MOTORSPORT GAMES SECOND QUARTER 2022 FINANCIAL RESULTS

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MOTORSPORT GAMES SECOND QUARTER 2022 FINANCIAL RESULTSGame developer and publisher Motorsport Games publicly announces its 2022 financial results.

The second quarter financial results for 2022 Motorsport Games was recently released into the public domain. Known for sim racing titles such as KartKraft, rFactor2, NASCAR 21 and more.

MIAMI, Aug 2022 — Motorsport Games Inc. (NASDAQ: MSGM) (“Motorsport Games” or the “Company”) today reported financial results for its second quarter ended June 30, 2022 (“Q2 2022”). The Company has also posted to the Company’s investor relations website a Q2 2022 Quarter End Review video and a Q2 2022 earnings slide deck, which highlight certain key milestones that occurred in the period, as well as an updated Investor Presentation. 

Dmitry Kozko, Chief Executive Officer of Motorsport Games, commented, “In Q2 2022, Motorsport Games continued its product and content releases to best deliver against our product roadmap. Within rFactor 2, we released new features and official BTCC content for our fans to enjoy. A promotional plan was announced, helping guide us further along in the lead up to the 2024 release of the official BTCC game. Our growing esports initiatives were further bolstered by the announcement of this year’s 2022/23 Le Mans Virtual Series schedule, which has continued to grow in stature, recognition and scale since the inaugural event. Lastly, we’ve delivered the highly anticipated next-gen console update for NASCAR 21: Ignition for our players on Xbox Series S and X, as well as PlayStation 5.” 

Kozko added, “While we continue to explore multiple funding options to provide the Company sufficient liquidity to develop our products, we remain confident in our ability to deliver against our product roadmap.” 

Second Quarter 2022 Business Update 

NASCAR 21: Ignition Patch Released Providing Native Support for PlayStation 5 and Xbox Series X|S. The Company released a patch for NASCAR 21: Ignition bringing support for 4K resolutions with next-generation consoles from Microsoft and Sony. The patch is free to everyone who owns the game and will be a free upgrade moving forward. 
   
  Le Mans Virtual Series Returns for more Elite Esports Competition Including the Award Winning 24 Hours of Le Mans Virtual. The Le Mans Virtual Series returns this September with more of the elite, endurance esports competition, that has attracted world motor racing champions, captured global attention and received plaudits from teams, drivers and fans alike. All 5 rounds of the coming series will be held online on the rFactor2 platform, including the 24 Hours of Le Mans Virtual, the climax of the premier endurance esports championship. This format allows teams to compete virtually on simulators located all around the world for a total prize fund of US $250,000. 
  Future Promotional Plan to Upcoming Official BTCC Game Announced. The Company announced a promotional plan update, including activations, content releases and ‘first-play content’ tech demos through rFactor 2, to its planned British Touring Car Championship (“BTCC”) official game, which will release in 2024, as previously disclosed by the Company. 
   
  rFactor 2 Quarterly Content Update. In May 2022the Company released a collection of improvements, new features and content. A new sound engine, wet weather updates, particles and sparks, and shift protection bring more realism to the rFactor 2 racing simulation platform. Several BTCC cars and tracks were also released bringing more of the BTCC experience to the fans. 
   
  KartKraft Single Console Release Schedule Update. The timing of the next KartKraft release on one of the consoles, which was originally planned for a 2022 release date, will now likely move into 2023, due to potential opportunities we are exploring with a first party platform and their potential interest in an exclusive title release next year. 

Financial Results for the Three Months Ended June 30, 2022 

Revenues for Q2 2022 were $2.0 million, as compared to $2.2 million for Q2 2021. The $0.2 million, or 10%, quarter-over-quarter decrease reflects $0.3 million lower gaming sales, partially offset by a $0.1 million increase in esports revenues, primarily from the 24 Hours of Le Mans esports event held in January 2022. 

