Motorsport Games Inc.

Motorsport Games Inc. and Subsidiaries

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.

Liquidity

The Company had net income of $1.0 million and generated cash flows from operations of $1.6 million for the three months ended March 31, 2026. As of March 31, 2026, the Company had an accumulated deficit of $84.5 million, working capital of $5.2 million, and cash and cash equivalents of $5.9 million, which decreased to $3.8 million as of April 30, 2026, due primarily to the Company’s $3.7 million repurchase of its shares from Driven Lifestyle Group LLC on April 22, 2026, partially offset by a $1.2 million drawdown from a business loan agreement with Citibank, N.A. and cash inflows from operations. In May 2026, Citibank, N.A. extended the maturity date of the business loan agreement to February 20, 2028. Refer to Note 12 –Subsequent Events for additional information.

For the three months ended March 31, 2026, the Company generated an average positive cash flow from operations of approximately $0.5 million per month that was primarily due to increased profitability and the capitalization of internally-developed software. As such, the Company expects that its cash on hand and cash to be generated from operations will fund its operations for at least one year from the date the condensed consolidated financial statements are issued.

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, 2026 and for the three months ended March 31, 2026. The Company’s results of operations for the three months ended March 31, 2026 are not necessarily indicative of the operating results for the full year ending December 31, 2026 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, 2025 and 2024 and for the years then ended which are included in the 2025 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.

The Company’s significant estimates used in these condensed consolidated financial statements include, but are not limited to, revenue recognition criteria, offering periods for deferred net revenue, valuation allowance of deferred income taxes, valuation of warrants and stock option liability, 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.

Revisions and Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the presentation of these condensed consolidated financial statements. Deferred revenue is now separately presented from accrued expenses and other current liabilities on the accompanying condensed consolidated statements of cash flows. In addition, the Company has revised the statement of cash flow for the three months ended March 31, 2025 to revise the presentation of net cash used in financing activities to include payment on notes payable that was previously included in cash from operating activities. As a result, net cash provided by operating activities and used in financing activities increased by $0.2 million during the three months ended March 31, 2025. These reclassifications had no effect on the prior period’s results of operations.

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.

On January 1, 2025, the Company adopted ASU 2023-09,*Income Taxes (Topic 740): Improvements to Income Tax Disclosures.*This standard improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This adoption did not have a material impact on the condensed consolidated financial statements.

On January 1, 2026, the Company prospectively adopted ASU No. 2025-05,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05), which introduced a practical expedient to simplify how entities estimate credit losses on short-term receivables and contract assets under the Current Expected Credit Losses model. The adoption of ASU 2025-05 did not have a material impact on the condensed consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). The guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis. This guidance will be effective for annual periods beginning with the year ending December 31, 2027 and for interim periods thereafter. The new standard permits early adoption and can be applied prospectively or retrospectively. The Company is currently evaluating the timing and method of its adoption of ASU 2024-03.

In September 2025, the FASB issued ASU No. 2025-06,Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which modernizes the accounting for internal-use software. ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. ASU 2025-06 will be effective for the Company’s interim and annual 2028 reporting periods, with early adoption permitted. The Company is currently evaluating the timing and method of its adoption of ASU 2025-06.

In December 2025, the FASB issued ASU No. 2025-11,Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”), which clarifies interim disclosure requirements and the applicability of Topic 270. The guidance will be effective for interim periods beginning January 1, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2025-11 to have a material impact on its condensed consolidated financial statements.

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, 2025, as included in the 2025 Form 10-K.

NOTE 3 –INTANGIBLE ASSETS

Licensing Agreements

In March 2019, the Company entered into an agreement to facilitate the Le Mans Esports Series as part of a joint venture with Automobile Club de l’Ouest (“ACO”), the organizer of the 24 Hours of Le Mans endurance race. Through the Company’s ownership interest in this joint venture, which was increased to 51% from 45% in January 2021, the Company secured the rights to be the exclusive video game developer and publisher for the 24 Hours of Le Mans race and the FIA World Endurance Championship (the “WEC”), which the 24 Hours of Le Mans race is a part of, for a ten-year period. In addition, through this joint venture with ACO, the Company has the right to create and organize esports leagues and events for the Le Mans Esports Series. The Company acquired a video gaming license (the “Le Mans Gaming License”) and an esports license related to its ownership interest in this joint venture with the ACO.

