# Motorsport Games Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Motorsport Games Inc.](/companies/msgm.md) (CIK 1821175)
- Form: 10-Q
- Filed: 2024-05-07
- Accepted by EDGAR: May 7, 2024, 16:18 ET
- Period: 2024-03-31
- Accession: 0001493152-24-018097
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1821175/000149315224018097/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1821175/000149315224018097/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $3.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $666.6k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $2.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $1.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $30.9k | us-gaap:InterestExpense |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$1.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.60 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 2,722,728 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$847.7k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $1.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $4.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $9.8m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $8.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $8.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $2.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 50,626 characters.

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Report. Unless the context requires otherwise, references to the “Company,” “Motorsport Games,” “we,” “us” and “our” refer to Motorsport Games Inc., a Delaware corporation.

### About Motorsport Games

Motorsport Games is a racing game developer, publisher and esports ecosystem provider of official motorsport racing series, including the iconic 24 Hours of Le Mans endurance race (“Le Mans”) and the associated FIA World Endurance Championship (the “WEC”). Our portfolio also includes the KartKraft karting simulation game, as well as Studio 397 B.V. (“Studio397”) and their rFactor 2 realistic racing simulator technology and platform. Our purpose is to make the thrill of motorsports accessible to everyone by creating the highest quality, most sophisticated and innovative experiences for racers, gamers and fans of all ages. Our products and services target a large global motorsport audience.

We develop and publish multi-platform racing video games including for game consoles, personal computers (PCs) and mobile platforms through various retail and digital channels, including full-game and downloadable content (“DLC”). We have obtained the official licenses to develop multi-platform games for the 24 Hours of Le Mans race and the WEC. We are also striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games.

On October 3, 2023, we sold our NASCAR licensed rights under that certain Second Amended and Restated Distribution and License Agreement with NASCAR Team Properties (“NTP”) (the “NASCAR License”) to iRacing.com Motorsport Simulations, LLC. Prior to the sale of our NASCAR License, we had been the official video game developer and publisher for the NASCAR video game racing franchise and had the exclusive right to create and organize esports leagues and events for NASCAR using our NASCAR racing video games, in each case, subject to certain limited exceptions. Concurrently with the sale of our NASCAR License, we entered into an agreement with NTP pursuant to which we have a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that are currently in our product portfolio through December 31, 2024 (the “NASCAR New Limited License”). For the three months ended March 31, 2024 and 2023, 49% and 57% of our total revenue, respectively, was generated from sales of our NASCAR racing video games.

On October 26, 2023, BARC (TOCA) Limited (“BARC”), the exclusive promoter of the British Touring Car Championship (the “BTCC”), delivered notice to the Company terminating the license agreement between the parties relating to the Company’s development of video games and the organization and facilitation of esports events for the BTCC (the “Previous BTCC License”), effective as of November 3, 2023. As a result, the Company no longer has the right to develop and publish the video games for the BTCC racing series or to create and organize its esports leagues and events.

On November 8, 2023, INDYCAR, LLC delivered notice to the Company terminating the license agreements between the parties relating to the Company’s development of video games and the organization and facilitation of esports events for the INDYCAR racing series (collectively, the “INDYCAR License”), effective immediately. As a result, the Company no longer has the right to develop and publish the video games for the INDYCAR racing series or to create and organize its esports leagues and events.

On February 20, 2024, we released Le Mans Ultimate on PC in early access. Le Mans Ultimate is the official game of the WEC and 24 Hours of Le Mans, and is the first officially licensed and dedicated 24 Hours of Le Mans video game release in over twenty years.

On April 12, 2024, the Company and BARC entered into a settlement agreement (the “BARC Settlement Agreement”) relating to the Previous BTCC License, whereby the parties concurrently entered into a new license agreement pursuant to which BARC granted the Company a non-exclusive license to use certain licensed intellectual property relating to the BTCC for official BTCC DLC digitally purchased for the rFactor 2 video game through December 31, 2026.

On April 26, 2024, the Company sold certain assets related to its motorsport and racing games community content platform (“Traxion”) in furtherance of streamlining the Company’s operations, reduction of operational costs and divestiture of non-core components.

Due to the uncertainty surrounding our ability to raise funding, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets in addition to the recent sales of our NASCAR License and Traxion. If any such additional strategic alternative is executed, it is expected it would help to improve our working capital position and reduce overhead expenditures, thereby lowering our expected future cash-burn, and provide some short-term liquidity relief. Nonetheless, even if we are successful in implementing one or more additional strategic alternatives, we will continue to require additional funding and/or further cost reduction measures in order to continue operations, which includes further restructuring of our business and operations. There are no assurances that we will be successful in implementing any additional strategic plans for the sale or licensing of our assets, or any other strategic alternative, which may be subject to the satisfaction of conditions beyond our control.

