GameSquare (GAME) - 2024 Q4 - Annual Report

Part I Business GameSquare Holdings, Inc. is a vertically integrated digital media, entertainment, and technology company focused on connecting global brands with gaming and youth audiences - GameSquare is a digital media and entertainment company connecting brands with Gen Z, Gen Alpha, and Millennial audiences through its end-to-end platform which includes media networks, marketing agencies, and the FaZe Clan gaming organization[18][21] Revenue from Continuing Operations by Stream (FY 2024 vs. FY 2023) | Source of Revenue | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Teams | $32,026,264 | $0 | | Agency | $12,089,822 | $11,520,901 | | SaaS + Advertising | $52,082,015 | $29,782,480 | - The company's growth strategy includes both organic growth and M&A, having completed five acquisitions and divested two non-core assets between August 2020 and May 2024[27] - As of April 1, 2025, the company had approximately 132 employees globally, with the majority (80) located in the United States[36] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[42] Cybersecurity The company has established an information security program to manage cybersecurity risks, which includes annual risk assessments, various security controls (EDR, IAM, MFA), and the use of third-party security firms - The company's cybersecurity strategy involves an annual risk assessment and the implementation of controls such as endpoint threat detection (EDR), identity and access management (IAM), multi-factor authentication (MFA), and vulnerability management[43] - Third-party security firms are utilized for assessments like vulnerability scans and penetration testing and the company also has a written incident response plan and conducts tabletop exercises[44][45] - The Chief Information Security Officer (CISO) has primary responsibility for the information security program, briefing management quarterly, while the Audit Committee provides oversight at the Board level[48] Properties GameSquare does not own any real property and its corporate headquarters is located in a leased facility in Frisco, Texas, with the lease expiring in 2029 - The company's corporate headquarters is a leased facility in Frisco, Texas, under a lease that expires in 2029 and the company does not own any real property[49] Legal Proceedings The company is involved in several legal matters, including an arbitration with Allinsports, a lawsuit to recover promissory notes, a SPAC-related complaint settlement, and a negligence lawsuit against FaZe Clan - Allinsports Arbitration: The company was directed to issue 241,666 common shares and recognized a liability of $1.5 million as of the Arrangement closing date[50][51] - SPAC Complaint Settlement: The company will contribute $1,050,000 in cash and common stock to resolve a complaint related to the 2022 merger involving FaZe Holdings, Inc.'s predecessor[53] - Villanueva v. Faze Clan, Inc.: A lawsuit was filed against FaZe Clan for negligence and premises liability and the case is in the discovery stage and is being defended by FaZe Clan's insurer[54] Mine Safety Disclosures This item is not applicable to the company - Not applicable[57] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is traded on the Nasdaq Capital Market under the symbol "GAME", has never paid dividends, and had 845 holders of record as of April 10, 2025 - The company's common stock is listed on the Nasdaq Capital Market under the symbol "GAME"[58] - The company has not paid any dividends since its incorporation and future dividend payments depend on board discretion and various financial factors[59] Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2024) | Plan Category | Securities to be Issued Upon Exercise | Weighted Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by Shareholders | | | | | Stock Options | 416,621 | CAD$19.34 | 502,385 | | Stock Options | 2,344,594 | USD$2.47 | | | RSUs | 578,042 | N/A | 1,195,484 | | Total | 3,339,257 | | 1,697,869 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's financial performance for the year ended December 31, 2024, showing significant revenue growth to $96.2 million but also an increased net loss of $54.3 million due to higher costs and impairment expenses Recent Developments During 2024 and early 2025, GameSquare executed several major transactions, including the merger with FaZe Clan, a $10 million PIPE financing, the sale of Complexity Gaming, and the creation of FaZe Media, Inc - FaZe Merger: Consummated the merger with FaZe Holdings Inc. on March 7, 2024, making FaZe a wholly-owned subsidiary[112] - PIPE Financing: Completed a $10.0 million private placement in public equity (PIPE) financing concurrent with the FaZe merger[117] - Complexity Divestiture: Sold its subsidiary Complexity Gaming on March 1, 2024, for a