UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-39389
GAMESQUARE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 99-1946435 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
6775 Cowboys Way, Ste. 1335
Frisco, Texas, 75034 USA
(Address of principal executive offices, including zip code)
(216) 464-6400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Common Stock, $0.0001 par value | GAME | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ or No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ or No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☒ | Smaller reporting Company | ☒ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the shares of GAME common stock held by non-affiliates of the registrant as of June 30, 2024 was $24,526,610 based on the closing price of $1.20 as reported by The Nasdaq Stock Market.
The number of shares outstanding of the Registrant’s common stock as of April 6, 2025 were:
GAME Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A are incorporated by reference into Part III of this Annual Report on Form 10-K.
GameSquare Holdings Inc. Annual
Report on Form 10-K
For the fiscal year ended December 31, 2024
Table of Contents
| i |
Part I.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve substantial risks and uncertainties. These forward-looking statements depend upon events, risks and uncertainties that may be outside of our control. All statements other than statements of historical fact are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, without limitation, our expectations concerning the outlook for our business, productivity, plans and goals for future operational improvements and capital investments, operational performance, future market conditions or economic performance and developments in the capital and credit markets and expected future financial performance, as well as any information concerning possible or assumed future results of operations.
Forward-looking statements involve a number of risks, uncertainties and assumptions, and actual results or events may differ materially from those projected or implied in those statements. Important factors that could cause such differences include, but are not limited to:
| ● | the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs; | |
| ● | our limited operating history and uncertain future prospects and rate of growth due to our limited operating history, including our ability to implement business plans and other expectations; | |
| ● | our ability to grow market share in our existing markets or any new markets we may enter; | |
| ● | our ability to maintain and grow the strength of our brand reputation; | |
| ● | the Company’s ability to achieve its objectives; | |
| ● | our ability to manage our growth effectively; | |
| ● | our ability to retain existing and attract new Esports professionals, content creators and influencers; | |
| ● | our success in retaining or recruiting, or changes required in, our officers, directors and other key employees or independent contractors; | |
| ● | our ability to maintain and strengthen our community of brand partners, engaged consumers, content creators, influencers and Esports professionals, and the success of our strategic relationships with these and other third parties; | |
| ● | our ability to effectively compete within the industry; | |
| ● | our presence on the internet and various third-party mass media platforms; | |
| ● | risks related to data security and privacy, including the risk of cyber-attacks or other security incidents; | |
| ● | risks resulting from our global operations; | |
| ● | our ability to maintain the listing of our Common Stock on Nasdaq; | |
| ● | our securities’ potential liquidity and trading, including that the price of our securities may be volatile; | |
| ● | future issuances, sales or resales of our securities; | |
| ● | the grant and future exercise of registration rights; | |
| ● | our ability to secure future financing, if needed, and our ability to repay any future indebtedness when due; | |
| ● | the ability of the Company to complete offerings on acceptable terms; | |
| ● | the impact of the regulatory environment in our industry and complexities with compliance related to such environment, including our ability to comply with complex regulatory requirements; | |
| ● | our ability to maintain an effective system of internal controls over financial reporting; | |
| ● | our ability to respond to general economic conditions, including market interest rates; | |
| ● | our ability to execute on future acquisitions, mergers or dispositions; and | |
| ● | changes to accounting principles and guidelines. |
| 1 |
We caution you not to rely on forward-looking statements, which reflect current beliefs and are based on information currently available as of the date a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this Annual Report on Form 10-K. Forward-looking statements are not guarantees of performance. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Other sections of this report describe additional factors that could adversely affect our business, financial condition or results of operations. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements except to the extent required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements may appear in our public filings with the U.S. Securities and Exchange Commission (“SEC”), which are or will be (as appropriate) accessible at www.sec.gov, and which you are advised to consult.
Item 1. Business
GameSquare Holdings, Inc. (“GameSquare,” the “Company,” “we,” “us,” and “our”) is a vertically integrated, digital media, entertainment and technology company that connects global brands with gaming and youth culture audiences. GameSquare’s end-to-end platform includes Gaming Community Network (“GCN”), a digital media company focused on gaming and esports audiences, Zoned, a gaming and lifestyle marketing agency, Code Red, a UK based esports talent agency, FaZe, a lifestyle and media platform rooted in gaming and youth culture whose premium brand, talent network, and large audience can be monetized across a variety of products and services, Fourth Frame Studios, a creative production studio, Mission Supply, a merchandise and consumer products business, Frankly Media, programmatic advertising, Stream Hatchet, live streaming analytics, and Sideqik a social influencer marketing platform.
GameSquare Holdings, Inc. (formerly Engine Gaming and Media, Inc.), (NASDAQ: GAME) completed its plan of arrangement (the “Arrangement”) with GameSquare Esports Inc. (“GSQ”) on April 11, 2023, resulting in the Company acquiring all the issued and outstanding securities of GSQ. At completion of the Arrangement Engine Gaming and Media, Inc. changed its name to GameSquare Holdings Inc.
GameSquare Esports, Inc was traded on the Canadian Securities Exchange (CSE) under the symbol “GSQ” and on the OTCQB Venture Market in the Unites States under the symbol “GMSQF” until April 11, 2023.
GameSquare’s mission is to revolutionize the way brands and game publishers connect with hard-to-reach Gen Z, Gen Alpha, and Millennial audiences. Our next generation media, entertainment, and technology capabilities drive compelling outcomes for creators and maximize our brand partners’ return on investment. Through our purpose-built platform, we provide award winning marketing and creative services, offer leading data and analytics solutions, and amplify awareness through FaZe Clan, one of the most prominent and influential gaming organizations in the world. With an audience reach of 1 billion digitally native consumers across our media network and roster of creators, we are reshaping the landscape of digital media and immersive entertainment.
| 2 |
Breakdown of Revenue Streams
The following table provides the breakdown for the main streams of revenue from continuing operations for the two most recently completed financial years:
| Source of Revenue | Twelve-month
period ended December 31, 2024 | Twelve-month
period ended December 31, 2023 | ||||||
| Teams | $ | 32,026,264 | $ | - | ||||
| Agency | $ | 12,089,822 | $ | 11,520,901 | ||||
| SaaS + Advertising | $ | 52,082,015 | $ | 29,782,480 | ||||
Industry Overview and Principal Markets
Video gaming is one of the largest and fastest growing markets in the entertainment sector, with an estimated 2.6 billion gamers globally, with esports being the major source of growth. Esports is a term that comprises a diverse offering of competitive electronic games that gamers play against each other. One of the biggest differences between esports and video games of old is the community and spectator nature of esports - the competitive play against another person, either one-on-one or in teams, is a central feature of esports. Since players play against each other online, a global network of players and viewers has developed as these players compete against each other worldwide. Additionally, game developers have greatly increased the entertainment value of games, which has made the spectator aspect of gaming much more prevalent and further drives expansion of the gaming market.
The expanded reach of broadband service and the computer technology advances in the last decade have also greatly accelerated the growth of esports. Esports has become so popular that many high schools and colleges now offer programs to support students’ interest in esports, as well as tournaments and scholarships. The best-known esports teams are receiving marquee sponsorships and are being purchased or invested in by a range of financial and strategic partners. The highest profile esports gamers have significant online audiences as they stream themselves playing against other players online and potentially can generate millions of dollars in sponsorship money and affiliate fees from their online streaming channels. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services.
Management believes GameSquare is well positioned to benefit from the significant growth of the gaming and esports industry. The gaming and esports industry is projected to have a global audience of nearly 650 million viewers by 2025, with live streaming expected to reach more than 1.4 billion by the end of 2025 and the gaming market is expected to generate more than 225 billion of revenue by 2025. GameSquare’s revenue growth is expected to be driven by increasing marketing spend from global brands that seek exposure to and connections with these audiences. The Company’s growth strategy focuses on growing audience and reach within its digital agencies, media network, and teams segments. GameSquare’s digital agencies, teams, and SaaS and advertising services segments serve the gaming and esports market, and more broadly sports and entertainment through content creation, audience development and growing brand relationships.
The digital agency industry is highly fragmented, and these businesses are generally characterized by high revenue growth with healthy earnings before income, taxes, depreciation and amortization (“EBITDA”) margins, which management believes positions the Company well for sustainable growth through organic efforts and presents significant opportunities to grow through accretive acquisitions.
| 3 |
Outlook
GameSquare is pursuing organic growth opportunities, as well as M&A growth opportunities. From August 2020 to May 2024, the Company has completed five acquisitions and divested two non-core assets. GameSquare’s organic growth strategy focuses on growing audience and reach within its digital agencies, media network, and teams segments. GameSquare’s digital agencies, teams, and services segments serve the gaming and esports market, and more broadly sports and entertainment through content creation, audience development and growing brand relationships. The digital agency industry is highly fragmented, and these businesses are generally characterized by high revenue growth with healthy earnings before income, taxes, depreciation and amortization margins, which management believes positions the Company well for sustainable growth through organic efforts and presents significant opportunities to grow through accretive acquisitions.
The combination of Engine Gaming’s best-in-class technology assets with GameSquare’s award-winning agency and creative capabilities, allows the Company to offer unparalleled insight into consumer behaviors. It also allows GameSquare to develop data-driven creative strategies, and measure and optimize campaigns towards customer acquisition goals in real-time - creating impactful marketing solutions that drive ROI for its customers.
The Company has invested in its sales organization and continues to see significant growth in the number, and the size, of requests for proposals within its agency businesses. The Company’s financial profile compares very favorably against its esports peers, as well as other companies seeking to engage with youth audiences.
The Company believes enterprise growth may come as a result of synergistic approaches to combining the strengths of its multiple SaaS companies that it can present as a unified offering to the market.
Customers
The Company has different business segments which often target different customers. For example, our business-to-business SaaS and data analytics platforms generate revenue from industry leading companies in the technology space, such as Microsoft. Additionally, our marketing, content creator services have benefited from brand sponsorships with large customers such as Jack in the Box, Red Bull, and Kraft. Importantly, we believe our end-to-end marketing platform creates a highly attractive opportunity for continued customer growth via cross pollination of our services, which we believe will allow us to acquire a broad range of diversified customers.
Foreign Operations
Although the Company is headquartered in the United States, there is some business conducted outside of the United States:
| ● | Stream Hatchet has operations in Spain, with an office in Terrassa, Spain | |
| ● | Code Red has operations in the UK, with its registered office in London, England |
Competition
GameSquare competes in highly competitive and fragmented sectors, which include digital advertising and marketing services, content creation, streaming technology, event production, and gaming platforms. Despite intense competition, the Company believes it is well positioned to compete with its competitors by means of utilizing its modern marketing technology platform that supports a continuous feedback loop between its various services, such as marketing services, influencer relationship management, and real-time analytics and insights. GameSquare believes this ability to leverage its broad range of services provides a unique and differentiated platform compared to its competitors.
The esports and gaming industry is in competition with other sporting and entertainment events, both live and delivered over television networks, radio, the Internet, mobile applications, and other sources. As a result of the large number of options available and the global nature of the esports industry, GameSquare faces strong competition for esports fans, as well as overall youth audiences. There is also intense competition amongst businesses operating in the segments of the esports industry and content creation where we currently operate or may operate in the future, including esports agencies, influencer technology platforms, analytics technologies, content creation and media content assets.
Intellectual Property
The Company considers the creation, use, and protection of intellectual property to be crucial to its business. The Company’s general practice is to require all key employees and consultants to sign confidentiality agreements and assign all rights of inventions to the Company. In addition to the above contractual arrangements, the Company also relies on a combination of trade secret, copyright, domain name and other legal rights to protect its intellectual property. The Company typically owns the copyright to the software code to its content as well as the brand or title name under which its games are marketed. The Company believes that it has provided sufficient security for its intellectual property.
The Company owns the following non-patent intellectual property:
| ● | Trade secrets and know-how that it uses to develop games and processes; | |
| ● | Common law trademarks, including product names and graphics, music and other audio-visual elements of games; | |
| ● | Software code relating to its products; | |
| ● | Certain program assets; and | |
| ● | Sports and esports-focused apps. |
Human Capital Resources
As of April 1, 2025, the Company had approximately 132 employees globally. Of these employees, approximately 3 are located in Canada, 34 in Spain, 6 in United Kingdom, 9 in India, and 80 in the United States. None of the Company’s employees are represented by a collective bargaining agreement. The Company considers its relations with its employees to be strong and views its employees as an important competitive advantage.
| 4 |
Regulatory Matters
The digital content and entertainment industry and the markets in which we operate are new and developing and, as such, are not heavily regulated at this time. There are inherent risks and uncertainties associated with operating in new and developing industries and markets, especially as the laws and regulations regarding these industries and markets are also developing and changing. Although we are not currently subject to significant government regulation, the scope and interpretation of the laws that are or may be applicable to us in the future are uncertain and may be conflicting in different jurisdictions in which we operate; as a result, we may come under increased regulatory scrutiny which may restrict the digital content and entertainment industry and associated markets, including with respect to talent management, rights of publicity, intellectual property, consumer protection electronic commerce, advertising, targeted, electronic or telephonic marketing, competition, data protection and privacy, data localization, anti-corruption and bribery, content regulation, taxation, labor and employment, securities regulation, financial reporting and accounting and economic or other trade prohibitions or sanctions or other subjects. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction and inconsistent with our current policies and practices and in ways that could harm our business. In addition, the application and interpretation of these laws and regulations may be uncertain, particularly in the new and rapidly evolving industries in which we operate, and new laws or adverse findings of law regarding the characterization of the type of business GameSquare operates could alter our legal and regulatory burden.
Furthermore, the growth and development of electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours that conduct business through the internet and mobile devices. The costs of complying with such laws and regulations may be high and are likely to increase in the future, particularly as the degree of regulation increases, our business grows and our geographic scope expands. Further, the impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the technology sector that have greater resources. Any failure on our part to comply with these laws and regulations may subject us to significant liabilities or penalties, or otherwise adversely affect our business, financial condition or operating results.
Non-compliance with any applicable laws and regulations could result in penalties or significant legal liability. We take reasonable efforts to comply with all applicable laws and regulations, and will continue to do so as our regulatory burden changes, but there can be no assurance that we will not be subject to regulatory action, including fines, in the event of an incident. We or our third-party service providers could be adversely affected if legislation or regulations are expanded to require changes in our or our third party service providers’ business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our or our third-party service providers’ business, results of operations, or financial condition. In addition, government authorities outside the U.S. may also seek to restrict or block access to our content, platform or website, or to application stores or the internet generally, or require a license therefor, and to the hosting, production or streaming of certain content or impose other restrictions that may affect the accessibility or usability of our content in that jurisdiction for a period of time or indefinitely.
Additional Information
Our website address is https://www.gamesquare.com/. We make available free of charge on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. However, the information found on our website is not part of this or any other report.
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Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Risk Management and Strategy
The Company has developed an information security program to address material risks from cybersecurity threats. The program includes policies and procedures that identify how security measures and controls are developed, implemented, and maintained. A risk assessment, based on a method and guidance from a recognized national standards organization, is conducted annually. The risk assessment along with risk-based analysis and judgment are used to select security controls to address risks. During this process, the following factors, among others, are considered: likelihood and severity of risk, impact on the Company and others if a risk materializes, feasibility and cost of controls, and impact of controls on operations and others. Specific controls that are used to some extent include endpoint threat detection and response (EDR), identity and access management (IAM), privileged access management (PAM), logging and monitoring involving the use of security information and event management (SIEM), multi-factor authentication (MFA), firewalls and intrusion detection and prevention, and vulnerability and patch management.
Third-party security firms are used in different capacities to provide or operate some of these controls and technology systems, including cloud-based platforms and services. For example, third parties are used in selected areas to conduct assessments, such as vulnerability scans and penetration testing. The Company uses a variety of processes to address cybersecurity threats related to the use of third-party technology and services, including pre-acquisition diligence, imposition of contractual obligations, and performance monitoring.
The Company has a written incident response plan and conducts tabletop exercises to enhance incident response preparedness. Business continuity and disaster recovery plans are used to prepare for the potential for a disruption in technology we rely on. Employees undergo security awareness training when hired and annually.
The Company has a Governance, Risk, and Compliance (GRC) function to address enterprise risks, and cybersecurity is a risk category addressed by that function. The Company has a privacy and security governance committee.
The Company (or third parties it relies on) may not be able to fully, continuously, and effectively implement security controls as intended. As described above, we utilize a risk-based approach and judgment to determine the security controls to implement and it is possible we may not implement appropriate controls if we do not recognize or underestimate a particular risk. In addition, security controls, no matter how well designed or implemented, may only mitigate and not fully eliminate risks. And events, when detected by security tools or third parties, may not always be immediately understood or acted upon.
Governance
The Chief Information Security Officer (CISO) is the management position with primary responsibility for the development, operation, and maintenance of our information security program. The Company’s CISO should have experience in managing cybersecurity risks & protocols, data protection protocols, and managing protocols for Cloud/IT/web security vulnerabilities. The CISO briefs the Company management team quarterly regarding general security updates or as needed when security incidents are identified. Oversight of the information security program at the Board level sits with Audit Committee.
Item 2. Properties
Our corporate headquarters is located in Frisco, Texas, where we occupy facilities under a lease that expires in 2029. We do not own any real property or related investments. We believe that our current facilities are adequate to meet our current needs and provides flexibility to scale in the future.
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Item 3. Legal Proceedings
Allinsports - In April 2020, Engine announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided for the acquisition of 100% of Allinsports in exchange for the issuance of 241,666 common shares of the Engine and other considerations, including payments of $1,200,000 as a portion of the purchase consideration. In September 2020, Engine advised the shareholders of Allinsports that closing conditions of the transaction, including the requirement to provide audited financial statements, had not been satisfied.
In response, in November 2020, the shareholders of Allinsports commenced arbitration in Alberta, Canada seeking, among other things, to compel Engine to complete the acquisition of Allinsports without the audited financial statements, and to issue 241,666 common shares of Engine to those shareholders. As alternative relief, the shareholders of Allinsports sought up to $20.0 million in damages. A hearing in this matter was held in May of 2021, and by a decision dated September 30, 2021, the Arbitrator determined that the closing of the transaction had previously occurred and directed Engine to issue 241,666 common shares. In conjunction with completion of the Arrangement, the Company assumed this obligation to issue 241,666 common shares. The Company has not yet issued the shares and is pursuing relief against Allinsports shareholders for various alleged breaches of the share purchase agreement. The Company recognized a liability for the arbitration ruling of $1.5 million, which represented the fair value of the common shares directed to be delivered as of April 11, 2023, the closing date of the Arrangement. The liability is recorded as arbitration reserve on the Company’s consolidated balance sheets. This liability will be adjusted to fair value at the end of each reporting period.
Promissory Note Recovery - By Order to Continue dated May 5, 2022, Engine was substituted in as the plaintiff in a matter pending in the Ontario Superior Court of Justice, seeking recovery of $2.1 million (€1.9 million) of principal and additional amounts of accrued interest under promissory notes acquired by Engine. The matter is in the discovery stage.
SPAC Complaint - A complaint has been filed in Delaware Chancery Court against several former directors of Faze Holdings, Inc.’s predecessor, B Riley 150 Merger Corp., and several other B Riley affiliated entities, challenging the disclosures made in connection with the July 2022 merger between B. Riley 150 Merger Corp. and Faze Holdings, Inc. The Company has indemnification obligations to the former B. Riley 150 Merger Corp. directors. Under the terms of a proposed settlement agreement, B. Riley and the Company will each contribute a total of $1,050,000 of cash and Company common stock to resolve the matter. The terms of the proposed settlement of this matter are currently being reviewed by the Delaware Chancery Court.
Villanueva v. Faze Clan, Inc. - On June 20, 2024, Plaintiff Harold Villanueva (“Plaintiff”) filed a Complaint in the California Superior Court for the County of Los Angeles, seeking damages against FaZe Clan, Inc. and other parties. Plaintiff asserts causes of action for (1) Negligence, (2) Negligent Hiring, Retention, and Supervision, and (3) Premises Liability in connection with injuries alleged incurred on FaZe Clan’s premises. FaZe Clan has denied liability for the alleged injuries and this matter is in the discovery stage. FaZe Clan’s insurer is providing defense of these claims pursuant to a reservation of rights letter.
The outcomes of pending litigations in which the Company is involved are necessarily uncertain as are the Company’s expenses in prosecuting and defending these actions. From time to time the Company may modify litigation strategy and/or the terms on which it retains counsel and other professionals in connection with such actions, which may affect the outcomes of and/or the expenses incurred in connection with such actions.
The Company is subject to various other claims, lawsuits and other complaints arising in the ordinary course of business. The Company records provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of such matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, operations, or liquidity.
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Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the Nasdaq Capital Market under the symbol “GAME”.
Dividends
The Company has not paid any dividends since its incorporation. Any determination to pay any future dividends will remain at the discretion of the Board and will be made based on the Company’s financial condition and other factors deemed relevant by the Board. There are currently no restrictions on the ability of the Company to pay dividends except as set out under the Company’s governing documents. Future dividend payments will depend on continued compliance with our financial covenants, as well as our earnings, financial condition, capital expenditure requirements, surplus and other factors that our Board considers relevant.
Holders
As of April 10, 2025, there were 845 holders of record of our common stock. The number of registered holders does not include holders who are beneficial owners whose shares are held in street name by brokers and other nominees.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents the securities authorized for issuance under our equity compensation plans as of December 31, 2024:
| (a) | (b) | (c) | ||||||||||
| PLAN CATEGORY | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a)) | |||||||||
| Equity Compensation Plans Not Approved by Shareholders | - | N/A | N/A | |||||||||
| Equity Compensation Plans Approved by Shareholders | ||||||||||||
| Stock Options (1) | 416,621 2,344,594 | CAD$19.34 USD$2.47 | 502,385 | |||||||||
| RSUs (2) | 578,042 | N/A | 1,195,484 | |||||||||
| Total | 3,339,257 | 1,697,869 | ||||||||||
Note:
| (1) | The stock option plan is considered a “rolling” or “evergreen” stock option plan since the Corporation will be authorized to grant stock options of up to 10% of its issued and outstanding Common Shares at the time of the stock option grant, from time to time, with no vesting provisions and after taking into account any stock options or RSUs outstanding. The number of options available to grant increases as the number of issued and outstanding Common Shares increases. As of December 31, 2024, the number of options available to grant amounted to 3,263,000 Common Shares, being 10% of the outstanding Common Shares as of December 31, 2024. | |
| (2) | Subject to the adjustment provisions provided for in the RSU plan and applicable rules and regulations of all regulatory authorities to which the Corporation is subject (including any stock exchange), the total number of Common Shares that may be reserved for issue in connection with the RSUs granted pursuant to the RSU plan shall not exceed 2,861,658 Common Shares, being 10% of the total number of issued and outstanding Common Shares on the date the RSU plan was adopted by the Board. |
As of December 31, 2024, the number of stock options and RSUs outstanding that were issued under the Stock Option plan and RSU plan, respectively, represents approximately 8.5% and 1.8% of the 32,635,995 outstanding Common Shares as of December 31, 2024.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. [Reserved]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless the context otherwise requires, all references in this section to the “Company,” “GameSquare,” “we,” “us,” or “our” refer to GameSquare Holdings, Inc. and its subsidiaries and/or the management and employees of the Company.
The following discussion and analysis provide information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read together with our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and analysis should also be read together with our financial information for the year ended and as of December 31, 2024. In addition to historical financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks, uncertainties and assumptions. As a result of many factors, such as those set forth under the “Cautionary Statement Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
GameSquare is a vertically integrated, digital media, entertainment and technology company that connects global brands with gaming and youth culture audiences. GameSquare’s end-to-end platform includes Gaming Community Network (“GCN”), a digital media company focused on gaming and esports audiences, Zoned, a gaming and lifestyle marketing agency, Code Red, a UK based esports talent agency, FaZe, a lifestyle and media platform rooted in gaming and youth culture whose premium brand, talent network, and large audience can be monetized across a variety of products and services, Fourth Frame Studios, a creative production studio, Mission Supply, a merchandise and consumer products business, Frankly Media, programmatic advertising, Stream Hatchet, live streaming analytics, and Sideqik a social influencer marketing platform.
GameSquare Holdings, Inc. (formerly Engine Gaming and Media, Inc.), (NASDAQ: GAME) completed its plan of arrangement (the “Arrangement”) with GameSquare Esports Inc. (“GSQ”) on April 11, 2023, resulting in the Company acquiring all the issued and outstanding securities of GSQ. At completion of the Arrangement Engine Gaming and Media, Inc. changed its name to GameSquare Holdings Inc.
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Brands
FaZe
FaZe a digitally native lifestyle and media brand founded and rooted in gaming and youth culture. FaZe is at the forefront of the global creator economy, which is an industry centered around innovative digital content development fueled by social media influencers, creators and businesses who monetize their content online. With a leading digital content platform created for and by Generation Z and Millennials, FaZe has established a highly engaged and growing global fanbase. FaZe produces engaging content, merchandise, consumer products and experiences, and create advertising and sponsorship programs for leading national brands. FaZe has several revenue streams including brand sponsorships, content, consumer products, and Esports.
Zoned
Zoned Gaming is a marketing agency dedicated to bridging the gap between gaming and pop-culture. They work with endemic and non-endemic brands alike, helping them identify their lane and build equity in the constantly changing world of gaming and esports.
