GameSquare (US:GAME)2025-08-14 20:04PART I – FINANCIAL INFORMATION This section covers the company's unaudited financial statements and management's analysis of its financial condition and operations Financial Statements (Unaudited) The company reported an $8.2 million net loss for H1 2025, with total assets decreasing to $44.1 million and a $27.6 million working capital deficiency raising going concern doubts Condensed Consolidated Balance Sheets The balance sheet shows a 44% decrease in total assets to $44.1 million and a negative shareholders' equity, indicating severe liquidity issues Balance Sheet Summary (as of June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash | $4,697,832 | $12,094,950 | -61.2% | | Total Current Assets | $20,623,889 | $36,472,572 | -43.4% | | Goodwill | $5,557,551 | $12,704,979 | -56.3% | | Intangible assets, net | $5,231,027 | $15,265,736 | -65.7% | | Total Assets | $44,087,793 | $78,730,447 | -44.0% | | Liabilities & Equity | | | | | Total Current Liabilities | $48,256,122 | $54,762,972 | -11.9% | | Total Liabilities | $49,630,176 | $66,726,199 | -25.6% | | Total Shareholders' Equity | ($5,542,383) | $12,004,248 | -146.2% | - The company reported a working capital deficiency of $27.6 million as of June 30, 2025, a significant increase from the $18.3 million deficiency at the end of 2024, indicating severe liquidity pressure29 Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported an $8.2 million net loss for H1 2025, an improvement from the prior year, despite an 8.5% revenue decline Statement of Operations Summary (Three Months Ended June 30) | Metric | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $15,852,706 | $17,829,175 | -11.1% | | Gross Profit | $2,426,454 | $2,521,294 | -3.8% | | Loss from Continuing Operations | ($4,719,312) | ($6,177,101) | +23.6% | | Net Income (Loss) from Discontinued Operations | $3,020,335 | ($2,342,513) | N/A | | Net Loss Attributable to GameSquare | ($3,018,346) | ($11,613,551) | +74.0% | Statement of Operations Summary (Six Months Ended June 30) | Metric | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $30,583,937 | $33,406,699 | -8.5% | | Gross Profit | $5,790,080 | $4,590,642 | +26.1% | | Loss from Continuing Operations | ($9,252,551) | ($12,720,590) | +27.3% | | Net Income (Loss) from Discontinued Operations | $108,531 | ($533,355) | N/A | | Net Loss Attributable to GameSquare | ($8,173,950) | ($16,874,499) | +51.6% | Condensed Consolidated Statements of Stockholders' Equity Shareholders' equity turned negative to ($5.5 million) due to net losses and the disposal of FaZe Media Inc - Shareholders' equity turned negative, falling to a deficit of ($5.5 million) as of June 30, 2025, from a positive $12.0 million at the start of the year, driven by a net loss of $10.2 million and the disposal of Faze Media Inc., which removed $12.9 million in non-controlling interest19 - During the first six months of 2025, the company issued 5.0 million shares for the conversion of convertible debt and 1.4 million shares to settle outstanding payables19 Condensed Consolidated Statements of Cash Flows Cash and restricted cash decreased by $6.7 million in H1 2025, contrasting with a significant increase in the prior year Cash Flow Summary (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,883,147) | ($17,600,158) | | Net cash (used in) provided by investing activities | ($1,013,391) | $2,768,226 | | Net cash provided by financing activities | $1,951,544 | $26,281,258 | | Net (decrease) increase in cash and restricted cash | ($6,661,889) | $11,550,260 | - Cash and restricted cash decreased by $6.7 million in the first half of 2025, ending the period at $6.5 million, contrasting sharply with an $11.6 million increase in the same period of 2024, which was bolstered by significant financing activities2223 Notes to Condensed Consolidated Financial Statements Notes detail a $130.3 million accumulated deficit, the FaZe acquisition, asset divestitures, and significant post-quarter financing - The company has incurred significant losses, resulting in an accumulated deficit of $130.3 million as of June 30, 2025, raising substantial doubt about its ability to continue as a going concern2930 - On March 7, 2024, the company completed its acquisition of FaZe Holdings, Inc. for a total purchase price of $14.6 million, which included the issuance of 10.1 million common shares, adding $7.1 million in goodwill424546 - The company divested several assets, including Complexity on March 1, 2024 (gain of $3.0 million), Frankly Media assets on May 31, 2024, and FaZe Media on April 1, 2025 (gain of $3.0 million), now reported as discontinued operations485366 - Subsequent to the quarter end, in July 2025, the company raised approximately $89.6 million in gross proceeds through multiple equity and preferred stock offerings, significantly improving its liquidity position141143147 - On August 1, 2025, the Board authorized a share repurchase program for up to $5.0 million of its common stock, to be funded from surplus cash or its Ethereum yield strategy148 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights a revenue decrease to $30.6 million, improved net loss, a new crypto treasury strategy, and post-quarter financing addressing liquidity concerns Overview and Strategy The company, a digital media and entertainment firm, is implementing an Ethereum-based treasury strategy with a $250 million allocation - GameSquare is a vertically