As of March 31, 2024, we have a total headcount of 65 people, made up of 46 full-time employees, including 51 dedicated to game development, to continue developing our expanded product offerings.

### Trends and Factors Affecting Our Business

### Product Release Schedule

Our financial results are impacted by the timing of our product releases and the commercial success of those titles. Our recent product releases include:

| Title | Release Date and Platform |
| --- | --- |
| NASCAR 21: Ignition\* | October 28, 2021, available on PC and next generation consoles |
| NASCAR Heat Ultimate Edition+\* | November 19, 2021, available on Nintendo Switch |
| KartKraft | January 26, 2022, available on PC (full release) |
| rFactor 2 Q1 2022 Content Update | February 7, 2022, available on PC |
| rFactor 2 Q2 2022 Content Update | May 10, 2022, available on PC |
| rFactor 2 Q3 2022 Content Update | August 8, 2022, available on PC |
| NASCAR 21: Ignition 2022 Season Expansion\* | October 6, 2022, available on PC and next generation consoles |
| NASCAR Rivals\* | October 14, 2022, available on Nintendo Switch |
| rFactor 2 Q4 2022 Content Update | November 7, 2022, available on PC |
| rFactor 2 Q1 2023 Content Update | February 21, 2023, available on PC |
| NASCAR Heat 5 – Next Gen Car Update\* | June 23, 2023, available on PC and consoles |
| rFactor 2: Race Control multiplayer | October 5, 2023, available on PC |
| Le Mans Ultimate | February 20, 2024, available on PC |

\* Pursuant to the NASCAR New Limited License, we have a limited non-exclusive right and license to, among other things, sell these NASCAR games and DLCs through December 31, 2024.

We continually evaluate our planned product release schedule and modify the timing of upcoming products based on developments in our business, or if we believe it will result in a better consumer experience. The sale of our NASCAR License and the termination of our BTCC License and INDYCAR License, as disclosed elsewhere in this Report, has impacted our long-term product release schedule as we will no longer be producing NASCAR, BTCC and INDYCAR titles moving forward.

As we continue to evaluate the cost saving initiatives and explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets, further adjustments to our product roadmap may be required.

### Hardware Platforms

We derive most of our revenue from the sale of products made for PCs and video game consoles manufactured by third parties, such as Sony Interactive Entertainment Inc.’s (“Sony”) PlayStation and Microsoft Corporation’s (“Microsoft”) Xbox consoles, which comprised approximately 49% and 57% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024 and 2023, the sale of products for Microsoft Windows via Steam comprised approximately 50% and 28% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 1% and 6% of our total revenue, respectively. The success of our business is dependent upon consumer acceptance of video game console/PC platforms and continued growth in the installed base of these platforms. When new hardware platforms are introduced, such as those released by Sony and Microsoft in November 2020, demand for interactive entertainment used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. The latest generation of Sony and Microsoft consoles provide “backwards compatibility” (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline. However, we cannot be certain how backwards compatibility will affect demand for our products.

### Concentration of Sales

Our NASCAR products have historically accounted for the majority of our revenue. However, we have worked to diversify our product offerings and revenue from other sources by introducing titles such as Le Mans Ultimate, our recently released Le Mans video game, KartKraft and rFactor 2, as well as introducing the 24 Hours of Le Mans Virtual esports event to our portfolio of offerings, thereby reducing our dependency on the NASCAR franchise as our substantially sole source of revenue. For example, revenues associated with our NASCAR franchise accounted for approximately 49% and 57% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. Following the sale of our NASCAR License and the execution of the NASCAR New Limited License, which allows us to sell our NASCAR games and DLCs that are currently in our product portfolio through December 31, 2024, we anticipate the amount of revenue to be generated by our existing NASCAR products to decline over time.

### Retail Distribution

Our physical gaming products are sold through a distribution network with an exclusive partner who specializes in the distribution of games through mass-market retailers (e.g., Target, Wal-Mart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop) and other online retail stores (e.g., Amazon). Due to our modified product release schedule, we recognized minimal revenue from sales of physical gaming products for the three months ended March 31, 2024 and 2023. However, we expect to continue to use a limited number of distribution partners in the future for sales of our physical gaming products. See “Risk Factors—Risks Related to Our Business and Industry—The importance of retail sales to our business exposes us to the risks of that business model” and “Risk Factors—Risks Related to Our Business and Industry—We primarily depend on a single third-party distribution partner to distribute our games for the retail channel, and our ability to negotiate favorable terms with such partner and its continued willingness to purchase our games is critical for our business” in Part I, Item 1A of the 2023 Form 10-K for additional information regarding the importance of retail sales and our distribution partners to our business.