purchase price of $10.4 million, paid in cash and a promissory note[121][122] - FaZe Media Venture: Created FaZe Media, Inc. and entered a venture with Gigamoon, which invested $11.0 million for a 49% interest and GameSquare later sold a portion of its stake for $9.5 million[107][108] Results of Operations For the fiscal year 2024, revenue increased by 133% to $96.2 million, primarily due to acquisitions, but the net loss widened to $54.3 million due to surging operating expenses and impairment charges Consolidated Results of Operations (FY 2024 vs. FY 2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | $96,198,101 | $41,303,381 | | Gross Profit | $15,273,116 | $10,101,522 | | Loss from Continuing Operations | ($46,150,610) | ($25,382,905) | | Impairment Expense | $12,548,476 | $7,024,000 | | Net Loss | ($54,308,620) | ($31,282,427) | | Net Loss Attributable to GameSquare | ($48,750,907) | ($31,282,427) | | Loss per Share (Basic & Diluted) | ($1.75) | ($2.81) | - The significant increase in revenue was primarily driven by the acquisition of Engine on April 11, 2023, and the acquisition of FaZe on March 7, 2024[133] - Impairment expense increased to $12.5 million in 2024, related to goodwill for the Stream Hatchet and Sideqik reporting units ($7.4 million) and intangible assets ($4.0 million)[144] - The company met its pro-forma annual revenue guidance of $100+ million, with pro-forma 2024 revenue amounting to approximately $102.0 million when including pre-acquisition FaZe revenue[137] Liquidity and Capital Resources The company's financial position shows a working capital deficit of $18.3 million and an accumulated deficit of $122.2 million, raising substantial doubt about its going concern ability, with operations financed primarily through $38.0 million in financing activities - The financial statements were prepared on a going-concern basis, but recurring losses and a working capital deficiency of $18.3 million as of Dec 31, 2024, raise substantial doubt about the company's ability to continue operations without securing additional funding[161][164][218] Cash Flow Summary (FY 2024 vs. FY 2023) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($30.6 million) | ($16.1 million) | | Net Cash Provided by Investing Activities | $2.7 million | $14.1 million | | Net Cash Provided by Financing Activities | $38.0 million | $4.0 million | - As of December 31, 2024, the company's principal source of liquidity was $12.1 million in cash[167] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant estimates and judgments in revenue recognition, business combinations, and impairment testing, with revenue recognized differently across streams and goodwill/long-lived assets tested annually - Revenue recognition policies vary by stream: Brand Sponsorships and SaaS revenues are generally recognized ratably over the contract term, while Consumer Products revenue is recognized at a point in time upon shipment[178][181][189] - For business combinations, the company uses the acquisition method, allocating the purchase price to identifiable assets and liabilities at fair value, with any excess recorded as goodwill and this process involves significant judgment and estimates[203] - Goodwill and long-lived assets are tested for impairment annually or when a triggering event occurs and if the carrying value of a reporting unit exceeds its fair value, an impairment charge is recorded[205][206] - The company has elected the Fair Value Option (FVO) for its convertible debt, recognizing it at fair value with changes reported in earnings[207] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2024 and FY2023, including the auditor's report highlighting a going concern uncertainty, and notes detailing acquisitions, debt, and impairment charges Report of Independent Registered Public Accounting Firm The auditor, Kreston GTA LLP, issued an opinion that the financial statements are fairly presented but highlighted a "Material Uncertainty Related to Going Concern" and identified three Critical Audit Matters: acquisitions, impairment of goodwill and intangible assets, and revenue recognition - The auditor's report includes a paragraph on "Material Uncertainty Related to Going Concern," citing recurring losses and a working capital deficiency of $18.3 million, which raises substantial doubt about the company's ability to continue as a going concern[218] - Critical Audit Matters identified were: 1) Acquisitions, due to the complexity in valuing acquired assets and consideration in the FaZe merger; 2) Impairment of goodwill and intangible assets, due to significant estimation uncertainty; and 3) Revenue recognition, due to the high degree of auditor effort required[224][225][228][230] Consolidated Financial Statements The consolidated financial statements show a working capital deficit of $18.3 million, total