Intangible Assets

The following is a summary of intangible assets as of March 31, 2026:

Accumulated amortization of intangible assets consists of the following:

Estimated aggregate amortization expense of intangible assets for the next five years and thereafter is as follows:

The Company has updated the useful life estimate for its software technology prospectively effective January 1, 2026, which will be amortized over a period of five years to account for its continued use. The effect of this change was approximately $0.2 million during the three months ended March 31, 2026, and is expected to reduce amortization expense for 2026 by approximately $0.6 million. Amortization expense related to intangible assets was approximately $0.2 million for the three months ended March 31, 2026 and 2025, respectively.

NOTE 4 –ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

Deferred Revenue

Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Development, coding and subscription revenues are also recorded as deferred revenue until the Company’s performance obligation is performed. Furthermore, deferred revenue includes payment advances from the Company’s channel partners and sales transactions including future update rights and online hosting performance obligations, which are subject to deferral and recognized over the estimated offering period.

Revenue recognized in the period from amounts included in contract liability at the beginning of the period was approximately $0.7 million and $0.3 million for each of the three months ended March 31, 2026 and 2025, respectively.

NOTE 5 –LINE OF CREDIT

On February 20, 2026, the Company entered into a business loan agreement (the “Credit Agreement”) with Citibank, N.A. (“Citibank”), pursuant to which Citibank provided the Company with a revolving line of credit of up to $3.0 million at an interest rate equal to the Adjusted Term SOFR (as defined in the Credit Agreement) plus 2.250%, subject to increase upon an event of default. The Adjusted Term SOFR has a floor of 0.75%. The revolving line of credit is evidenced by a promissory note (the “Citibank Promissory Note”) that the Company issued to Citibank in the principal amount of up to $3.0 million. The Citibank Promissory Note has a stated maturity date of February 20, 2027. The Company also entered into a commercial security agreement pursuant to which Citibank was granted a lien on substantially all of the Company’s assets.

The Credit Agreement includes certain affirmative covenants related to conducting our business and maintaining certain levels of cash flow and fixed charges, including a requirement to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) in excess of 1.200 to 1.000 and a Cash Flow Leverage Ratio (as such term is defined in the Credit Agreement) not in excess of 2.500 to 1.000. The Credit Agreement also contains negative covenants including prohibitions on the creation or existence of any liens or security interests on our assets. The Credit Agreement also contains events of default, including failure to make payments under the Note or any related documents, failure to comply with covenants, obligations or conditions contained in the Note or any related document, defaults under other loans, extension of credit or security agreement and any change in our ownership of twenty five percent (25%) or more of our common stock. The occurrence of an event of default can result in the exercise of remedies including an increase in the applicable rate of interest by 3.00% and declaration that all outstanding amounts owed under the Citibank Promissory Note immediately become due and payable. As of March 31, 2026, the balance due to Citibank under the Credit Agreement was $0. The Company is currently in compliance with all covenants related to the Credit Agreement.

In May 2026, Citibank extended the maturity date of the Credit Agreement to February 20, 2028.

NOTE 6 –RELATED PARTY TRANSACTIONS

Related Party Revenue and Receivable - Pimax Innovation Co. Limited

In February 2026, the Company recorded approximately $11,000 worth of gaming revenues with Pimax Innovation Co. Limited, an affiliate of a significant minority shareholder of the Company. As of March 31, 2026, the Company had a receivable balance of approximately $6,000, which was recorded in accounts receivable, net on the accompanying condensed consolidated balance sheet.

Other Related Party Transactions – Driven Lifestyle Group LLC

The Company had other related party payables outstanding as of March 31, 2026 and December 31, 2025. Specifically, the Company owed approximately $3,000 to its related parties as a related party payable as of March 31, 2026 and December 31, 2025. During each of the three months ended March 31, 2026 and 2025, approximately $0.0 million and $0.1 million was paid to related parties in settlement of related party payables, respectively.

Backoffice Services Agreement

The Company previously entered into a Backoffice Services Agreement with Driven Lifestyle for rent, development and other services to support the Company’s business functions, which was amended periodically to reduce scope, and ultimately terminated on December 31, 2025.

For the three months ended March 31, 2026 and March 31, 2025, the Company incurred $0 and $37,500, respectively, in fees in connection with the Revised Backoffice Services Agreement, which is presented in general and administrative expenses within the condensed consolidated statements of operations.

On April 22, 2026, the Company entered into a Share Repurchase Agreement with Driven Lifestyle. See Note 12 –Subsequent Events for additional information.

NOTE 7 –STOCKHOLDERS’ EQUITY

Class A and B Common Stock

As of March 31, 2026, the Company had 5,078,450 shares of Class A common stock and 700,000 shares of Class B common stock outstanding. Holders of Class A and Class B common stock are entitled to one vote and ten votes, respectively, for each share held on all matters submitted to a vote of stockholders.

On April 23, 2026, all shares of Class B common stock outstanding were canceled. See Note 12 –Subsequent Eventsfor additional information.

Warrants

The Company had the following warrants outstanding as of March 31, 2026 and December 31, 2025:

As of March 31, 2026 and December 31, 2025, the February 2023 warrants were assessed to have a fair value of approximately $27,000 and $9,000, respectively, and deemed to be liability-classified awards, which were recorded within warrants and stock option liability on the condensed consolidated balance sheets.

Based on the continued vote against approval to permit holders to exercise the warrants, the Series A, Series B and Placement Agent Warrants are deemed to be liability-classified awards with an immaterial balance as of March 31, 2026. On April 23, 2026, the Series A, Series B and Placement Agent Warrants were approved by stockholders. See Note 12 –Subsequent Events for additional information.

Common Stock and Pre Funded Warrant

On April 11, 2025, the Company entered into a securities purchase agreement with several institutional and accredited investors for the issuance and sale in the Private Placement of the following securities for aggregate gross proceeds of approximately $2.5 million: (i)1,894,892 shares of the Company’s Class A common stock, par value $0.0001 and (ii) the Pre-Funded Warrant to purchase up to 377,836 shares of Class A Common Stock at an exercise price of $0.0001 per share (“the Pre-Funded Warrant”). The purchase price for one share of Class A Common Stock was $1.10 and the purchase price for one pre-funded warrant was $1.0999 per share. The Company received net proceeds of approximately $2.35 million from the Private Placement, after deducting offering expenses paid by the Company. As of March 31, 2026, the Pre-Funded Warrant has not been exercised.

NOTE 8 –SHARE-BASED COMPENSATION

On January 12, 2021, in connection with its initial public offering, Motorsport Games established the Motorsport Games Inc. 2021 Equity Incentive Plan (the “MSGM 2021 Stock Plan”). The MSGM 2021 Stock Plan provides for the grant of options, stock appreciation rights, restricted stock awards, performance share awards and restricted stock unit awards, and initially authorized 100,000 shares of Class A common stock to be available for issuance. As of March 31, 2026, there wereno shares of Class A common stock available for issuance under the MSGM 2021 Stock Plan. Shares issued in connection with awards made under the MSGM 2021 Stock Plan are generally issued as new issuances of Class A common stock.

The Company did not issue stock options under its MSGM 2021 Stock Plan during the three months ended March 31, 2026. As of March 31, 2026, there were 96,828 options outstanding under the MSGM 2021 Stock Plan with a weighted average exercise price of $61.76. The majority of the options issued under the MSGM 2021 Stock Plan have time-based vesting schedules, typically vesting ratably over a three-year period. Certain stock option awards differed from this vesting schedule, as well as those made to the Company’s current and former directors that vest on the one-year anniversary of award issuance. Stock options that are assessed to be liability-classified are recorded as warrants and stock option liability on the accompanying condensed consolidated balance sheets. All stock options issued under the MSGM 2021 Stock Plan expire 10 years from the grant date.

Non-Employee Director Compensation Awards

Pursuant to the non-employee director compensation policy adopted by the Board of Directors at the time of the Company’s initial public offering, each non-employee director is entitled to receive an annual stock option award equal to the number of shares of Class A common stock obtained by dividing $75,000 by the closing trading price of the Class A common stock on the date of grant, vesting one year from the date of grant. All such option awards immediately vest upon a change of control of the Company.

The Company did not issue the annual non-employee director stock option awards otherwise contemplated by the policy from December 1, 2023 to March 31, 2026, in each case because the number of shares available for issuance under the MSGM 2021 Stock Plan was insufficient to fund such grants and stockholder approval to increase the number of shares available for issuance under the MSGM 2021 Stock Plan had not been obtained.

On August 29, 2025, the Board of Directors unanimously acknowledged and approved that the Company shall remain legally obligated to issue any prior equity compensation owed to each non-employee director under the policy and not granted, or to settle such obligations in cash or other consideration acceptable to the director, in each case upon a change of control of the Company (as defined in the MSGM 2021 Stock Plan) or if a director ceases to serve on the Board of Directors for any reason other than for cause (as defined in the MSGM 2021 Stock Plan). Because the obligations may be settled in cash, the Company has accounted for these obligations as liability-classified share-based compensation in accordance with ASC 718-30. The fair value of each award is remeasured at each reporting date through settlement using a Black-Scholes option-pricing model with assumptions as of the applicable reporting date, and the cumulative compensation cost recognized at each reporting date equals the proportion of the requisite service period rendered through that date multiplied by the remeasured fair value of the award. The cumulative liability is presented within warrants and stock option liability on the condensed consolidated balance sheets, and changes in the cumulative liability between reporting dates are recognized in general and administrative expense in the condensed consolidated statements of operations. As of March 31, 2026 and December 31, 2025, the cumulative liability for the non-employee director compensation obligations described above was $1,164,386 and $789,352, respectively.

On April 23, 2026, the Company’s stockholders approved an amendment to the MSGM 2021 Stock Plan to increase the number of shares of Class A common stock available for issuance under the plan from 100,000 to 600,000. See Note 12 –Subsequent Events.

Fair Value Valuation Assumptions

The fair value of the stock options and stock appreciation rights are estimated using the Black-Scholes option pricing model. The estimation of fair value for these awards is affected by subjective and complex variables, which are typically based on historical information. Judgment is required to determine if historical trends are indicators of future outcomes.

Key assumptions of the Black-Scholes option pricing model are the risk-free interest rate, expected volatility, expected term and expected dividends. The Company determined the risk-free interest rate using U.S. Treasury yields in effect at the time of the grant that matched the expected term of the options. Expected volatility is based on a combination of historical stock price volatility, as well as implied volatilities, of comparable publicly traded companies with operations similar to Motorsport Games over a 10-year period, consistent with the contractual term of the options. The Company calculated the expected term using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. The dividend yield was zero, as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Share-based compensation expense recognized is based on awards ultimately expected to vest and therefore has been reduced for actual forfeitures occurring within the period.

The following table presents the weighted-average assumptions, weighted average grant date fair value, and the range of expected price volatility for liability-classified stock options(which, as of March 31, 2026, comprise the non-employee director compensation obligations described above):

The following table presents the weighted-average assumptions, weighted average grant date fair value, and the range of expected price volatility for liability-classified stock options (which, as of December 31, 2025, comprise the non-employee director compensation obligations described above):

Fair Value Hierarchy

The following table presents the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025:

Stock-Based Compensation

The following table summarizes stock-based compensation expense resulting from awards included in the Company’s condensed consolidated statements of operations:

Stock-based compensation expense for the three months ended March 31, 2026 of $375,031 represents the change in the cumulative liability for the non-employee director compensation obligations described above between December 31, 2025 ($789,352) and March 31, 2026 ($1,164,386). The change reflects (i) additional service rendered during the period under the requisite service periods of the underlying awards and (ii) the effect of remeasuring the fair value of the awards at March 31, 2026 using updated Black-Scholes assumptions as of that date.

As of March 31, 2026, total unrecognized share-based compensation expense related to the non-employee director compensation obligations described above was $174,703, which is expected to be recognized over a weighted-average period of approximately 0.7 years. There wasno unrecognized share-based compensation expense related to other awards outstanding under the MSGM 2021 Stock Plan as of March 31, 2026.

Shares of Class B common stock have no economic rights under the Company’s Certificate of Incorporation and are excluded from the calculation of basic and diluted net income per share. Basic net income per Class A common share is computed by dividing net income attributable to Motorsport Games Inc. by the weighted average number of shares of Class A common stock outstanding during each period. Diluted net income per Class A common share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of Class A common stock. The Company analyzes the potential dilutive impact of options and warrants under the treasury stock method.

For the three months ended March 31, 2026 and 2025, the Company calculated basic and diluted net income per Class A common share as follows:

The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive.

In connection with a securities purchase agreement entered into on July 26, 2024, the Company issued warrants to investors and H.C. Wainwright & Co., LLC to purchase up to an aggregate of 949,310 shares of Class A common stock (“the Outstanding Warrants”). These warrants will become exercisable on the effective date of the stockholder approval for the issuance of the shares of Class A common stock issuable upon exercise of the warrants. As of March 31, 2026, the Outstanding Warrants had not been approved by stockholders.

NOTE 9 –COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows, except as otherwise disclosed below. 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. Litigation or other legal proceedings, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in the Company’s favor, is likely to divert significant resources from the Company’s core business, including distracting its management personnel from their normal responsibilities.

Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. The Company recognizes legal costs associated with loss contingencies in the period incurred.