### Digital Business

Players increasingly purchase our games as digital downloads, as opposed to purchasing physical discs. All of our titles that are available through retailers as packaged goods products are also available through direct digital download. For each of the three months ended March 31, 2024, and 2023, approximately 92% of our revenue from sales of video games for game consoles and PCs was through digital channels. We believe this trend of increasing direct digital downloads is primarily due to benefits relating to convenience and accessibility that digital downloads provide. In addition, as part of our digital business strategy, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content.

### Esports

We are striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games as well as on behalf of third-party racing game developers and publishers. In 2023, we organized the grand finale of the Le Mans Virtual Series 2022/23, the 24 Hours of Le Mans Virtual event, which had a cumulative total of approximately 8.8 million video views with approximately 27 million minutes watched. The 24 Hours of Le Mans Virtual event had a global audience of 5 million across television (TV)/over-the-top (OTT) channels. Although we did not organize the Le Mans Virtual Series for the 2023/24 season, we currently plan on organizing the 2024/25 Le Mans Virtual Series to commence later this year. We also intend to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans.

### Recurring Revenue Sources

Our business model includes revenue that we deem recurring in nature, which historically consisted primarily of revenue from our annualized NASCAR video game racing franchise for game consoles, PC, and mobile platforms. We historically have been able to forecast the revenue from this area of our business with greater relative confidence than for new games, services, and business models. Following the sale of our NASCAR License and as we continue to incorporate new business models and modalities of play into our games, our goal is to continue to look for opportunities to expand the recurring portion of our business, including through the planned introduction of new annualized sports franchise games, such as with Le Mans.

### Reportable Segments

We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments. Our chief operating decision maker is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We classified our reportable operating segments into (i) the development and publishing of interactive racing video games, entertainment content and services (the “Gaming segment”); and (ii) the organization and facilitation of esports tournaments, competitions and events for our licensed racing games as well as on behalf of third-party video game racing series and other video game publishers (the “esports segment”).

### Components of Our Results of Operations

### Revenues

We have historically derived substantially all of our revenue from sales of our games and related extra content that can be played by customers on a variety of platforms, including game consoles, mobile phones, PCs and tablets. Starting in 2019, we began generating sponsorship revenues from our production of live and virtual esports events. In early 2022, we also began offering software development services for racing simulators.

Our product and service offerings included within the Gaming segment primarily include, but are not limited to, full PC, console, and mobile games with both online and offline functionality, which generally include:

- the initial game delivered digitally or via physical disk at the time of sale, which also typically provides access to offline core game content;
- updates to previously released games on a when-and-if-available basis, such as software patches or updates, and/or additional content to be delivered in the future, both paid and free; and
- outsourced code and content development services.

Our product and service offerings included within the esports segment relate primarily to curating esports events.

### Cost of Revenues

Cost of revenues for our Gaming segment is primarily comprised of royalty expenses, which historically has been primarily attributable to our NASCAR License prior to its sale and certain other third parties relating to our NASCAR racing series games. Cost of revenues for our Gaming segment is also comprised of merchant fees, disk manufacturing costs, packaging costs, shipping costs, warehouse costs, distribution fees to distribute products to retail stores, mobile platform fees associated with our mobile revenue (for transactions in which we are acting as the principal in the sale to the end customer) and amortization of certain acquired license agreements and other intangible assets acquired through our various acquisitions. Furthermore, cost of revenues for our Gaming segment includes costs associated with our outsourced code and content development services. Cost of revenues for our esports segment consists primarily of the cost of event staffing and event production.

### Sales and Marketing

Sales and marketing expenses are primarily composed of salaries, benefits and related taxes of our in-house marketing teams, advertising, marketing, and promotional expenses, including fees paid to social media platforms, Driven Lifestyle and other websites where we market our products.

### Development

Development expenses consist of the cost to develop the games we produce, which includes salaries, benefits, and operating expenses of our in-house development teams, as well as consulting expenses for any contracted external development. Development expenses also include expenses relating to our software licenses, maintenance, and studio operating expenses.

### General and Administrative

General and administrative expenses consist primarily of salaries, benefits and other costs associated with our operations including, finance, human resources, information technology, public relations, legal audit and compliance fees, facilities, and other external general and administrative services.

### Depreciation and Amortization

Depreciation and amortization expenses include depreciation on fixed assets (primarily computers and office equipment), as well as amortization of certain definite lived intangible assets acquired through our various acquisitions.

### Results of Operations

### Three Months Ended March 31, 2024 compared to Three Months Ended March 31, 2023

In this section, references to 2024 refer to the three months ended March 31, 2024 and references to 2023 refer to the three months ended March 31, 2023.

#### Revenues

| Revenues: | For the Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Gaming | $3,029,036 | $1,439,217 | $1,589,819 | 110.5% |
| Esports | - | 290,138 | (290,138) | (100.0% |
| Total Revenues | $3,029,036 | $1,729,355 | $1,299,681 | 75.2% |

28

Consolidated revenues were $3.0 million and $1.7 million for 2024 and 2023, respectively, an increase of $1.3 million, or 75.2%, when compared to the prior period.