Q2 2022 net loss was $7.5 million, a $1.5 million increase compared to the Q2 2021 net loss of $6.0 million. The increase in net loss was driven by: (i) a $0.9 million increase in Q2 2022 development expenditures; (ii) a $0.8 million increase in sales and marketing spend (iii) a $0.6 million increase in foreign currency losses; (iv) a $0.2 million decrease in gross profit (v) a $0.2 million increase in interest expense (vi) a $0.1 million increase in impairment; and (vii) a $0.1 million increase in depreciation and amortization. The increases in Q2 2022 expenses described above were partially offset by a $1.4 million reduction in general and administrative expenses driven primarily by a $1.1 million payment in Q2 2021 for the settlement of certain stock appreciation rights. 

Q2 2022 Adjusted EBITDA loss(1) was $4.9 million, a $1.2 million increase in loss when compared to Q2 2021 Adjusted EBITDA loss of $3.7 million. The increase in Adjusted EBITDA loss(1) was primarily driven by the same factors causing the increase in Q2 2022 net loss.  

The following table provides a reconciliation from net loss to Adjusted EBITDA(1) for Q2 2022 and Q2 2021, respectively: 

    Three Months Ended June 30, 2022      Three Months Ended June 30, 2021   
Net Loss    $  (7,487,671)     $  (5,960,943)   
Interest expense      191,662        31,899   
Depreciation and Amortization      493,658        522,709   
EBITDA      (6,802,351)      (5,406,335)   
Acquisition-related expenses      1,467,492        1,600,087   
Impairment of goodwill and intangible assets      149,048           
Stock-based compensation      238,573        116,274   
Adjusted EBITDA    $  (4,947,238)      $  (3,689,974)   

 

Financial Results for the Six Months Ended June 30, 2022 

Revenues were $5.3 million and $4.7 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $0.6 million, or 13%, period over period. For the six months ended June 30, 2022, revenues from our Gaming Segment increased $0.2 million, or 5%, to $4.9 million, compared to $4.7 million for the six months ended June 30, 2021, while revenues from our Esport Segment increased by $0.4 million for the six months ended June 30, 2022, when compared to the six months ended June 30, 2021. The increase in our Gaming segment revenues compared to the 2021 period was primarily due to $0.7 million in higher game sales and an increase of $0.6 million in additional revenues earned through the development of simulation platforms using our rFactor 2 platform for third parties. These increases were partially offset by $1.1 million in retail pricing concessions. The increase in our Esport Segment revenues was primarily driven by the 24 Hours of Le Mans esports event held in January 2022. 

The net loss for the six months ended June 30, 2022 was $23.5 million, an increase of $3.5 million when compared to the $20.0 million net loss for the six months ended June 30, 2021. The increase in net loss was driven by: (i) a $9.4 million increase in goodwill and intangible asset impairment; (ii) a $2.0 million increase in development expenditures; (iii) a $1.5 million increase in sales and marketing spend; (iv) a $1.4 million decrease in gains from equity method investments; (v) a $0.9 million increase in foreign currency losses; (vi) a $0.6 million decrease in gross profit; and (vii) a $0.2 million increase in interest expense. These increases were offset by $12.7 million of lower general and administrative expense.  

For the six months ended June 30, 2022, Adjusted EBITDA loss(1) was $10.5 million, a $4.0 million increase, when compared to the $6.5 million Adjusted EBITDA loss for the six months ended June 30, 2021. The increase in Adjusted EBITDA loss(1) was primarily driven by the same factors as the increase in net loss for the six months ended June 30, 2022, when compared to the six months ended June 30, 2021. 

The following table provides a reconciliation from net loss to Adjusted EBITDA(1) for the six months ended June 30, 2022 and the six months ended June 30, 2021: 

    Six Months Ended
June 30, 2022 
    Six Months Ended
June 30, 2021 
 
Net Loss    $  (23,454,716)      $  (20,046,367)   
Interest expense      393,258        151,438   
Depreciation and Amortization      1,071,172        659,309   
EBITDA      (21,990,286)        (19,235,620)   
IPO-related expenses              2,947,192   
Acquisition-related expenses      1,468,742        1,930,566   
Impairment of goodwill and intangible assets      9,428,370           
Gain attributable to equity method investment              (1,370,837)   
Stock-based compensation      591,603        9,193,190   
Adjusted EBITDA    $  (10,501,571)      $  (6,535,509)   

 

Cash Flow and Liquidity 

For the six months ended June 30, 2022, the Company had negative cash flows from operations of approximately $12.0 million. The Company expects to continue to have negative operating cash flows for the foreseeable future, as it continues to incur expenses to develop new game franchises. The Company’s existing cash on hand will be insufficient to fund its minimum liquidity requirements for at least the next 12 months and will need to be supplemented with additional debt and/or equity financing, cash generated by cost control initiatives, and/or additional changes to our product roadmap to reduce working capital requirements. 