Code Red
Code Red is an authentic esports media agency that is passionate about esports and video games. Since 2003, Code Red has produced major esports events, sourced, and hired esports and gaming talent, developed esports related content (that has gone out to over 1 million viewers), managed major esports teams, conducted a wide range of ongoing and ad-hoc strategic consultancy projects, and managed countless marketing campaigns.
GCN
GCN is a media group dedicated to gaming and esports. GCN builds bespoke strategy solutions for reaching young gaming & esports audiences from content creation to full-scale tournaments for any endpoint be it social, broadcast TV or live stream.
Fourth Frame Studios
Rooted in gaming, youth, and popular culture, Fourth Frame Studios is a multidisciplinary creative and production studio that specializes in telling stories for a multi-dimensional audience. Fourth Frame Studios builds meaningful and diverse content systems fueled by best-in-class creatives and production resources, that truly get what gamers and youth audiences want.
Mission Supply
Mission Supply operates at the intersection of gaming, esports, and fashion design filling a need for fans seeking high quality merchandise that represents their favorite teams, organizations, and brands within the gaming ecosystem by providing merchandise and consumer product design, marketing, and sales consultation to brands and esports organizations seeking to reach large and growing gaming and youth demographics.
Sideqik
Sideqik, Inc. (“Sideqik”), is an influencer marketing platform that offers brands, direct marketers, and agencies tools to discover, connect and execute marketing campaigns with content creators. Sideqik’s end-to-end solutions offer marketers advanced capabilities to discover influencers with demographic and content filtering; connect and message influencers; share marketing collateral such as campaign briefs, photos, logos, videos; measure reach, sentiment, and engagement across all major social media platforms; and evaluate earned media value and return on investment across the entire campaign.
Stream Hatchet
Stream Hatchet is the leading provider of data analytics for the live streaming industry. With a suite of services, encompassing a user-friendly SaaS platform, custom reports, and strategic consulting, Stream Hatcher is a trusted guide for those navigating the dynamic landscape of live streaming. With up to seven years of historical data with minute-level granularity from 20 platforms, Stream Hatchet provides stakeholders in the live-streaming industry with powerful insights to drive innovation and growth. Stream Hatchet partners with a diverse clientele - from video game publishers and marketing agencies to esports organizers and teams - who rely on the company’s cutting-edge data analytics to optimize their marketing strategies, secure lucrative sponsorships, enhance esports performance, and build successful tournaments.
Frankly Media
Frankly Media provides comprehensive advertising products and services, including direct sales and programmatic ad support.
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Recent Developments
Gigamoon CD Conversion
As previously disclosed, on November 13, 2024, the Company and Gigamoon entered into a senior secured convertible promissory note in the principal amount of $10 million (the “Gigamoon CD”). On April 2, 2025, GameSquare and Gigamoon entered into an exchange agreement, effective April 1, 2025, pursuant to which, the parties agreed to accelerate the exercise date under the Gigamoon CD to April 1, 2025. As a result, on April 1, 2025, GameSquare transferred the 5,725,000 shares of Series A-1 Preferred Stock of Faze Media Inc. to Gigamoon.
Promissory Note
On March 25, 2025, the Company entered into a secured promissory note with Blue & Silver Ventures, Ltd. The principal amount of $2 million under the promissory note is payable on demand and no later than July 1, 2025. The promissory note bears interest at a rate of ten percent (10%) per annum, with a default interest rate of fifteen percent (15%) per annum, and is payable on demand and no later than July 1, 2025 with the principal amount. The Company, at its option, may prepay the promissory note, in whole or in part, without a prepayment penalty of any kind.
In connection with the promissory note, the Company entered into a security agreement, by and between the Company and Blue & Silver Ventures, Ltd. to provide a security interest in the assets of the Company to Blue & Silver Ventures, Ltd. in order to secure the obligations underlying the promissory note.
Yorkville CD conversion and settlement
On January 2, 2025, the Company announced that it has extinguished its outstanding convertible note and standby equity purchase agreement with Yorkville Advisors Global L.P. (“Yorkville”). Under the strategic transaction, GameSquare has issued a zero-coupon, 60-day promissory note to Yorkville associated with a prepayment penalty of $0.8 million. Additionally, all shares previously owned by Yorkville, were purchased by outside investors in block transactions that occurred on January 21, 2025.
Gigamoon CD
On November 13, 2024, the Company and Gigamoon entered into a senior secured convertible promissory note in the principal amount of $10 million (the “Gigamoon CD”). On December 15, 2024, the Company received cash of $10 million from Gigamoon for issuance of the Gigamoon CD.
The Gigamoon CD bears an interest rate of 7.5% per annum, which automatically shall be increased to 10.0% in the event of an event of default. The Gigamoon CD has a maturity date of five years from the issuance, unless earlier accelerated upon the occurrence of an event of default upon the election of the holder. Interest shall accrue as of the issuance date and shall be payable by the Company on (i) each anniversary of such issuance date, and (ii) the earlier of (a) the maturity date and (b) the conversion or exchange of the Gigamoon CD. Interest payments under the Gigamoon CD are payable in the Company’s common stock, equal to the quotient of (a) the aggregate amount of any accrued and unpaid interest as of such payment date, and (b) the conversion price of $2.50 per common share.
At the option of the holder, at any time on or after December 31, 2025, or upon an event of default or certain change of control events, the Gigamoon CD can be converted into either (i) GameSquare common stock at a conversion price of $2.50 per common share or (ii) exchanged for the 5,725,000 shares of Series A-1 Preferred Stock of Faze Media Inc. held by the Company.
Standby Equity Purchase Agreement
On July 8, 2024, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”), pursuant to which the Company has the right to sell to Yorkville up to $20.0 million of its shares of common stock, par value $0.0001 per share (“Common Stock”), subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of the shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA except in connection with notices that may be submitted by Yorkville, in certain circumstances as described below.
Each advance (each, an “Advance”) the Company requests in writing to Yorkville under the SEPA (notice of such request, an “Advance Notice”) may be for a number of shares of Common Stock up to the greater of (i) 500,000 shares or (ii) such amount as is equal to 100% of the average daily volume traded of the Common Stock during the five trading days immediately prior to the date the Company requests each Advance; The shares of Common Stock purchased pursuant to an Advance delivered by the Company will be purchased at a price equal to 97% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of the Advance Notice, other than the daily VWAP on a day in which the daily VWAP is less than a minimum acceptable price as stated by the Company in the Advance Notice or there is no VWAP on the subject trading day. The Company may establish a minimum acceptable price in each Advance Notice below which the Company will not be obligated to make any sales to Yorkville. “VWAP” is defined as the daily volume weighted average price of the shares of Common Stock for such trading day on the Nasdaq Stock Market (“Nasdaq”) during regular trading hours as reported by Bloomberg L.P.
The SEPA will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the date of the SEPA or (ii) the date on which the Company shall have made full payment of Advances pursuant to the SEPA. We have the right to terminate the SEPA at no cost or penalty upon five trading days’ prior written notice to Yorkville, provided that there are no outstanding Advance Notices for which shares of common stock need to be issued and the Company has paid all amounts owed to Yorkville pursuant to the Promissory Note. The Company and Yorkville may also agree to terminate the SEPA by mutual written consent.
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Any purchase under an Advance would be subject to certain limitations, including that Yorkville shall not purchase or acquire any shares that would result in it and its affiliates beneficially owning more than 4.99% of the then outstanding voting power or number of shares of Common Stock or any shares that, aggregated with shares issued under all other earlier Advances, would exceed 19.99% of all shares of Common Stock outstanding on the date of the SEPA (the “Exchange Cap”), unless the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules.
In connection with the execution of the SEPA, the Company paid a diligence fee (in cash) to Yorkville in the amount of $25,000. Additionally, the Company agreed to pay a commitment fee of $200,000 to Yorkville, payable as follows: (i) $100,000 payable within three days of the date of the SEPA, in the form of the issuance of 80,000 shares of Common Stock, representing $100,000 divided by the closing price as of the trading day immediately prior to the date of the SEPA, and (ii) $100,000 payable on the three-month anniversary of the date of the SEPA, payable in either cash or in the form of an Advance.
Additionally, Yorkville agreed to advance to the Company, in exchange for a convertible promissory note (the “Promissory Note”), an aggregate principal amount of up to $6.5 million (the “Pre-Paid Advance”), which was funded on July 8, 2024. The purchase price for the Pre-Paid Advance is 93.0% of the principal amount of the Pre-Paid Advance. Interest shall accrue on the outstanding balance of the Pre-Paid Advance at an annual rate equal to 0%, subject to an increase to 18% upon an event of default as described in the Promissory Note. The maturity date of the Promissory Note issued in connection with the Pre-Paid Advance will be 12 months after the issuance date of such Promissory Note. Yorkville may convert the Promissory Note into shares of Common Stock at any time at a conversion price equal to the lower of (i) $1.375 (the “Fixed Price”) or (ii) a price per share equal to 93% of the lowest daily VWAP during the seven consecutive trading days immediately prior to the conversion date of the Promissory Note (the “Variable Price”), but which Variable Price shall not be lower than the Floor Price then in effect. The “Floor Price” will be the lower of (i) $0.25 per share or (ii) 20% of the average VWAP of the Common Stock for the five trading days immediately prior to the date of effectiveness of the Resale Registration Statement. Additionally, the Company, at its option, shall have the right, but not the obligation, to redeem early a portion or all amounts outstanding under the Promissory Notes at a redemption amount equal to the outstanding principal balance being repaid or redeemed, plus a 7% prepayment premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’ prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Common Stock is less than the Fixed Price.
At any time during the Commitment Period that there is a balance outstanding under the Promissory Note, Yorkville may deliver notice (an “Investor Notice”) to the Company to cause an Advance Notice to be deemed delivered to Yorkville and the issuance and sale of shares of Common Stock to Yorkville pursuant to an Advance (an “Investor Advance”) in an amount not to exceed the balance owed under the Promissory Note outstanding on the date of delivery of such Investor Notice, and shall not exceed during any calendar month period, the greater of (i) an amount equal to 15% of the product of (A) the average of the daily traded amount on each trading day during such period and (B) the VWAP for such trading day, and (ii) $750,000. The foregoing limitation on the amount of any such Investor Advances shall not apply at any time (x) upon the occurrence and during the continuance of an Event of Default and (y) where the purchase price is greater than or equal to the Fixed Price. As a result of an Investor Advance, the amounts payable under the Promissory Note will be offset by such amount subject to each Investor Advance.
An “Amortization Event” will occur under the terms of the Promissory Note if (i) the daily VWAP is less than the Floor Price for five trading days during a period of seven consecutive trading days, or (ii) the Company has issued in excess of 99% of the shares of Common Stock available under the Exchange Cap. Within seven trading days of an Amortization Event, the Company will be obligated to make monthly cash payments in an amount equal to the sum of (i) $1.0 million of principal of the Promissory Note (or the outstanding principal if less than such amount) (the “Amortization Principal Amount”), plus (ii) a payment premium of 7% in respect of such Amortization Principal Amount, plus (iii) accrued and unpaid interest thereunder. The obligation of the Company to make monthly prepayments shall cease (with respect to any payment that has not yet come due) if any time after an Amortization Event (a) the Company reduces the Floor Price to an amount no more than 50% of the closing price of the Common Stock on the trading day immediately prior to such reset notice (and no greater than the initial Floor Price), or (b) the daily VWAP is greater than the Floor Price for a period of ten consecutive trading days, unless a subsequent Amortization Event occurs.
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The Company will control the timing and amount of any sales of shares of Common Stock to Yorkville, except with respect to Investor Advances. Actual sales of shares of Common Stock to Yorkville as an Advance under the SEPA will depend on a variety of factors to be determined by the Company from time to time, which may include, among other things, market conditions, the trading price of the Company’s Common Stock and determinations by the Company as to the appropriate sources of funding for our business and operations.
The SEPA contains customary representations, warranties, conditions and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
King Street CD
On June 21, 2024, the Company received a notice from King Street Partners LLC (“King Street”), the holder of a 12.75% Convertible Senior Secured Note with a principal amount of $5,800,000 dated December 29, 2023. The notice objected to the Company’s ability to maintain its 51% economic interest in FaZe Media, Inc. and other related matters.
As a result, King Street requested the immediate repayment of the full principal amount, along with any premiums and accrued interest.
On October 1, 2024, the Company entered into a Settlement and Release Agreement with King Street pertaining to the King Street Note.
On July 10, 2024, the Company paid down the outstanding principal and accrued interest on the King Street CD of $5.7 million.
Frankly Media asset disposal
On May 31, 2024, the Company, through its wholly owned subsidiary Frankly Media LLC (“Frankly”), entered into an Asset Purchase Agreement (the “UNIV APA”) to sell the producer content management software platform and associated software technology (“CMS Assets”) of Frankly to UNIV, Ltd (“UNIV”) (the “UNIV Asset Sale”).
Pursuant to the UNIV APA, UNIV paid the Company aggregate purchase consideration with a transaction closing date fair value of $1.2 million in exchange for the CMS Assets, including $25 thousand paid in cash upon closing of the transaction and issuance of a secured subordinated promissory note (the “UNIV Note”) with a transaction closing date fair value of $1.2 million. The UNIV Note was valued using a discount rate of 13.7% (Level 3).
Additionally on May 31, 2024, the Company, through its wholly owned subsidiary Frankly, entered into an Asset Purchase Agreement (the “XPR APA”) to sell the press release and content distribution service assets (the “PR Assets”) of Frankly to XPR Media LLC (“XPR”) (the “XPR Asset Sale” and, collectively with the UNIV Asset Sale, the “Frankly Asset Sales”).
Pursuant to the XPR APA, XPR paid the Company aggregate purchase consideration with a transaction closing date fair value of $0.6 million in exchange for the PR Assets, including $10.5 thousand paid in cash upon closing of the transaction and issuance of a secured subordinated promissory note (the “XPR Note”) with a transaction closing date fair value of $0.5 million. The XPR Note was valued using a discount rate of 13.7% (Level 3).
As a result of the Frankly Asset Sales during the year ended December 31, 2024, the Company recognized a loss of $8.3 million in Other income (expense), net in the consolidated statements of operations and comprehensive loss after offsetting the consideration received with the carrying value of the disposed assets.
The UNIV Note has a principal amount of $1.5 million, inclusive of the $25 thousand paid in cash upon closing. The principal amount of the UNIV Note will be repaid in monthly installments, beginning August 2024. Monthly principal payments will be $25 thousand from August 2024 to June 2025, $45 thousand from July 2025 to June 2026, and $55 thousand from July 2026 to final maturity on June 30, 2027. The UNIV Note is secured by assets of the UNIV pursuant to a Security Agreement executed in conjunction with the UNIV APA between the Company and UNIV.
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The XPR Note has a principal amount of $0.7 million, inclusive of the $10.5 thousand paid in cash upon closing. The principal amount of the XPR Note will be repaid in monthly installments, beginning August 2024. Monthly principal payments will be $12.5 thousand from August 2024 to June 2025, $20 thousand from July 2025 to June 2026, and $26 thousand from July 2026 to final maturity on June 30, 2027. The XPR Note is secured by all rights of XPR to customer agreements and publisher agreements pursuant to a Security Agreement executed in conjunction with the XPR APA between the Company and XPR.
Faze Media, Inc. asset contribution
On May 2, 2024, the Company created FaZe Media, Inc. (“Faze Media”). On May 15, 2024, the Company entered into a business venture with Gigamoon Media, LLC (“Gigamoon”). As part of this venture, the Company contributed certain media assets of Faze Clan, Inc. to Faze Media and Gigamoon invested $11.0 million in Faze Media in exchange for 11,000,000 shares of Series A-2 Preferred Stock of Faze Media, 49% of Faze Media’s voting equity interests, pursuant to a Securities Purchase Agreement (the “SPA”). The Company was issued 11,450,0000 shares of Series A-1 Preferred Stock of Faze Media, 51% of Faze Media’s voting equity interests.
On June 17, 2024, the Company entered into an agreement to sell 5,725,000 of its 11,450,000 shares of Series A-1 Preferred Stock of Faze Media to M40A3 LLC (“M4”) in exchange for $9.5 million (the “Secondary SPA”). The first 2,862,500 share tranche was issued on June 17, 2024 for consideration of $4.75 million and the remaining 2,862,500 was issued on August 15, 2024 for consideration of $4.75 million.
Contemporaneous with the execution of the Secondary SPA, the Company and M4 entered into a Limited Proxy and Power of Attorney with respect to all of the shares of Series A-1 Preferred Stock of Faze Media held by M4 (the “Faze Media Voting Proxy”).
Faze Media is not a variable interest entity. Due to the Faze Media Voting Proxy, the Company maintains a controlling financial interest in Faze Media and Faze Media is a consolidated subsidiary of the Company as of June 30, 2024. The Preferred Stock of Faze Media held by M4 and Gigamoon represent a non-controlling interest of the Company. Upon termination of the Faze Media Voting Proxy, the Company will reassess whether it continues to have a controlling financial interest in Faze Media.
As a result of the above transactions, the Company recorded a non-controlling interest in Faze Media, Inc. of $20,500,000, the sum of cash consideration received, within the consolidated statements of stockholders’ equity.
Merger Agreement
On March 7, 2024 (the “Closing Date”), GameSquare Holdings, Inc., a Delaware corporation (and prior to the Domestication (as defined below), a British Columbia corporation) (the “Company” or “GameSquare”), consummated the previously announced merger (the “Closing”) of FaZe Holdings Inc., a Delaware corporation (“FaZe”), pursuant to that certain Agreement and Plan of Merger, dated October 19, 2023 (as amended, the “Merger Agreement”), by and among the Company, FaZe and GameSquare Merger Sub I, Inc., a Delaware corporation and wholly owned subsidiary of GameSquare (“Merger Sub”), as amended by that certain First Amendment to Agreement and Plan of Merger, dated December 19, 2023, by and among the Company, FaZe and Merger Sub (the “Amendment to Merger Agreement”). The consummation of the Merger involved (i) prior to the Closing, the continuance of GameSquare from the laws of the Province of British Columbia to the laws of the State of Delaware so as to become a Delaware corporation (the “Domestication”) and (ii) the merger of Merger Sub with and into FaZe, with FaZe continuing as the surviving corporation and wholly-owned subsidiary of GameSquare (the “Merger”), as well as the other transactions contemplated in the Merger Agreement.
Merger Consideration
At the effective time of the Merger (the “Effective Time”): (i) each outstanding share of FaZe common stock, par value $0.0001 per share (the “FaZe Common Stock”) issued and outstanding immediately prior to the Effective Time (other than shares held in treasury by FaZe or held directly by GameSquare or Merger Sub (which such shares were cancelled)) was converted into the right to receive 0.13091 (the “Exchange Ratio”) of a fully paid non-assessable share of common stock, par value $0.0001 per share, of GameSquare (the “GameSquare Common Stock”) and, if applicable, cash in lieu of fraction shares of FaZe Common Stock, subject to applicable withholding, (ii) each share of common stock, par value $0.001 per share, of Merger Sub that was issued and outstanding immediately prior to the Effective Time was converted into one validly issued, fully paid and non-assessable share of common stock, par value $0.001 per share, of FaZe Common Stock.
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Treatment of Equity Awards
In addition, effective as of immediately prior to the Effective Time, all of the outstanding FaZe equity awards, including options to purchase shares of FaZe Common Stock, each share of FaZe Common Stock subject to vesting, repurchase or other lapse of restrictions, and each FaZe restricted stock unit convertible into shares of FaZe Common Stock, was assumed by GameSquare and converted into GameSquare equity awards on substantially the same terms, except that the assumed equity awards will cover a number of shares of GameSquare Common Stock and, if applicable, have an exercise price determined using the Exchange Ratio.
Also at the Effective Time, all outstanding warrants to purchase shares of FaZe Common Stock were assumed by GameSquare and converted into warrants to purchase shares of GameSquare Common Stock on substantially the same terms, except that the assumed warrants cover a number of shares of GameSquare Common Stock, and have an exercise price, determined using the Exchange Ratio.
Post-Closing Governance
In connection with the Merger and in accordance with the Merger Agreement, effective as of the Closing, the board of directors of the Company (the “Board”) increased the size of the Board from six to nine members and appointed Paul Hamilton and Nick Lewin (each, a “New Director” and collectively, the “New Directors”), who were previously members of FaZe’s board of directors, to serve on the Board, in each case, to hold office until their successors are duly elected and qualified or their earlier death, resignation or removal. Following the appointment of the New Directors, there remains one vacancy on the Board. Pursuant to the Merger Agreement, such vacancy is to be filled at such time that the Board duly elects an individual to serve in such capacity in accordance with the Bylaws and the terms of the Merger Agreement. It has not yet been determined on which committees of the Board Mr. Hamilton and Mr. Lewin will serve.
PIPE Financing
Substantially concurrently with the consummation of the Merger, the Company completed its previously announced private placement in public equity financing (the “PIPE Financing”). In connection with the PIPE Financing, the Company entered subscription agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”), pursuant to which the Company issued to the PIPE Investors an aggregate of 7,194,244 units at a purchase price per unit of $1.39, for aggregate gross proceeds of $10.0 million. Each unit consists of one share of GameSquare Common Stock and a warrant to purchase 0.15 shares of GameSquare Common Stock. As a result, the Company issued an aggregate of 7,194,224 shares of GameSquare Common Stock (the “PIPE Shares”) and warrants to purchase up to 1,079,136 shares of GameSquare Common Stock (the “PIPE Warrants) pursuant to the PIPE Financing. Each whole PIPE Warrant is exercisable for one share of GameSquare Common Stock at an exercise price of $1.55 per share for a period of five years after the Closing Date.
The PIPE Shares and PIPE Warrants are subject to a four month hold period under Canadian securities laws expiring four months following the Closing Date. The PIPE Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any U.S. state securities laws, and were issued pursuant to and in accordance with the exemption from registration under the Securities Act, under Section 4(a)(2) and/or Regulation D promulgated under the Securities Act. The securities may not be offered or sold in the United States absent registration or pursuant to an exemption from the registration requirements of the Securities Act and applicable U.S. state securities laws.
The Company also entered into Registration Rights Agreements with the PIPE Investors (the “Registration Rights Agreements”). The Registration Rights Agreements provide, among other things, that the Company will as promptly as reasonably practicable, and in any event no later than 150 days after the Closing Date (the “Filing Deadline”), file with the SEC (at the Company’s sole cost and expense) a registration statement registering the resale of the PIPE Shares and the shares of GameSquare Common Stock underlying the PIPE Warrants issued to the PIPE Investors, and will use its commercially reasonable efforts to have such registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) the 90th calendar day following the Filing Deadline if the SEC notifies the Company that it will “review” such registration statement and (ii) the fifth business day after the date the Company is notified (orally or in writing) by the SEC that such registration statement will not be “reviewed” or will not be subject to further review.
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The Company had previously entered into a backstop agreement (the “Backstop Agreement”) with Goff Jones Strategic Partners, LLC (formerly known as Goff & Jones Lending Co, LLC) (“Goff Jones”), to purchase common stock to ensure the PIPE was fully subscribed. The Backstop Agreement was originally announced on October 20, 2023. A total of $6.0 million of securities were issued to Goff Jones in connection with the Backstop Agreement.
Complexity Membership Interest Purchase Agreement
On March 1, 2024, Global Esports Properties, LLC, a Delaware limited liability company (“Buyer”), GameSquare Esports (USA), Inc., a Nevada corporation (“Seller”) and sole member of NextGen Tech, LLC, a Texas limited liability company doing business as Complexity Gaming, and GameSquare Holdings, Inc., a corporation formed under the laws of the province of Ontario (“Beneficial Owner”) (together, the “Parties”) entered into a Membership Interest Purchase Agreement (the “MIPA”) for the purchase of all issued and outstanding interests (the “Interests”) of NextGen Tech, LLC, a Texas limited liability company doing business as Complexity Gaming (the “Transaction”).
The purchase price for the acquired Interests was $10.4 million, subject to final determination and adjustment pursuant to the purchase price adjustment mechanism set forth in the MIPA (the “Purchase Price”). $0.8 million of the Purchase Price was paid in cash at closing and the remainder was paid at closing by delivery of a secured subordinated promissory note (the “Note”) in favor of the Seller in the principal amount of $9.6 million (the “Principal Amount”). Under the Note, the Company is required pay the Principal Amount of the Note, together with all accrued interest (accrued at a rate equal to 3% per annum), fees, premium, charges, costs, and expenses no later than thirty-six (36) months from the date of the Note.
The Note is secured pursuant to a Security Agreement (the “Security Agreement”), which provides for a security interest in Buyer’s collateral (as defined in the Security Agreement) to secure any and all indebtedness, obligations, liabilities, and undertakings under or in respect of the Note.
The Parties’ obligation to complete the Transaction contemplated by the MIPA is subject to certain conditions, including approval by TSXV, which is still outstanding. Accordingly, the Transaction described herein is subject to risk of completion.
The MIPA contains customary representations, warranties, indemnification obligations and agreements of the Parties.
Other Highlights
On August 26, 2024, 103,594 common shares were issued in connection with conversion of $100 thousand in principal under the Yorkville CD with a fair value of $108 thousand. On October 17, 2024, 812,347 common shares were issued in connection with conversion of $500 thousand in principal under the Yorkville CD with a fair value of $538 thousand.