Gaming segment revenues represented 100% and 83.2% of our total 2024 and 2023 revenues, respectively, increasing by $1.6 million, or 110.5%, when compared to the prior period. The increase in Gaming segment revenues was primarily due to $1.4 million in higher digital game sales due to the release of Le Mans Ultimate on PC in February 2024. This increase was further driven by a $0.2 million increase in revenues earned through the development of simulation platforms for third-parties.

Esports segment revenues represented 0% and 16.8% of our total 2024 and 2023 revenues, respectively, decreasing by $0.3 million, when compared to the prior period. The decrease in esports segment revenue was due to the Company not offering a Le Mans Virtual Series (“LMVS”) event in January 2024, resulting in no earned sponsorship or events revenue, compared to $0.3 million earned in January 2023, when the Company offered the concluding LMVS event for the 2022/23 LMVS season.

#### Cost of Revenues

| Cost of revenues: | For the Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Gaming | $666,627 | $874,839 | $(208,212) | (23.8)% |
| Esports | - | 373,897 | (373,897) | (100.0)% |
| Total Cost of Revenues | $666,627 | $1,248,736 | $(582,109) | (46.6)% |

Consolidated cost of revenues was $0.7 million and $1.2 million for 2024 and 2023, respectively, a decrease of $0.6 million, or 46.6%, when compared to the prior period.

Gaming segment cost of revenues represented 100.0% and 70.1% of our total 2024 and 2023 cost of revenues, respectively, decreasing by $0.2 million, or 23.8%, when compared to the prior period. The decrease in Gaming segment cost of revenues was primarily driven by a $0.3 million reduction in royalty payments, mainly related to our NASCAR titles as a direct result of lower game sales for the franchise compared to the prior period. This decrease was partially offset by a $0.1 million increase in amortization costs related to our licenses.

Esports segment cost of revenues represented 0% and 29.9% of our total 2024 and 2023 cost of revenues, respectively, decreasing by $0.4 million when compared to the prior period. The decrease in esports segment cost of revenues was due to the Company not offering a LMVS event in January 2024, resulting in no prize winnings, studio and televised production costs, compared to $0.4 million of such costs incurred in January 2023 when the Company offered the concluding LMVS event for the 2022/23 LMVS season.

#### Gross Profit

| Gross Profit (Loss) | For the Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Gaming | $2,362,409 | $564,378 | $1,798,031 | 318.6% |
| Esports | - | (83,759) | 83,759 | (100.0)% |
| Total Gross Profit (Loss) | $2,362,409 | $480,619 | $1,881,790 | 391.5% |

29

|  | For the Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Gaming - Gross Profit Margin | 78.0% | 39.2% |
| Esports - Gross Profit (Loss) Margin | 0.0% | (28.9)% |
| Total Gross Profit Margin | 78.0% | 27.8% |

Consolidated gross profit was $2.4 million and $0.5 million for 2024 and 2023, respectively, an increase of $1.9 million, or 391.5%, when compared to the prior period. Gross profit margin was 78.0% in 2024, compared to 27.8% in 2023.

Gaming segment gross profit was $2.4 million for 2024, compared to $0.6 million for 2023, representing a gross profit margin of 78.0% for 2024 and 39.2% for 2023. The increase in our Gaming segment gross profit of $1.8 million, and corresponding increase in gross profit margin, was primarily due to higher gaming revenues, particularly related to increased digital game revenues as a result of the release of Le Mans Ultimate on PC in February 2024. The increase in gross profit for the Gaming segment was also attributable to lower cost of revenues due to decreased royalty payments resulting from the decrease in NASCAR game sales compared to the prior period.

Esports segment gross loss was $0 for 2024, compared to $0.1 million for 2023, representing no gross loss margin in 2024 and a gross loss margin of 28.9% for 2023. As discussed above, the LMVS has not yet commenced for the 2024/25 season, which led to no revenues or cost of revenues being incurred for the esports segment in 2024.

#### Operating Expenses

| Operating Expenses: | For the Three Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales and marketing | $250,386 | $618,410 | $(368,024) | (59.5)% |
| Development | 1,063,357 | 2,397,134 | (1,333,777) | (55.6)% |
| General and administrative | 2,190,266 | 2,779,110 | (588,844) | (21.2)% |
| Depreciation and amortization | 73,724 | 97,354 | (23,630) | (24.3)% |
| Total Operating Expenses | $3,577,733 | $5,892,008 | $(2,314,275) | (39.3)% |

Changes in operating expenses are explained in more detail below:

#### Sales and Marketing

Sales and marketing expenses were $0.3 million and $0.6 million for 2024 and 2023, respectively, representing a $0.4 million, or 59.5%, decrease when compared to the prior period. The reduction in sales and marketing expenses was primarily driven by a $0.4 million reduction in payroll and employee-related expense as a result of lower headcount when compared to the prior period.