integrated digital media, entertainment, and technology company connecting brands with gaming and youth culture audiences through its various subsidiaries like FaZe, Zoned, GCN, and Stream Hatchet155 - The company is implementing an Ethereum (ETH) based treasury strategy, partnering with Dialetic, with the Board approving an ETH allocation of up to $250 million, and over $60 million in ETH and NFTs purchased to date to support growth initiatives157 Results of Operations Revenue decreased by $2.8 million in H1 2025 due to asset sales, while net loss improved significantly due to cost reductions Results of Operations (Six Months Ended June 30) | Metric | 2025 | 2024 | Variance | | :--- | :--- | :--- | :--- | | Revenue | $30,583,937 | $33,406,699 | ($2,822,762) | | Gross Profit | $5,790,080 | $4,590,642 | $1,199,438 | | Total Operating Expenses | $15,042,631 | $17,311,232 | ($2,268,601) | | Net Loss Attributable to GameSquare | ($8,173,950) | ($16,874,499) | $8,700,549 | - Revenue for H1 2025 decreased by $2.8 million YoY, primarily due to a decline in the SaaS + Advertising segment after Frankly Media sold its SaaS assets in May 2024198201 - Teams revenue for H1 2025 increased to $4.9 million from $2.9 million YoY, mainly due to the inclusion of a full six months of operations from the FaZe acquisition, which closed in March 2024199 - General and administrative expenses decreased by $1.0 million in H1 2025 compared to H1 2024, reflecting successful cost reduction efforts, including reductions in headcount and overhead203 Liquidity and Capital Resources A $27.6 million working capital deficiency and $130.3 million accumulated deficit raise going concern doubts, mitigated by $89.6 million post-quarter financing - As of June 30, 2025, the company had a working capital deficiency of $27.6 million and an accumulated deficit of $130.3 million, raising substantial doubt about its ability to continue as a going concern245246 - Subsequent to the quarter's end, in July 2025, the company significantly improved its liquidity by raising gross proceeds of $89.6 million through three separate offerings of common and preferred stock250 - Net cash used in operating activities for the first six months of 2025 was $6.9 million, a significant improvement from the $17.6 million used in the same period of 2024253 Critical Accounting Policies Key policies include revenue recognition for sponsorships, fair value option for convertible debt, and goodwill impairment testing - Revenue from brand sponsorship agreements is recognized ratably over the contract term, as the various services are not considered distinct within the context of the contracts262 - The company has elected the Fair Value Option (FVO) for its convertible debt, meaning changes in the debt's fair value are recognized in earnings each period291 - Goodwill and indefinite life intangible assets are tested for impairment annually or when a triggering event occurs, with the company potentially first assessing qualitative factors to determine if a full impairment test is necessary289290 Quantitative and Qualitative Disclosures about Market Risk The company is a smaller reporting company and is not required to provide this information - As a smaller reporting company, GameSquare is exempt from the requirement to provide quantitative and qualitative disclosures about market risk296 Controls and Procedures Disclosure controls were ineffective as of June 30, 2025, due to material weaknesses in control design and monitoring, with remediation planned by December 2026 - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025298 - Material weaknesses were identified in the Design and Implementation of Control Activities and Monitoring Activities, as the company lacked sufficient resources to perform an effective risk assessment and design controls based on the COSO Framework298299 - The company is engaging outside resources and implementing remediation measures to address the deficiencies, with a target completion date of December 31, 2026300 PART II – OTHER INFORMATION This section details legal proceedings, risk factors, unregistered equity sales, and other pertinent information Legal Proceedings The company faces multiple legal proceedings, including arbitration, a SPAC merger complaint, and a settled lawsuit, with no material adverse effect expected - The company is in arbitration with Allinsports and has been directed to issue 241,666 common shares, for which it has recognized a liability of $1.5 million304305 - A complaint regarding the July 2022 merger between B. Riley 150 Merger Corp. and FaZe Holdings, Inc. is subject to a proposed settlement where the company will contribute $1,050,000 in cash and stock307 - On August 11, 2025, the company settled a lawsuit with Alta Partners by agreeing to issue $150,000 of restricted common stock, with a potential cash true-up payment309 Risk Factors The company is a smaller reporting company and is not required to provide this information - As a smaller reporting company, GameSquare is exempt from the requirement to provide a detailed discussion of risk factors in its Form 10-Q312 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no repurchases of its shares during the period - There were no repurchases of shares during the reporting period313 Other Information During the three months ended June 30, 2025, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in the three months ended June 30, 2025316