On September 4, 2024, 80,000 common shares were issued in settlement of outstanding amounts payable of $0.1 million to Yorkville (first half of the SEPA commitment fee). On October 31, 2024, 139,004 common shares were issued in settlement of outstanding amounts payable of $0.1 million to Yorkville (second half of the SEPA commitment fee).
On October 2, 2024, 68,493 common shares were issued to King Street in connection with the settlement agreement, for payment of $50 thousand.
On October 16, 2024, 28,169 common shares were issued in settlement of outstanding amounts payable of $20 thousand.
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During the years ended December 31, 2024 and 2023, 1,088,132 and 125,148 shares were issued upon the vesting of RSUs.
Results of Operations:
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023.
| Year ended December 31, | ||||||||||||
| 2024 | 2023 | Variance | ||||||||||
| Revenue | $ | 96,198,101 | $ | 41,303,381 | $ | 54,894,720 | ||||||
| Cost of revenue | 80,924,985 | 31,201,859 | 49,723,126 | |||||||||
| Gross profit | 15,273,116 | 10,101,522 | 5,171,594 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 25,074,294 | 13,587,575 | 11,486,719 | |||||||||
| Selling and marketing | 9,131,270 | 6,305,939 | 2,825,331 | |||||||||
| Research and development | 3,247,774 | 3,067,361 | 180,413 | |||||||||
| Depreciation and amortization | 3,237,349 | 1,889,075 | 1,348,274 | |||||||||
| Restructuring charges | 1,334,717 | 545,456 | 789,261 | |||||||||
Impairment expense | 12,548,476 | 7,024,000 | 5,524,476 | |||||||||
| Other operating expenses | 6,849,846 | 3,065,021 | 3,784,825 | |||||||||
| Total operating expenses | 61,423,726 | 35,484,427 | 25,939,299 | |||||||||
| Loss from continuing operations | (46,150,610 | ) | (25,382,905 | ) | (20,767,705 | ) | ||||||
| Other income (expense), net: | ||||||||||||
| Interest expense | (570,960 | ) | (672,589 | ) | 101,629 | |||||||
| Loss on debt extinguishment | (1,032,070 | ) | (2,204,737 | ) | 1,172,667 | |||||||
| Change in fair value of convertible debt carried at fair value | 559,212 | 538,354 | 20,858 | |||||||||
| Change in fair value of investment | (473,563 | ) | (515,277 | ) | 41,714 | |||||||
| Change in fair value of warrant liability | 84,449 | 968,757 | (884,308 | ) | ||||||||
| Arbitration settlement reserve | 229,250 | 1,041,129 | (811,879 | ) | ||||||||
| Other income (expense), net | (8,204,066 | ) | (103,463 | ) | (8,100,603 | ) | ||||||
| Total other income (expense), net | (9,407,748 | ) | (947,826 | ) | (8,459,922 | ) | ||||||
| Loss from continuing operations before income taxes | (55,558,358 | ) | (26,330,731 | ) | (29,227,627 | ) | ||||||
| Income tax benefit | - | 55,096 | (55,096 | ) | ||||||||
| Net loss from continuing operations | (55,558,358 | ) | (26,275,635 | ) | (29,282,723 | ) | ||||||
| Net income (loss) from discontinued operations | 1,249,738 | (5,006,792 | ) | 6,256,530 | ||||||||
| Net loss | (54,308,620 | ) | (31,282,427 | ) | (23,026,193 | ) | ||||||
| Net loss attributable to non-controlling interest | 5,557,713 | - | 5,557,713 | |||||||||
| Net loss attributable to attributable to GameSquare Holdings, Inc. | $ | (48,750,907 | ) | $ | (31,282,427 | ) | $ | (17,468,480 | ) | |||
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Revenue
The following table disaggregates revenue by revenue stream and geographic region for the years ended December 31, 2024, and 2023.
| Year ended December 31, 2024 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Teams | $ | - | $ | 32,026,264 | $ | - | $ | 32,026,264 | ||||||||
| Agency | 1,342,578 | 10,747,244 | - | 12,089,822 | ||||||||||||
| SaaS + Advertising | - | 48,989,573 | 3,092,442 | 52,082,015 | ||||||||||||
| Total Revenue | 1,342,578 | 91,763,081 | 3,092,442 | 96,198,101 | ||||||||||||
| Cost of sales | ||||||||||||||||
| Teams | - | 26,422,806 | - | 26,422,806 | ||||||||||||
| Agency | 1,052,436 | 7,848,758 | - | 8,901,194 | ||||||||||||
| SaaS + Advertising | - | 45,225,442 | 375,543 | 45,600,985 | ||||||||||||
| Total Cost of sales | 1,052,436 | 79,497,006 | 375,543 | 80,924,985 | ||||||||||||
| Gross profit | ||||||||||||||||
| Teams | - | 5,603,458 | - | 5,603,458 | ||||||||||||
| Agency | 290,142 | 2,898,486 | - | 3,188,628 | ||||||||||||
| SaaS + Advertising | - | 3,764,131 | 2,716,899 | 6,481,030 | ||||||||||||
| Total Gross profit | $ | 290,142 | $ | 12,266,075 | $ | 2,716,899 | $ | 15,273,116 | ||||||||
| Year ended December 31, 2023 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Teams | $ | - | $ | - | $ | - | ||||||||||
| Agency | $ | 2,853,754 | $ | 8,667,147 | $ | - | $ | 11,520,901 | ||||||||
| SaaS + Advertising | - | 27,594,868 | 2,187,612 | 29,782,480 | ||||||||||||
| Total Revenue | 2,853,754 | 36,262,015 | 2,187,612 | 41,303,381 | ||||||||||||
| Cost of sales | ||||||||||||||||
| Teams | - | - | - | |||||||||||||
| Agency | 2,065,375 | 6,012,551 | - | 8,077,926 | ||||||||||||
| SaaS + Advertising | - | 22,879,308 | 244,625 | 23,123,933 | ||||||||||||
| Total Cost of sales | 2,065,375 | 28,891,859 | 244,625 | 31,201,859 | ||||||||||||
| Gross profit | ||||||||||||||||
| Teams | - | - | - | - | ||||||||||||
| Agency | 788,379 | 2,654,596 | - | 3,442,975 | ||||||||||||
| SaaS + Advertising | - | 4,715,560 | 1,942,987 | 6,658,547 | ||||||||||||
| Total Gross profit | $ | 788,379 | $ | 7,370,156 | $ | 1,942,987 | $ | 10,101,522 | ||||||||
Revenue
Revenues for the year ended December 31, 2024, were $96.2 million, in comparison to $41.3 million for the year ended December 31, 2023. The increase was primarily related to the acquisition of Engine on April 11, 2023 and the acquisition of FaZe on March 7, 2024. See below for revenue breakdown by operating segement.
Team Revenue
Team revenue for the year ended December 31, 2024, was $32.0 million, in comparison to $0 for the year ended December 31, 2023. The increase was related to our acquisition of FaZe on March 7, 2024. As such, there is no revenue is this operating segment in the prior year.
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Agency Revenue
Agency revenue for the year ended December 31, 2024, was $12.1 million, in comparison to $11.5 million for the year ended December 31, 2023. The variance was not significant.
Software-as-a-service (“SaaS”) + Advertising revenue
SaaS + Advertising revenue for the year ended December 31, 2024, was $52.1 million, in comparison to $29.8 million for the year ended December 31, 2023. The increase was related to our acquisition of Engine on April 11, 2023. As such, there is only three quarters of SaaS + Advertising revenue for this operating segment in the prior year. The large increase in revenue is also due to significant growth derived primarily from programmatic advertising year over year.
Update on 2024 Guidance
The Company had previously announced, subsequent to the closing of the acquisition of Faze, pro-forma annual revenue guidance of $100+ million. When including Faze revenue for the period from January 1, 2024 to March 7, 2024 of $5.7 million, pro-forma 2024 revenue amounted to approximately $102.0 million.
Cost of Sales
Cost of sales for the year ended December 31, 2024, was $80.9 million, in comparison to $31.2 million for the year ended December 31, 2023. The increase was primarily related to an increase in revenue associated with the acquisitions of FaZe and Engine discussed above, and varying margins of the Company product mix.
Operating expenses
General and administrative
General and administrative expenses for the year ended December 31, 2024, were $25.1 million, in comparison to $13.6 million for the year ended December 31, 2023. The increase was primarily related to our acquisitions of Faze and Engine as discussed above. Faze was not part of the prior year comparable results and Engine was included from April 11, 2023 forward.
Selling and marketing
Selling and marketing expenses for the year ended December 31, 2024, were $9.1 million, in comparison to $6.3 million for the year ended December 31, 2023. The increase was primarily related to our acquisitions of Faze and Engine as discussed above. Faze was not part of the prior year comparable results and Engine was included from April 11, 2023 forward.
Research and development
Research and development expenses for the year ended December 31, 2024, were $3.2 million, in comparison to $3.1 million for the year ended December 31, 2023. The increase was the result of an increase in expenses from the operations of Engine that were included in the 2023 period from April 11, 2023 forward. Annualizing the prior year figure, there was an actual reduction in research and development expense in 2024. The reduction is primarily driven by the disposal of the remaining Frankly SaaS assets on May 31, 2024, leading to a reduction in research and development headcount.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2024, was $3.2 million, in comparison to $1.9 million for the year ended December 31, 2023. The increase was primarily related to our acquisitions of Faze and Engine as discussed above and the related long-lived assets and intangible assets acquired in connection with these acquisitions.
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Restructuring charges
Restructuring charges for the year ended December 31, 2024, were $1.3 million, in comparison to $0.5 million for the year ended December 31, 2023. The increase was due to more restructuring needed post FaZe acquisition as compared to Engine acquisition the prior year.
Impairment expense
Impairment expense was $12.5 million for the year ended December 31, 2024, in comparison to $7.0 million for the year ended December 31, 2023. The Company concluded goodwill related to Stream Hatchet and Sideqik reporting units were impaired as of December 31, 2024 and recorded an impairment charge of $7.4 million for the year ended December 31, 2024. In addition, during the year ended December 31, 2024, the Company recorded an impairment of intangible assets acquired on the acquisition of Engine (Stream Hatchet and Sideqik reporting units) of $4.0 million. The prior year included goodwill impairment of the Frankly reporting unit of $7.0 million.
Other operating expenses
Other operating expenses for the year ended December 31, 2024, were $6.9 million, in comparison to $3.1 million for the year ended December 31, 2023. Other operating expenses between the quarters consisted primarily of transaction related expenses. The increase was primarily related to additional transaction activities in the 2024 period. The 2024 period primarily included transaction costs associated with the acquisition of FaZe, the disposal of Complexity, the Faze Media Inc. asset contribution, and the Franky Media asset disposal, while the 2023 period only included transaction costs associated with the acquisition of Engine. The 2024 period also included $0.5 million expense in change in fair value of contingent consideration related to the disposal of Frankly radio assets on December 29, 2023.
Other income and expenses
Interest expense, net
Interest expense, net for the year ended December 31, 2024 was $0.6 million, in comparison to $0.7 million for the year ended December 31, 2023. After removing interest income recognized on the promissory notes from the disposal of Complexity on March 1, 2024 and Frankly Media assets on May 31, 2024, there was a large increase in interest expense. The increase was primarily related to interest expense on convertible debt acquired in connection with the acquisition of Engine and line of credit that was closed in September 2023. As such, the comparative prior year period did not include a full year of interest expense on these instruments.
Loss on debt extinguishment
We recognized a loss on debt extinguishment of $1.0 million during the year ended December 31, 2024, in comparison to $2.2 million for the year ended December 31, 2023. The Company recognized a day one loss on issuance of debt of $1.4 million on July 8, 2024 in connection with the issuance of the Yorkville CD. The loss is presented net of the $0.3 million gain on extinguishment of the King Street CD which was paid down in full on July 10, 2024. The 2023 loss was due to the extinguishment of the EB CD as part of a convertible note refinance.
Change in fair value of convertible debt carried at fair value
Change in fair value of convertible debt gain for the year December 31, 2024, was $0.6 million in comparison to $0.5 million for the year ended December 31, 2023. The variance was not significant.
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Change in fair value of investment
Change in fair value of investment for the year December 31, 2024 was $0.5 million, in comparison to $0.5 million loss for the year ended December 31, 2023. The variance was not significant.
Change in fair value of warrant liability
Change in fair value of warrant liability gain was $80 thousand for the year ended December 31, 2024, in comparison to gain of $1.0 million for the year ended December 31, 2023. Prior to the Engine acquisition, we did not have any liability measured warrants. The gain represents adjusting the liability measured warrants to fair value at the end of the reporting period, primarily driven by changes in our share price. The large reduction in gain is primarily driven by the expiration of the majority of the liability measured warrants, and therefore the change in fair value over the current period is not significant.
Arbitration settlement reserve
Arbitration settlement reserve was $0.2 million gain for the year ended December 31, 2024, in comparison to gain of $1.0 million for the year ended December 31, 2023. Prior to the Engine acquisition, we did not have an arbitration settlement reserve. The change represents adjusting the arbitration settlement reserve to fair value at the end of the reporting period, primarily driven by changes in our share price.
Other income (expense) for the year ended December 31, 2024, was $(8.2) million, in comparison to $(0.1) million for the year ended December 31, 2023. Other expense in the current period is primarily related to loss incurred of $8.3 million on the disposal of Frankly Media remaining SaaS assets which closed on May 31, 2024. No such loss was incurred in the prior year.
Income tax benefit
Income tax benefit for the year ended December 31, 2024, was $0, in comparison to $55 thousand for the year ended December 31, 2023. The change was trivial between the two periods and relates to change in deferred tax liabilities during the year.
Net income (loss) from discontinued operations
Net income from discontinued operations for the year ended December 31, 2024 was $1.2 million, in comparison to a net loss of $5.0 million for the year ended December 31, 2023. The increase was primarily related to gain on disposal of Complexity of $3.0 million in the 2024 period partially offset by net loss from operations of Complexity of $1.4 million as compared to a net loss from operations of Complexity of $5.3 million in the 2023 period.
Net loss attributable to non-controlling interest
Net loss attributable to non-controlling interests for the year ended December 31, 2024 was $5.6 million, in comparison to a $0 for the year ended December 31, 2023. The add back of loss (income to GameSquare shareholders) represents non-controlling interests share of the net loss of Faze Media.
Management’s use of Non-GAAP Measures
This MD&A contains certain financial performance measures, including “EBITDA” and “Adjusted EBITDA,” that are not recognized under accounting principles generally accepted in the United States of America (“GAAP”) and do not have a standardized meaning prescribed by GAAP. As a result, these measures may not be comparable to similar measures presented by other companies. For a reconciliation of these measures to the most directly comparable financial information presented in the Financial Statements in accordance with GAAP, see the section entitled “Reconciliation of Non-GAAP Measures” below.
We believe EBITDA is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our underlying business performance and other one-time or non-recurring expenses. We define “EBITDA” as net income (loss) before (i) depreciation and amortization; (ii) income taxes; and (iii) interest expense.
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Adjusted EBITDA
We believe Adjusted EBITDA is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our underlying business performance and other one-time or non-recurring expenses. We define “Adjusted EBITDA” as EBITDA adjusted to exclude extraordinary items, non-recurring items and other non-cash items, including, but not limited to (i) share based compensation expense, (ii) transaction costs related to merger and acquisition activities, (iii) arbitration settlement reserves and other non-recurring legal settlement expenses, (iv) restructuring costs, primarily comprised of employee severance resulting from integration of acquired businesses, (v) impairment of goodwill and intangible assets, (vi) gains and losses on extinguishment of debt, (vii) change in fair value of assets and liabilities adjusted to fair value on a quarterly basis, and (viii) gains and losses from discontinued operations.
Reconciliation of Non-GAAP Measures
A reconciliation of Adjusted EBITDA to the most directly comparable measure determined under US GAAP is set out below.
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | (54,308,620 | ) | $ | (31,282,427 | ) | ||
| Interest expense | 570,960 | 672,589 | ||||||
| Income tax benefit | - | (55,096 | ) | |||||
| Amortization and depreciation | 3,237,349 | 1,889,075 | ||||||
| Share-based payments | 2,139,246 | 1,735,630 | ||||||
| Transaction costs | 6,348,728 | 3,019,373 | ||||||
| Arbitration settlement reserve | (229,250 | ) | (1,041,129 | ) | ||||
| Restructuring costs | 1,334,717 | 545,456 | ||||||
| Legal settlement | - | 186,560 | ||||||
| Loss on extinguishment of debt | 1,032,070 | 2,204,737 | ||||||
| Change in fair value of contingent consideration | 501,118 | 45,648 | ||||||
| Change in fair value of investment | 473,563 | 515,277 | ||||||
| Change in fair value of warrant liability | (84,449 | ) | (968,757 | ) | ||||
| Change in fair value of convertible debt carried at fair value | (559,212 | ) | (538,354 | ) | ||||
| Gain on disposition of subsidiary | (3,009,891 | ) | - | |||||
| Loss on disposition of assets | 8,264,980 | (40,794 | ) | |||||
| Impairment expense | 12,548,476 | 7,024,000 | ||||||
| Loss from discontinued operations | 1,760,153 | 5,006,792 | ||||||
| Net loss attributable to non-controlling interest | 5,557,713 | - | ||||||
| Net loss attributable to non-controlling interest (adjustment for NCI share of add backs to Adjusted EBITDA) | (1,586,728 | ) | - | |||||
| Adjusted EBITDA | $ | (16,009,077 | ) | $ | (11,081,420 | ) | ||
Liquidity and Capital Resources
Overview
The financial statements have been prepared on a going-concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. Continuing operations, as intended, are dependent on management’s ability to raise required funding through future equity issuances, its ability to acquire business interests and develop profitable operations or a combination thereof, which is not assured, given today’s volatile and uncertain financial markets. We may revise programs depending on our working capital position.
Our approach to managing liquidity risk is to ensure that we will have sufficient liquidity to meet liabilities when due. Our liquidity and operating results may be adversely affected if our access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or as a result of conditions specific to the Company.
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We regularly evaluate our cash position to ensure preservation and security of capital as well as maintenance of liquidity. As we do not presently generate sufficient revenue to cover costs, managing liquidity risk is dependent upon the ability to reduce monthly operating cash outflow and secure additional financing. The recoverability of the carrying value of the assets and our continued existence is dependent upon our ability to raise financing in the near term, and ultimately the achievement of profitable operations.
As of December 31, 2024, we had a working deficit of $18.3 million, compared to $13.9 million as of December 31, 2023. The increase in the working capital resulted mostly from the liabilities related to the FaZe acquisition as well as from the Company’s use of cash in operating activities as described in the cash flows section. In addition, as of December 31, 2024, there is $6.5 million of convertible debt at fair value reflected as current, but the bulk of this related to the Yorkville CD which was converted to equity subsequent to year end. We have not yet realized profitable operations and have incurred significant losses to date resulting in a cumulative deficit of $122.2 million as of December 31, 2024 (December 31, 2023: $73.4 million).
We have plans to raise additional funds. While management has been historically successful in raising the necessary capital, it cannot provide assurance that it will be able to execute its business strategy or be successful in future financing activities.
Our ability to maintain sufficient liquidity could be affected by various risks and uncertainties including, but not limited to, our ability to raise additional funds through financing, those related to consumer demand and acceptance of our products and services, our ability to collect payments as they become due, achieving our internal forecasts and objectives, the economic conditions of the United States and abroad.
Sources and Uses of Cash
Since inception, we have financed our operations primarily by issuing equity and debt. As of December 31, 2024, our principal sources of liquidity were our cash in the amount of $12.1 million, available borrowings under our line of credit as well as new debt and/or equity issuances.
As discussed in recent developments above, we obtained gross proceeds of $10.0 million from the Kalish CD issued on December 15, 2024. Further, as discussed above, the Kalish CD was exchanged on April 1, 2025 for the Company’s remaining preferred shares held in Faze Media Inc.
Operating Activities
The Company used cash of $30.6 million in operating activities during the year ended December 31, 2024, compared with $16.1 million in the comparative period. The use of funds in operating activities is described in the Results of Operations section above.
Investing Activities
Net cash provided by investing activities was $2.7 million for the year ended December 31, 2024, consisting primarily of $2.4 million cash acquired in the FaZe Clan acquisition.
Net cash provided by investing activities was $14.1 million for the year ended December 31, 2023, consisting primarily of $11.3 million in cash acquired in the Engine acquisition and $2.75 million cash from the disposal of Frankly Media radio assets.
Financing Activities
Net cash provided by financing activities was $38.0 million for the year ended December 31, 2024, which was primarily due to PIPE Financing on March 7, 2024 of $10 million, cash investments by non-controlling interests of Faze Media, Inc. of $20.5 million and net cash inflows from issuances (less repayments) of convertible debt of $8.5 million.
Net cash provided by financing activities was $4.0 million for the year ended December 31, 2023, which was primarily due to $4.5 million of proceeds from the line of credit and $0.2 million of proceeds from promissory notes payable, offset by $0.8 million of payments on the credit facility.
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Commitments and Contingencies
Management commitments
The Company is party to certain management contracts. These contracts require payments of approximately $0.6 million to be made upon the occurrence of a change in control and termination without cause to certain officers of the Company. The Company is also committed to payments upon termination without cause of approximately $1.1 million pursuant to the terms of these contracts. As a triggering event has not taken place, these amounts have not been recorded in these consolidated financial statements.
Former activities
The Company was previously involved in oil and gas exploration activities in Canada, the United States and Colombia. The Company ceased all direct oil and gas exploration activities in 2014. While management estimated that the exposure to additional liabilities from its former oil and gas activities over and above the reclamation deposits held in trust for the Alberta Energy Regulator of $0.3 million to be remote, the outcome of any such contingent matters is inherently uncertain.
Litigation and arbitration
We are subject to various claims, lawsuits and other complaints arising in the ordinary course of business. We record provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of such matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on our financial condition, operations, or liquidity.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the results of operations or financial condition of the Company including, without limitation, such considerations as liquidity and capital resources.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions, and judgments as of the balance sheet date that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Our actual results may differ from these estimates under different assumptions and conditions.
Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control of its services to a customer.
The following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms and related revenue recognition policies:
Brand Sponsorships
The Company offers advertisers a full range of promotional vehicles, including but not limited to online advertising, livestream announcements, event content generation, social media posts, logo placement on the Company’s official merchandise, and special appearances of members of the Company’s talent roster. The Company’s brand sponsorship agreements may include multiple services that are capable of being individually distinct; however the intended benefit is an association with the Company’s brand, and the services are not distinct within the context of the contracts. Revenues from brand sponsorship agreements are recognized ratably over the contract term. Payment terms and conditions vary, but payments are generally due periodically throughout the term of the contract. In instances where the timing of revenue recognition differs from the timing of billing, management has determined the brand sponsorship agreements generally do not include a significant financing component.
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Content
The Company and its talent roster generate and produce original content which the Company monetizes through Google’s AdSense service. Revenue is variable and is earned when the visitor views or “clicks through” on the advertisement. The amount of revenue earned is reported to the Company monthly and is recognized upon receipt of the report of viewership activity. Payment terms and conditions vary, but payments are generally due within 30 to 45 days after the end of each month.
The Company grants exclusive licenses to customers for certain content produced by the Company’s talent. The Company grants the customer a license to the intellectual property, which is the content and its use in generating advertising revenues, for a pre-determined period, for an amount paid by the customer, in most instances, upon execution of the contract. The Company’s only performance obligation is to license the content for use in generating advertising revenues, and the Company recognizes the full contract amount at the point at which the Company provides the customer access to the content, which is at the execution of the contract. The Company has no further performance obligations under these types of contracts and does not anticipate generating any additional revenue from these arrangements apart from the contract amount.
Consumer Products
The Company earns consumer products revenue from sales of the Company’s consumer products on the Company’s website or at live or virtual events. Revenues are recognized at a point in time, as control is transferred to the customer upon shipment. The Company offers customer returns and discounts through a third-party distributor and accounts for this as a reduction to revenue. The Company does not offer loyalty programs or other sales incentive programs that are material to revenue recognition. Payment is due at the time of sale. The Company has outsourced the design, manufacturing, fulfillment, distribution, and sale of the Company’s consumer products to a third party in exchange for royalties based on the amount of revenue generated. Management evaluated the terms of the agreement to determine whether the Company’s consumer products revenues should be reported gross or net of royalties paid. Key indicators that management evaluated in determining whether the Company is the principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to:
| ● | the Company is the party that is primarily responsible for fulfilling the promise to provide the specified good or service, | |
| ● | the Company has inventory risk before the good is transferred to the customer, and | |
| ● | the Company is the party that has discretion in establishing pricing for the specified good or service. |
Based on management’s evaluation of the above indicators, the Company reports consumer products revenues on a gross basis.
Esports
League Participation: Generally, The Company has one performance obligation—to participate in the overall Esport event—because the underlying activities do not have standalone value absent the Company’s participation in the tournament or event. Revenue from prize winnings and profit-share agreements is variable and is highly uncertain. The Company recognizes revenue at the point in time when the uncertainty is resolved.
Player Transfer Fees: Player transfer agreements include a fixed fee and may include a variable fee component. The Company recognizes the fixed portion of revenue from transfer fees upon satisfaction of the Company’s performance obligation, which coincides with the execution of the related agreement. The variable portion of revenue is considered highly uncertain and is recognized at the point in time when the uncertainty is resolved.