#### Development

Development expenses were $1.1 million and $2.4 million for 2024 and 2023, respectively, representing a $1.3 million, or 55.6%, decrease when compared to the prior period. The reduction in development expenses was primarily driven by a $0.7 million decrease in external development services, as well as a $0.6 million decrease in payroll as a result of lower headcount, when compared to the prior period.

#### General and Administrative

General and administrative (“G&A”) expenses were $2.2 million and $2.8 million for 2024 and 2023, respectively, a decrease of $0.6 million, or 21.2%, when compared to the prior period. The reduction in G&A expenses was primarily driven by a $0.6 million reduction in payroll and employee-related expenses, following certain headcount reductions compared to the prior period, and a $0.3 million reduction in insurance costs. These reductions were partially offset by a $0.3 million increase in legal and professional fees incurred in 2024.

#### Depreciation and Amortization

Depreciation and amortization expenses for 2024 and 2023 presented no significant changes to the depreciation of capital assets.

#### Interest Expense

Interest expense was approximately $30,000 and $0.2 million for 2024 and 2023, respectively, primarily from non-cash interest accretion of purchase commitment liabilities relating to the acquisition of Studio397 in April 2021.

#### Other (Expenses) Income, net

Other expenses, net was $0.4 million for 2024, compared to other income, net of $0.4 million for 2023, a decrease of $0.8 million compared to the prior period. Other expenses, net of $0.4 million for 2024 was primarily comprised of foreign currency losses of $0.5 million incurred remeasuring transactions denominated in a currency other than U.S. dollars, which was partially offset by $0.1 million in rental income from the sub-lease of our Charlotte, NC office space. Other income, net of $0.4 million for 2023 was primarily comprised of foreign currency gains of $0.2 million incurred remeasuring transactions denominated in a currency other than U.S. dollars, as well as $0.05 million in rental income and $0.1 million in interest expense forgiveness.

#### Other Comprehensive Gain (Loss)

Other comprehensive gain was $0.6 million for 2024, compared to other comprehensive loss of $0.1 million for 2023. The $0.7 million improvement was primarily due to activity in our U.K. and Netherlands subsidiaries and represents unrealized foreign currency translation adjustments.

#### Net Loss Attributable to Non-Controlling Interest

Net loss attributable to the non-controlling interest was $0.1 million and $0.2 million for 2024 and 2023, respectively,

The improvement was attributed to the reduction of net losses in the Le Mans Esports Series Ltd joint venture.

### Liquidity and Capital Resources

### Liquidity

We have historically financed our operations primarily through cash generated from operations, advances from Driven Lifestyle pursuant to the $12 million Line of Credit (as defined below) and through sales of our equity securities.

We measure our liquidity in a number of ways, including the following:

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Cash and cash equivalents | $1,252,691 | $1,675,210 |
| Working capital (deficiency) | $(4,625,471) | $(4,074,346) |

31

For the three months ended March 31, 2024, the Company had a net loss of $1.7 million and negative cash flows from operations of $0.8 million. As of March 31, 2024, the Company had an accumulated deficit of $88.7 million and cash and cash equivalents of $1.3 million. As of April 30, 2024, the Company had cash and cash equivalents of $1.3 million.

For the three months ended March 31, 2024, the Company experienced an average net cash burn from operations of approximately $0.3 million per month, and while it has taken measures to reduce its costs, the Company expects to continue to have a net cash outflow from operations for the foreseeable future as it continues to develop its product portfolio and invest in developing new video game titles. Based on the Company’s cash and cash equivalents position and its average cash burn, the Company does not believe it has sufficient cash on hand to fund its operations over the next year and that additional funding will be required in order to continue operations.

The Company’s future liquidity and capital requirements include funds to support the planned costs to operate its business, including amounts required to fund working capital, support the development and introduction of new products, maintain existing titles, and certain capital expenditures.

In order to address its liquidity shortfall, the Company continues to explore several options, including, but not limited to: i) additional funding in the form of potential equity and/or debt financing arrangements or similar transactions (collectively, “Capital Financing”); ii) other strategic alternatives for its business, including, but not limited to, the sale or licensing of the Company’s assets in addition to the recent sales of its NASCAR License and Traxion; and iii) cost reduction and restructuring initiatives, each of which is described more fully below.

