2019 (Successor) and a pro forma of the combined periods from January 1, 2018 to June 10, 2018 (Predecessor) and from June 11, 2018 to December 30, 2018 (Successor) presented as a 52-week period to enhance year-over-year comparability: