UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______to _______
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(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 | ||
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.
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).
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 definition 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 | ☐ | |
| ☒ | 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding on August 12, 2024 | |
| Common Stock - $ par value |
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly 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 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. |
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 Quarterly Report on Form 10-Q. 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.
GAMESQUARE HOLDINGS, INC.
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GAMESQUARE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| June 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Government remittances | ||||||||
| Contingent consideration, current | ||||||||
| Promissory note receivable, current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Investment | ||||||||
| Contingent consideration, non-current | ||||||||
| Promissory note receivable | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Players liability account | ||||||||
| Deferred revenue | ||||||||
| Current portion of operating lease liability | ||||||||
| Line of credit | ||||||||
| Warrant liability | ||||||||
| Arbitration reserve | ||||||||
| Total current liabilities | ||||||||
| Convertible debt carried at fair value | ||||||||
| Operating lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Preferred stock ( | ||||||||
| Common stock ( | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
| 1 |
GAMESQUARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Restructuring charges | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of convertible debt carried at fair value | ||||||||||||||||
| Change in fair value of warrant liability | ||||||||||||||||
| Arbitration settlement reserve | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to non-controlling interest | ||||||||||||||||
| Net loss attributable to attributable to GameSquare Holdings, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive loss, net of tax: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Change in foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to non-controlling interest | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) per common share attributable to GameSquare Holdings, Inc. - basic and assuming dilution: | ||||||||||||||||
| From continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| From discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss per common share attributable to GameSquare Holdings, Inc. - basic and assuming dilution | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
| 2 |
GAMESQUARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| Common stock | Additional paid- | Acccumulated other comprehensive (loss) | Accumulated | Non-controlling | Shareholders’ | |||||||||||||||||||||||
| Shares | Par value |
in capital |
income |
deficit |
interest |
equity | ||||||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Acquisition of Faze Clan | ||||||||||||||||||||||||||||
| Private placements, net of issuance costs | ||||||||||||||||||||||||||||
| Restricted share units exercised | ||||||||||||||||||||||||||||
| Non-controlling interest in Faze Media, Inc. | - | |||||||||||||||||||||||||||
| Share-based compensation - options and RSUs | - | |||||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Impact of rounding down after exchange for GSQ Esports | ( | ) | ||||||||||||||||||||||||||
| Issuance of common shares to settle contingent consideration | ||||||||||||||||||||||||||||
| Acquisition of Engine | ||||||||||||||||||||||||||||
| Reclassification of GSQ Esports Inc. warrants to warrant liability | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Common shares issued upon vesting of RSUs | ||||||||||||||||||||||||||||
| Shares issued to settle outstanding amounts payable | ||||||||||||||||||||||||||||
| Shares issued for legal settlements | ||||||||||||||||||||||||||||
| Share-based compensation - options and RSUs | - | |||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
| 3 |
GAMESQUARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization and depreciation | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Shares issued for legal settlements | ||||||||
| Gain on disposition of Complexity | ( | ) | ||||||
| Loss on disposition of assets | ||||||||
| Accretion of promissory note receivable | ( | ) | ||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Change in fair value of arbitration reserve | ( | ) | ( | ) | ||||
| Change in fair value of convertible debt carried at fair value | ( | ) | ( | ) | ||||
| Income tax recovery | ( | ) | ||||||
| Change in deferred tax balances | ||||||||
| Share-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Government remittances | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable, accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Cash acquired in Engine acquisition | ||||||||
| Cash acquired in Faze Clan acquisition | ||||||||
| Disposal of Frankly Media assets | ||||||||
| Disposal of Complexity, net of cash disposed | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financings activities: | ||||||||
| Proceeds from private placements | ||||||||
| Payment of equity issuance costs | ( | ) | ||||||
| Non-controlling interest in Faze Media, Inc. | ||||||||
| Proceeds (repayments) on promissory notes, net | ||||||||
| Repayment of borrowings on credit facility | ( | ) | ||||||
| Repayment of principal on convertible debt | ( | ) | ||||||
| Proceeds (repayments) on line of credit, net | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and restricted cash | ( | ) | ||||||
| Net increase (decrease) in cash and restricted cash | ||||||||
| Cash and restricted cash, beginning of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
See accompanying notes to Condensed Consolidated Financial Statements.
| 4 |
GAMESQUARE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Supplemental disclosure with respect to cash flows: | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Operating lease payments in operating cash flows | ||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Disposition of Complexity in exchange for promissory note receivable | $ | $ | ||||||
| Shares, options, and warrants issued for acquisition of FaZe | ||||||||
| Reclassification of GSQ Esports Inc. warrants to warrant liability | ||||||||
| Shares issued to settle legal and other amounts payable | ||||||||
Reconciliation of cash and restricted cash:
| June 30, 2024 | December 31, 2023 | |||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash and restricted cash shown in the consolidated statements of cash flows | $ | $ |
| 5 |
GAMESQUARE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Corporate information and going concern
(a) Corporate information
GameSquare Holdings, Inc. (“GameSquare” or the “Company”) is a corporation existing under the laws of the State of Delawre as of March 7, 2024 (and was a corporation existing under the Business Corporations Act (Province of British Columbia) prior to March 7, 2023). The registered head office of the Company is 6775 Cowboys Way, Ste. 1335, Frisco, Texas, USA, 75034.
GameSquare, 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 accompanying 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 unaudited condensed 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
$
These conditions indicate the existence of a material uncertainty that cast significant 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.
| 6 |
2. Significant accounting policies
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared following generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and the rules and regulations of the SEC for interim reporting. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of December 31, 2023 was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by GAAP for annual financial statements. In management’s opinion, the interim information contains all adjustments, which include normal recurring adjustments necessary for a fair statement of the results for the interim periods. The footnote disclosures related to the interim financial information contained herein are also unaudited. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 16, 2024, and amended on April 30, 2024 (the “2023 Form 10-K”).
(b) Principles of consolidation
The unaudited condensed 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 June 30, 2024, are as follows:
| Name of Subsidiary | Country of Incorporation | Ownership Percentage | Functional Currency | |||||
| Frankly Media LLC | ||||||||
| Stream Hatchet S.L. | ||||||||
| Code Red Esports Ltd. | ||||||||
| GameSquare Esports (USA) Inc. (dba as Fourth Frame Studios) | ||||||||
| GCN Inc. | ||||||||
| Faze Clan Inc. | ||||||||
| Faze Media Inc. | ||||||||
| Swingman LLC (dba as Zoned) | ||||||||
| Mission Supply LLC | ||||||||
| SideQik, Inc. | ||||||||
(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.
| 7 |
(d) 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.
There were no significant changes in the satisfaction of performance obligations in contracts with customer and related revenue recognition policies for the six months ended June 30, 2024. The following describes the revenue recognition policies for the revenue streams the Company acquired as a result of the Merger (see Note 4):
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, | |
| ● | 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. |
| 8 |
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.
(e) 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.
(f) 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 receivable is 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 receivable was initially recorded at its 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 June 30, 2024.
(g) 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.
| 9 |
The
Company had one customer whose revenue accounted for approximately
No
customer individually accounted for more than
(h) 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 June 30, 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.
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.
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.
4. Acquisitions and divestitures
(a) 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.
| 10 |
The Company acquired all issued and outstanding FaZe common shares in exchange for 0.13091 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 $
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 | $ | |||||||
| Warrants - Equity | ||||||||
| Options - Vested | ||||||||
| RSUs / RSAs - Vested | ||||||||
| Total purchase price | $ | |||||||
The preliminary purchase price allocation is as follows:
| Purchase price allocation | Amount | |||
| Cash | $ | |||
| Restricted cash | ||||
| Accounts receivable, net | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Goodwill | ||||
| Intangible assets | ||||
| Total assets acquired | ||||
| Accounts payable | ||||
| Accrued liabilities | ||||
| Deferred revenue | ||||
| Total liabilities assumed | ||||
| Net assets acquired | $ | |||
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.
Goodwill
The
difference between the estimated acquisition date fair value of the consideration transferred and the estimated values assigned to the
assets acquired and liabilities assumed represents goodwill of $
The goodwill recorded represents the following:
| ● | Cost savings and operating synergies expected to result from combining the operations of FaZe with those of the Company. | |
| ● | Intangible assets that do not qualify for separate recognition such as the assembled workforce. |
Goodwill arising from the Merger is expected to be deductible for tax purposes.
| 11 |
(b) 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 $
As
a result of the Transaction, during the six months ended June 30, 2024, Complexity met the requirements to be reported as
discontinued operations (see Note 17). The Company recognized a gain of $
The
Note has a principal amount of $
(c) 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 $
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 $
As
a result of the Frankly Asset Sales during the three and six months ended June 30, 2024, the Company recognized a loss of $
The
UNIV Note has a principal amount of $
The
XPR Note has a principal amount of $
| 12 |
(d) 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 $
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 $
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 $
5. Goodwill and intangible assets
(a) Goodwill
The following table presents the changes in the carrying amount of goodwill:
| Balance, December 31, 2023 | $ | |||
| Acquisition of FaZe | ||||
| Disposal of Frankly Media assets | ( | ) | ||
| Balance, June 30, 2024 | $ |
Goodwill resulting from the acquisition of FaZe was allocated to the Teams operating and reportable segment.
There were
| 13 |
(b) Intangible assets
Intangible assets consist of the following:
| As of June 30, 2024 | ||||||||||||||||
| Original cost | Accumulated amortization | Accumulated impairment losses | Carrying value | |||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Talent network | $ | $ | ( | ) | ||||||||||||
| Brand name | ( | ) | ( | ) | ||||||||||||
| Software | ( | ) | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| As of December 31, 2023 | ||||||||||||||||
| Original cost | Accumulated amortization | Accumulated impairment losses | Carrying value | |||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Brand name | ( | ) | ( | ) | ||||||||||||
| Software | ( | ) | ||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
The
Company recognized amortization expense for intangible assets of $
Amortization expense for the intangible assets is expected to be as follows over the next five years, and thereafter:
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total estimated amortization expense | $ |
There
were
6. 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.
| 14 |
The components of operating lease expense are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease expense | ||||||||||||||||
| Variable lease expense | ||||||||||||||||
| Total operating lease costs | ||||||||||||||||
As
of June 30, 2024, the remaining lease-term and discount rate on the Company’s lease was
Maturities of the lease liability are as follows:
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Interest | ( | ) | ||
| Total lease liability | $ |
7. Line of credit
On
September 14, 2023, the Company entered into an accounts receivable financing and security agreement with a maximum availability of $
As
of June 30, 2024, the outstanding principal, and unpaid accrued interest, on the LOC was $
8. Convertible debt
As
of June 30, 2024, the Company has two convertible debt instruments: a $
Certain
registration rights were included in the King Street CD. If the Company does not have an effective registration statement on file with
the SEC within either 110 days (if registered on a Form S-3) or 150 days (if registered on a Form S-1) of the December 29, 2023, registering
the underlying shares issuable upon conversion of the King Street CD, or fails to maintain the effectiveness of such registration statement,
then liquidated damages would accrue equal to
| 15 |
The Company accounts for such damages in accordance with ASC subtopic 825-20, Registration Payment Arrangements (“ASC 825-20”). ASC 825-20 specifies that the contingent obligation to make future payments under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument, should be separately recognized and accounted for as a contingency in accordance with ASC 450-20, Loss Contingencies. The registration statement is expected to be declared effective during 2024 and no contingent liability has been recognized in relation to this registration payment arrangement.
The King Street CD was paid down subsequent to June 30, 2024 (see Note 18).
(a) King Street CD
Key
terms of the King Street CD include (a) a maturity date of
The fair value of the King Street CD was estimated using the binomial lattice model with the below assumptions:
| June 30, 2024 | December 31, 2023 | |||||||
| Share price | $ | $ | ||||||
| Conversion price | $ | $ | ||||||
| Term, in years | ||||||||
| Interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
(b) Three Curve CD
Key
terms of the Three Curve CD include (a) a maturity date of
The fair value of the Three Curve CD was estimated using the binomial lattice model with the below assumptions:
June 30, 2024 | December 31, 2023 | |||||||
| Share price | $ | $ | ||||||
| Conversion price | $ | $ | ||||||
| Term, in years | ||||||||
| Interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| 16 |
The change in fair values of the Company’s convertible debentures subject to recurring remeasurement at fair value were as follows:
| Three Curve CD | King Street CD | Total | ||||||||||
| Balance, December 31, 2023 | $ | $ | $ | |||||||||
| Interest expense | ||||||||||||
| Interest payments | ( | ) | ( | ) | ||||||||
| Principal payments | ( | ) | ( | ) | ||||||||
| Change in fair value(1) | ( | ) | ( | ) | ( | ) | ||||||
| Balance, June 30, 2024 | $ | $ | $ | |||||||||
| Contractual principal balances outstanding: | ||||||||||||
| As of December 31, 2023 | $ | $ | $ | |||||||||
| As of June 30, 2024 | $ | $ | $ | |||||||||
| (1) |
9. 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 $
During the six months ended June 30, 2024, the Company issued common shares from the exercise of Restricted Share Units (“RSUs”) under its equity incentive plan (see Note 11(b)).
On
March 24, 2023, common shares were issued in settlement of outstanding amounts payable of $
On March 10, 2023, common shares of the Company were issued to settle contingent consideration on a prior acquisition.
On April 11, 2023, common shares were issued in connection with the acquisition of Engine Gaming and Media, Inc. (“Engine”).
During the six months ended June 30, 2023, the Company issued common shares from the exercise of RSUs under its equity incentive plan (see Note 11(b)).
As the Company incurred a net loss for the three and six months ended June 30, 2024 and 2023, the inclusion of certain Options, unvested stock units, 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.
| 17 |
| Three and six months ended June 30, | ||||||||
| 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 Shares available for issuance pursuant to the settlement of RSU shall be an aggregate of Shares.
(a) Options
The following is a summary of Options outstanding as of June 30, 2024 and December 31, 2023, and changes during the six months 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, 2023 | $ | $ | ||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
| Number of shares | Weighted-average exercise price (USD) | Weighted-average remaining contractual term | Aggregate intrinsic value | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Acquisition of FaZe | ||||||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
| 18 |
See Note 4 for a summary of the significant valuation inputs used to value options issued in relation to the acquisition of FaZe.
Share-based compensation expense related to the vesting of Options was $ thousand and $ thousand for the six months ended June 30, 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 June 30, 2024, and December 31, 2023, and changes during the six months then ended:
| Number of shares | Weighted-average grant date fair value | |||||||
| Outstanding at December 31, 2023 | $ | |||||||
| Acquisition of FaZe | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Outstanding at June 30, 2024 | $ | | ||||||
The grant-date fair values of RSUs are based on the Company’s stock price as of the grant date (see Note 4).
Shared-based compensation expense related to the vesting of RSU’s was $ million and $ million for the six months ended June 30, 2024 and 2023, respectively, and is included in general and administrative expense on the consolidated statements of operations and comprehensive loss.
12. Warrants
(a) Liability-classified warrants having CAD exercise price
The functional currency of the Company is USD and certain of the Company’s warrants have an exercise price in CAD, resulting liability classification of the warrants.
The following is a summary of changes in the value of the warrant liability for the six months ended June 30, 2024:
| Amount | ||||
| Balance, December 31, 2023 | $ | |||
| Change in fair value | ( | ) | ||
| Foreign exchange | ( | ) | ||
| Balance, June 30, 2024 | $ | |||
The following assumptions were used to determine the fair value of the warrant liability using the Black-Scholes option pricing model:
| June 30, 2024 | December 31, 2023 | |||||||
| Share price | CAD$ | CAD$ | ||||||
| Term, in years | ||||||||
| Exercise price | CAD$ | CAD$ | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | ||||||||
| Expected dividend yield | % | % | ||||||
| 19 |
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 June 30, 2024, and December 31, 2023, and changes during the six months then ended:
| Weighted-average | ||||||||
| Number of | exercise price | |||||||
| warrants | (CAD) | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Warrants expired | ( | ) | ||||||
| Outstanding, June 30, 2024 | $ | |||||||
(b) Equity-classified warrants
As
discussed in Note 4 above in conjunction with the acquisition of FaZe, the Company issued
As
discussed in Note 9, in conjunction with the PIPE Financing on March 7, 2024,
The following is a summary of equity-classified warrants outstanding as of June 30, 2024, and December 31, 2023, and the changes during the six months then ended:
| Weighted-average | ||||||||
| Number of | exercise price | |||||||
| warrants | (USD) | |||||||
| Outstanding, December 31, 2023 | $ | |||||||
| Warrants expired | ( | ) | ||||||
| PIPE Financing | ||||||||
| Acquisition of FaZe | ||||||||
| Outstanding, June 30, 2024 | $ | |||||||
13. Related party transactions
(a) 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 $
14. Commitments and contingencies
In
April 2020, Engine announced its renegotiation of the acquisition of Allinsports. The revised purchase agreement provided for the acquisition
of
| 20 |
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 $
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 $
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.
15. 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 June 30, 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.
| 21 |
Revenue, cost of sales and gross profit for the Company’s operating and reportable segments, disaggregated into geographic locations, are as follows:
| Six months ended June 30, 2024 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Teams | $ | $ | $ | $ | ||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Teams | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Teams | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Gross profit | $ | $ | $ | $ | ||||||||||||
| Six months ended June 30, 2023 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Agency | $ | $ | $ | $ | ||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Gross profit | $ | $ | $ | $ | ||||||||||||
| Three months ended June 30, 2024 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Teams | $ | $ | $ | $ | ||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Teams | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Teams | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Gross profit | $ | $ | $ | $ | ||||||||||||
| Three months ended June 30, 2023 | ||||||||||||||||
| Segment | United Kingdom | USA | Spain | Total | ||||||||||||
| Revenue | ||||||||||||||||
| Agency | $ | $ | $ | $ | ||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Agency | ||||||||||||||||
| SaaS + Advertising | ||||||||||||||||
| Total Cost of sales | ||||||||||||||||