Licensing of Intellectual Property: The Company’s licenses of intellectual property generate royalties that are recognized in accordance with the royalty recognition constraint. That is, royalty revenue is recognized at the time when the sale occurs.
Talent representation service revenues
Talent representation service revenue is recorded on completion of the event in which the talent management service has been provided.
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Influencer promotional fees
Influencer marketing and promotional fees are recognized over the period during which the services are performed. Revenue and income from custom service contracts are determined on the percentage of completion method, based on the ratio of contract timepassed in the reporting period over estimated total length of the contract.
Consulting fees and other revenues
Consulting fees and other revenues are recognized when the services have been performed.
Software-as-a-service
The Company enters into license agreements with customers for its content management system, video software, and mobile applications (Frankly), e-sports data platform (Stream Hatchet) and an influencer marketing platform (SideQik). These license agreements, generally non-cancellable, without paying a termination penalty, and multiyear, provide the customer with the right to use the Company’s application solely on a Company-hosted platform or, in certain instances, on purchased encoders. The license agreements also entitle the customer to technical support.
Revenue from these license agreements is recognized ratably over the license term. Early termination fees are recognized when a customer ceases use of agreed upon services prior to the expiration of their contract. These fees are recognized in full on the date the customer has completed their migration of the Company’s solutions and there is no continuing service obligation to the customer.
The Company charges its customers for the optional use of its content delivery network to stream and store videos. The revenue is recognized as earned based on the actual usage because it has stand-alone value and delivery is in control of the customer. The Company also charges its customers for the use of its ad serving platform to serve ads under local advertising campaigns. The Company reports revenue as earned based on the actual usage.
Advertising
Under national advertising agreements with advertisers, the Company sources, creates, and places advertising campaigns that run across the Company’s network of publisher sites. National advertising revenue, net of third-party costs, is shared with publishers based on their respective contractual agreements. The Company invoices national advertising amounts due from advertisers and remits payments to publishers for their share. Depending on the agreement with the publisher, the obligation to remit payment to the publisher is based on either billing to the advertiser or the collection of cash from the advertiser.
National advertising revenue is recognized in the period during which the ad impressions are delivered. The Company reports revenue earned through national advertising agreements either on a net or gross basis. The Company applies judgement in recognizing revenue earned through national advertising agreements on a net or gross basis based on the criteria as disclosed below.
Under national advertising agreements wherein the Company does not bear inventory risk and only has credit risk on its portion of the revenue, national advertising revenues are accounted for on a net basis and the publisher is identified as the customer. In select national advertising agreements with its publishers, the Company takes on inventory risk and additional credit risk. Under these agreements, the Company either a) provides the publisher with a guaranteed minimum gross selling price per advertising unit delivered, wherein the greater of the actual selling price or guaranteed minimum selling price is used in determining the publisher’s share or b) provides the publisher with a fixed rate per advertising unit delivered, wherein the publisher is paid the fixed rate per advertising unit delivered irrespective of the actual selling price. Under these national advertising agreements, national advertising revenues are accounted for on a gross basis with the advertiser identified as the customer and the publisher identified as a supplier, with amounts billed to the advertiser reported as revenue and amounts due to the publisher reported as a revenue sharing expense, within expenses.
| 26 |
Also included in advertising revenue is advertising revenue generated by the Company’s various owned and operated properties.
The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Company.
Deferred revenue consists of customer advances for Company services to be rendered that will be recognized as income in future periods.
Income taxes
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries, associates, and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date applicable to the period of expected realization or settlement.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
| 27 |
Investments
Investments in and advances to entities or joint ventures in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an interest between 20% and 50% and exercises significant influence.
In accordance with ASC 321 “Investments—Equity Securities” (“ASC 321”), equity securities which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. All gains and losses on investments in equity securities are recognized in the consolidated statements of operations and comprehensive loss.
Equity securities accounted for under the measurement alternative, the Company assesses the securities for impairment indicators, at least annually, or more frequently if there are any indicators of impairment. If the assessment indicates that the fair value of the investment is less than its carrying value, the investment is impaired and an impairment charge equal to the excess of the carrying value over the related fair value of the investment will be recorded.
Business combinations
The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. The Company uses the acquisition method of accounting and allocates the purchase price to the identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The allocation of the purchase price in a business combination requires the Company to perform valuations with significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Transaction costs associated with business combinations are expensed as incurred and are included in selling, general and administrative expense in the consolidated statements of operations.
| 28 |
Impairment of long-lived assets and goodwill
Long-lived assets consist of property and equipment, right-of-use assets and intangible assets. The Company assesses for impairment of asset groups, including intangible assets, at least annually, or more frequently if there are any indicators for impairment.
Goodwill and indefinite life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired.
When a triggering event that occurred during the reporting period is identified, or when the annual impairment test is required, the Company may first assess qualitative factors to determine whether it is more likely than not that goodwill is impaired. If the Company determines it is more likely than not that goodwill is not impaired, an impairment test is not necessary. If an impairment test is necessary, management estimates the fair value of the Company. If the carrying value of the Company exceeds its fair value, goodwill is determined to be impaired, and an impairment charge equal to the excess of the carrying value over the related fair value of the Company will be recorded. If the qualitative assessment indicates that it is more likely than not that goodwill is not impaired, further testing is unnecessary.
Fair value option for convertible debt
The Company elected the Fair Value Option (“FVO”) for recognition of its convertible debt as permitted under ASC 825, Financial Instruments. Under the FVO, the Company recognizes the convertible debt at fair value with changes in fair value recognized in earnings. The FVO may be applied instrument by instrument, but it is irrevocable. As a result of applying the FVO, any direct costs and fees related to the convertible debt is recognized in operating expense in the consolidated statements of operations and comprehensive loss as incurred and not deferred. Changes in fair value of the convertible debt is recognized as a separate line in the consolidated statements of operations and comprehensive loss.
Contingencies
The Company estimates loss contingencies in accordance with ASC 450-20, Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (i) information available before the consolidated financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and (ii) the amount of loss can be reasonably estimated. Management regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.
Recent Accounting Pronouncements
See Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted, the timing of their adoptions and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to a variety of market and other risks, including the effects of changes in interest rates and inflation, as well as risks to the availability of funding sources, and specific asset risks.
Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial market prices, including interest rate risk, foreign currency exchange rate risk, and other relevant market or price risks. We do not use derivative instruments to mitigate this risk.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are exposed to fair value risk with respect to debt which bears interest at fixed rates.
Foreign currency risk
Our exposure to the risk of changes in foreign exchange rates relates primarily to fluctuations of financial instruments related to cash, accounts and other receivables, and accounts payable denominated in Euros, UK pound sterling as well as debt denominated in Canadian dollars.
| 29 |
Item 8. Financial Statements and Supplementary Data
GameSquare Holdings, Inc.
Index to the Consolidated Financial Statements
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stakeholders of GameSquare Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of GameSquare Holdings, Inc. (the “Company” or “GSQ”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty Related to Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(b) to the financial statements, the Company has suffered recurring losses from operations and current liabilities exceed current assets (or had a working capital deficiency of $18.3 million) that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1(b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-2 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Acquisitions
Description of the Matter
As described in Note 4(c) to the consolidated financial statements, during the year ended December 31, 2024, all issued and outstanding FaZe common shares in exchange for 0.13091 of a GameSquare common share for each FaZe common share. The identifiable assets acquired, and the liabilities assumed are measured at fair value as of the acquisition date. Where the net of the fair value of the identified assets acquired and liabilities assumed is less than the fair value of consideration transferred, the difference is recognized as goodwill. In assessing fair value of the acquired assets, liabilities and consideration, management used various valuation techniques involving significant judgment and subjectivity.
We considered this to be a critical audit matter due to the complexity involved in the valuation of the acquired intangible assets and consideration. This resulted in a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the audit evidence related to management’s estimates.
How the Critical Audit Matter Was Addressed in the Audit
We responded to this matter by performing procedures over management’s valuation techniques in determining fair value of the acquired intangible assets and consideration. Our audit work in relation to this included, but was not restricted to, the following:
| ■ | Obtaining an understanding of internal controls over the Company’s process for accounting of acquisitions. | |
| ■ | Analyzed the signed purchase agreements to obtain an understanding of the key terms and related accounting considerations. | |
| ■ | Tested the mathematical accuracy of management’s valuation models and supporting calculations. | |
| ■ | Evaluated the fair value of the consideration transferred. | |
| ■ | Evaluated the reasonableness of key assumptions in management’s model such as projected revenue growth rates, EBITDA margins, tax rates, discount rates and testing of historical financial results. | |
| ■ | With the assistance of valuation specialists, evaluated the reasonableness of management’s model, through assessing the appropriateness of valuations models used and testing the significant assumptions and inputs by: |
| ○ | Comparing to externally available industry and economic trends; | |
| ○ | Evaluating budgets and forecasts for future operations; and | |
| ○ | Comparing against guideline companies within the same industry. |
| ■ | Assessed the appropriateness of the disclosures relating to the acquisitions in the notes to the consolidated financial statements. |
| F-3 |
Impairment of goodwill and intangible assets
Description of the Matter
The Company tests goodwill for impairment annually, as of December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Reporting units were tested for impairment by comparing their fair values to their carrying values.
As discussed in Note 7 to the consolidated financial statements, as a result of the impairment assessment, the Company recorded impairment loss of $11.4 million related to the Stream Hatchet and Sideqik reporting units. The carrying value of goodwill as of December 31, 2024 was $12.7 million. Auditing the Company’s impairment assessment was complex and required significant auditor judgment due to the significant estimation uncertainty in determining the fair value of the respective reporting units. Management used a combination of income and market-based approaches to estimate the fair value of each reporting unit. A significant emphasis is placed on the appropriateness of the estimate considerations used by management to determine the fair value of reporting units due to the sensitivity of the fair value to the underlying assumptions. The significant assumptions include forecasted revenues and the discount rate used to discount future cash flows. These significant assumptions related to the fair value of these reporting units are forward-looking and could be affected by future economic and market conditions.
How the Critical Audit Matter Was Addressed in the Audit
In testing the valuation of each reporting unit, we performed audit procedures that included, among others:
| ■ | Obtaining an understanding of internal controls over the Company’s process for determining the fair value of reporting units used in the impairment assessment. This included controls over management’s development of the above-described assumptions used in the valuation model applied. | |
| ■ | Evaluating the Company’s use of the income and market-based approaches and testing the significant assumptions used in the model, as described above. | |
| ■ | We evaluated the completeness and accuracy of underlying data used in supporting the assumptions and estimates. | |
| ■ | We evaluated the reasonableness of significant assumptions such as the projected revenue growth used within the forecast against analyst expectations, industry trends, market trends, and other market information. | |
| ■ | We involved valuation specialists to assist in evaluating the Company’s use of the income and market-based approaches and selection of the discount rate. Our valuation specialists evaluated the discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities. |
Revenue recognition
Description of the Matter
As described in Note 2(e) to the consolidated financial statements, the Company’s revenue includes brand sponsorships, content creation and monetization, league participation, talent representation, influencer promotions, software-as-a-service and advertising. For all contracts, management identifies the performance obligations at contract inception by evaluating whether the promised services are distinct. Performance obligations within the majority of the Company’s contracts comprise a series of distinct services that are recognized over time and are treated as a single performance obligation or at a point in time and are treated as a single performance obligation, as applicable. Contracts with the Company’s customers primarily utilize a usage-based structure, where cost per thousand impressions (CPM) pricing is consistent over the contract term. Contracts with the Company’s customers may also utilize other pricing arrangements, including minimum commitments, overages based on tiered pricing or flat fees. During the year ended December 31, 2024, the Company recognized revenue of $96 million.
| F-4 |
Revenue recognition (continued)
Description of the Matter (continued)
The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.
How the Critical Audit Matter Was Addressed in the Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, but were not limited to:
| ■ | Obtaining an understanding of internal controls over the Company’s process relating to revenue recognition. | |
| ■ | Testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as customer contracts, invoices, impressions data, and cash receipts, and recalculating the revenue recognized based on the terms of the customer contract and impressions data. | |
| ■ | Confirming a sample of outstanding customer balances as of December 31, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such as customer contracts, invoices, impressions data, and subsequent cash receipts. |
/s/ Kreston GTA LLP
We have served as the Company’s auditor since 2020.
Markham, Ontario, Canada
April 15, 2025
| F-5 |
GameSquare Holdings, Inc.
Consolidated Balance Sheets
| December 31, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Cash | $ | 12,094,950 | $ | 2,945,373 | ||||
| Restricted cash | 1,054,030 | 47,465 | ||||||
| Accounts receivable, net | 21,330,847 | 16,459,684 | ||||||
| Government remittances | 119,721 | 1,665,597 | ||||||
| Contingent consideration, current | 207,673 | |||||||
| Promissory note receivable, current | 379,405 | |||||||
| Prepaid expenses and other current assets | 1,493,619 | 916,740 | ||||||
| Total current assets | 36,472,572 | 22,242,532 | ||||||
| Investment | 2,199,909 | 2,673,472 | ||||||
| Contingent consideration, non-current | 293,445 | |||||||
| Promissory note receivable | 9,212,785 | |||||||
| Property and equipment, net | 303,950 | 2,464,633 | ||||||
| Goodwill | 12,704,979 | 16,303,989 | ||||||
| Intangible assets, net | 15,265,736 | 18,574,144 | ||||||
| Right-of-use assets | 2,570,516 | 2,159,693 | ||||||
| Total assets | $ | 78,730,447 | $ | 64,711,908 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Accounts payable | $ | 27,349,372 | $ | 23,493,472 | ||||
| Accrued expenses and other current liabilities | 13,694,179 | 5,289,149 | ||||||
| Players liability account | 47,535 | 47,465 | ||||||
| Deferred revenue | 2,726,121 | 1,930,028 | ||||||
| Current portion of operating lease liability | 748,916 | 367,487 | ||||||
| Line of credit | 3,501,457 | 4,518,571 | ||||||
| Convertible debt carried at fair value | 6,481,704 | |||||||
| Warrant liability | 14,314 | 102,284 | ||||||
| Arbitration reserve | 199,374 | 428,624 | ||||||
| Total current liabilities | 54,762,972 | 36,177,080 | ||||||
| Convertible debt carried at fair value | 9,908,784 | 8,176,928 | ||||||
| Operating lease liability | 2,054,443 | 1,994,961 | ||||||
| Total liabilities | 66,726,199 | 46,348,969 | ||||||
| Commitments and contingencies (Note 14) | ||||||||
| Preferred stock (no par value, shares authorized, shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively) | ||||||||
| Common stock (no par value, shares authorized, and shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively) | ||||||||
| Additional paid-in capital | 119,441,634 | 91,915,169 | ||||||
| Accumulated other comprehensive loss | (208,617 | ) | (132,081 | ) | ||||
| Non-controlling interest | 14,942,287 | |||||||
| Accumulated deficit | (122,171,056 | ) | (73,420,149 | ) | ||||
| Total shareholders’ equity | 12,004,248 | 18,362,939 | ||||||
| Total liabilities and shareholders’ equity | $ | 78,730,447 | $ | 64,711,908 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
GameSquare Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Loss
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | 96,198,101 | $ | 41,303,381 | ||||
| Cost of revenue | 80,924,985 | 31,201,859 | ||||||
| Gross profit | 15,273,116 | 10,101,522 | ||||||
| Operating expenses: | ||||||||
| General and administrative | 25,074,294 | 13,587,575 | ||||||
| Selling and marketing | 9,131,270 | 6,305,939 | ||||||
| Research and development | 3,247,774 | 3,067,361 | ||||||
| Depreciation and amortization | 3,237,349 | 1,889,075 | ||||||
| Restructuring charges | 1,334,717 | 545,456 | ||||||
| Impairment expense | 12,548,476 | 7,024,000 | ||||||
| Other operating expenses | 6,849,846 | 3,065,021 | ||||||
| Total operating expenses | 61,423,726 | 35,484,427 | ||||||
| Loss from continuing operations | (46,150,610 | ) | (25,382,905 | ) | ||||
| Other income (expense), net: | ||||||||
| Interest expense | (570,960 | ) | (672,589 | ) | ||||
| Loss on debt extinguishment | (1,032,070 | ) | (2,204,737 | ) | ||||
| Change in fair value of convertible debt carried at fair value | 559,212 | 538,354 | ||||||
| Change in fair value of investment | (473,563 | ) | (515,277 | ) | ||||
| Change in fair value of warrant liability | 84,449 | 968,757 | ||||||
| Arbitration settlement reserve | 229,250 | 1,041,129 | ||||||
| Other income (expense), net | (8,204,066 | ) | (103,463 | ) | ||||
| Total other income (expense), net | (9,407,748 | ) | (947,826 | ) | ||||
| Loss from continuing operations before income taxes | (55,558,358 | ) | (26,330,731 | ) | ||||
| Income tax benefit | 55,096 | |||||||
| Net loss from continuing operations | (55,558,358 | ) | (26,275,635 | ) | ||||
| Net income (loss) from discontinued operations | 1,249,738 | (5,006,792 | ) | |||||
| Net loss | (54,308,620 | ) | (31,282,427 | ) | ||||
| Net loss attributable to non-controlling interest | 5,557,713 | |||||||
| Net loss attributable to attributable to GameSquare Holdings, Inc. | $ | (48,750,907 | ) | $ | (31,282,427 | ) | ||
| Comprehensive loss, net of tax: | ||||||||
| Net loss | $ | (54,308,620 | ) | $ | (31,282,427 | ) | ||
| Change in foreign currency translation adjustment | (76,536 | ) | 136,972 | |||||
| Comprehensive loss | (54,385,156 | ) | (31,145,455 | ) | ||||
| Comprehensive income attributable to non-controlling interest | 5,557,713 | |||||||
| Comprehensive loss | $ | (48,827,443 | ) | $ | (31,145,455 | ) | ||
| Income (loss) per common share attributable to GameSquare Holdings, Inc. - basic and assuming dilution: | ||||||||
| From continuing operations | $ | (1.79 | ) | $ | (2.36 | ) | ||
| From discontinued operations | 0.04 | (0.45 | ) | |||||
| Loss per common share attributable to GameSquare Holdings, Inc. - basic and assuming dilution | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
GameSquare Holdings, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
| Common stock | Additional paid-in | Acccumulated other comprehensive | Accumulated | Non-controlling | Shareholders’ | |||||||||||||||||||||||
| Shares | Par value | capital | (loss) income | deficit | interest | equity | ||||||||||||||||||||||
| Balance, January 1, 2023 | 6,352,270 | $ | $ | 49,672,443 | $ | (269,053 | ) | $ | (42,137,722 | ) | $ | $ | 7,265,668 | |||||||||||||||
| Impact of rounding down after exchange for GSQ Esports | (70 | ) | ||||||||||||||||||||||||||
| Issuance of common shares to settle contingent consideration | 29,359 | |||||||||||||||||||||||||||
| Acquisition of Engine | 6,380,083 | 41,044,000 | 41,044,000 | |||||||||||||||||||||||||
| Reclassification of GSQ Esports Inc. warrants to warrant liability | - | (900,818 | ) | (900,818 | ) | |||||||||||||||||||||||
| Restricted share units exercised | 125,148 | |||||||||||||||||||||||||||
| Shares issued to settle outstanding amounts payable | 72,409 | 180,727 | 180,727 | |||||||||||||||||||||||||
| Shares issued for legal settlements | 29,929 | 183,187 | 183,187 | |||||||||||||||||||||||||
| Share-based compensation - options and RSUs | - | 1,735,630 | 1,735,630 | |||||||||||||||||||||||||
| Other comprehensive loss | - | 136,972 | 136,972 | |||||||||||||||||||||||||
| Net loss | - | (31,282,427 | ) | (31,282,427 | ) | |||||||||||||||||||||||
| Balance, December 31, 2023 | 12,989,128 | $ | $ | 91,915,169 | $ | (132,081 | ) | $ | (73,420,149 | ) | $ | $ | 18,362,939 | |||||||||||||||
| Acquisition of Faze Clan | 10,132,884 | 14,587,000 | 14,587,000 | |||||||||||||||||||||||||
| Private placements, net of issuance costs | 7,194,244 | 9,865,058 | 9,865,058 | |||||||||||||||||||||||||
| Conversion of convertible debt | 915,941 | 645,161 | 645,161 | |||||||||||||||||||||||||
| Shares issued to settle outstanding amounts payable | 315,666 | 270,000 | 270,000 | |||||||||||||||||||||||||
| Restricted share units exercised | 1,088,132 | 20,000 | 20,000 | |||||||||||||||||||||||||
| Non-controlling interest in Faze Media, Inc. | - | 20,500,000 | 20,500,000 | |||||||||||||||||||||||||
| Share-based compensation - options and RSUs | - | 2,139,246 | 2,139,246 | |||||||||||||||||||||||||
| Other comprehensive income | - | (76,536 | ) | (76,536 | ) | |||||||||||||||||||||||
| Net loss | - | (48,750,907 | ) | (5,557,713 | ) | (54,308,620 | ) | |||||||||||||||||||||
| Balance, December 31, 2024 | 32,635,995 | $ | $ | 119,441,634 | $ | (208,617 | ) | $ | (122,171,056 | ) | $ | 14,942,287 | $ | 12,004,248 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-8 |
GameSquare Holdings, Inc.
Consolidated Statements of Cash Flows
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (54,308,620 | ) | $ | (31,282,427 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization and depreciation | 3,463,898 | 3,294,015 | ||||||
| Amortization of operating lease right-of-use assets | 520,963 | 335,640 | ||||||
| Shares issued for legal settlements | 186,560 | |||||||
| Gain on disposition of Complexity | (3,009,891 | ) | ||||||
| Loss (gain) on disposition of assets | 8,264,980 | (40,794 | ) | |||||
| Loss on extinguishment of debt | 1,032,070 | 2,204,737 | ||||||
| Impairment expense | 12,548,476 | 7,024,000 | ||||||
| Gain on settlement of patent litigation | (635,480 | ) | ||||||
| Accretion of promissory note receivable | (909,765 | ) | ||||||
| Change in fair value of contingent consideration | 501,118 | 45,648 | ||||||
| Change in fair value of investment | 473,563 | 515,277 | ||||||
| Change in fair value of warrant liability | (84,449 | ) | (968,757 | ) | ||||
| Change in fair value of arbitration reserve | (229,250 | ) | (1,041,129 | ) | ||||
| Change in provision for reclamation deposit | ||||||||
| Change in fair value of convertible debt carried at fair value | (559,212 | ) | (538,354 | ) | ||||
| Income tax recovery | ||||||||
| Change in deferred tax balances | (55,096 | ) | ||||||
| Share-based compensation | 2,139,246 | 1,735,630 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 502,648 | (880,481 | ) | |||||
| Government remittances | 37,196 | (493,834 | ) | |||||
| Prepaid expenses and other current assets | 581,675 | 723,612 | ||||||
| Accounts payable, accrued expenses and other current liabilities | (212,765 | ) | 4,793,223 | |||||
| Consideration payable | (305,648 | ) | ||||||
| Deferred revenue | (831,250 | ) | (358,383 | ) | ||||
| Operating lease liability | (490,875 | ) | (336,229 | ) | ||||
| Net cash used in operating activities | (30,570,244 | ) | (16,078,270 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (5,117 | ) | (2,239 | ) | ||||
| Purchase of intangible assets | (60,000 | ) | ||||||
| Cash acquired in Engine acquisition | 11,326,146 | |||||||
| Cash acquired in Faze Clan acquisition | 2,406,812 | |||||||
| Disposal of Frankly Media assets | 35,500 | 2,750,000 | ||||||
| Disposal of Complexity, net of cash disposed | 328,284 | |||||||
| Net cash provided by investing activities | 2,705,479 | 14,073,907 | ||||||
| Cash flows from financings activities: | ||||||||
| Proceeds from private placements | 10,000,000 | |||||||
| Payment of equity issuance costs | (134,942 | ) | ||||||
| Non-controlling interest in Faze Media, Inc. | 20,500,000 | |||||||
| Proceeds (repayments) on promissory notes receivable, net | 150,000 | |||||||
| Proceeds (repayments) on promissory notes payable, net | 185,397 | |||||||
| Repayment of borrowings on credit facility | (750,000 | ) | ||||||
| Proceeds from issuance of convertible debt | 16,045,000 | |||||||
| Repayment of principal on convertible debt | (7,575,701 | ) | ||||||
| Proceeds (repayments) on line of credit, net | (1,017,114 | ) | 4,518,571 | |||||
| Net cash provided by financing activities | 37,967,243 | 3,953,968 | ||||||
| Effect of exchange rate changes on cash and restricted cash | 53,664 | 65,820 | ||||||
| Net increase (decrease) in cash and restricted cash | 10,156,142 | 2,015,425 | ||||||
| Cash and restricted cash, beginning of year | 2,992,838 | 977,413 | ||||||
| Cash and restricted cash, end of year | $ | 13,148,980 | $ | 2,992,838 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-9 |
GameSquare Holdings, Inc.
Consolidated Statements of Cash Flows (Continued)
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Supplemental disclosure with respect to cash flows: | ||||||||
| Cash paid for interest expense | $ | 1,281,611 | $ | 561,335 | ||||
| Cash paid for income taxes | ||||||||
| Operating lease payments in operating cash flows | 700,473 | 543,676 | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Divestiture of Frankly assets in exchange for contingent consideration receivable | $ | $ | 501,118 | |||||
| Shares, options, and warrants issued for acquisition of Engine | 41,044,000 | |||||||
| Disposition of Complexity in exchange for promissory note receivable | 7,125,628 | |||||||
| Shares, options, and warrants issued for acquisition of FaZe | 14,587,000 | |||||||
| Reclassification of GSQ Esports Inc. warrants to warrant liability | 900,818 | |||||||
| Conversion of convertible debt | 645,161 | |||||||
| Shares issued to settle legal and other amounts payable | 270,000 | 363,914 | ||||||
Reconciliation of cash and restricted cash:
| December 31, 2024 | December 31, 2023 | |||||||
| Cash | $ | 12,094,950 | $ | 2,945,373 | ||||
| Restricted cash | 1,054,030 | 47,465 | ||||||
| Cash and restricted cash shown in the consolidated statements of cash flows | $ | 13,148,980 | $ | 2,992,838 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-10 |
GameSquare Holdings, Inc.
Notes to the Consolidated Financial Statements
1. Corporate information and going concern
(a) Corporate information
GameSquare Holdings, Inc. (formerly Engine Gaming & Media, Inc.) (“GameSquare” or the “Company”) is a corporation existing under the laws of the State of Delaware as of March 7, 2024 (and was a corporation existing under the Business Corporations Act (Province of British Columbia) prior to March 7, 2024). The registered head office of the Company is 6775 Cowboys Way, Ste. 1335, Frisco, Texas, USA, 75034.
GameSquare, (NASDAQ: GAME) completed its Plan of Merger (the “Merger”) with FaZe Holdings, Inc. (“FaZe”) on March 7, 2024, resulting in the Company acquiring all the issued and outstanding securities of FaZe (see Note 4).
GameSquare is a vertically integrated, digital media, entertainment and technology company that connects global brands with gaming and youth culture audiences. GameSquare’s end-to-end platform includes Gaming Community Network (“GCN”), a digital media company focused on gaming and esports audiences, Swingman LLC dba as Zoned, a gaming and lifestyle marketing agency, Code Red Esports Ltd. (“Code Red”), a UK based esports talent agency, FaZe Holdings Inc. (“FaZe”), a lifestyle and media platform rooted in gaming and youth culture whose premium brand, talent network, and large audience can be monetized across a variety of products and services, GSQ dba as Fourth Frame Studios, a creative production studio, Mission Supply, a merchandise and consumer products business, Frankly Media, programmatic advertising, Stream Hatchet, live streaming analytics, and Sideqik a social influencer marketing platform.
(b) Going concern
These consolidated financial statements have been prepared on a going concern basis, which contemplates that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern, and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the consolidated financial statements. Such adjustments could be material. It is not possible to predict whether the Company will be able to raise adequate financing or ultimately attain profit levels of operations.
The Company has not yet realized profitable operations and has incurred significant losses to date resulting in an accumulated deficit of $122.2 million as of December 31, 2024 ($73.4 million as of December 31, 2023). The recoverability of the carrying value of the assets and the Company’s continued existence is dependent upon the achievement of profitable operations, or the ability of the Company to raise alternative financing, if necessary. While management has been historically successful in raising the necessary capital, it cannot provide assurance that it will be able to execute its business strategy or be successful in future financing activities. As of December 31, 2024, the Company had a working capital deficiency of $18.3 million (as of December 31, 2023, a working capital deficiency of $13.9 million) which is comprised of current assets less current liabilities.
| F-11 |
These conditions indicate the existence of a material uncertainty that raise substantial doubt about the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
2. Significant accounting policies
(a) Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”) as of, and for the years ended, December 31, 2024 and 2023.
(b) Principles of consolidation
The consolidated financial statements include the accounts of the Company, all wholly owned and majority-owned subsidiaries in which the Company has a controlling voting interest and, when applicable, variable interest entities in which the Company has a controlling financial interest or is the primary beneficiary. Investments in affiliates where the Company does not exert a controlling financial interest are not consolidated.
All significant intercompany transactions and balances have been eliminated upon consolidation.
The Company’s material subsidiaries as of December 31, 2024, are as follows:
| Name of Subsidiary | Country of Incorporation | Ownership Percentage | Functional Currency | |||||
| Frankly Media LLC | USA | 100.00 | % | US Dollar | ||||
| Stream Hatchet S.L. | Spain | 100.00 | % | Euro | ||||
| Code Red Esports Ltd. | United Kingdom | 100.00 | % | UK Pound | ||||
| GameSquare Esports (USA) Inc. (dba as Fourth Frame Studios) | USA | 100.00 | % | US Dollar | ||||
| GCN Inc. | USA | 100.00 | % | US Dollar | ||||
| Faze Clan Inc. | USA | 100.00 | % | US Dollar | ||||
| Faze Media Inc. | USA | 25.50 | % | US Dollar | ||||
| Swingman LLC (dba as Zoned) | USA | 100.00 | % | US Dollar | ||||
| Mission Supply LLC | USA | 100.00 | % | US Dollar | ||||
| SideQik, Inc. | USA | 100.00 | % | US Dollar | ||||
Non-controlling interests are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Company’s interest in a subsidiary that does not result in a loss of control are accounted for as equity transactions. As of December 31, 2024, the Company’s subsidiary, Faze Media Inc., had non-controlling interests (see Note 4).
(c) Use of estimates
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on historical experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. Significant estimates have been used by management in conjunction with the following: (i) valuation of warrant liabilities; (ii) valuation of convertible debt; (iii) contingent liabilities; (iv) share-based compensation; (v) assumptions used in business combinations; and (vi) testing for impairment of long-lived assets and goodwill. Actual results may differ from the estimates and assumptions used in the consolidated financial statements.
| F-12 |
(d) Foreign currencies
The functional currency of the Company is the US Dollar (“USD”). The functional currencies of the Company’s subsidiaries are disclosed in Note 2(b) above. Our reporting currency is USD.
Assets and liabilities of foreign subsidiaries are translated from local (functional) currency to reporting currency (USD) at the rate of exchange in effect on the consolidated balance sheets date; income and expenses are translated at the average rate of exchange prevailing during the year. The related translation gains and losses are included in other comprehensive income or loss within the consolidated statements of operations and comprehensive loss.
(e) Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control of its services to a customer.
The following provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms and related revenue recognition policies:
Brand Sponsorships
The Company offers advertisers a full range of promotional vehicles, including but not limited to online advertising, livestream announcements, event content generation, social media posts, logo placement on the Company’s official merchandise, and special appearances of members of the Company’s talent roster. The Company’s brand sponsorship agreements may include multiple services that are capable of being individually distinct; however the intended benefit is an association with the Company’s brand, and the services are not distinct within the context of the contracts. Revenues from brand sponsorship agreements are recognized ratably over the contract term. Payment terms and conditions vary, but payments are generally due periodically throughout the term of the contract. In instances where the timing of revenue recognition differs from the timing of billing, management has determined the brand sponsorship agreements generally do not include a significant financing component.
Content
The Company and its talent roster generate and produce original content which the Company monetizes through Google’s AdSense service. Revenue is variable and is earned when the visitor views or “clicks through” on the advertisement. The amount of revenue earned is reported to the Company monthly and is recognized upon receipt of the report of viewership activity. Payment terms and conditions vary, but payments are generally due within 30 to 45 days after the end of each month.
The Company grants exclusive licenses to customers for certain content produced by the Company’s talent. The Company grants the customer a license to the intellectual property, which is the content and its use in generating advertising revenues, for a pre-determined period, for an amount paid by the customer, in most instances, upon execution of the contract. The Company’s only performance obligation is to license the content for use in generating advertising revenues, and the Company recognizes the full contract amount at the point at which the Company provides the customer access to the content, which is at the execution of the contract. The Company has no further performance obligations under these types of contracts and does not anticipate generating any additional revenue from these arrangements apart from the contract amount.
Consumer Products
The Company earns consumer products revenue from sales of the Company’s consumer products on the Company’s website or at live or virtual events. Revenues are recognized at a point in time, as control is transferred to the customer upon shipment. The Company offers customer returns and discounts through a third-party distributor and accounts for this as a reduction to revenue. The Company does not offer loyalty programs or other sales incentive programs that are material to revenue recognition. Payment is due at the time of sale. The Company has outsourced the design, manufacturing, fulfillment, distribution, and sale of the Company’s consumer products to a third party in exchange for royalties based on the amount of revenue generated. Management evaluated the terms of the agreement to determine whether the Company’s consumer products revenues should be reported gross or net of royalties paid. Key indicators that management evaluated in determining whether the Company is the principal in the sale (gross reporting) or an agent (net reporting) include, but are not limited to:
| ● | the Company is the party that is primarily responsible for fulfilling the promise to provide the specified good or service, |
| F-13 |
| ● | the Company has inventory risk before the good is transferred to the customer, and | |
| ● | the Company is the party that has discretion in establishing pricing for the specified good or service. |
Based on management’s evaluation of the above indicators, the Company reports consumer products revenues on a gross basis.
Esports
League Participation: Generally, The Company has one performance obligation—to participate in the overall Esport event—because the underlying activities do not have standalone value absent the Company’s participation in the tournament or event. Revenue from prize winnings and profit-share agreements is variable and is highly uncertain. The Company recognizes revenue at the point in time when the uncertainty is resolved.
Player Transfer Fees: Player transfer agreements include a fixed fee and may include a variable fee component. The Company recognizes the fixed portion of revenue from transfer fees upon satisfaction of the Company’s performance obligation, which coincides with the execution of the related agreement. The variable portion of revenue is considered highly uncertain and is recognized at the point in time when the uncertainty is resolved.
Licensing of Intellectual Property: The Company’s licenses of intellectual property generate royalties that are recognized in accordance with the royalty recognition constraint. That is, royalty revenue is recognized at the time when the sale occurs.
The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Company.
Deferred revenue consists of customer advances for Company services to be rendered that will be recognized as income in future periods.
Talent representation service revenues
Talent representation service revenue is recorded on completion of the event in which the talent management service has been provided.
Influencer promotional fees
Influencer marketing and promotional fees are recognized over the period during which the services are performed. Revenue and income from custom service contracts are determined on the percentage of completion method, based on the ratio of contract time that has elapsed in the reporting period over estimated total length of the contract.
Consulting fees and other revenues
Consulting fees and other revenues are recognized when the services have been performed.
Software-as-a-service
The Company enters into license agreements with customers for its content management system, video software, and mobile applications (Frankly), e-sports data platform (Stream Hatchet) and an influencer marketing platform (SideQik). These license agreements, generally non-cancellable, without paying a termination penalty, and multiyear, provide the customer with the right to use the Company’s application solely on a Company-hosted platform or, in certain instances, on purchased encoders. The license agreements also entitle the customer to technical support.
Revenue from these license agreements is recognized ratably over the license term. Early termination fees are recognized when a customer ceases use of agreed upon services prior to the expiration of their contract. These fees are recognized in full on the date the customer has completed their migration of the Company’s solutions and there is no continuing service obligation to the customer.
The Company charges its customers for the optional use of its content delivery network to stream and store videos. The revenue is recognized as earned based on the actual usage because it has stand-alone value and delivery is in control of the customer. The Company also charges its customers for the use of its ad serving platform to serve ads under local advertising campaigns. The Company reports revenue as earned based on the actual usage.
| F-14 |
Advertising
Under national advertising agreements with advertisers, the Company sources, creates, and places advertising campaigns that run across the Company’s network of publisher sites. National advertising revenue, net of third-party costs, is shared with publishers based on their respective contractual agreements. The Company invoices national advertising amounts due from advertisers and remits payments to publishers for their share. Depending on the agreement with the publisher, the obligation to remit payment to the publisher is based on either billing to the advertiser or the collection of cash from the advertiser.
National advertising revenue is recognized in the period during which the ad impressions are delivered. The Company reports revenue earned through national advertising agreements either on a net or gross basis. The Company applies judgement in recognizing revenue earned through national advertising agreements on a net or gross basis based on the criteria as disclosed below.
Under national advertising agreements wherein the Company does not bear inventory risk and only has credit risk on its portion of the revenue, national advertising revenues are accounted for on a net basis and the publisher is identified as the customer.
In select national advertising agreements with its publishers, the Company takes on inventory risk and additional credit risk. Under these agreements, the Company either a) provides the publisher with a guaranteed minimum gross selling price per advertising unit delivered, wherein the greater of the actual selling price or guaranteed minimum selling price is used in determining the publisher’s share or b) provides the publisher with a fixed rate per advertising unit delivered, wherein the publisher is paid the fixed rate per advertising unit delivered irrespective of the actual selling price. Under these national advertising agreements, national advertising revenues are accounted for on a gross basis with the advertiser identified as the customer and the publisher identified as a supplier, with amounts billed to the advertiser reported as revenue and amounts due to the publisher reported as a revenue sharing expense, within expenses.
Also included in advertising revenue is advertising revenue generated by the Company’s various owned and operated properties.
The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Company.
Deferred revenue consists of customer advances for Company services to be rendered that will be recognized as income in future periods.
(f) Cash and restricted cash
The Company maintains cash deposits with major banks, financial institutions, and other custodians. Deposits at each financial institution are insured in limited amounts by the Federal Deposit Insurance Corporation (“FDIC”). At times cash balances held at financial institutions are more than FDIC insured limits. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash for the purpose of the statement of cash flows. Restricted cash is related to the players liability account within current liabilities and is presented as a separate category on the consolidated balance sheets and cash restricted for purposes of securing a standby letter of credit covering lease deposits.
(g) Accounts receivable and allowance for credit losses
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The Company follows the allowance method of recognizing uncollectible accounts receivable, which recognizes bad debt expense based on a review of the individual accounts outstanding and prior history of uncollectible accounts receivable. Credit is extended based on evaluation of each of our customer’s financial condition and is generally unsecured. Accounts receivable are stated net of an allowance for doubtful accounts in the consolidated balance sheets. An allowance for doubtful accounts is established at origination and is based on the lifetime expected credit losses of the trade receivables in consideration of a number of factors, including the length of time trade accounts are past due, previous loss history, the creditworthiness of individual customers, and future economic outlook. The amount of any increase in the allowance for doubtful accounts is recognized in the consolidated statements of operations and comprehensive loss. When a trade receivable is uncollectible, it is written off against the allowance. Subsequent recoveries of amounts previously written off are credited to the consolidated statements of operations and comprehensive loss. The Company had an allowance for doubtful accounts of $2.8 million and $1.2 million as of December 31, 2024 and 2023, respectively.
| F-15 |
(h) Prepaid expenses and other current assets
Prepaid expenses and other assets consist primarily of prepaid expenses such as insurance as well as acquisition costs of players and security deposits. Acquisition costs of players are amortized on a straight-line basis over the players’ contract terms.
(i) Promissory note receivable and allowance for credit losses
The Company received a secured subordinated promissory note as part of the purchase consideration received for the sale of Complexity and sale of Frankly Media assets (see Note 4). The promissory note receivables are classified as not held-for-sale and measured at amortized cost, net of any allowance for credit losses, in accordance with ASC 310, Receivables. The Company maintains an allowance for expected credit losses to reflect the expected collectability of the promissory note receivable based on historical collection data and specific risks identified, as well as management’s expectation of future economic conditions. At each reporting date the Company assesses whether the credit risk on its promissory note receivable has increased significantly since initial recognition.
The promissory note receivables were initially recorded at transaction closing date fair value on March 1, 2024 (Sale of Complexity) and on May 31, 2024 (Sale of Frankly Media assets) (see Note 4) and no allowance for credit losses had been recognized as of December 31, 2024.
(j) Property and equipment
Property and equipment are carried at historical cost less any accumulated depreciation and impairment losses. Historical cost includes the acquisition cost or production cost as well as the costs directly attributable to bringing the asset to the location and condition necessary for its use in operations. Property and equipment are depreciated at rates calculated to write off the cost of property and equipment, less their estimated residual value, over the estimated useful lives, as follows:
| Computer equipment | 3 to 5 years, straight-line |
| Furniture and fixtures | 5 years, straight-line |
| Leasehold improvements |
Expenditures for maintenance and repairs are charged to operations in the period in which the expense is incurred. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized.
(k) Investments
Investments in and advances to entities or joint ventures in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an interest between 20% and 50% and exercises significant influence.
In accordance with ASC 321 “Investments—Equity Securities” (“ASC 321”), equity securities which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. All gains and losses on investments in equity securities are recognized in the consolidated statements of operations and comprehensive loss.
Equity securities accounted for under the measurement alternative, the Company assesses the securities for impairment indicators, at least annually, or more frequently if there are any indicators of impairment. If the assessment indicates that the fair value of the investment is less than its carrying value, the investment is impaired and an impairment charge equal to the excess of the carrying value over the related fair value of the investment will be recorded.
| F-16 |
(l) Business combinations
The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. The Company uses the acquisition method of accounting and allocates the purchase price to the identifiable assets and liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. The allocation of the purchase price in a business combination requires the Company to perform valuations with significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Transaction costs associated with business combinations are expensed as incurred and are included in selling, general and administrative expense in the consolidated statements of operations.
(m) Goodwill
Goodwill arising on a business combination is recognized as an asset at the date that control is acquired (the “acquisition date”). Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination.
(n) Intangible assets
Intangible assets are considered long-lived assets and are recorded at cost, less accumulated amortization and impairment losses, if any. The intangible assets are amortized over their estimated useful lives, which do not exceed any contractual periods. Amortization is recorded on a straight-line basis over their estimated useful lives. Intangible assets acquired from a foreign operation are translated from the foreign entity’s functional currency to the presentational currency based on the exchange rate at the reporting date.
Intangible assets include acquired software used in production or administration and brand names and customer relationships that qualify for recognition as an intangible asset in a business combination. They are accounted for using the cost model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date.
The useful lives of the intangibles are as follows:
| Software | 5 years |
| Talent network | 2 years |
| Brands | 5-10 years |
| Customer relationships | 5-20 years |
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software. Subsequent expenditure on brands is expensed as incurred. Costs associated with maintaining computer software (expenditure relating to patches and other minor updates as well as their installation), are expensed as incurred.
Other intangible assets, such as brands, that are acquired by the Company are stated at cost less accumulated amortization and impairment losses. Expenditures on internally generated brands, mastheads or editorial pages, publishing titles, customer lists and items similar in substance is recognized in the consolidated statement of loss and comprehensive loss as an expense as incurred.
(o) Research and development costs
Research costs are expensed when incurred. Development costs are capitalized when the feasibility and profitability of the project can be reasonably considered certain. Expenditure on development activities, whereby research findings are applied to a plan or design to produce new or substantially improved products and processes, is capitalized if the product or process is technically and commercially feasible and the Company has sufficient resources to complete development. The expenditure capitalized includes the cost of materials, direct labor and an appropriate proportion of overheads. Other development expenditure is recognized in the consolidated statement of loss and comprehensive loss as an expense as incurred. Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses.
| F-17 |
(p) Impairment of long-lived assets and goodwill
Long-lived assets consist of property and equipment, right-of-use assets and intangible assets. The Company assesses for impairment of asset groups, including intangible assets, at least annually, or more frequently if there are any indicators for impairment.
Goodwill and indefinite life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired.
When a triggering event that occurred during the reporting period is identified, or when the annual impairment test is required, the Company may first assess qualitative factors to determine whether it is more likely than not that goodwill is impaired. If the Company determines it is more likely than not that goodwill is not impaired, an impairment test is not necessary. If an impairment test is necessary, management estimates the fair value of the Company. If the carrying value of the Company exceeds its fair value, goodwill is determined to be impaired, and an impairment charge equal to the excess of the carrying value over the related fair value of the Company will be recorded. If the qualitative assessment indicates that it is more likely than not that goodwill is not impaired, further testing is unnecessary.
(q) Leases
The Company determines if an arrangement is a lease at its inception. Lease arrangements are comprised primarily of real estate for which the right-of-use (“ROU”) assets and the corresponding lease liabilities are presented separately on the consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the consolidated balance sheets.
The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date, considering publicly available data for instruments with similar characteristics. The Company accounts for the lease and non-lease components as a single lease component.
(r) Contingencies
The Company estimates loss contingencies in accordance with ASC 450-20, Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (i) information available before the consolidated financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and (ii) the amount of loss can be reasonably estimated. Management regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required (see Note 18).
(s) Fair value measurement
The Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs used in the measurement.
Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date.
| F-18 |
Level 2: This level includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1.
Level 3: This level includes valuations based on inputs which are unobservable.
See Note 21 for a summary of the Company’s financial assets and liabilities, detailed by level.
(t) Fair value option for convertible debt
The Company elected the Fair Value Option (“FVO”) for recognition of its convertible debt as permitted under ASC 825, Financial Instruments. (see Note 11). Under the FVO, the Company recognizes the convertible debt at fair value with changes in fair value recognized in earnings. The FVO may be applied instrument by instrument, but it is irrevocable. As a result of applying the FVO, any direct costs and fees related to the convertible debt is recognized in operating expense in the consolidated statements of operations and comprehensive loss as incurred and not deferred. Changes in fair value of the convertible debt is recognized as a separate line in the consolidated statements of operations and comprehensive loss.
(u) Share capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares, share purchase options (“Options”), and equity classified warrants are recognized as a deduction from equity, net of any tax effects. When share capital recognized as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from total equity.
As discussed in Note 1(a) above, although the historical financial statements reflect the activity of GSQ, the equity structure, including equity interest issued, is that of GameSquare (formerly Engine Gaming and Media, Inc.), the legal parent. Accordingly, all share activity disclosed, and strike or exercise prices where applicable, have been retroactively adjusted to Common shares of GameSquare based on the exchange ratio of (see Note 4).
The Company calculates earnings per share attributable to common shareholders in accordance with ASC 260-10, Earning Per Share. Basic net income (loss) per share attributable to common shareholders is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by weighted-average common shares outstanding during the period plus all potentially dilutive common shares outstanding during the period, such as warrant shares.
Diluted earnings per share is computed by dividing undistributed earnings allocated to common stockholders for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding preferred shares, Options and unvested share units, and warrants outstanding pursuant to the treasury stock method.
(w) Share-based payments
The Company’s share-based payment plan allows Company employees and consultants to acquire shares of the Company. The fair value of share-based payment awards granted is recognized within share-based payments expense with a corresponding increase in equity.
| F-19 |
Options
Each tranche of the Company’s Options is considered a separate award with its own vesting period and grant date fair value. The fair value is measured at grant date and each tranche is recognized on a straight-line basis over the period during which the share purchase Options vest. The fair value of the share-based payment awards granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the awards were granted such as stock price, term, and stock volatility. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of awards, for which the related service and non-market vesting conditions are expected to be met. Share based payments expense is adjusted for subsequent changes in management’s estimate of the number of Options that are expected to vest.
Restricted share units
For each Restricted Share Units (“RSU”) granted, the Company recognizes an expense equal to the market value of a common share at the date of grant and for each RSU granted, the Company recognizes an expense equal to the fair value of the RSU estimated using a Black Scholes model at grant date, based on the number of RSUs expected to vest, recognized over the term of the vesting period, with a corresponding increase to additional paid-in capital. Share based payments expense is adjusted for subsequent changes in management’s estimate of the number of RSUs that are expected to vest. The effect of these changes are recognized in the period of the change.
Warrants
The Company’s warrants that have an exercise price in the functional currency of the Company are equity-classified. The grant-date fair value of these warrants is recorded in additional paid-in capital on the consolidated balance sheets.
For equity-settled share-based payment transactions, including Options, RSUs granted to officers and directors of the Company and warrants granted to advisors in a financing transaction, the fair value of the awards is established based on the value of the goods or services received, unless that fair value cannot be estimated reliably, in which cases, the Company measures the value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
(x) Derivative warrant liability
Certain of the Company’s warrants are recorded as a derivative liability pursuant to ASC 815 due to having an exercise price in a currency other than the Company’s functional currency. The derivative warrant liability is recognized on the consolidated balance sheets at fair value and classified based on each warrant’s maturity date. Changes in the fair value of the warrant liability are recognized in the consolidated statements of operations and comprehensive loss.
(y) Income taxes
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries, associates, and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date applicable to the period of expected realization or settlement.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
| F-20 |
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
(z) Concentration of credit risk
The Company places its cash, which may at times be in excess of United States’ Federal Deposit Insurance Corporation insurance limits, with high credit quality financial institutions and attempts to limit the amount of credit exposure with any one institution.
The Company had one customer whose revenue accounted for approximately 47% and 54% of total revenue for the year ended December 31, 2024 and 2023, respectively.
No customer individually accounted for more than 10% of the Company’s accounts receivable as of December 31, 2024 and 2023.
(aa) Discontinued operations and assets held for sale
The Company classifies assets and liabilities of a business or asset group as held for sale, and the results of its operations as income (loss) from discontinued operations, net, for all periods presented, when (i) the Company commits to a plan to divest a business or asset group, actively begins marketing it for sale, and when it is deemed probable of occurrence within the next twelve months, and (ii) when the business or asset group reflects a strategic shift that has, or will have, a major effect on the Company’s operations and its financial results.
Non-current assets or disposal groups classified as held for sale are measured at the lower of carrying amounts and fair value less costs to sell.