The Company continues to explore additional funding in the form of potential Capital Financing and has entered into an Equity Distribution Agreement (the “ED Agreement”) with Canaccord Genuity LLC, as sales agent (the “Sales Agent”), pursuant to which the Company may issue and sell shares of its Class A common stock having an aggregate offering price of up to $10 million (subject to compliance with the limitations set forth in the SEC’s “baby shelf” rules). Subject to the terms and conditions of the ED Agreement, the Sales Agent may sell shares by any method deemed to be an “at-the-market” (“ATM”) offering as defined in Rule 415 under the Securities Act of 1933, as amended. As of March 31, 2024, the Company had an aggregate of $2.9 million available for future sales under its ATM program, which was reduced to $1.3 million of availability as of the date of this Report in accordance with the SEC’s baby shelf rules. However, due to the Company’s present liquidity position and required future funding requirements, any funds raised via its ATM program would not be sufficient to satisfy its ongoing liquidity requirements and further potential Capital Financing would be required, in conjunction to the other options being explored by the Company. Further, there can be no assurance the Company will be able to obtain funds via its ATM program, should it choose to sell shares under the ED Agreement, nor can there be any other assurance that the Company can secure additional funding in the form of equity and/or debt financing on commercially acceptable terms, if at all, to satisfy its future needed liquidity and capital resources.

Due to the continuing uncertainty surrounding the Company’s ability to raise funding in the form of potential Capital Financing, and in light of its liquidity position and anticipated future funding requirements, the Company continues to explore other strategic alternatives and potential options for its business, including, but not limited to, the sale or licensing of certain of the Company’s assets in addition to the recent sales of its NASCAR License and Traxion. If any such additional strategic alternative is executed, it is expected it would help to improve the Company’s working capital position and reduce overhead expenditures, thereby lowering the Company’s expected future cash-burn, and provide some short-term liquidity relief. Nonetheless, even if the Company is successful in implementing one or more additional strategic alternatives, the Company will continue to require additional funding and/or further cost reduction measures in order to continue operations, which includes further restructuring of its business and operations. There are no assurances that the Company will be successful in implementing any additional strategic plans for the sale or licensing of its assets, or any other strategic alternative, which may be subject to the satisfaction of conditions beyond the Company’s control.

As the Company continues to address its liquidity constraints, the Company may need to make further adjustments to its product roadmap in order to reduce operating cash burn. Additionally, the Company continues to seek to improve its liquidity through maintaining and enhancing cost control initiatives. The Company plans to continue evaluating the structure of its business for additional changes in order to improve both its near-term and long-term liquidity position, as well as create a healthy and sustainable Company from which to operate.

If the Company is unable to satisfy its capital requirements, it could be required to adopt one or more of the following alternatives:

- delaying the implementation of or revising certain aspects of the Company’s business strategy;
- further reducing or delaying the development and launch of new products and events;
- further reducing or delaying capital spending, product development spending and marketing and promotional spending;
- selling additional assets or operations;
- seeking additional loans from third parties;
- further reducing other discretionary spending;
- entering into financing agreements on unattractive terms; and/or
- significantly curtailing or discontinuing operations.

There can be no assurance that the Company would be able to take any of the actions referred to above because of a variety of commercial or market factors, including, without limitation, market conditions being unfavorable for an equity or debt issuance or similar transactions, additional loans not being available from third parties, or that the transactions may not be permitted under the terms of the Company’s various debt instruments then in effect, such as due to restrictions on the incurrence of debt, incurrence of liens, asset dispositions and related party transactions. In addition, such actions, if taken, may not enable the Company to satisfy its capital requirements if the actions that the Company is able to consummate do not generate a sufficient amount of additional capital.

Even if the Company does secure additional Capital Financing, if the anticipated level of revenues are not achieved because of, for example, decreased sales of the Company’s products due to the disposition of key assets, such as the sale of its NASCAR License, further changes in the Company’s product roadmap and/or the Company’s inability to deliver new products for its various other licenses; less than anticipated consumer acceptance of the Company’s offering of products and events; less than effective marketing and promotion campaigns, decreased consumer spending in response to weak economic conditions or weakness in the overall electronic games category; adverse changes in foreign currency exchange rates; decreased sales of the Company’s products and events as a result of increased competitive activities by the Company’s competitors; changes in consumer purchasing habits, such as the impact of higher energy prices on consumer purchasing behavior; retailer inventory management or reductions in retailer display space; less than anticipated results from the Company’s existing or new products or from its advertising and/or marketing plans; or if the Company’s expenses, including, without limitation, for marketing, advertising and promotions, product returns or price protection expenditures, exceed the anticipated level of expenses, the Company’s liquidity position may continue to be insufficient to satisfy its future capital requirements. If the Company is ultimately unable to satisfy its capital requirements, it would likely need to dissolve and liquidate its assets under the bankruptcy laws or otherwise.

