UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2024

		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: 001-39868

Motorsport Games Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		86-1791356
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

5972 NE 4th Avenue Miami, FL		33137
Address of Principal Executive Offices		Zip Code

Registrant’s Telephone Number, Including Area Code: (305) 507-8799

Not Applicable

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.0001 par

value per share

MSGM

The Nasdaq Stock Market LLC

(The Nasdaq Capital Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 7, 2024, the registrant had 2,722,728 shares of Class A common stock and 700,000 shares of Class B common stock outstanding.

Motorsport Games Inc.

Form 10-Q

For the Quarter Ended March 31, 2024

TABLE OF CONTENTS

		Page
Part I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

Part II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
Signatures		40

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) of Motorsport Games Inc. (the “Company,” “Motorsport Games,” “we,” “us” or “our”) contains certain statements, which are not historical facts and are “forward-looking statements” within the meaning of federal securities laws. These forward-looking statements are subject to certain risks, trends and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. We use words, such as “could,” “would,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. For example, forward-looking statements include, but are not limited to, statements we make relating to:

	●	our liquidity and capital requirements, including, without limitation, as to our ability to continue as a going concern; our belief that we will not have sufficient cash on hand to fund our operations over the next year based on the cash and cash equivalents available and our average cash burn; our belief that additional funding will be required in order to continue operations; our expectation that we will continue to have a net cash outflow from operations for the foreseeable future as we continue to develop our product portfolio and invest in developing new video game titles; our expectation that we will continue to incur losses for the foreseeable future as we continue to incur significant expenses; our plans to address our liquidity short fall, including our exploration of several options, including, but not limited to: additional funding in the form of potential equity and/or debt financing arrangements or similar transactions, strategic alternatives for our business, including, but not limited to, the sale or licensing of our assets, and further cost reduction and restructuring initiatives; our expectation that if any strategic alternative is executed, this would help to reduce certain working capital requirements and reduce overhead expenditures, thereby reducing our expected future cash-burn, and provide some short-term liquidity relief, but that 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; our plan to continue to seek to reduce our monthly net cash-burn by reducing our cost base through maintaining and enhancing cost control initiatives, and plans to continue to evaluate the structure of our business for additional changes in order to improve both our near-term and long-term liquidity position; statements regarding potential alternatives we may be required to adopt if we are unable to satisfy our capital requirements, and our belief that if we are ultimately unable to satisfy our capital requirements, we would likely need to dissolve and liquidate our assets under the bankruptcy laws or otherwise; our belief that there is a substantial likelihood that Driven Lifestyle Group LLC (“Driven Lifestyle”), formerly known as Motorsport Network, LLC, will not fulfill our future borrowing requests under the $12 million Line of Credit (as defined in this Report); and statements regarding our cash flows and anticipated uses of cash;

	●	the sale of our NASCAR License (as defined in this Report), including our belief that our existing business model will need to be modified, our risk profile relating to our operations will be significantly altered, we may encounter difficulties or challenges in continuing operations due to the sale of the license, and that our cash flows and results of operations will likely be materially adversely impacted as we anticipate the amount of revenue to be generated by our existing NASCAR products to decline over time;

	●	our intended corporate purpose to make the thrill of motorsports accessible to everyone by creating the highest quality, most sophisticated and most innovative experiences for racers, gamers and fans of all ages;

	●	new or planned products or offerings, including the anticipated timing of any new product or offering launches, such as our current plans to organize the 2024/25 Le Mans Virtual Series to commence later this year, as well as the possibility of further adjustments to our product roadmap due to the continuing impact of our liquidity position;

	●	our plans to strive 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;

	●	our intention to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans;

	●	our belief that connecting virtual racing gamers and esports fans on a digital entertainment and social platform represents the greatest opportunity to enhance the way that people learn, watch, play, and experience racing video games and racing esports;

	●	our beliefs regarding the growing importance and business viability of esports, especially within the racing and motorsport genres;

	●	our belief that our esports business has the potential to generate incremental revenues through the further sale of media rights to our esports events and competitions, as well as, among other things, merchandising, if the esports audience pattern continues to grow;

	●	our plans to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content;

	●	our expectation that we will continue to derive significant revenues from sales of our products to a very limited number of distribution partners;

	●	our intention 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;

	●	our intended use of proceeds from the sales of our equity securities;

	●	our statements and assumptions relating to the impairment of assets;

	●	our plans and intentions with respect to our remediation efforts to address the material weaknesses in our internal control over financial reporting;

	●	our belief that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows, except as otherwise disclosed in this Report, and that in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period; our beliefs regarding the merit of any plaintiff’s allegations and the impact of any claims and litigation that we are subject to; and our plans and intentions with respect to defending our position in any legal proceeding;

	●	our intention to not declare dividends in the foreseeable future;

	●	our ability to utilize net operating loss carryforwards;

	●	our expectations regarding the future impact of implementing management strategies, adopting new accounting standards, potential acquisitions and industry trends;

	●	our plans and intentions to regain compliance with the listing requirements of The Nasdaq Stock Market LLC (“NASDAQ”), including our plan to negotiate and implement equity financing transactions and negotiate reductions of our licensing liabilities;

	●	our belief that we may decide in the future to avail ourselves of certain corporate governance requirements of NASDAQ as a result of being a “controlled company” within the meaning of the NASDAQ rules;

	●	our expectations relating to any cost reduction and restructuring initiatives, including expected savings and any restructuring charges to be incurred; and

	●	our expectations that our current development operations will not have significant exposure to changes in circumstances arising from the Ukraine-Russia conflict.

iii

The forward-looking statements contained in this Report are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read and consider this Report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions that are difficult to predict. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. Important factors that could cause our actual results to differ materially from those projected in any forward-looking statements are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) and in “Risk Factors” in Part II, Item 1A of this Report, as updated in our subsequent filings with the Securities and Exchange Commission (the “SEC”). In addition to factors that may be described in our filings with the SEC, including this Report, the following factors, among others, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us:

	(i)	difficulties and/or delays in accessing available liquidity, and other unanticipated difficulties in resolving our continuing financial condition and ability to obtain additional capital to meet our financial obligations, including, without limitation, difficulties in securing funding that is on commercially acceptable terms to us or at all, such as our inability to complete in whole or in part any potential debt and/or equity financing transactions or similar transactions, any inability to achieve cost reductions, including, without limitation, those which we expect to achieve through any cost reduction and restructuring initiatives, as well as any inability to consummate additional strategic alternatives for our business, including, but not limited to, the sale or licensing of our assets, and/or less than expected benefits resulting from any such strategic alternative; difficulties, delays or our inability to efficiently manage our cash and working capital; higher than expected operating expenses; adverse impacts to our liquidity position resulting from the higher interest rate and higher inflationary environment; the unavailability of funds from anticipated borrowing sources; the unavailability of funds from our inability to reduce or control costs, including, without limitation, those which we expect to achieve through any cost reduction and restructuring initiatives; lower than expected operating revenues, cash on hand and/or funds available from anticipated borrowings or funds expected to be generated from cost reductions resulting from the implementation of cost control initiatives, such as through any cost reduction and restructuring initiatives; and/or less than anticipated cash generated by our operations; and/or adverse effects on our liquidity resulting from changes in economic conditions (such as continued volatility in the financial markets, whether attributable to COVID-19, the ongoing wars between Russia and Ukraine and between Israel and Hamas or otherwise; significantly higher rates of inflation, significantly higher interest rates and higher labor costs; the impact of higher energy prices on consumer purchasing behavior, monetary conditions and foreign currency fluctuations, tariffs, foreign currency controls and/or government-mandated pricing controls, as well as in trade, monetary, fiscal and tax policies), political conditions (such as military actions and terrorist activities) and pandemics and natural disasters; and/or the unavailability of funds from (A) delaying the implementation of or revising certain aspects of our business strategy; (B) reducing or delaying the development and launch of new products and events; (C) reducing or delaying capital spending, product development spending and marketing and promotional spending; (D) selling assets or operations; (E) seeking additional capital contributions and/or loans from Driven Lifestyle, the Company’s other affiliates and/or third parties; and/or (F) reducing other discretionary spending;

	(ii)	difficulties, delays or less than expected results in achieving our growth plans, objectives and expectations, such as due to a slower than anticipated economic recovery and/or our inability, in whole or in part, to continue to execute our business strategies and plans, such as due to less than anticipated customer acceptance of our new game titles, our experiencing difficulties or the inability to launch our games as planned, less than anticipated performance of the games impacting customer acceptance and sales and/or greater than anticipated costs and expenses to develop and launch our games, including, without limitation, higher than expected labor costs;

	(iii)	difficulties, delays in or unanticipated events that may impact the timing and scope of new product launches, such as due to difficulties and/or delays related to our transition from using development staff in Russia to using development staff in other countries and/or difficulties and/or delays arising out of any resurgence of the COVID-19 pandemic;

	(iv)	less than expected benefits from implementing our management strategies and/or adverse economic, market and geopolitical conditions that negatively impact industry trends, such as significant changes in the labor markets, an extended or higher than expected inflationary environment (such as the impact on consumer discretionary spending as a result of significant increases in energy and gas prices which have been increasing since early in 2020), a higher interest rate environment, tax increases impacting consumer discretionary spending and or quantitative easing that results in higher interest rates that negatively impact consumers’ discretionary spending, or adverse developments relating to the ongoing war between Russia and Ukraine;

	(v)	difficulties and/or delays adversely impacting our ability (or inability) to maintain existing, and to secure additional, licenses and other agreements with various racing series;

	(vi)	difficulties and/or delays adversely impacting our ability to successfully manage and integrate any joint ventures, acquisitions of businesses, solutions or technologies;

	(vii)	unanticipated operating costs, transaction costs and actual or contingent liabilities;

	(viii)	difficulties and/or delays adversely impacting our ability to attract and retain qualified employees and key personnel;

	(ix)	adverse effects of increased competition;

	(x)	changes in consumer behavior, including as a result of general economic factors, such as increased inflation, recessionary factors, higher energy prices and higher interest rates;

	(xi)	difficulties and/or delays adversely impacting our ability to protect our intellectual property;

	(xii)	local, industry and general business and economic conditions;

	(xiii)	unanticipated adverse effects on our business, prospects, results of operations, financial condition, cash flows and/or liquidity as a result of unexpected developments with respect to our legal proceedings;

	(xiv)	difficulties, delays or our inability to successfully complete any cost reduction and restructuring initiatives, which could reduce the benefits realized from such activities;

	(xv)	higher than anticipated restructuring charges and/or payments and/or changes in the expected timing of such charges and/or payments as a result of, among other things, legal requirements in applicable foreign jurisdictions; and/or less than anticipated annualized cost reductions from our plans and/or changes in the timing of realizing such cost reductions, such as due to less than anticipated liquidity to fund such activities and/or more than expected costs to achieve the expected cost reductions;

	(xvi)	difficulties, delays, less than expected results or our inability to successfully implement any strategic alternative or potential option for our business, including, but not limited to, the sale or licensing of certain of our assets, which could result in, among other things, less than expected financial benefits from such actions; and

	(xvii)	difficulties and/or delays or unanticipated developments adversely impacting our ability to regain compliance with the NASDAQ’s listing requirements, such as our inability to negotiate and implement equity financing transactions and/or negotiate reductions of our licensing liabilities.

Additionally, there are other risks and uncertainties described from time to time in the reports that we file with the SEC. Should one or more of these risks or uncertainties materialize or should any of these assumptions prove to be incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Report to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances, except as otherwise required by law. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

PART I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

MOTORSPORT GAMES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2024			December 31, 2023

Assets

Current assets:
Cash and cash equivalents	$	1,252,691		$	1,675,210
Accounts receivable, net of allowances of $450,000 as of March 31, 2024 and December 31, 2023, respectively		1,423,423			735,839
Prepaid expenses and other current assets		1,474,092			1,106,848
Total Current Assets		4,150,206			3,517,897
Property and equipment, net		175,199			247,693
Operating lease right of use assets		148,725			197,307
Intangible assets, net		5,349,403			5,795,807
Total Assets	$	9,823,533		$	9,758,704

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	1,509,469		$	813,659
Accrued expenses and other current liabilities		2,479,993			1,891,315
Due to related parties		48,265			77,716
Purchase commitments		4,628,779			4,656,538
Operating lease liabilities (current)		109,171			153,015
Total Current Liabilities		8,775,677			7,592,243
Operating lease liabilities (non-current)		39,856			45,659
Other non-current liabilities		16,175			31,098
Total Liabilities		8,831,708			7,669,000

Commitments and contingencies (Note 9)		-			-

Stockholders’ Equity:

Preferred stock, $0.0001 par value; authorized 1,000,000 and 1,000,000 shares; and none issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		-			-
Class A common stock, $0.0001 par value; authorized 100,000,000 and 100,000,000 shares; 2,722,728 and 2,722,728 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		269			269
Class B common stock, $0.0001 par value; authorized 7,000,000 and 7,000,000 shares; 700,000 and 700,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		70			70
Common stock, value		70			70
Additional paid-in capital		91,991,502			91,923,311
Accumulated deficit		(88,665,020	)		(87,030,270	)
Accumulated other comprehensive loss		(1,269,983	)		(1,850,216	)
Total Stockholders’ Equity Attributable to Motorsport Games Inc.		2,056,838			3,043,164
Non-controlling interest		(1,065,013	)		(953,460	)
Total Stockholders’ Equity		991,825			2,089,704
Total Liabilities and Stockholders’ Equity	$	9,823,533		$	9,758,704

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MOTORSPORT GAMES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	2024			2023
	Three Months Ended March 31,
	2024			2023
Revenues	$	3,029,036		$	1,729,355
Cost of revenues		666,627			1,248,736
Gross profit		2,362,409			480,619

Operating expenses:
Sales and marketing [1]		250,386			618,410
Development [2]		1,063,357			2,397,134
General and administrative [3]		2,190,266			2,779,110
Depreciation and amortization		73,724			97,354
Total operating expenses		3,577,733			5,892,008
Loss from operations		(1,215,324	)		(5,411,389	)
Interest expense		(30,882	)		(199,120	)
Other (expense) income, net		(437,192	)		351,317
Net loss		(1,683,398	)		(5,259,192	)
Less: Net loss attributable to non-controlling interest		(48,648	)		(158,245	)
Net loss attributable to Motorsport Games Inc.	$	(1,634,750	)	$	(5,100,947	)

Net loss attributable to Class A common stock per share:
Basic and diluted	$	(0.60	)	$	(2.33	)

Weighted-average shares of Class A common stock outstanding:
Basic and diluted		2,722,728			2,192,155

[1]	Includes related party expenses of $0 and $17,076 for the three months ended March 31, 2024 and 2023, respectively.
[2]	Includes related party expenses of $0 and $15,488 for the three months ended March 31, 2024 and 2023, respectively.
[3]	Includes related party expenses of $81,217 and $92,045 for the three months ended March 31, 2024 and 2023, respectively.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MOTORSPORT GAMES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	2024			2023
	Three Months Ended March 31,
	2024			2023
Net loss	$	(1,683,398	)	$	(5,259,192	)
Other comprehensive gain (loss):
Foreign currency translation adjustments		580,233			(78,588	)
Comprehensive loss		(1,103,165	)		(5,337,780	)
Comprehensive loss attributable to non-controlling interests		(111,553	)		(194,563	)
Comprehensive loss attributable to Motorsport Games Inc.	$	(991,612	)	$	(5,143,217	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Shares		Amount		Shares		Amount		Capital		Deficit			Loss			Games Inc.			Interest			Equity
	For the Three Months Ended March 31, 2024
																	Total
																	Stockholders’
	Class A Common Stock				Class B Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Equity Attributable to Motorsport			Non- controlling			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Loss			Games Inc.			Interest			Equity
Balance – January 1, 2024		2,722,728	$	269		700,000	$	70	$	91,923,311	$	(87,030,270	)	$	(1,850,216	)	$	3,043,164		$	(953,460	)	$	2,089,704
Stock-based compensation		-		-		-		-		68,191		-			-			68,191			-			68,191
Other comprehensive gain (loss)		-		-		-		-		-		-			580,233			580,233			(62,905	)		517,328
Net loss		-		-		-		-		-		(1,634,750	)		-			(1,634,750	)		(48,648	)		(1,683,398	)
Balance – March 31, 2024		2,722,728	$	269		700,000	$	70	$	91,991,502	$	(88,665,020	)	$	(1,269,983	)	$	2,056,838		$	(1,065,013	)	$	991,825

	For the Three Months Ended March 31, 2023
																	Total
																	Stockholders’
	Class A Common Stock				Class B Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Equity Attributable to Motorsport			Non- controlling			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Loss			Games Inc.			Interest			Equity
Balance – January 1, 2023		1,183,808	$	117		700,000	$	70	$	76,446,061	$	(73,979,131	)	$	(933,406	)	$	1,533,711		$	369,687		$	1,903,398
Balances		1,183,808	$	117		700,000	$	70	$	76,446,061	$	(73,979,131	)	$	(933,406	)	$	1,533,711		$	369,687		$	1,903,398
Issuance of common stock		734,741		74		-		-		10,571,460		-			-			10,571,534			-			10,571,534
Issuance of common stock for extinguishment of related party loan		780,385		78		-		-		3,948,488		-			-			3,948,566			-			3,948,566
Stock-based compensation		-		-		-		-		249,233		-			-			249,233			-			249,233
Other comprehensive loss		-		-		-		-		-		-			(78,588	)		(78,588	)		(36,318	)		(114,906	)
Net loss		-		-		-		-		-		(5,100,947	)		-			(5,100,947	)		(158,245	)		(5,259,192	)
Balance – March 31, 2023		2,698,934	$	269		700,000	$	70	$	91,215,242	$	(79,080,078	)	$	(1,011,994	)	$	11,123,509		$	175,124		$	11,298,633
Balances		2,698,934	$	269		700,000	$	70	$	91,215,242	$	(79,080,078	)	$	(1,011,994	)	$	11,123,509		$	175,124		$	11,298,633

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	2024			2023
	For the Three Months Ended March 31,
	2024			2023
Cash flows from operating activities:
Net loss	$	(1,683,398	)	$	(5,259,192	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of property and equipment		-			1,016
Depreciation and amortization		601,946			502,357
Purchase commitment and license liability interest accretion		22,241			157,661
Stock-based compensation		68,191			249,233
Sales return and price protection reserves		-			280,000
Changes in the fair value of warrants		(14,922	)		-
Changes in assets and liabilities:
Accounts receivable		(689,294	)		630,272
Due from related parties		-			140,358
Operating lease liabilities		(978	)		(5,893	)
Prepaid expenses and other assets		(363,780	)		(225,562	)
Accounts payable		643,942			(1,331,386	)
Due to related parties		(30,238	)		(473,021	)
Other non-current liabilities		(22,241	)		(33,720	)
Accrued expenses and other liabilities		620,873			(315,824	)

Net cash used in operating activities	$	(847,658	)	$	(5,683,701	)

Cash flows from investing activities:
Purchase of property and equipment		-			(15,057	)
Net cash used in investing activities	$	-		$	(15,057	)

Cash flows from financing activities:
Repayments of purchase commitment liabilities		(50,000	)		(250,000	)
Payment of license liabilities		-			(87,500	)
Issuance of common stock from stock purchase commitment agreement		-			644,694
Issuance of common stock from registered direct offerings		-			10,404,840

Net cash (used in) provided by financing activities	$	(50,000	)	$	10,712,034

Effect of exchange rate changes on cash and cash equivalents		475,139			(198,026	)

Net (decrease) increase in cash and cash equivalents		(422,519	)		4,815,250

Total cash and cash equivalents at beginning of the period	$	1,675,210		$	979,306

Total cash and cash equivalents at the end of the period	$	1,252,691		$	5,794,556

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	8,641		$	9,508

Non-cash investing and financing activities:
Shares issued to Driven Lifestyle Group LLC for extinguishment of related party loan	$	-		$	(3,948,566	)
Extinguishment of Driven Lifestyle Group LLC related party loan for Class A shares	$	-		$	3,948,566
Issuance of warrants in connection with registered direct offerings	$	-		$	478,000
Receivable from sale of NASCAR License	$	500,000		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 - BUSINESS ORGANIZATION, NATURE OF OPERATIONS, AND RISKS AND UNCERTAINTIES

Organization and Operations

Motorsport Gaming US LLC (“Motorsport Gaming”) was established as a limited liability company on August 2, 2018 under the laws of the State of Florida. On January 8, 2021, Motorsport Gaming converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Motorsport Games Inc. (“Motorsport Games” or the “Company”). Upon effecting the corporate conversion on January 8, 2021, Motorsport Games now holds all the property and assets of Motorsport Gaming, and all of the debts and obligations of Motorsport Gaming were assumed by Motorsport Games by operation of law upon such corporate conversion.

Risks and Uncertainties

Liquidity and Going Concern

The Company had a net loss of $1.7 million and negative cash flows from operations of $0.8 million for the three months ended March 31, 2024. 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 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, and continues to take, 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.

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 (as defined below) and Traxion (as defined below); 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.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

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. See Note 12 – Subsequent Events for more information on the sale of Traxion in April 2024.

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, 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.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

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 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 condensed consolidated financial statements 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 unaudited 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.

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In management’s opinion, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair statement of the Company’s unaudited condensed consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024. The Company’s results of operations for the three months ended March 31, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related disclosures as of December 31, 2023 and 2022 and for the years then ended which are included in the 2023 Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

The Company’s significant estimates used in these condensed consolidated financial statements include, but are not limited to, revenue recognition criteria, including allowances for returns and price protection, offering periods for deferred net revenue, valuation allowance of deferred income taxes, the recognition and disclosure of contingent liabilities, and stock-based compensation valuation. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and may cause actual results to differ from those estimates.

Non-controlling Interests

Non-controlling interests represent the portion of net assets in consolidated subsidiaries that are not attributable, directly or indirectly, to the Company. The net assets of the shared entities are attributed to the controlling and non-controlling interests based on the terms of the governing contractual arrangements.

Recently Issued Accounting Standards

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280). The new guidance improves reportable segment disclosures primarily through enhanced disclosures about significant segment expenses and by requiring current annual disclosures to be provided in interim periods. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The new guidance is to be applied retrospectively to all prior periods presented unless impracticable to do so. As the guidance requires only additional disclosure, there will be no effects of this standard on our financial position, results of operations or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied on a prospective basis with retrospective application permitted. As the guidance requires only additional disclosure, there will be no effects of this standard on our financial position, results of operations or cash flows.

Significant Accounting Policies

There have been no material changes to the significant accounting policies disclosed in the audited consolidated financial statements for the year ended December 31, 2023, as included in the 2023 Form 10-K, except as disclosed in this note.

Revenue Recognition

The Company derives revenue principally from sales of its games, and related extra content and services that can be experienced on game consoles, PCs and mobile phones. The Company’s product and service offerings include, but are not limited to, the following:

	●	full games with both online and offline functionality (“Games with Services”), which generally includes (1) the initial game delivered digitally or via physical disc at the time of sale and typically provide access to offline core game content (“software license”); (2) updates on a when-and-if-available basis, such as software patches or updates, and/or additional free content to be delivered in the future (“future update rights”); and (3) a hosted connection for online playability (“online hosting”);
	●	extra content related to Games with Services which provides access to additional in-game content;

The Company evaluates and recognizes revenue by:

	●	identifying the contract(s) with the customer;
	●	identifying the performance obligations in the contract;
	●	determining the transaction price;
	●	allocating the transaction price to performance obligations in the contract; and
	●	recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”).

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Online-Enabled Games

Games with Services. The Company’s sales of Games with Services are evaluated to determine whether the software license, future update rights and the online hosting are distinct and separable. Sales of Games with Services are generally determined to have three distinct performance obligations: software license, future update rights, and the online hosting.

Since the Company does not sell the performance obligations on a stand-alone basis, the Company considers market conditions and other observable inputs to estimate the stand-alone selling price for each performance obligation. For Games with Services, generally 75 percent of the sales price is allocated to the software license performance obligation and recognized at a point in time when control of the license has been transferred to the customer. The remaining 25 percent is allocated to the future update rights and the online hosting performance obligations and recognized ratably as the service is provided (over the Estimated Offering Period).

Extra Content. Revenue received from sales of downloadable content are derived primarily from the sale of digital in-game content that are designed to extend and enhance players’ game experience. Sales of extra content are accounted for in a manner consistent with the treatment for the Company’s Games with Services as discussed above, depending upon whether or not the extra content has offline functionality. That is, if the extra content has offline functionality, then the extra content is accounted for similarly to Games with Services (generally determined to have three distinct performance obligations: software license, future update rights, and the online hosting). If the extra content does not have offline functionality, then the extra content is determined to have one distinct performance obligation: the online-hosted service.

Significant Judgments around Revenue Arrangements

Identifying performance obligations. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, (i.e., the customer can benefit from the goods or services either on its own or together with other resources that are readily available), and are distinct in the context of the contract (i.e., it is separately identifiable from other goods or services in the contract). To the extent a contract includes multiple promises, the Company must apply judgment to determine whether those promises are separate and distinct performance obligations. If these criteria are not met, the promises are accounted for as a combined performance obligation.

Determining the transaction price. The transaction price is determined based on the consideration that the Company will be entitled to receive in exchange for transferring its goods and services to the customer. Determining the transaction price often requires judgment, based on an assessment of contractual terms and business practices. It further includes review of variable consideration such as discounts, sales returns, price protection, and rebates, which is estimated at the time of the transaction. In addition, the transaction price does not include an estimate of the variable consideration related to sales-based royalties. Sales-based royalties are recognized as the sales occur.

Allocating the transaction price. Allocating the transaction price requires that the Company determine an estimate of the relative stand-alone selling price for each distinct performance obligation. Determining the relative stand-alone selling price is inherently subjective, especially in situations where the Company does not sell the performance obligation on a stand-alone basis (which occurs in the majority of transactions). In those situations, the Company determines the relative stand-alone selling price based on various observable inputs using all information that is reasonably available. Examples of observable inputs and information include historical internal pricing data and pricing data from competitors, to the extent the data is available. The results of the Company’s analysis resulted in a specific percentage of the transaction price being allocated to each performance obligation.

Determining the Estimated Offering Period. The offering period is the period in which the Company offers to provide the future update rights and/or online hosting for the game and related extra content sold. Because the offering period is not an explicitly defined period, the Company must make an estimate of the offering period for the service-related performance obligations (i.e., future update rights and online hosting). Determining the Estimated Offering Period is inherently subjective and is subject to regular revision. Generally, the Company considers the average period of time customers are online when estimating the offering period. The Company recognizes revenue for future update rights and online hosting performance obligations ratably on a straight-line basis over this period as there is a consistent pattern of delivery for these performance obligations. Revenue for service-related performance obligations for digitally-distributed games and extra content is recognized over an estimated seven-month period beginning in the month of sale.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Deferred Revenue

The Company’s deferred revenue, or contract liability, is classified as current and is included within accrued expenses and other current liabilities on the unaudited condensed consolidated balance sheets (Also refer Note 4 – Accrued Expenses and Other Current Liabilities). Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Development and coding revenues are also recorded as defe

SEC Form 10-Q filed by Motorsport Games Inc.