In determining whether a group of assets disposed (or to be disposed) of should be presented as a discontinued operation, the Company makes a determination of whether the criteria for held-for-sale classification is met and whether the disposition represents a strategic shift that has (or will have) a major effect on the entity’s operations and financial results. If these determinations can be made affirmatively, the results of operations of the group of assets being disposed of (as well as any gain or loss on the disposal transaction) are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements.
See Note 19 for discussion of the Company discontinued operations and assets held for sale as of, and for the years ended, December 31, 2024 and 2023.
(bb) Restructuring charges, net
Restructuring charges primarily consist of associate severance, one-time termination benefits and ongoing benefits related to the reduction of our workforce and other costs associated with exit activities, which may include costs related to leased facilities to be abandoned and facility and associate relocation costs. The determination of when we accrue for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. Ongoing benefit arrangements are recognized over the service period or when termination becomes reasonably probable, and one-time benefit arrangements are recognized in the period the arrangement is approved and formally communicated to associates. If applicable, we record such costs into operating expense over the terminated associate’s future service period beyond any minimum retention period. Restructuring charges that have been incurred but not yet paid are recorded in accrued expenses and other current liabilities in the consolidated balance sheets.
For the years ended December 31, 2024 and 2023, restructuring charges, net totaled $1.3 million and $0.5 million, respectively. The 2024 charges primarily related to employee and vendor exit costs as a result of the restructuring of Faze post-closing of the acquisition of Faze on March 7, 2024. The 2023 charges primarily related to employee severance costs as a result of the restructuring of GameSquare and Engine post-closing of the Arrangement.
| F-21 |
(cc) Segment reporting
In accordance with the ASC 280, Segment Reporting, the Company’s Chief Operating Decision Maker (“CODM”) has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.
The CODM uses gross profit, as reviewed at periodic business review meetings, as the key measure of the Company’s results as it reflects the Company’s underlying performance for the period under evaluation to determine resource allocation. As of December 31, 2024, the Company is organized into the three operating segments, which also represent its three reportable segments: Teams, Agency and Software-as-service (SaaS) + Advertising.
ASC 280 establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue.
(dd) Advertising costs
The Company expenses advertising costs as incurred. Advertising and promotion costs for the years ended December 31, 2024 and 2023, were $0.6 million, and are included in selling and marketing expense in the consolidated statements of operations and comprehensive loss.
3. Recent accounting pronouncements
(a) Pending adoption
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires that public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The ASU is to be applied prospectively. Retroactive application is permitted. The Company has not early adopted and continues to evaluate the impact of the provisions of ASU 2023-09 on its consolidated financial statements.
(b) Adopted
In November 2023, the FASB issued ASU No 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance will be applied retrospectively to all periods presented in the financial statements. ASU 2023-07 will be applicable for the Company’s financial statements for the year ended December 31, 2024. Management is currently evaluating and understanding the requirements under this new standard.
| F-22 |
4. Acquisitions and divestitures
(a) Reverse acquisition of Engine Gaming and Media, Inc.
On April 11, 2023, GSQ completed its plan of arrangement with Engine Gaming and Media, Inc. (“Engine”) resulting in Engine acquiring 100% of the issued and outstanding securities of GSQ.
Resulting from the Arrangement, Engine acquired all issued and outstanding GSQ shares in exchange for of an Engine common share for each GSQ share (the “Exchange Ratio”). Each outstanding option of GSQ was exchanged for an Engine option entitling the holder to a number of Engine common shares, as adjusted on the basis of the Exchange Ratio, and be subject to exercise thereof in accordance with the terms of the options, including payment of the exercise price, which will also be adjusted based upon the Exchange Ratio. All other material terms of the options remained the same. Each outstanding restricted share unit of GSQ was exchanged for an Engine restricted share unit entitling the holder to a number of Engine common shares, as adjusted on the basis of the Exchange Ratio. All other material terms of the restricted share units remained the same. Each outstanding warrant of GSQ was adjusted pursuant to its governing contractual instrument to entitle the holder to receive, upon due exercise, Engine common shares, adjusted on the basis of the Exchange Ratio.
At completion of the Arrangement, Engine Gaming and Media, Inc. changed its name to GameSquare Holdings, Inc.
The Arrangement was accounted for as a reverse acquisition, with GSQ being treated as the acquiring entity for accounting and financial reporting purposes. Engine is a data-driven, gaming, media and influencer marketing platform company. The Arrangement has expanded GSQ’s content, advertiser, and influencer businesses.
GSQ incurred transaction costs of $2.7 million associated with the Arrangement. All such costs were expensed as incurred. The loss attributed to Engine’s operations from the acquisition date to December 31, 2023, was $3.8 million, with revenue of $29.8 million.
The Arrangement was accounted for using the acquisition method of accounting under ASC 805, Business Combinations, which requires that the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition. The estimated fair values are preliminary and based on the information that was available as of that date.
| F-23 |
The following table summarizes the consideration for the acquisition:
| Purchase consideration | Number of shares | Amount | ||||||
| Common shares (1) | 6,380,083 | $ | 39,684,000 | |||||
| Warrants - Equity and Liability (2) | 1,147,492 | 183,275 | ||||||
| Options - Vested (2) | 237,996 | 1,210,000 | ||||||
| RSUs - Vested (3) | 23,339 | 120,000 | ||||||
| Total purchase price | 7,788,910 | $ | 41,197,275 | |||||
| (1) | Acquisition date fair value of common stock determined based on $ price per share. |
| (2) | Acquisition date fair value of warrants and options determined using the Black-Scholes option pricing model. |
| Key inputs to the option pricing model are as follows: |
| Expected term – years | |
| Volatility % | |
| Risk-free rate % - % | |
| Dividend yield % |
| (3) | Acquisition date fair value of RSUs determined based on $ price per share with discounts for lack of marketability ranging from 15% - 20% applied. |
The purchase price allocation is as follows:
| Purchase price allocation | Amount | |||
| Cash | $ | 1,806,747 | ||
| Restricted cash | 600,065 | |||
| Accounts receivable, net | 7,933,515 | |||
| Prepaid expenses and other current assets | 1,158,554 | |||
| Property and equipment | 773,893 | |||
| Goodwill | 7,147,428 | |||
| Intangible assets | 12,000,000 | |||
| Total assets acquired | 31,420,202 | |||
| Accounts payable | 8,067,850 | |||
| Accrued liabilities | 6,844,817 | |||
| Deferred revenue | 1,920,535 | |||
| Total liabilities assumed | 16,833,202 | |||
| Net assets acquired | $ | 14,587,000 | ||
| (1) | As discussed in Note 3, the Company adopted ASU 2021-08 as of January 1, 2022. As a result, deferred revenue is an exception to the measurement guidance of ASC 805 and was instead measured in accordance with ASC 606. |
As part of the settlement of the Lockton case in September 2023, the promissory notes payable in the table above have been forgiven. As a result, the Company recognized a non-cash gain in gain from discontinued operations on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2023.
| F-24 |
The acquisition date fair value of the arbitration reserve was determined based on a fair value of $ per common share delivered as a result of the arbitration. The fair value of the arbitration reserve was $0.4 million as of December 31, 2023, based on a fair value of $ per share, resulting in a gain of $1.0 million for the year ended December 31, 2023 as included on the consolidated statements of operations and comprehensive loss (see Note 18)
Significant judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:
i) Intangible assets, software
The fair value of the software intangible asset of $5.0 million was determined based on the relief from royalty method under the income approach. The software intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) royalty rates of 3.0%, 6.0% and 10%; (iii) tax rates of 25.0%, 26.0%, and 26.5% (iv) discount rates of 10%, 11.5% and 12.0%; (v) long-term growth rate of 3.0%. These assets are amortized on a straight-line basis over the estimated useful life of five years.
ii) Intangible assets, brand
The fair value of the brand name intangible asset of $3.2 million was determined based on the relief from royalty method under the income approach. The brand name intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) royalty rates of 1.0%, 1.5% and 3.0%; (iii) tax rates of 25.0%, 26.0% and 26.5% (iv) discount rates of 12.0%, 12.5% and 13.0%; (v) long-term growth rate of 3.0%. These assets are amortized on a straight-line basis over the estimated useful life of ten years.
iii) Intangible assets, customer relationships
The fair value of the customer relationships intangible asset of $9.6 million was determined based on the relief from royalty method under the income approach. The customer relationship intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) attrition rates of 5.0%, 7.5%, and 15%; (iii) tax rates of 25.5%, 26.0%, and 27.0% (iv) discount rates of 12.5%,13.0%, and 13.5%. These assets are amortized on a straight-line basis over the estimated useful life of twenty years.
iv) Goodwill
The difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed represents goodwill of $25.6 million.
The goodwill recorded represents the following:
| ● | Cost savings and operating synergies expected to result from combining the operations of Engine with those of the Company. | |
| ● | Intangible assets that do not qualify for separate recognition such as the assembled workforce. |
Goodwill arising from the Arrangement is expected to be deductible for tax purposes.
Subscription receipt financing
On April 6, 2023, Engine closed a public offering of subscription receipts at an issue price of $ per subscription receipt, including the partial exercise of an over-allotment option, for gross proceeds of $9.6 million, net of equity issuance costs of $0.2 million. Each subscription receipt entitled the holder to receive one share of the Company upon closing of the Arrangement. The proceeds from the public offering are included in the opening balance sheet of Engine above.
| F-25 |
The subscription receipts were consolidated into subscription receipts as a result of a 4 to 1 reverse stock split of Engine’s common stock immediately prior to the closing of the Arrangement. Upon closing of the Arrangement, the subscription receipts were automatically exchanged on a one-to-one basis for common shares of the Company. These common shares are included in the measurement of common share purchase consideration in the Arrangement shown above.
Engine pro-forma results of operations
The following unaudited pro-forma consolidated results of operations for the years ended December 31, 2023 and 2022, respectively, have been prepared as if the Arrangement had occurred on January 1, 2022. The below does not include any pro-forma adjustments other than adding in the actual results of Engine from January 1, 2023 to April 11, 2023 for 2023 and the year ended November 30, 2022 for the 2022 year. As Engine historical reported on an August 31 fiscal year end, calendar year 2022 actual results are not available:
| Year ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 60,790,276 | $ | 68,019,706 | ||||
| Net income | (33,224,344 | ) | (36,557,433 | ) | ||||
| Net income attributable to GameSquare Holdings, Inc. | (33,224,344 | ) | (36,611,606 | ) | ||||
(b) Disposition of certain Frankly Media LLC, assets
On December 29, 2023, the Company sold a technology platform and customer accounts making up the radio assets of Frankly Media LLC (“Frankly”), a subsidiary of the Company, to SoCast, Inc. (“SoCast”). SoCast paid the Company aggregate consideration of $3.3 million for Frankly’s radio assets, including $2.8 million paid upon closing of the transaction and contingent consideration receivable, with a transaction closing date fair value of $0.5 million, based on future revenue that SoCast will derive from the purchased radio assets. The Company recognized a gain of $41 thousand after offsetting the consideration received with the carrying values of the disposed assets and liabilities.
The Company recognized a loss of $0.5 million on the fair value of the contingent consideration receivable during the year ended December 31, 2024, included in other operating expenses in the consolidated statements of operations and comprehensive loss.
(c) FaZe Merger
On March 7, 2024, the Company completed its acquisition of FaZe (the Merger). Prior to the Merger, the Company created GameSquare Merger Sub I, Inc. (“Merger Sub”) to effect the Merger. As a result of the Merger, Merger Sub merged with FaZe, with FaZe continuing as the surviving corporation and as a wholly-owned subsidiary of the Company.
The Company acquired all issued and outstanding FaZe common shares in exchange for of a GameSquare common share for each FaZe common share (the “Exchange Ratio”). All outstanding FaZe equity awards and warrants to purchase shares of FaZe common stock were acquired and exchanged for GameSquare equity awards and warrants to purchase GameSquare common stock on substantially the same terms, with exercise prices, where applicable, and shares issuable adjusted for the Exchange Ratio.
The Company incurred transaction costs of $1.4 million associated with the Merger. All such costs were expensed as incurred. The net loss attributed to FaZe’s operations from the acquisition date to September 30, 2024, was $4.7 million, with revenue of $25.3 million.
The Merger was accounted for using the acquisition method of accounting under ASC 805, Business Combinations, which requires that the Company recognize the identifiable assets acquired and the liabilities assumed at their fair values on the date of acquisition. The estimated fair values are preliminary and based on the information that was available as of that date.
The following preliminary table summarizes the consideration for the acquisition:
| Purchase consideration | Number of shares | Amount | ||||||
| Common shares(1) | 10,132,884 | $ | 12,763,000 | |||||
| Warrants - Equity(2) | 775,415 | 26,000 | ||||||
| Options - Vested(2) | 1,169,619 | 1,256,000 | ||||||
| RSUs / RSAs - Vested(3) | 413,988 | 542,000 | ||||||
| Total purchase price | 12,491,906 | $ | 14,587,000 | |||||
| F-26 |
The preliminary purchase price allocation is as follows:
| Purchase price allocation | Amount | |||
| Cash | $ | 1,806,747 | ||
| Restricted cash | 600,065 | |||
| Accounts receivable, net | 7,933,515 | |||
| Prepaid expenses and other current assets | 1,158,554 | |||
| Property and equipment | 773,893 | |||
| Goodwill | 7,147,428 | |||
| Intangible assets | 12,000,000 | |||
| Total assets acquired | 31,420,202 | |||
| Accounts payable | 8,067,850 | |||
| Accrued liabilities | 6,844,817 | |||
| Deferred revenue | 1,920,535 | |||
| Total liabilities assumed | 16,833,202 | |||
| Net assets acquired | $ | 14,587,000 | ||
Measurement period adjustments
Where provisional values are used in accounting for a business combination, they may be adjusted in subsequent periods, not to exceed twelve months. The primary areas that are subject to change relate to the fair value of the purchase consideration transferred and purchase price allocations related to the fair values of certain tangible assets, the valuation of intangible assets acquired, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired during the measurement periods.
Significant judgments and assumptions related to the valuation and useful lives of certain classes of assets acquired are as follows:
i) Intangible assets, talent network
The fair value of the talent network intangible asset of $1.1 million was determined based on the replacement cost method under the cost approach. The talent network intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) direct costs to reproduce; (ii) time to recreate of 2 years; (iii) developers profit margin of 3% (iv) discount rate of 13%; (v) obsolescence rate of 25%. These assets are amortized on a straight-line basis over the estimated useful life of two years.
ii) Intangible assets, brand
The fair value of the brand name intangible asset of $7.2 million was determined based on the relief from royalty method under the income approach. The brand name intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) royalty rate of 2%; (iii) tax rate of 27% (iv) discount rates of 15.5%; (v) long-term growth rate of 3.5%. These assets are amortized on a straight-line basis over the estimated useful life of twenty years.
iii) Intangible assets, customer relationships
The fair value of the customer relationships intangible asset of $3.7 million was determined based on the relief from royalty method under the income approach. The customer relationship intangible asset was valued using Level 3 inputs which consisted of the following key inputs: (i) revenue projections; (ii) attrition rate of 15%; (iii) tax rate of 27.0% (iv) discount rate of 15.0%. These assets are amortized on a straight-line basis over the estimated useful life of fifteen years.
iv) Goodwill
The difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed represents goodwill of $7.1 million.
The goodwill recorded represents the following:
| ● | Cost savings and operating synergies expected to result from combining the operations of Engine with those of the Company. | |
| ● | Intangible assets that do not qualify for separate recognition such as the assembled workforce. |
Goodwill arising from the Arrangement is expected to be deductible for tax purposes.
| F-27 |
(d) Sale of Complexity
On March 1, 2024, the Company, through its wholly owned subsidiary GameSquare Esports (USA), Inc., entered into a Membership Interest Purchase Agreement (the “MIPA”) to sell all of the issued and outstanding equity interest of NextGen Tech, LLC (“Complexity”) to Global Esports Properties, LLC (the “Buyer”) (the “Transaction”).
Pursuant to the MIPA, Buyer paid the Company aggregate purchase consideration with a Transaction closing date fair value of $7.9 million in exchange for the equity interests of Complexity, including $0.8 million paid in cash upon closing of the transaction and issuance of a secured subordinated promissory note (the “Note”) with a Transaction closing date fair value of $7.1 million. The Note was valued using a discount rate of 15% (Level 3).
As a result of the Transaction, during the year ended December 31, 2024, Complexity met the requirements to be reported as discontinued operations (see Note 19). The Company recognized a gain of $3.0 million in net income (loss) from discontinued operations in the consolidated statements of operations and comprehensive loss after offsetting the consideration received with the carrying value of the disposed assets and liabilities. Complexity assets and liabilities disposed had a net carrying value of $4.9 million and consist primarily of $2.6 million of accounts receivable, $2.2 million of property and equipment, and $1.8 million of intangible assets, partially offset by $0.8 million of accounts payable $1.4 million of accrued liabilities.
The Note has a principal amount of $9.5 million and bears interest at 3.0% per annum. The principal amount of the Note, together with all accrued interest, is due on February 28, 2027. The Note is secured by assets of the Buyer pursuant to a Security Agreement executed in conjunction with the MIPA between the Company and the Buyer.
(e) Frankly Media asset disposal
On May 31, 2024, the Company, through its wholly owned subsidiary Frankly Media LLC (“Frankly”), entered into an Asset Purchase Agreement (the “UNIV APA”) to sell the producer content management software platform and associated software technology (“CMS Assets”) of Frankly to UNIV, Ltd (“UNIV”) (the “UNIV Asset Sale”).
Pursuant to the UNIV APA, UNIV paid the Company aggregate purchase consideration with a transaction closing date fair value of $1.2 million in exchange for the CMS Assets, including $25 thousand paid in cash upon closing of the transaction and issuance of a secured subordinated promissory note (the “UNIV Note”) with a transaction closing date fair value of $1.2 million. The UNIV Note was valued using a discount rate of 13.7% (Level 3).
Additionally on May 31, 2024, the Company, through its wholly owned subsidiary Frankly, entered into an Asset Purchase Agreement (the “XPR APA”) to sell the press release and content distribution service assets (the “PR Assets”) of Frankly to XPR Media LLC (“XPR”) (the “XPR Asset Sale” and, collectively with the UNIV Asset Sale, the “Frankly Asset Sales”).
Pursuant to the XPR APA, XPR paid the Company aggregate purchase consideration with a transaction closing date fair value of $0.6 million in exchange for the PR Assets, including $10.5 thousand paid in cash upon closing of the transaction and issuance of a secured subordinated promissory note (the “XPR Note”) with a transaction closing date fair value of $0.5 million. The XPR Note was valued using a discount rate of 13.7% (Level 3).
As a result of the Frankly Asset Sales during the year ended December 31, 2024, the Company recognized a loss of $8.3 million in Other income (expense), net in the consolidated statements of operations and comprehensive loss after offsetting the consideration received with the carrying value of the disposed assets.
The UNIV Note has a principal amount of $1.5 million, inclusive of the $25 thousand paid in cash upon closing. The principal amount of the UNIV Note will be repaid in monthly installments, beginning August 2024. Monthly principal payments will be $25 thousand from August 2024 to June 2025, $45 thousand from July 2025 to June 2026, and $55 thousand from July 2026 to final maturity on June 30, 2027. The UNIV Note is secured by assets of the UNIV pursuant to a Security Agreement executed in conjunction with the UNIV APA between the Company and UNIV.
The XPR Note has a principal amount of $0.7 million, inclusive of the $10.5 thousand paid in cash upon closing. The principal amount of the XPR Note will be repaid in monthly installments, beginning August 2024. Monthly principal payments will be $12.5 thousand from August 2024 to June 2025, $20 thousand from July 2025 to June 2026, and $26 thousand from July 2026 to final maturity on June 30, 2027. The XPR Note is secured by all rights of XPR to customer agreements and publisher agreements pursuant to a Security Agreement executed in conjunction with the XPR APA between the Company and XPR.
| F-28 |
(f) Faze Media, Inc. asset contribution
On May 2, 2024, the Company created FaZe Media, Inc. (“Faze Media”). On May 15, 2024, the Company entered into a business venture with Gigamoon Media, LLC (“Gigamoon”). As part of this venture, the Company contributed certain media assets of Faze Clan, Inc. to Faze Media and Gigamoon invested $11.0 million in Faze Media in exchange for shares of Series A-2 Preferred Stock of Faze Media, 49% of Faze Media’s voting equity interests, pursuant to a Securities Purchase Agreement (the “SPA”). The Company was issued million shares of Series A-1 Preferred Stock of Faze Media, 51% of Faze Media’s voting equity interests.
On June 17, 2024, the Company entered into an agreement to sell of its shares of Series A-1 Preferred Stock of Faze Media to M40A3 LLC (“M4”) in exchange for $9.5 million (the “Secondary SPA”). The first share tranche was issued on June 17, 2024 for consideration of $4.75 million and the remaining was issued on August 15, 2024 for consideration of $4.75 million.
Contemporaneous with the execution of the Secondary SPA, the Company and M4 entered into a Limited Proxy and Power of Attorney with respect to all of the shares of Series A-1 Preferred Stock of Faze Media held by M4 (the “Faze Media Voting Proxy”).
Faze Media is not a variable interest entity. Due to the Faze Media Voting Proxy, the Company maintains a controlling financial interest in Faze Media and Faze Media is a consolidated subsidiary of the Company as of December 31, 2024. The Preferred Stock of Faze Media held by M4 and Gigamoon represent a non-controlling interest of the Company. Upon termination of the Faze Media Voting Proxy, the Company will reassess whether it continues to have a controlling financial interest in Faze Media.
As a result of the above transactions, the Company recorded a non-controlling interest in Faze Media, Inc. of $20.5 million, the sum of cash consideration received, within the consolidated statements of stockholders’ equity.
5. Investment
In conjunction with completion of the Arrangement (see Note 4), the Company acquired an 18.62% interest in One Up Group, LLC (“One Up”). One Up operates a mobile app which allows gamers to organize and play one-on-one matches with other gamers and compete for money.
The April 11, 2023, acquisition date fair value of investment was $3.2 million. The Company accounts for the investment in One Up in accordance with the provisions of ASC 321 and, because the investment in One Up does not have a readily determinable fair value, elected to use the measurement alternative therein. The investment will be re-measured upon future observable price changes in orderly transactions or upon impairment, if any.
One Up completed an equity offering on December 22, 2023, representing an observable price change. As a result of this observable price change, in the year ended December 31, 2023, the Company recognized a $0.5 million change in fair value of the Company’s investment in One Up.
No other observable price changes or impairments occurred during the year ended December 31, 2024.
| F-29 |
6. Property and equipment, net
Property and equipment consist of the following:
| December 31, 2024 | December 31, 2023 | |||||||
| Leasehold improvements | $ | $ | 3,655,619 | |||||
| Equipment | 951,558 | 397,780 | ||||||
| Property and equipment, gross | 951,558 | 4,053,399 | ||||||
| Less: Accumulated depreciation | (647,608 | ) | (1,588,766 | ) | ||||
| Property and equipment, net | $ | 303,950 | $ | 2,464,633 | ||||
The Company recognized depreciation expense for property and equipment of $0.7 million for the years ended December 31, 2024 and 2023, respectively.
7. Goodwill and intangible assets
(a) Goodwill
The following table presents the changes in the carrying amount of goodwill:
| Balance, December 31, 2022 | $ | |||
| Acquisition of Engine | 25,600,501 | |||
| Impairment of Frankly | (7,024,000 | ) | ||
| Disposal of Frankly radio assets | (2,272,512 | ) | ||
| Balance, December 31, 2023 | $ | 16,303,989 | ||
| Acquisition of FaZe | 7,147,428 | |||
| Disposal of Frankly Media assets | (3,315,139 | ) | ||
| Impairment of Stream Hatchet | (4,945,299 | ) | ||
| Impairment of Sideqik | (2,486,000 | ) | ||
| Balance, December 31, 2024 | $ | 12,704,979 |
Goodwill resulting from the acquisitions of Faze and Engine was allocated to the Teams and SaaS + Advertising operating and reportable segments, respectively.
The Company concluded goodwill related to Stream Hatchet and Sideqik reporting units were impaired as of December 31, 2024. The Company recognized an impairment charge of $7.4 million for the year ended December 31, 2024.
After considering the impact of the sale of the Frankly radio assets on projected sales and assumptions of future growth, as part of the Company’s annual impairment assessment, the Company concluded goodwill related to Frankly was impaired. The Company recognized an impairment charge of $7.0 million for the year ended December 31, 2023. No impairment charge was recorded on Frankly goodwill for the year ended December 31, 2024.
| F-30 |
(b) Intangible assets
Intangible assets consist of the following:
| As of December 31, 2024 | ||||||||||||||||
| Original cost | Accumulated amortization | Accumulated impairment losses | Carrying value | |||||||||||||
| Customer relationships | $ | 12,058,560 | $ | (2,056,023 | ) | $ | (2,655,946 | ) | $ | 7,346,591 | ||||||
| Talent network | 1,100,000 | (458,333 | ) | 641,667 | ||||||||||||
| Brand name | 9,540,261 | (1,478,563 | ) | (784,220 | ) | 7,277,478 | ||||||||||
| Software | 1,830,000 | (608,589 | ) | (1,221,411 | ) | |||||||||||
| Total intangible assets | $ | 24,528,821 | $ | (4,601,508 | ) | $ | (4,661,577 | ) | $ | 15,265,736 | ||||||
| As of December 31, 2023 | ||||||||||||||||
| Original cost | Accumulated amortization | Accumulated impairment losses | Carrying value | |||||||||||||
| Customer relationships | $ | 11,006,154 | $ | (1,483,331 | ) | $ | (472,018 | ) | $ | 9,050,805 | ||||||
| Brand name | 8,963,557 | (3,115,265 | ) | (229,405 | ) | 5,618,887 | ||||||||||
| Software | 4,560,400 | (655,948 | ) | 3,904,452 | ||||||||||||
| Total intangible assets | $ | 24,530,111 | $ | (5,254,544 | ) | $ | (701,423 | ) | $ | 18,574,144 | ||||||
The Company recognized amortization expense for intangible assets of $2.8 million and $2.6 million for the years ended December 31, 2024 and 2023, respectively.