In accordance with Accounting Standards Codification (“ASC”) 205-40, *Going Concern*, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements to this Report are issued. The factors described above, in particular the lack of available cash on hand to fund operations over the next year, have raised substantial doubt about the Company’s ability to continue as a going concern.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

### Cash Flows from Operating Activities

Net cash used in operating activities for the three months ended March 31, 2024 and 2023 was $0.8 million and $5.7 million, respectively. The net cash used in operating activities for the three months ended March 31, 2024 was primarily a result of cash used to fund a net loss of $1.7 million, adjusted for net non-cash adjustments of $0.7 million and $0.2 million of cash used by changes in the levels of operating assets and liabilities. Net cash used in operating activities for the three months ended March 31, 2023 was primarily due to net loss of $5.3 million, adjusted for non-cash expenses in the amount of $1.2 million and by $1.6 million of cash used to fund changes in the levels of operating assets and liabilities.

### Cash Flows from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2023 was $0.02 million, which was attributable to the purchases of property and equipment. There were no cash flows from investing activities for the three months ended March 31, 2024.

### Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended March 31, 2024 was $0.05 million, which was related to the repayment of purchase commitment liabilities. Net cash provided by financing activities for the three months ended March 31, 2023 was $10.7 million. Cash flows provided by financing activities for the three months ended March 31, 2023 were primarily attributable to $0.6 million raised in connection with shares sold under the Alumni Purchase Agreement (as defined below) and $10.4 million raised in connection with shares sold in the Company’s registered direct offerings, partially offset by $0.3 million of payments for purchase commitments.

### Promissory Note Line of Credit

On April 1, 2020, the Company entered into a promissory note (the “$12 million Line of Credit”) with the Company’s majority stockholder, Driven Lifestyle, that provided the Company with a line of credit of up to $10 million (which was subsequently increased to $12 million pursuant to an amendment executed in November 2020) at an interest rate of 10% per annum, the availability of which is dependent on Driven Lifestyle’s available liquidity. The $12 million Line of Credit does not have a stated maturity date and is payable upon demand at any time at the sole and absolute discretion of Driven Lifestyle, and any principal and accrued interest owed will be accelerated and become immediately payable in the event the Company consummates certain corporate events, such as a capital reorganization. The Company may prepay the $12 million Line of Credit in whole or in part at any time or from time to time without penalty or charge. Additionally, see “Risk Factors – Risks Related to Our Financial Condition and Liquidity - Limits on our borrowing capacity under the $12 million Line of Credit may affect our ability to finance our operations” in Part I, Item 1A of the 2023 Form 10-K.

On September 8, 2022, the Company entered into a support agreement with Driven Lifestyle (the “Support Agreement”) pursuant to which Driven Lifestyle issued approximately $3 million (the “September 2022 Cash Advance”) to the Company in accordance with the $12 million Line of Credit. Additionally, the Support Agreement modified the $12 million Line of Credit such that, among other things, until June 30, 2024, Driven Lifestyle would not demand repayment of the September 2022 Cash Advance or other advances under the $12 million Line of Credit, unless certain events occurred, as prescribed in the Support Agreement, such as the completion of a new financing arrangement or the Company generates positive cash flows from operations, among others. All principal and accrued interest owed on the $12 million Line of Credit were exchanged for equity following the completion of two debt-for-equity exchange agreements with Driven Lifestyle on January 30, 2023 and February 1, 2023, relieving the Company of approximately $3.9 million in owed principal and unpaid interest in exchange for an aggregate of 780,385 shares of the Company’s Class A common stock. See Note 5 – *Related Party Loans* in our condensed consolidated financial statements in this Report for further information. As of March 31, 2024, the balance due to Driven Lifestyle under the $12 million Line of Credit was $0.

As of March 31, 2024, the $12 million Line of Credit remains in place. However, the Company believes that there is a substantial likelihood that Driven Lifestyle will not fulfill any future borrowing requests, and therefore does not view the $12 million Line of Credit as a viable source for future liquidity needs.

### Other Financing Activity

On December 9, 2022, the Company entered into a stock purchase commitment agreement (the “Alumni Purchase Agreement”) with Alumni Capital LP (“Alumni Capital”), which provided that the Company could sell to Alumni Capital up to $2,000,000 of shares (the “commitment amount”) of the Company’s Class A common stock, through the commitment period expiring on December 31, 2023, or earlier if the commitment amount is reached. During the year ended December 31, 2023, the Company issued an aggregate of 175,167 shares of the Company’s Class A common stock to Alumni Capital under the Alumni Purchase Agreement with an aggregate fair market value of approximately $0.65 million. The Alumni Purchase Agreement expired on December 31, 2023.

On February 1, 2023, the Company issued 183,020 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $3.9 million (the “$3.9 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company. H.C. Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the $3.9 million RDO, pursuant to the engagement letter with the Company, dated as of January 9, 2023. In connection with the $3.9 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $50,000 and closing fees of $15,950. The Company has also issued to Wainwright warrants to purchase up to 10,981 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $3.9 million RDO, at an exercise price of $26.75 per share and will expire five years from the closing of the $3.9 million RDO.

On February 2, 2023, the Company issued 144,366 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $3.4 million (the “$3.4 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company. Wainwright acted as the exclusive placement agent for the $3.4 million RDO. In connection with the $3.4 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950. The Company has also issued to Wainwright warrants to purchase up to 8,662 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $3.4 million RDO, at an exercise price of $29.375 per share and will expire five years from the closing of the $3.4 million RDO.

On February 3, 2023, the Company issued 232,188 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $4.0 million (the “$4.0 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company. Wainwright acted as the exclusive placement agent for the $4.0 million RDO. In connection with the $4.0 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950. The Company has also issued to Wainwright and its designees warrants to purchase up to 13,931 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $4.0 million RDO, at an exercise price of $21.738 per share and will expire five years from the closing of the $4.0 million RDO.

On March 31, 2023, the Company entered into the ED Agreement with the Sales Agent, pursuant to which the Company may issue and sell shares of its Class A common stock having an aggregate offering price of up to $10 million (subject to compliance with the limitations set forth in the SEC’s “baby shelf” rules), from time to time through the Sales Agent. Subject to the terms and conditions of the ED Agreement, the Sales Agent may sell shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 under the Securities Act of 1933, as amended. The Company is not obligated to sell any shares under the ED Agreement. The Sales Agent is entitled to a commission of 3% of the aggregate gross proceeds from each sale of shares occurring pursuant to the ED Agreement. During the three months ended March 31, 2024, no shares of Class A common stock were sold under the Company’s ATM program. As of March 31, 2024, the Company had an aggregate of $2.9 million available for future sales under its ATM program, which was reduced to $1.3 million of availability as of the date of this Report in accordance with the SEC’s baby shelf rules.

### Capital Expenditures

The nature of the Company’s operations does not require significant expenditures on capital assets, nor does the Company typically enter into significant commitments to acquire capital assets. The Company does not have material commitments to acquire capital assets as of March 31, 2024.

### Material Cash Requirements

Except as described below, there have been no material changes in our reported material cash requirements as described under “Liquidity and Capital Resources – Material Cash Requirements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Form 10-K.

On April 12, 2024, the Company entered into the BARC Settlement Agreement with BARC. Pursuant to the BARC Settlement Agreement, the Company and BARC, without admitting any liabilities, agreed that the license agreement between the parties relating to the Previous BTCC License was terminated without any liabilities and that any and all royalties and/or any other sums whatsoever were forgiven by BARC and discharged in their entirety in consideration of (i) the Company’s one-time payment of $225,000 to BARC and (ii) the Company and BARC entering, effective as of April 12, 2024, into a new license agreement to use certain licensed intellectual property related to, themed as, or containing the BTCC. Prior to entering into the BARC Settlement Agreement, the Company had a total remaining liability in connection with the Previous BTCC License, inclusive of unpaid installments, of $0.9 million.

### Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

### Critical Accounting Policies and Estimates

There have been no material changes to the items disclosed as critical accounting policies and estimates under “Liquidity and Capital Resources—Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Form 10-K.

### Recently Issued Accounting Standards

As an “emerging growth company”, the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act until such time as we are no longer considered to be an emerging growth company.

Our analysis of recently issued accounting standards are more fully described in our condensed consolidated financial statements included elsewhere in this Report.

## Controls and procedures

As filed, 3,915 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2024. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2024 because of the material weaknesses in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as discussed in Part II, Item 9A, “*Controls and Procedures”* of the 2023 Form 10-K, and that continued to exist as of March 31, 2024.

### Remediation of Material Weaknesses

We have not yet remediated the material weaknesses relating to (i) our failure to design and maintain effective monitoring procedures and controls to evaluate the effectiveness of our individual control activities and (ii) a lack of sufficient number of personnel with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely, each of which are discussed further in Part II, Item 9A, “*Controls and Procedures”* of the 2023 Form 10-K.

If not remediated, or if we identify further material weaknesses in our internal controls, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our consolidated financial statements and a failure to meet our reporting and financial obligations. We believe that we have made and continue to make progress on the remediation plans described in our 2023 Form 10-K, under Part II, Item 9A, “*Controls and Procedures.”* For example, during the quarter ended March 31, 2024, we continued to make improvements to controls and continued our evaluation and documentation of risks and key controls forming part of the significant business processes, including internal control over financial reporting risk assessment scoping, development of risk control matrices and identification of key transaction level and entity level controls that require testing on an ongoing basis.

### Limitations on the Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

### Changes in Internal Control over Financial Reporting

Except as described above, there were no other changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 539 characters.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in “Risk Factors” in Part I, Item 1A of the 2023 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in the 2023 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.

Filed May 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-018097. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.