assets of $78.7 million, total liabilities of $66.7 million, a net loss of $54.3 million for 2024, and $30.6 million cash used in operations Consolidated Balance Sheet Highlights (as of Dec 31, 2024) | Account | Amount | | :--- | :--- | | Total Current Assets | $36,472,572 | | Total Current Liabilities | $54,762,972 | | Working Capital Deficit | ($18,290,400) | | Goodwill | $12,704,979 | | Total Assets | $78,730,447 | | Total Liabilities | $66,726,199 | | Total Shareholders' Equity | $12,004,248 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2024) | Account | Amount | | :--- | :--- | | Revenue | $96,198,101 | | Gross Profit | $15,273,116 | | Total Operating Expenses | $61,423,726 | | Net Loss | ($54,308,620) | | Net Loss Attributable to GameSquare | ($48,750,907) | Notes to Consolidated Financial Statements The notes provide critical details on going concern uncertainty, acquisitions (FaZe merger), divestitures (Complexity sale), goodwill and intangible asset impairments, and significant debt financing - Acquisition of FaZe (Note 4c): The company acquired FaZe on March 7, 2024 and the total purchase price was valued at $14.6 million, resulting in $7.1 million of goodwill and $12.0 million of intangible assets[357][361][362] - Sale of Complexity (Note 4d, 19): On March 1, 2024, the company sold Complexity for consideration valued at $7.9 million, recognizing a gain on disposal of $3.0 million and the transaction is reported as a discontinued operation[371][372][373][478] - Goodwill and Intangible Asset Impairment (Note 7): In 2024, the company recorded a goodwill impairment charge of $7.4 million related to the Stream Hatchet and Sideqik reporting units, and an intangible asset impairment of $4.0 million[393][396] - Financing (Note 11): The company engaged in significant debt financing, including a $6.5 million convertible note from Yorkville and a $10 million convertible note from Gigamoon[416][418] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[494] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2024, due to material weaknesses in control and monitoring activities stemming from an insufficient risk assessment process - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024, due to material weaknesses in the design and implementation of control and monitoring activities[496] - The material weaknesses stemmed from not having sufficient resources for an effective risk assessment process based on the COSO Framework, leading to failures in identifying all risks and designing relevant controls[496][497] - Management is implementing remediation measures, including engaging outside resources, to strengthen controls, with a target completion by December 31, 2026[500] Other Information The company reported no other information for this item - None[502] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[503] Part III Directors, Executive Officers and Corporate Governance The information required for this item, concerning the company's directors, executive officers, and corporate governance, is incorporated by reference from the company's definitive proxy statement for its 2025 Annual Meeting of Stockholders - Information is incorporated by reference to the Company's definitive proxy statement to be filed with the SEC[505] Executive Compensation The information regarding executive compensation is incorporated by reference from the company's definitive proxy statement, which will be filed within 120 days of the fiscal year-end - Information is incorporated by reference to the Company's definitive proxy statement to be filed with the SEC[506] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on security ownership by certain beneficial owners and management are incorporated by reference from the company's forthcoming definitive proxy statement - Information is incorporated by reference to the Company's definitive proxy statement to be filed with the SEC[507] Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the Company's definitive proxy statement to be filed with the SEC[508] Principal Accounting Fees and Services Information regarding principal accounting fees and services has been omitted from this report and is incorporated by reference from the company's definitive proxy statement - Information is incorporated by reference to the Company's definitive proxy statement to be filed with the SEC[509] Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including the Agreement and Plan of Merger with FaZe Holdings, various asset purchase and financing agreements, and officer certifications - Lists exhibits filed with the report, including the merger agreement with FaZe Holdings Inc., the PIPE financing subscription agreement, the Membership Interest Purchase Agreement for the Complexity sale, and various convertible note and security agreements[511][512][513]