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 game titles and certain capital expenditures. The adequacy of the Company’s available funds generally depends on many factors, including its ability to successfully develop consumer-preferred new products or enhancements to its existing products, continued development and expansion of the Company’s esports platform and its ability to collaborate with and/or acquire other companies or technologies to enhance or complement the Company’s product and service offerings.  

The Company is currently seeking additional funds through a variety of arrangements and through maintaining and enhancing strong cost controls. There can be no assurances that the sources of liquidity referred to above will provide the Company with sufficient liquidity to meet its ongoing cash requirements as, among other things, the Company’s liquidity can be impacted by a number of factors, including the Company’s level of sales and expenditures, as well as accounts receivable, sales allowances, prepaid manufacturing expenses and accrued expenses. 

(1)Use of Non-GAAP Financial Measures 

Adjusted EBITDA (the “Non-GAAP Measure”) is not a financial measure defined by U.S. generally accepted accounting principles (“U.S. GAAP”). See the reconciliations of the Non-GAAP Measure to its most directly comparable U.S. GAAP measure in the financial tables above. 

Adjusted EBITDA, a measure used by management to assess the Company’s operating performance, is defined as EBITDA, which is net (loss) plus interest (income) expense, depreciation and amortization, less income tax benefit (if any), adjusted to exclude: (i) IPO-related expenses; (ii) acquisition related expenses; (iii) gain attributable to equity method investment resulting from the acquisition of additional equity interest in Le Mans Esports Series Ltd.; (iv) stock-based compensation expenses; (v) impairment of goodwill and intangible assets; and (vi) other charges or gains resulting from non-recurring events. 

The Company uses the Non-GAAP Measure to manage its business and evaluate its financial performance, as Adjusted EBITDA eliminates items that affect comparability between periods that the Company believes are not representative of its core ongoing operating business. Additionally, management believes that using the Non-GAAP Measure is useful to its investors because it enhances investors’ understanding and assessment of the Company’s normalized operating performance and facilitates comparisons to prior periods and its competitors’ results (who may define Adjusted EBITDA differently). 

The Non-GAAP Measure is not a recognized term under U.S. GAAP and does not purport to be an alternative to revenue, income/loss from operations, net (loss) income, or cash flows from operations or as a measure of liquidity or any other performance measure derived in accordance with U.S. GAAP. Additionally, the Non-GAAP Measure is not intended to be a measure of free cash flows available for management’s discretionary use, as it does not consider certain cash requirements, such as interest payments, tax payments, working capital requirements and debt service requirements. The Non-GAAP Measure has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for the Company’s results as reported under U.S. GAAP. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business than would be presented by using only measures in accordance with U.S. GAAP. Because not all companies use identical calculations, the Company’s measures may not be comparable to other similarly titled measures of other companies. Reconciliations of the Non-GAAP Measure to net loss, its most directly comparable financial measure, calculated and presented in accordance with U.S. GAAP, are presented in the table above. 

Conference Call and Webcast Details 

The Company will host a conference call and webcast at 5:00 p.m. ET today, August 10, 2022, to discuss its financial results. The live conference call can be accessed by dialing 1-877-407-0784 from the U.S. or 1-201-689-8560. Alternatively, participants may access the live webcast on the Motorsport Games Investor Relations website at https://ir.motorsportgames.com under “Events.” 

About Motorsport Games 

Motorsport Games, a Motorsport Network company, combines innovative and engaging video games with exciting esports competitions and content for racing fans and gamers around the globe. The Company is the officially licensed video game developer and publisher for iconic motorsport racing series across PC, PlayStation, Xbox, Nintendo Switch and mobile, including NASCAR, INDYCAR, 24 Hours of Le Mans and the British Touring Car Championship (“BTCC”). Motorsport Games is an award-winning esports partner of choice for 24 Hours of Le Mans, Formula E, BTCC, the FIA World Rallycross Championship and the eNASCAR Heat Pro League, among others.