Motorsport Games Inc

Previous wording

We had negative cash flows from operations of $1.4 million for the six months ended June 30, 2024. As of June 30, 2024, we had an accumulated deficit of $86.4 million and cash and cash equivalents of $0.5 million. We incurred a net loss of $14.3 million and had negative cash flows from operations of $12.9 million for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $87.4 million and cash and cash equivalents of $1.7 million. For the year ended December 31, 2023, we experienced an average net cash burn from operations of approximately $1.1 million per month. We expect to 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.

Current wording

We had negative cash flows from operations of $0.7 million for the nine months ended September 30, 2024. As of September 30, 2024, we had an accumulated deficit of $86.3 million and cash and cash equivalents of $0.8 million. We incurred a net loss of $14.3 million and had negative cash flows from operations of $12.9 million for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $87.4 million and cash and cash equivalents of $1.7 million. For the year ended December 31, 2023, we experienced an average net cash burn from operations of approximately $1.1 million per month. We expect to 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.

Previous wording

As a result of our financial condition, management has concluded that there is substantial doubt in our ability to continue as a going concern. The report of our independent registered public accountant on our financial statements as of and for the years ended December 31, 2023 and 2022 also includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern. There have been no adjustments to the accompanying financial statements to reflect this uncertainty. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Going Concern” of his Report, Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Going Concern” of our Annual Report on Form 10-K for the year ended December 31, 2023 and Note 1 –Business Organization, Nature of Operations and Risks and Uncertainties in our consolidated financial statements for additional information.

Current wording

As a result of our financial condition, management has concluded that there is substantial doubt in our ability to continue as a going concern. Our unaudited financial statement for the quarter ended September 30, 2024 were prepared under the assumption that we will continue as a going concern; however, we have incurred losses from operations to date, and due to the lack of available cash on hand to fund our operations over the next year and the continuing uncertainty surrounding our ability to raise funding in the form of potential capital financing, there is substantial doubt about our ability to continue as a going concern for one year after the financial statements are issued. Our unaudited financial statements for the quarter ended September 30, 2024 contain an explanatory paragraph with respect to this uncertainty. The report of our independent registered public accountant on our financial statements as of and for the years ended December 31, 2023 and 2022 also includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern. There have been no adjustments to the accompanying financial statements to reflect this uncertainty. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Going Concern” of his Report, Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Going Concern” of our 2023 Form 10-K and Note 1 –Business Organization, Nature of Operations and Risks and Uncertainties in our consolidated financial statements for additional information.

Previous wording

We follow a franchise model and a significant portion of our revenues has historically been derived from products based on a relatively small number of popular franchises, including our NASCAR products, which have historically accounted for the majority of our revenue. For the years ended December 31, 2023 and 2022, revenues associated with our NASCAR franchise accounted for approximately 71.6% and 62.9% of our total revenue, respectively. Revenues associated with our NASCAR franchise accounted for approximately 51.6% and 67.5% of our total revenue for the six months ended June 30, 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 and to cease after December 31, 2024.

Current wording

We follow a franchise model and a significant portion of our revenues has historically been derived from products based on a relatively small number of popular franchises, including our NASCAR products, which have historically accounted for the majority of our revenue. For the years ended December 31, 2023 and 2022, revenues associated with our NASCAR franchise accounted for approximately 71.6% and 62.9% of our total revenue, respectively. Revenues associated with our NASCAR franchise accounted for approximately 52.6% and 70.9% of our total revenue for the nine months ended September 30, 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 and to cease after December 31, 2024.

Previous wording

During the three months ended June 30, 2024, three customers accounted for 23.6%, 20.5% and 41.2% of our revenue and during the six months ended June 30, 2024, the same three customers accounted for 21.2%, 20.6% and 47.3% of our revenue. In addition, the same customers represented 28.7%, 31.1% and 30.8% of our accounts receivable at June 30, 2024.

Current wording

During the three months ended September 30, 2024, three customers accounted for 22.9%, 17.7% and 43.2% of our revenue and during the nine months ended September 30, 2024, the same three customers accounted for 25.1%, 28.7% and 19.8% of our revenue. In addition, the same customers represented 30.7%, 22.4% and 27.9% of our accounts receivable at September 30, 2024.

Previous wording

To regain compliance with the Stockholders’ Equity Requirement, we entered into the INDYCAR Agreement. Pursuant to the INDYCAR Agreement, our liability to INDYCAR, LLC in the amount of approximately $2.9 million was settled for $400,000, which resulted in a gain of approximately $2.5 million, which resulted in a $2.5 million increase to our stockholders’ equity. On June 3, 2024, the Nasdaq Stock Market LLC notified us that based on our disclosure of the INDYCAR Agreement in our Current Report on Form 8-K filed by us on May 23, 2024, Nasdaq’s staff has determined that we comply with the Stockholders’ Equity Requirement. If we fail to evidence compliance with the Stockholders’ Equity Requirement upon the filing of this Report, we may be subject to delisting. At that time, Nasdaq will provide written notification to us, which we may then appeal Nasdaq’s determination to a Nasdaq Hearings Panel.

Current wording

To regain compliance with the Stockholders’ Equity Requirement, we entered into the INDYCAR Agreement. Pursuant to the INDYCAR Agreement, our liability to INDYCAR, LLC in the amount of approximately $2.9 million was settled for $400,000, which resulted in a gain of approximately $2.5 million, which resulted in a $2.5 million increase to our stockholders’ equity. On June 3, 2024, the Nasdaq Stock Market LLC notified us that based on our disclosure of the INDYCAR Agreement in our Current Report on Form 8-K filed by us on May 23, 2024, Nasdaq’s staff has determined that we comply with the Stockholders’ Equity Requirement. In our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, we reported stockholders’ equity of approximately $3.0 million; however, because we report stockholders’ equity of less than $2.2 million in this Report, which is below the Stockholders’ Equity Requirement, we expect to receive adeficiency letter from the NASDAQ Staff notifying us that we are not in compliance with the Stockholders’ Equity Requirement. If we fail to timely submit a plan to the NASDAQ Staff to regain compliance with the Stockholders’ Equity Requirement, and to thereafter regain compliance with such requirement, we may be subject to delisting. At that time, Nasdaq will provide written notification to us, which we may then appeal Nasdaq’s determination to a Nasdaq Hearings Panel.