Amortization expense for intangible assets is expected to be as follows over the next five years, and thereafter:
| 2025 | $ | 1,843,191 | ||
| 2026 | 1,134,938 | |||
| 2027 | 797,836 | |||
| 2028 | 797,836 | |||
| 2029 | 797,836 | |||
| Thereafter | 9,894,099 | |||
| Total estimated amortization expense | $ | 15,265,736 |
During the year ended December 31, 2024, the Company recorded an acquired on the acquisition of Engine (Stream Hatchet and Sideqik reporting units) of $4.0 million.
There were no impairment charges related to intangible assets incurred during the year ended December 31, 2023.
| F-31 |
8. Accrued expenses and other current liabilities
Accrued liabilities consist of the following:
| December 31, 2024 | December 31, 2023 | |||||||
| Compensation expense | $ | 4,919,796 | $ | 1,257,210 | ||||
| Convertible debt principal and interest due | 930,105 | 762,442 | ||||||
| Debt modification fees | 650,000 | |||||||
| Professional fees | 1,546,639 | 983,954 | ||||||
| Accounts payable accruals | 5,219,463 | 872,387 | ||||||
| Lease abandonment | 376,959 | 376,959 | ||||||
| Other | 701,217 | 386,197 | ||||||
| Total accrued expenses and other current liabilities | $ | 13,694,179 | $ | 5,289,149 | ||||
9. Leases
On June 30, 2021, the Company acquired Complexity. Complexity leased a building in Frisco, Texas. Upon the sale of Complexity (see Note 4), the lease was assigned to GameSquare Esports (USA), Inc. and the Company entered into an agreement to sublease the building to Complexity for a 12-month period. The lease has an original lease period expiring in April 2029. The lease agreement does not contain any material residual value guarantees or material restrictive covenants.
On April 1, 2024, GameSquare Holdings, Inc. leased a building in Culver City, CA, which it later assigned to Faze Media Inc. on May 15, 2024. The lease has an original lease period expiring in March 2027. The lease agreement does not contain any material residual value guarantees or material restrictive covenants.
The components of operating lease expense are as follows:
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease expense | 730,561 | 543,086 | ||||||
| Variable lease expense | 315,011 | 265,070 | ||||||
| Total operating lease costs | 1,045,572 | 808,156 | ||||||
As of December 31, 2024, the remaining lease-term and discount rate on the Frisco, TX lease was 4.3 years and 8.3%, respectively. As of December 31, 2024, the remaining lease-term and discount rate on the Culver City, CA lease was 2.2 years and 7.0%, respectively.
Maturities of the lease liability are as follows:
| 2025 | 932,475 | |||
| 2026 | 937,632 | |||
| 2027 | 643,765 | |||
| 2028 | 545,808 | |||
| 2029 | 181,936 | |||
| Thereafter | ||||
| Total lease payments | 3,241,616 | |||
| Less: Interest | (438,257 | ) | ||
| Total lease liability | $ | 2,803,359 |
| F-32 |
10. Line of credit
On September 14, 2023, the Company entered into an accounts receivable financing and security agreement with a maximum availability of $10.0 million for a three-year term with SLR Digital Finance, LLC (the “LOC”). The LOC matures on September 14, 2026. Interest accrues on the outstanding principal amount of the LOC at a rate equal to the greater of Prime plus 4.00% or 9.50%, per annum. The terms of the LOC provide for the lender to fund 85% of the purchased accounts receivable and it includes various service fees.
As of December 31, 2024, the outstanding principal, and unpaid accrued interest, on the LOC was $3.5 million. During the year ended December 31, 2024 and 2023, the Company recognized interest expense of $0.9 million and $0.2 million on the LOC.
11. Convertible debt
In conjunction with completion of the Arrangement (see Note 4), the Company assumed two convertible debt instruments: a $1.3 million convertible debenture issued to Three Curve Capital LP (“Three Curve CD”) and a $5.0 million convertible debenture issued to EB Acquisition Company, LLC (“EB CD”). The Company elected the FVO for recognition of the Three Curve CD and EB CD as permitted under ASC 825.
King Street CD
On December 29, 2023, the Company refinanced the EB CD. The EB CD was exchanged for a new senior secured convertible debenture in the principal amount of $5.8 million with an affiliate of EB Acquisition Company, LLC, King Street Partners LLC (“King Street CD”). The refinance transaction was accounted for as an extinguishment of the EB CD. After remeasuring the EB CD at fair value as of December 29, 2023, the Company recognized a $2.2 million loss on extinguishment in the consolidated statements of operations and comprehensive loss related to the EB CD. The Company paid a fee of $0.7 million to King Street Partners LLC in relation to the refinance transaction which was included in the determination of the loss on extinguishment.
The Company elected the FVO for the recognition of the new King Street CD.
| F-33 |
On June 21, 2024, the Company received a notice from King Street, the holder of a 12.75% convertible debenture with a principal amount of $5.8 million dated December 29, 2023. The notice objected to the Company’s ability to maintain its 51% economic interest in FaZe Media, Inc. and other related matters.
As a result, King Street requested the immediate repayment of the full principal amount, along with any premiums and accrued interest.
On October 1, 2024, the Company entered into a Settlement and Release Agreement with King Street pertaining to the King Street convertible debenture.
The outstanding balances due under King Street convertible debenture were paid in full on July 10, 2024, including $5.7 million principal and unpaid accrued interest. On October 1, 2024, the Company entered into a settlement and release agreement with King Street, whereby an additional $200,000 was negotiated to be paid to King Street, $150,000 in cash and $50,000 in the Company’s common stock.
Yorkville CD and SEPA
On July 8, 2024, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”), pursuant to which the Company has the right to sell to Yorkville up to $20.0 million of its shares of common stock, par value $ per share, subject to certain limitations and conditions set forth in the SEPA.
Each advance the Company requests in writing to Yorkville under the SEPA may be for a number of shares of common stock up to the greater of (i) 500,000 shares or (ii) such amount as is equal to 100% of the average daily volume traded of the common stock during the five trading days immediately prior to the date the Company requests each advance. The shares of common stock purchased pursuant to an advance delivered by the Company will be purchased at a price equal to 97% of the lowest daily VWAP of the shares of common stock during the three consecutive trading days commencing on the date of the delivery of the advance notice.
The SEPA will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the date of the SEPA or (ii) the date on which the Company shall have made full payment of advances pursuant to the SEPA.
In connection with the execution of the SEPA, the Company paid a diligence fee in cash to Yorkville in the amount of $25,000. Additionally, the Company agreed to pay a commitment fee of $200,000 to Yorkville, payable as follows: (i) $100,000 payable within three days of the date of the SEPA, in the form of the issuance of shares of common stock, and (ii) $100,000 payable on the three-month anniversary of the date of the SEPA, payable in either cash or in the form of an advance.
Additionally, Yorkville agreed to advance to the Company, in exchange for a convertible promissory note (the “Yorkville CD”), an aggregate principal amount of up to $6.5 million, which was funded on July 8, 2024. The purchase price for the Yorkville CD was 93.0% of the principal amount or $6.045 million. Interest shall accrue on the outstanding balance of the Yorkville CD at an annual rate equal to 0%, subject to an increase to 18% upon an event of default. The maturity date of the Yorkville CD will be 12 months after the issuance date. Yorkville may convert the convertible debenture into shares of common stock at any time at a conversion price equal to the lower of (i) $1.375 (the “Fixed Price”) or (ii) a price per share equal to 93% of the lowest daily VWAP during the seven consecutive trading days immediately prior to the conversion date (the “Variable Price”), but which Variable Price shall not be lower than the floor price of $0.25 per share. Additionally, the Company, at its option, shall have the right, but not the obligation, to redeem early a portion or all amounts outstanding under the Yorkville CD at a redemption amount equal to the outstanding principal balance being repaid or redeemed, plus a 7% prepayment premium.
At any time during the term that there is a balance outstanding under the Yorkville CD, Yorkville may convert an amount that shall not exceed during any calendar month period, the greater of (i) an amount equal to 15% of the product of (A) the average of the daily traded amount on each trading day during such period and (B) the VWAP for such trading day, and (ii) $750,000.
| F-34 |
Gigamoon CD
On November 13, 2024, the Company and Gigamoon entered into a senior secured convertible promissory note in the principal amount of $10 million (the “Gigamoon CD”). On December 15, 2024, the Company received cash of $10 million from Gigamoon for issuance of the Gigamoon CD.
The Gigamoon CD bears an interest rate of 7.5% per annum, which automatically shall be increased to 10.0% in the event of an event of default. The Gigamoon CD has a maturity date of five years from the issuance, unless earlier accelerated upon the occurrence of an event of default upon the election of the holder. Interest shall accrue as of the issuance date and shall be payable by the Company on (i) each anniversary of such issuance date, and (ii) the earlier of (a) the maturity date and (b) the conversion or exchange of the Gigamoon CD. Interest payments under the Gigamoon CD are payable in the Company’s common stock, equal to the quotient of (a) the aggregate amount of any accrued and unpaid interest as of such payment date, and (b) the conversion price of $2.50 per common share.
At the option of the holder, at any time on or after December 31, 2025, or upon an event of default or certain change of control events, the Gigamoon CD can be converted into either (i) GameSquare common stock at a conversion price of $2.50 per common share or (ii) exchanged for the shares of Series A-1 Preferred Stock of Faze Media Inc. held by the Company.
(a) King Street CD
The King Street CD was paid in full on July 10, 2024, including $5.7 million principal and unpaid accrued interest. Key terms of the King Street CD prior to the repayment include (a) a maturity date of December 29, 2025, (b) an interest rate of 12.75% per annum, and (c) is convertible at the holder’s option into common shares of Company at a price of $3.04 per share (subject to standard anti-dilution provisions). The Company recognized a gain on extinguishment of debt of $0.3 million on July 10, 2024 in connection with the paydown and write-off of the King Street CD, and is included in loss on extinguishment of debt on the consolidated statements of operations and comprehensive loss. The gain is presented net of the day one loss on issuance of the Yorkville CD (see Note 11(c)).
The fair value of the King Street CD was estimated using the binomial lattice model with the below assumptions:
| July 8, 2024 | December 31, 2023 | |||||||
| Share price | $ | 1.20 | $ | 1.78 | ||||
| Conversion price | $ | 3.04 | $ | 5.00 | ||||
| Term, in years | 1.50 | 2.00 | ||||||
| Interest rate | 12.75 | % | 12.75 | % | ||||
| Expected volatility | 105.00 | % | 110.00 | % | ||||
| Risk-free interest rate | 4.90 | % | 4.23 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
(b) Three Curve CD
On September 1, 2022, Engine extended convertible debentures that were due to mature in October and November 2022 with an aggregate principal amount of $1.3 million. Key terms include (a) a maturity date of August 31, 2025, (b) an interest rate of 7% per annum (interest to be paid in full at maturity) and (c) a conversion price of $4.40 per share.
The fair value of the Three Curve CD was estimated using the binomial lattice model with the below assumptions:
| December 31, 2024 | December 31, 2023 | |||||||
| Share price | $ | 0.83 | $ | 1.78 | ||||
| Conversion price | $ | 4.40 | $ | 4.40 | ||||
| Term, in years | 0.67 | 1.67 | ||||||
| Interest rate | 7 | % | 7 | % | ||||
| Expected volatility | 95.00 | % | 115.00 | % | ||||
| Risk-free interest rate | 4.21 | % | 4.42 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| F-35 |
(c) Yorkville CD
Key terms of the Yorkville CD include (a) a maturity date of July 8, 2025, (b) an interest rate of 0% per annum and (c) a conversion price equal to the lower of (i) $1.375 per common share or (ii) a price per common share equal to 93% of the lowest daily VWAP during the seven consecutive trading days immediately prior to the conversion date, but which shall not be lower than the $0.25 per share. The Company recognized a day one loss on issuance of debt of $1.4 million on July 8, 2024 in connection with the issuance of the Yorkville CD, and is included in loss on extinguishment of debt on the consolidated statements of operations and comprehensive loss. The loss is presented net of the $0.3 million gain on extinguishment of the King Street CD (see Note 11(a)).
On August 26, 2024, $100 thousand principal Yorkville CD, with a fair value of $108 thousand, was converted into common shares. On October 17, 2024, $500 thousand principal Yorkville CD, with a fair value of $538 thousand, was converted into common shares. Lastly, in November and December 2024, the Company made a series of cash payments, totaling $1.9 million to Yorkville, reducing its principal balance by $1.8 million after application of the 7% cash payment premium. The outstanding principal balance on the Yorkville CD as of December 31, 2024 was $4.1 million.
The fair value of the Yorkville CD was estimated using the binomial lattice model with the below assumptions:
| December 31, 2024 | July 8, 2024 | |||||||
| Share price | $ | 0.83 | $ | 1.26 | ||||
| Conversion price | 7% discount to market | 7% discount to market | ||||||
| Term, in years | 0.52 | 1.00 | ||||||
| Interest rate | 0.00 | % | 0.00 | % | ||||
| Expected volatility | 100.00 | % | 105.00 | % | ||||
| Risk-free interest rate | 4.24 | % | 4.99 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
(d) Gigamoon CD
Key terms include (a) a maturity date of November 13, 2029, (b) an interest rate of 7.5% per annum and (c) a conversion price of $2.50 per share or shares of Series A-1 Preferred Stock of Faze Media Inc.
The fair value of the Gigamoon was estimated using the binomial lattice model with the below assumptions:
| December 31, 2024 | December 15, 2024 | |||||||
| Share price | $ | 0.83 | $ | 0.91 | ||||
| Conversion price | $ | 2.50 | $ | 2.50 | ||||
| Term, in years | 4.87 | 4.92 | ||||||
| Interest rate | 7.50 | % | 7.50 | % | ||||
| Expected volatility | 120.00 | % | 120.00 | % | ||||
| Risk-free interest rate | 4.37 | % | 4.25 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
The change in fair values of the Company’s convertible debentures subject to recurring remeasurement at fair value were as follows:
| Three Curve CD | Yorkville CD | King Street CD | Gigamoon CD | Total | ||||||||||||||||
| Balance, December 31, 2021 and 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| Acquisition of Engine | 2,082,304 | 5,029,029 | 7,111,333 | |||||||||||||||||
| Interest expense | 63,288 | 360,924 | 424,212 | |||||||||||||||||
| Interest payments | (375,000 | ) | (375,000 | ) | ||||||||||||||||
| EB CD refinance | 1,554,737 | 1,554,737 | ||||||||||||||||||
| Change in fair value(1) | (638,356 | ) | 100,002 | (538,354 | ) | |||||||||||||||
| Balance, December 31, 2023 | $ | 1,507,236 | $ | $ | 6,669,692 | $ | $ | 8,176,928 | ||||||||||||
| Interest expense | 87,739 | 387,429 | 32,877 | 508,045 | ||||||||||||||||
| Interest payments | (391,481 | ) | (391,481 | ) | ||||||||||||||||
| Principal payments | (1,775,701 | ) | (5,800,000 | ) | (7,575,701 | ) | ||||||||||||||
| Early redemption premium | (200,000 | ) | (200,000 | ) | ||||||||||||||||
| Issuance of convertible debt | 6,045,000 | 10,000,000 | 16,045,000 | |||||||||||||||||
| Gain on extinguishment of debt | (329,703 | ) | (329,703 | ) | ||||||||||||||||
| Day one loss on issuance of debt | 1,361,773 | 1,361,773 | ||||||||||||||||||
| Conversion of debt | (645,161 | ) | (645,161 | ) | ||||||||||||||||
| Change in fair value(1) | 34,473 | (133,655 | ) | (335,937 | ) | (124,093 | ) | (559,212 | ) | |||||||||||
| Balance, December 31, 2024 | $ | 1,629,448 | $ | 4,852,256 | $ | $ | 9,908,784 | $ | 16,390,488 | |||||||||||
| Contractual principal balances outstanding: | ||||||||||||||||||||
| As of December 31, 2023 | $ | 1,250,000 | $ | $ | 5,800,000 | $ | $ | 7,050,000 | ||||||||||||
| As of December 31, 2024 | $ | 1,250,000 | $ | 4,124,299 | $ | $ | 10,000,000 | $ | 15,374,299 | |||||||||||
| (1) | None of the changes in fair value during the period were due to instrument-specific changes in credit risk. |
| F-36 |
12. Income tax
The Company computes taxes using the asset and liability method in accordance with FASB ASC Topic 740, Income Taxes. Under the asset and liability method, the Company determines deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measure them using currently enacted tax rates and laws. A valuation allowance is provided for deferred tax assets that, based on available evidence, are more likely than not to be realized.
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. The Company believes that it is more likely than not that the deferred tax assets will be unable to be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the Company’s balance sheet. As of December 31, 2024 and 2023, a valuation allowance of $117.7 million and $66.8 million, respectively, was established mainly due to the realizability of Federal, State, and Foreign NOLs that will not likely be realized.
The components of net deferred taxes are as follows:
| December 31, 2024 | December 31, 2023 | |||||||
| $ | $ | |||||||
| Deferred tax assets | ||||||||
| Charitable Contribution | 206,308 | 3,876 | ||||||
| Fixed Assets | 341,926 | |||||||
| Stock Compensation | 735,725 | |||||||
| Section 163(j) Interest limitation | 2,495,754 | |||||||
| Capital Gain | 650,608 | 621,686 | ||||||
| Unrealized Gain | 821,893 | 821,893 | ||||||
| Organization Costs | 52,103 | 60,735 | ||||||
| Accrued Expenses | 2,929,799 | 3,316,254 | ||||||
| Net operating Loss | 111,190,696 | 64,233,526 | ||||||
| R&D Credit | 196,501 | 196,501 | ||||||
| Lease Liability | 340,825 | 873,716 | ||||||
| Section 174 Expenses | 35,396 | |||||||
| Gross deferred tax assets | 119,997,534 | 70,128,187 | ||||||
| Valuation allowance | (117,664,283 | ) | (66,773,972 | ) | ||||
| Total deferred tax assets | 2,333,251 | 3,354,215 | ||||||
| Deferred tax liabilities | ||||||||
| Intangibles | 2,096,116 | 2,278,174 | ||||||
| Right of use assets | 188,003 | 468,383 | ||||||
| Other Adjustment | 49,132 | 65,763 | ||||||
| Fixed Assets | 541,895 | |||||||
| Total deferred tax liabilities | 2,333,251 | 3,354,215 | ||||||
| Net deferred tax assets (liabilities) | ||||||||
The provision for income taxes consisted of the following:
| For the year ended | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| Current: | ||||||||
| Canada | ||||||||
| US | ||||||||
| Other Foreign | ||||||||
| Total current tax expense (benefit) | ||||||||
| Deferred: | ||||||||
| Canada | ||||||||
| US | ||||||||
| Other Foreign | (55,096 | ) | ||||||
| Total deferred tax expense (benefit) | (55,096 | ) | ||||||
| Total income tax expense (benefit) | (55,096 | ) | ||||||
| F-37 |
The reconciliation between the income tax expense (benefit) calculated by applying statutory rates to net loss before income taxes and the income tax expense (benefit) reported in the consolidated financial statements is as follows:
| For the year ended | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| $ | $ | |||||||
| Income (loss) before income taxes | (48,750,907 | ) | (31,337,523 | ) | ||||
| Statutory income tax rate | 21.0 | % | 26.5 | % | ||||
| Expected income tax (benefit) | (10,237,690 | ) | (8,304,444 | ) | ||||
| Reconciling items: | ||||||||
| Change in valuation allowance | 51,434,409 | 5,424,830 | ||||||
| State taxes | ||||||||
| Permanent differences | 3,093,876 | 443,320 | ||||||
| Return to provision | 4,306,483 | 50,819 | ||||||
| Purchase accounting adjustments | (47,300,799 | ) | ||||||
| Disposal of business units | (966,704 | ) | ||||||
| Other | (329,575 | ) | 2,330,379 | |||||
| Total income tax expense (benefit) | (55,096 | ) | ||||||
The Company believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial position, results of operations or cash flows. Accordingly, the Company has not recorded any reserves, or related accruals or uncertain income tax positions at December 31, 2024 or 2023.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. The Company has no accruals for interest and penalties as of December 31, 2024 and 2023.
Federal and state tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code Section 382 (Section 382). As of December 31, 2024, the Company has not performed a formal Section 382 study; however, the Company has reviewed its temporary taxable differences in conjunction with its temporary deductible differences as a measure against its definite lived net operating losses and anticipates any impact to be mitigated with additional net operating losses from temporary deductible differences. The Company has net operating loss carryforwards for federal and state income tax purposes of approximately $325 million and $230 million, respectively, as of December 31, 2024. Most of the federal net operating loss carryforwards will carryforward indefinitely. Some of the state net operating loss carryforwards, if not utilized, will expire beginning in 2030.
| F-38 |
13. Shareholders’ equity
(a) Description of the Company’s securities
The Company is authorized to issue an unlimited number of common shares, with no par value. Holders of common shares are entitled to one vote in respect of each common share held at shareholder meetings of the Company.
(b) Activity for the periods presented
On March 7, 2024, common shares of the Company were issued for the completion of the Merger (see Note 4).
In conjunction with the Merger, on March 7, 2024, the Company completed a private placement in public equity financing (the “PIPE Financing”) with certain investors in which the Company offered units at a purchase price of $ per unit for aggregate gross proceeds of $10.0 million. Each unit consisted of one share of the Company’s common stock and a warrant to purchase 0.15 shares of the Company’s common stock. As a result, the Company issued an aggregate of common shares of the Company and warrants to purchase up to 1,079,136 shares of the Company pursuant to the PIPE Financing. Each warrant has an exercise price of $1.55 per share and expire on March 7, 2029 (see Note 16).
On August 26, 2024, common shares were issued in connection with conversion of $100 thousand in principal under the Yorkville CD with a fair value of $108 thousand. On October 17, 2024, common shares were issued in connection with conversion of $500 thousand in principal under the Yorkville CD with a fair value of $538 thousand.
On September 4, 2024, common shares were issued in settlement of outstanding amounts payable of $0.1 million to Yorkville (first half of the SEPA commitment fee). On October 31, 2024, common shares were issued in settlement of outstanding amounts payable of $0.1 million to Yorkville (second half of the SEPA commitment fee).
On October 2, 2024, common shares were issued to King Street in connection with the settlement agreement, for payment of $50 thousand (see Note 11).
On October 16, 2024, common shares were issued in settlement of outstanding amounts payable of $20 thousand.
On March 24, 2023 and December 29, 2023, an aggregate of shares were issued in settlement of outstanding amounts payable of $0.2 million.
On April 11, 2023, shares of the Company were issued for the completion of the Arrangement (see Note 4).
On April 3 and 10, 2023, an aggregate of shares of the Company were issued to settle legal matters.
On March 10, 2023, common shares of the Company were issued for contingent consideration on the acquisition of Cut+Sew.
During the years ended December 31, 2024 and 2023, and shares were issued upon the vesting of RSUs (see Note 15(b)).
As the Company incurred a net loss for the years ended December 31, 2024 and 2023, the inclusion of certain Options, RSUs, warrants, and contingent shares in the calculation of diluted earnings per share would be anti-dilutive and, accordingly, were excluded from the diluted loss per share calculation.
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Options and RSUs outstanding | ||||||||
| Warrants outstanding | ||||||||
| Shares issuable upon conversion of convertible debt | ||||||||
| Total | ||||||||
The Company grants share purchase options (“Options”) for the purchase of common shares to its directors, officers, employees and consultants.
Options may be exercisable over periods of up to years as determined by the Board of Directors of the Company. The Option price for shares that are the subject of any Option shall be fixed by the Board when such Option is granted but shall not be less than the market value of such shares at the time of grant.
The Omnibus Plan allows the Company to award restricted share units to directors, officers, employees and consultants of the Company and its subsidiaries upon such conditions as the Board may establish, including the attainment of performance goals recommended by the Company’s compensation committee. The purchase price for common shares of the Company issuable under each RSU award, if any, shall be established by the Board at its discretion. Common shares issued pursuant to any RSU award may be made subject to vesting conditions based upon the satisfaction of service requirements, conditions, restrictions, time periods or performance goals established by the board.