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

Commitments

On January 25, 2021, the Company entered into an amendment (the “Le Mans Amendment”) to the Le Mans Esports Series Ltd joint venture agreement, which resulted in an increase of the Company’s ownership interest in the Le Mans Esports Series Ltd joint venture from 45% to 51%. Additionally, through certain multi-year licensing agreements that were entered into in connection with the Le Mans Amendment, the Company secured the rights to be the exclusive video game developer and publisher for the 24 Hours of Le Mans race and the WEC, as well as the rights to create and organize esports leagues and events for the 24 Hours of Le Mans race, the WEC and the 24 Hours of Le Mans Virtual event. In exchange for certain of these license rights, the Company agreed to fund up to €8,000,000 (approximately $9,175,000 USD as of March 31, 2026) as needed for development of the video game products, which has been fully funded as of March 31, 2026. The Company is obligated to pay ACO an annual royalty payment of €250,000 beginning from the time of the launch of the first video game product and continuing through each anniversary thereof for the term of the license. Further, pursuant to the Le Mans Amendment, the Company has a right to priority distribution of profits to recoup the additional funding and royalty payments made by the Company under the Le Mans Gaming License. See Note 3 –Intangible Assets for additional information.

Epic License Agreement

On August 11, 2020, the Company entered into a licensing agreement with Epic Games International (“Epic”) for worldwide licensing rights to Epic’s proprietary computer program known as the Unreal Engine 4. Pursuant to the agreement, upon payment of the initial license fee described below, the Company was granted a nonexclusive, non-transferable and terminable license to develop, market and sublicense (under limited circumstances and subject to conditions of the agreement) certain products using the Unreal Engine 4 for its games.

The Company will pay Epic a license fee royalty payment equal to 5% of product revenue, as defined in the licensing agreement. During the three months ended March 31, 2026 and 2025, Epic earned royalties of approximately $5,000 and $4,000, respectively, under the agreement. Pursuant to the terms of the agreement, the Company has the right to actively develop new or existing authorized products during a 5-year period, which ended on August 11, 2025.

NOTE 10 –CONCENTRATIONS

Customer Concentrations

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the following periods:

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s trade accounts receivable as of:

Supplier Concentrations

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s cost of revenues for the following periods:

A reduction in sales from or loss of these customers or supplier, in a significant amount, would have a material adverse effect on the Company’s results of operations and financial condition.

NOTE 11 –SEGMENT REPORTING

The Company’s principal operating segments coincide with the types of products and services sold by the Company. The products and services from which revenues are derived are consistent with the reporting structure of the Company’s internal organization. The Company’stwo reportable segments for the three months ended March 31, 2026 and 2025 were (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 the Company’s licensed racing games as well as on behalf of third-party video game racing series and other video game publishers (the “esports segment”). The Company’s Chief Operating Decision Maker (“CODM”) has been identified as the Company’s Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon the Company’s management organization structure as of March 31, 2026 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed. There are no inter-segment revenue transactions and, therefore, revenues are only to external customers. As the Company primarily generates its revenues from customers in the United States, no geographical segments are presented.

Segment operating profit is determined based upon internal performance measures used by the CODM. The Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to derive reportable segment results are the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including net revenues, gross profit and operating income/ loss. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. The Company manages certain operating expenses separately at the corporate level and does not allocate such expenses to the segments. Segment income from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular reportable segment’s management is measured.

Segment information available with respect to these reportable business segments was as follows:

NOTE 12 -SUBSEQUENT EVENTS

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the unaudited condensed consolidated financial statements were issued.

On April 22, 2026, the Company entered into a Share Repurchase Agreement (the “Agreement”) with Driven Lifestyle, pursuant to which the Company purchased 904,395 shares of the Company’s Class A Common Stock held by Driven Lifestyle. The Agreement provides for the Shares to be purchased at a price of $4.11, which was equal to the average closing price of the Class A Common Stock as reported by the Nasdaq Capital Market for the five trading days immediately preceding the signing of the Agreement. Pursuant to this Agreement, all shares of the Company’s Class B Common were cancelled.

Pursuant to the Agreement, Driven Lifestyle approved certain amendments to the Company’s Charter as follows:

The Bylaws were amended as follows:

At the Company’s 2026 Annual Meeting of Stockholders held on April 23, 2026 (the “Annual Meeting”), the Company’s stockholders approved, among other matters, the following:

In May 2026, Citibank extended the maturity date of the Credit Agreement to February 20, 2028.