The TSXV required, at the time of approval of the Omnibus Plan, the Company to fix the number of common shares to be issued in settlement of awards that are not options. The maximum number of common shares available for issuance pursuant to the settlement of RSU shall be an aggregate of common shares.
| F-39 |
(a) Options
The following is a summary of Options outstanding as of December 31, 2024 and 2023, and changes during the years then ended, by Option exercise currency:
| Number of shares | Weighted-average exercise price (CAD) | Weighted-average remaining contractual term | Aggregate intrinsic value | |||||||||||||
| Outstanding at December 31, 2022 | 458,643 | $ | 19.95 | $ | ||||||||||||
| Granted | 20,655 | 6.29 | ||||||||||||||
| Forfeited or expired | (62,677 | ) | 19.48 | |||||||||||||
| Outstanding at December 31, 2023 | 416,621 | $ | 19.34 | $ | ||||||||||||
| Outstanding at December 31, 2024 | 416,621 | $ | 19.34 | $ | ||||||||||||
| Exercisable at December 31, 2024 | 416,621 | $ | 19.34 | $ | ||||||||||||
| Number of shares | Weighted-average exercise price (USD) | Weighted-average remaining contractual term | Aggregate intrinsic value | |||||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||||||
| Acquisition of Engine(1) | 261,929 | 5.15 | ||||||||||||||
| Forfeited or expired | (12,110 | ) | 2.85 | |||||||||||||
| Outstanding at December 31, 2023 | 249,819 | $ | 5.26 | $ | ||||||||||||
| Acquisition of FaZe | 1,196,759 | 2.92 | ||||||||||||||
| Granted | 898,016 | 1.10 | ||||||||||||||
| Outstanding at December 31, 2024 | 2,344,594 | $ | 2.47 | $ | ||||||||||||
| Exercisable at December 31, 2024 | 2,313,335 | $ | 2.47 | $ | ||||||||||||
| (1) | Awards of Engine outstanding prior to the Arrangement accounted for as if granted on the Arrangement closing date. |
The fair value of option award granted was estimated on the date of grant using the Black-Scholes option pricing model using the following significant assumptions:
| 2024 | 2023 | |||||||
| Expected term, in years | ||||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
Volatility was estimated by using the average historical volatility of the Company. The expected life in years represents the period of time that options issued are expected to be outstanding. The risk-free rate is based on government treasury bond rates issued with a remaining term approximately equal to the expected life of the options.
| F-40 |
Share-based compensation expense related to the vesting of options was $ million and $ million for the years ended December 31, 2024 and 2023, respectively, and is included in general and administrative expense on the consolidated statements of operations and comprehensive loss.
(b) RSUs
The following is a summary of RSUs outstanding on December 31, 2024, and December 31, 2023, and changes during the periods then ended:
| Number of shares | Weighted-average grant date fair value | |||||||
| Outstanding at December 31, 2022 | 127,809 | 8.25 | ||||||
| Acquisition of Engine | 41,442 | 5.63 | ||||||
| Granted | 623,071 | 3.00 | ||||||
| Exercised | (125,139 | ) | 5.40 | |||||
| Forfeited | (2,586 | ) | 6.12 | |||||
| Outstanding at December 31, 2023 | 664,597 | $ | 3.71 | |||||
| Acquisition of FaZe | 595,175 | 1.39 | ||||||
| Granted | 412,313 | 1.34 | ||||||
| Exercised | (1,088,132 | ) | 2.07 | |||||
| Forfeited | (5,911 | ) | 5.40 | |||||
| Outstanding at December 31, 2024 | 578,042 | $ | 2.70 | |||||
The grant-date fair values of the RSUs are based on the Company’s stock price as of the grant dates.
Share-based compensation expense related to the vesting of RSUs was $ million and $ million for the years ended December 31, 2024 and 2023, respectively, and is included in general and administrative expense on the consolidated statements of operations and comprehensive loss.
16. Warrants
(a) Liability-classified warrants having CAD exercise price
In conjunction with completion of the Arrangement (see Note 4), outstanding warrants of GSQ were cancelled and the Company issued replacement warrants with identical terms. The functional currency of the Company is USD and the replacement warrants have an exercise price in CAD. The issuance of the replacement warrants was accounted for as a modification to equity-classified instruments that resulted in reclassification to a liability. As a result, 927,228 warrants of GSQ with a modification date fair value of $0.9 million, were reclassified to a derivative warrant liability in accordance with ASC 815, Derivatives and Hedging, on April 11, 2023. Furthermore, 269,601 of Engine’s warrants, with an acquisition date fair value of $0.2 million, included in the Engine reverse acquisition purchase consideration (see Note 4), have an exercise price in CAD and are similarly liability classified. No liability-classified warrants were issued or outstanding prior to the completion of the Arrangement.
| F-41 |
The following is a summary of changes in the value of the warrant liability during the years ended December 31, 2024 and 2023:
| Amount | ||||
| Balance, December 31, 2022 | $ | |||
| Acquisition of Engine | 153,275 | |||
| Reclassify GSQ Esports Inc. warrants to warrant liability | 900,818 | |||
| Change in fair value | (968,757 | ) | ||
| Foreign exchange | 16,948 | |||
| Balance, December 31, 2023 | $ | 102,284 | ||
| Change in fair value | (84,449 | ) | ||
| Foreign exchange | (3,521 | ) | ||
| Balance, December 31, 2024 | $ | 14,314 | ||
The following assumptions were used to determine the fair value of the warrant liability using the Black-Scholes option pricing model:
| December 31, 2024 | December 31, 2023 | |||||||
| Share price | CAD$ | CAD$ | ||||||
| Term, in years | 2.75 | 0.39 - 4.00 | ||||||
| Exercise price | CAD$9.68 | CAD$6.29 - $30.00 | ||||||
| Expected volatility | 100.00 | % | 90.00 | % | ||||
| Risk-free interest rate | 2.85 | % | 4.25% - 5.45 | % | ||||
| Expected dividend yield | 0 | % | 0 | % | ||||
Volatility was estimated by using the average historical volatility of the Company. The expected life in years represents the period of time that warrants issued are expected to be outstanding. The risk-free rate is based on government treasury bond rates issued with a remaining term approximately equal to the expected life of the warrants.
The following is a summary of liability-classified warrants outstanding as of December 31, 2024 and 2023, and changes during the periods then ended:
| Weighted-average | ||||||||
| Number of | exercise price | |||||||
| warrants | (CAD) | |||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Acquisition of Engine | 269,601 | 30.00 | ||||||
| Reclassify GSQ Esports Inc. warrants to warrant liability | 927,228 | 23.51 | ||||||
| Warrants expired | (438,918 | ) | 29.05 | |||||
| Outstanding, December 31, 2023 | 757,911 | $ | 22.61 | |||||
| Warrants expired | (633,981 | ) | 25.14 | |||||
| Outstanding, December 31, 2024 | 123,930 | $ | 9.68 | |||||
(b) Equity-classified warrants
As discussed in Note 16(a) above, all of GSQ’s warrants with a CAD exercise price were modified and reclassified to a warrant liability on April 11, 2023. Furthermore, 877,891 of Engine’s warrants, with an acquisition date fair value of $30 thousand, included in the Engine reverse acquisition purchase consideration (see Note 4), have an exercise price in USD and are equity-classified.
As discussed in Note 4 above in conjunction with the acquisition of FaZe, the Company issued 775,415 warrants with an acquisition fair value of $26 thousand, included in the FaZe acquisition purchase price consideration.
As discussed in Note 13, in conjunction with the PIPE Financing on March 7, 2024, 1,079,136 warrants were issued with an exercise price of $ and a contractual term of 5 years. The relative fair value of the warrants of $1.1 million was estimated using the Black-Scholes option pricing model with the following assumptions: share price of $, expected dividend yield of 0%, expected volatility rate of 120.00%, based on the historical volatility of comparable companies, a risk free rate of 3.36% and an expected life of 5 years. The warrants have an exercise price in USD and are equity-classified.
| F-42 |
The following is a summary of equity-classified warrants outstanding as of December 31, 2024 and 2023, and changes during the periods then ended:
| Weighted-average | ||||||||
| Number of | exercise price | |||||||
| warrants | (CAD) | |||||||
| Outstanding, December 31, 2022 | 927,228 | 23.51 | ||||||
| Reclassify GSQ Esports Inc. warrants to warrant liability | (927,228 | ) | (23.51 | ) | ||||
| Outstanding, December 31, 2023 | $ | |||||||
| Weighted-average | ||||||||
| Number of | exercise price | |||||||
| warrants | (USD) | |||||||
| Outstanding, December 31, 2022 | $ | |||||||
| Acquisition of Engine | 877,891 | 60.00 | ||||||
| Outstanding, December 31, 2023 | 877,891 | $ | 60.00 | |||||
| Warrants expired | (877,891 | ) | 60.00 | |||||
| PIPE Financing | 1,079,136 | 1.55 | ||||||
| Acquisition of FaZe | 775,415 | 87.85 | ||||||
| Outstanding, December 31, 2024 | 1,854,551 | $ | 37.63 | |||||
17. Related party transactions
(a) Credit facility payable
On June 30, 2022, the Company entered into an agreement for a $5.0 million credit facility (the “Facility”) for a one-year term with Goff & Jones Lending Co, LLC., a related party to the Company by virtue of one of its directors. The Facility matured on June 30, 2023 (the “Maturity Date”). During the year ended December 31, 2023, the Company recognized $23 thousand in interest expense and $80 thousand in legal fees in connection with the Facility. The Facility was paid off in April 2023, and has not been renewed.
| F-43 |
(b) Convertible debenture with a director of the Company as counterparty
On September 1, 2022, Engine extended convertible debentures that were due to expire in October and November 2022 with an aggregate principal amount of $1.3 million. Key terms include (a) maturity date of August 31, 2025, (b) interest rate of 7% (interest to be paid in full at maturity) and (c) conversion price of $4.40. The convertible debenture is beneficially held by a director of the Company (see Note 11).
18. Commitments and contingencies
Allinsports - In April 2020, Engine announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided for the acquisition of 100% of Allinsports in exchange for the issuance of common shares of the Engine and other considerations, including payments of $1,200,000 as a portion of the purchase consideration. In September 2020, Engine advised the shareholders of Allinsports that closing conditions of the transaction, including the requirement to provide audited financial statements, had not been satisfied.
In response, in November 2020, the shareholders of Allinsports commenced arbitration in Alberta, Canada seeking, among other things, to compel Engine to complete the acquisition of Allinsports without the audited financial statements, and to issue common shares of Engine to those shareholders. As alternative relief, the shareholders of Allinsports sought up to $20.0 million in damages. A hearing in this matter was held in May of 2021, and by a decision dated September 30, 2021, the Arbitrator determined that the closing of the transaction had previously occurred and directed Engine to issue common shares. In conjunction with completion of the Arrangement, the Company assumed this obligation to issue common shares. The Company has not yet issued the shares and is pursuing relief against Allinsports shareholders for various alleged breaches of the share purchase agreement. The Company recognized a liability for the arbitration ruling of $1.5 million, which represented the fair value of the common shares directed to be delivered as of April 11, 2023, the closing date of the Arrangement. The liability is recorded as arbitration reserve on the Company’s consolidated balance sheets. This liability will be adjusted to fair value at the end of each reporting period.
Promissory Note Recovery - By Order to Continue dated May 5, 2022, Engine was substituted in as the plaintiff in a matter pending in the Ontario Superior Court of Justice, seeking recovery of $2.1 million (€1.9 million) of principal and additional amounts of accrued interest under promissory notes acquired by Engine. The matter is in the discovery stage.
SPAC Complaint - A complaint has been filed in Delaware Chancery Court against several former directors of Faze Holdings, Inc.’s predecessor, B Riley 150 Merger Corp., and several other B Riley affiliated entities, challenging the disclosures made in connection with the July 2022 merger between B. Riley 150 Merger Corp. and Faze Holdings, Inc. The Company has indemnification obligations to the former B. Riley 150 Merger Corp. directors. Under the terms of a proposed settlement agreement, B. Riley and the Company will each contribute a total of $1,050,000 of cash and Company common stock to resolve the matter. The terms of the proposed settlement of this matter are currently being reviewed by the Delaware Chancery Court.
Villanueva v. Faze Clan, Inc. - On June 20, 2024, Plaintiff Harold Villanueva (“Plaintiff”) filed a Complaint in the California Superior Court for the County of Los Angeles, seeking damages against FaZe Clan, Inc. and other parties. Plaintiff asserts causes of action for (1) Negligence, (2) Negligent Hiring, Retention, and Supervision, and (3) Premises Liability in connection with injuries alleged incurred on FaZe Clan’s premises. FaZe Clan has denied liability for the alleged injuries and this matter is in the discovery stage. FaZe Clan’s insurer is providing defense of these claims pursuant to a reservation of rights letter.
The outcomes of pending litigations in which the Company is involved are necessarily uncertain as are the Company’s expenses in prosecuting and defending these actions. From time to time the Company may modify litigation strategy and/or the terms on which it retains counsel and other professionals in connection with such actions, which may affect the outcomes of and/or the expenses incurred in connection with such actions.
The Company is subject to various other claims, lawsuits and other complaints arising in the ordinary course of business. The Company records provisions for losses when claims become probable, and the amounts are estimable. Although the outcome of such matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, operations, or liquidity.
19. Discontinued operations and assets held for sale
As discussed in Note 4, on March 1, 2024, the Company sold Complexity and recognized a gain on disposition of $3.0 million, resulting in Complexity meeting the requirements for presentation as discontinued operations. Prior to disposition, Complexity was part of the Teams operating and reportable segment.
The Company recognized a pretax net loss of $1.4 million and $5.3 million for the year ended December 31, 2024 and 2023, respectively, in net income (loss) from discontinued operations in the consolidated statements of operations and comprehensive loss in relation to Complexity. The pretax net loss of $1.4 million during the year ended December 31, 2024, includes revenue of $1.0 million, cost of revenue of $0.9 million, and operating expenses of $1.5 million. The pretax net loss of $5.3 million for the year ended December 31, 2023, includes revenue of $10.7 million, cost of revenue of $7.4 million, and operating expenses of $8.7 million.
Complexity had amortization and depreciation of $0.2 million and $1.4 million for the year ended December 31, 2024 and 2023, respectively. Complexity did not have significant capital expenditures or significant noncash activity during the periods presented.
| F-44 |
20. Revenue and Segmented Information
The CODM uses gross profit, as reviewed at periodic business review meetings, as the key measure of the Company’s results as it reflects the Company’s underlying performance for the period under evaluation to determine resource allocation. As of December 31, 2024, the Company was organized into the three operating segments, which also represent its three reportable segments: Teams, Agency and Software-as-service (SaaS) + Advertising.
Revenue, cost of sales and gross profit for the Company’s operating and reportable segments, disaggregated into geographic locations, are as follows:
| Year ended December 31, 2024 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Teams | $ | $ | 32,026,264 | $ | $ | 32,026,264 | ||||||||||
| Agency | 1,342,578 | 10,747,244 | 12,089,822 | |||||||||||||
| SaaS + Advertising | 48,989,573 | 3,092,442 | 52,082,015 | |||||||||||||
| Total Revenue | 1,342,578 | 91,763,081 | 3,092,442 | 96,198,101 | ||||||||||||
| Cost of sales | ||||||||||||||||
| Teams | 26,422,806 | 26,422,806 | ||||||||||||||
| Agency | 1,052,436 | 7,848,758 | 8,901,194 | |||||||||||||
| SaaS + Advertising | 45,225,442 | 375,543 | 45,600,985 | |||||||||||||
| Total Cost of sales | 1,052,436 | 79,497,006 | 375,543 | 80,924,985 | ||||||||||||
| Gross profit | ||||||||||||||||
| Teams | 5,603,458 | 5,603,458 | ||||||||||||||
| Agency | 290,142 | 2,898,486 | 3,188,628 | |||||||||||||
| SaaS + Advertising | 3,764,131 | 2,716,899 | 6,481,030 | |||||||||||||
| Total Gross profit | $ | 290,142 | $ | 12,266,075 | $ | 2,716,899 | $ | 15,273,116 | ||||||||
| Year ended December 31, 2023 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Teams | $ | $ | $ | |||||||||||||
| Agency | $ | 2,853,754 | $ | 8,667,147 | $ | $ | 11,520,901 | |||||||||
| SaaS + Advertising | 27,594,868 | 2,187,612 | 29,782,480 | |||||||||||||
| Total Revenue | 2,853,754 | 36,262,015 | 2,187,612 | 41,303,381 | ||||||||||||
| Cost of sales | ||||||||||||||||
| Teams | ||||||||||||||||
| Agency | 2,065,375 | 6,012,551 | 8,077,926 | |||||||||||||
| SaaS + Advertising | 22,879,308 | 244,625 | 23,123,933 | |||||||||||||
| Total Cost of sales | 2,065,375 | 28,891,859 | 244,625 | 31,201,859 | ||||||||||||
| Gross profit | ||||||||||||||||
| Teams | ||||||||||||||||
| Agency | 788,379 | 2,654,596 | 3,442,975 | |||||||||||||
| SaaS + Advertising | 4,715,560 | 1,942,987 | 6,658,547 | |||||||||||||
| Total Gross profit | $ | 788,379 | $ | 7,370,156 | $ | 1,942,987 | $ | 10,101,522 | ||||||||
Management does not evaluate operating segments using discrete asset information. The Company’s consolidated assets are generally shared across, and are not specifically ascribed to, operating and reportable segments.
Property and equipment, net, by geographic region, are summarized as follows:
| December 31, 2024 | December 31, 2023 | |||||||
| USA | $ | 297,727 | $ | 2,456,563 | ||||
| United Kingdom | 1,337 | 1,814 | ||||||
| Spain | 4,886 | 6,256 | ||||||
| Total | $ | 303,950 | $ | 2,464,633 | ||||
21. Fair value measurements
The carrying value of cash approximates fair value. The carrying amount of other current assets and liabilities, such as accounts and other receivables and accounts payable, approximates fair value due to the short-term maturity of the amounts, and such current assets and liabilities are considered Level 2 in the fair value hierarchy.
| F-45 |
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis:
| As of December 31, 2024 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability | 14,314 | 14,314 | ||||||||||||||
| Arbitration reserve | 199,374 | 199,374 | ||||||||||||||
| Convertible debt | 16,390,488 | 16,390,488 | ||||||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Contingent consideration | $ | $ | $ | 501,118 | $ | 501,118 | ||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability | 102,284 | 102,284 | ||||||||||||||
| Arbitration reserve | 428,624 | 428,624 | ||||||||||||||
| Convertible debt | 8,176,928 | 8,176,928 | ||||||||||||||
(a) Fair values measured on a non-recurring basis
The Company’s non-financial assets, such as property and equipment, goodwill and intangible assets, are recorded at fair value upon a business combination and are remeasured at fair value only if an impairment charge is recognized. The Company’s investment in One Up, accounted for under the measurement alternative of ASC 321 (see Note 5), is remeasured at fair value only upon an observable price change or if an impairment charge is recognized. The Company uses unobservable inputs to the valuation methodologies that are significant to the fair value measurements, and the valuations require management’s judgment due to the absence of quoted market prices. The Company determines the fair value of its held and used assets, goodwill and intangible assets using an income, cost or market approach as determined reasonable.
22. Subsequent events
The Company has evaluated subsequent events from the balance sheet date through April 15, 2025, the date at which the consolidated financial statements were available to be issued and determined there were no additional items to be disclosed other than those described below.
Yorkville CD conversion and settlement
On January 2, 2025, the Company announced that it has extinguished its outstanding convertible note and standby equity purchase agreement with Yorkville Advisors Global L.P. (“Yorkville”). Under the strategic transaction, GameSquare has issued a zero-coupon, 60-day promissory note to Yorkville associated with a prepayment penalty of $0.8 million. Additionally, all shares previously owned by Yorkville, were purchased by outside investors in block transactions that occurred on January 21, 2025.
Promissory Note
On March 25, 2025, the “Company entered into a secured promissory note with Blue & Silver Ventures, Ltd. The principal amount of $2 million under the promissory note is payable on demand and no later than July 1, 2025. The promissory note bears interest at a rate of ten percent (10%) per annum, with a default interest rate of fifteen percent (15%) per annum, and is payable on demand and no later than July 1, 2025 with the principal amount. The Company, at its option, may prepay the promissory note, in whole or in part, without a prepayment penalty of any kind.
In connection with the promissory note, the Company entered into a security agreement, by and between the Company and Blue & Silver Ventures, Ltd. to provide a security interest in the assets of the Company to Blue & Silver Ventures, Ltd. in order to secure the obligations underlying the promissory note.
Gigamoon CD
As previously disclosed, on November 13, 2024, the Company and Gigamoon entered into a senior secured convertible promissory note in the principal amount of $10 million (the “Gigamoon CD”). On April 2, 2025, GameSquare and Gigamoon entered into an exchange agreement, effective April 1, 2025, pursuant to which, the parties agreed to accelerate the exercise date under the Gigamoon CD to April 1, 2025. As a result, on April 1, 2025, GameSquare transferred the shares of Series A-1 Preferred Stock of Faze Media Inc. to Gigamoon.
| F-46 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision of our Chief Executive Officer and our Chief Financial Officer and concluded that our disclosure controls and procedures were not effective as of December 31, 2024. Material weaknesses relating to the Design and Implementation of Control Activities and Monitoring Activities were identified. The Company did not have sufficient resources with the relevant expertise to perform an effective risk assessment process, design and implement controls supported by documentation and provide evidence that such controls designed was based on the COSO Framework.
The material weaknesses in risk assessment, control activities and monitoring activities contributed to the following material weaknesses: (i) the Company did not complete a documented risk assessment, and (ii) the Company did not identify all risks and design relevant controls related to system of internal controls. As a consequence of the aggregation of the foregoing deficiencies in the Company’s DC&P and ICFR design, the Company did not have effective control activities related to the design of process-level and management review control activities. Aside from these deficiencies, management believes that the Company’s consolidated financial statements for year ended December 31, 2024, present fairly in all material respects, the Company’s financial position, results of operations, changes in shareholders’ equity and cash flows in accordance with U.S GAAP. The Company does not believe and is not aware of any circumstance in which the potential weaknesses have impacted the Company’s financial reporting and as a result, there were no material adjustments to the Company’s consolidated financial statements for the year ended December 31, 2024. In addition, there were no changes to previously released financial results. However, if the collective deficiencies were deemed to create a material weakness, a material misstatement to our consolidated financial statements might not be prevented or detected on a timely basis.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for designing, implementing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal controls, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
Under the supervision and with the participation of our management, including our principal executive officers and principal financial officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2024, based on the criteria related to internal control over financial reporting described in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, management concluded that our internal control over financial reporting were not effective as of December 31, 2024, due to the material weaknesses described above.
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Management’s Remediation Measures
To address the deficiencies identified, management, with oversight of the Audit Committee, has implemented, or will implement, remediation measures to further address the deficiencies in the design of its DC&P and ICFR. The Company intends to complete such remedial measures by December 31, 2026. Management has also performed an initial risk assessment using a top-down, risk-based approach with respect to the risks of material misstatement of the consolidated financial statements. In addition, compensating controls have been applied to a number of areas where the risks of material misstatement are considered moderate to high. The Company is engaging outside resources to strengthen the business process documentation and help with management’s self assessment and testing of internal controls. Although the Company can give no assurance that these actions will remediate these deficiencies or that additional deficiencies or a material weaknesses will not be identified in the future, management believes the foregoing efforts will, when implemented, strengthen our DC&P and ICFR. Management will take additional remedial actions as necessary as they continue to evaluate and work to improve the Company’s control environment.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the year ended December 31, 2024 covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, as such report is not required due to our status as an emerging growth company.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated herein by reference to the Company’s definitive proxy statement (the “Proxy Statement”), which is expected to be filed with the SEC pursuant to Regulation 14A within 120 days following the end of the fiscal year covered by this report.
Item 11. Executive Compensation
The information required in Item 11 is incorporated by reference to the information in the Proxy Statement, which will be filed with the SEC no later than 120 days subsequent to December 31, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required in Item 12 is incorporated by reference to the information in the Proxy Statement, which will be filed with the SEC no later than 120 days subsequent to December 31, 2024.
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Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required in Item 13 is incorporated by reference to the information in the Proxy Statement, which will be filed with the SEC no later than 120 days subsequent to December 31, 2024.
Item 14. Principal Accounting Fees and Services
The information in Item 14 has been omitted from this report, and is incorporated by reference to the information in the Proxy Statement, which will be filed with the SEC no later than 120 days subsequent to December 31, 2024.
PART IV
Item 15. Exhibits and Financial Statement Schedules
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| ** | Filed herewith. | |
| *** | Furnished, not filed. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: April 15, 2025 | GameSquare Holdings, Inc. | |
| By: | /s/ Justin Kenna | |
Justin Kenna Chief Executive Officer (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Justin Kenna | Chief Executive Officer and Director | April 15, 2025 | ||
| Justin Kenna | (Principal Executive Officer) | |||
| /s/ Michael Munoz | Chief Financial Officer | April 15, 2025 | ||
| Michael Munoz | (Principal Financial Officer) | |||
| /s/ Stuart Porter | Director | April 15, 2025 | ||
| Stuart Porter | ||||
| /s/ Tom Walker | Director | April 15, 2025 | ||
| Tom Walker | ||||
| /s/ Travis Goff | Director | April 15, 2025 | ||
| Travis Goff | ||||
| /s/Jeremi Gorman | Director | April 15, 2025 | ||
| Jeremi Gorman | ||||
| /s/ Lou Schwartz | Director | April 15, 2025 | ||
| Lou Schwartz | ||||
| /s/ Nick Lewin | Director | April 15, 2025 | ||
| Nick Lewin | ||||
| /s/ Paul Hamilton | Director | April 15, 2025 | ||
| Paul Hamilton |
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