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Motorsport Games Inc. (NASDAQ: MSGM) (“Motorsport Games” or the “Company”) reported financial results for its second fiscal quarter ended June 30, 2023. The Company has also posted Q2 2023 earnings slides highlighting key milestones that occurred in the period, which are accessible on the Company’s investor relations website.  All share data and share-based calculations set forth in this press release have been adjusted to reflect the Company’s 1-for-10 reverse stock split completed on November 10, 2022 on a retroactive basis for the periods presented.

Stephen Hood, Chief Executive Officer of Motorsport Games, commented, “During these past few months since my return, we’ve entered a period of reflection and focused efforts on reestablishing a strong sense of teamwork. As a business, we’ve been dedicated to evaluating our opportunities alongside our current cost structure. This dedication has driven us to refine our operations, enhancing efficiency and reinforcing our commitment to delivering on our promises. I’m pleased to observe that even within this relatively short timeframe, we’ve made meaningful strides, with further progress yet to unfold. Launching an update to our legacy NASCAR Heat 5 title, which is on track to become our most downloaded content update, continuing to improve rFactor 2, our much-loved simulation platform, and making great strides on our online platform underpinned by our custom RaceControl technology demonstrates our progress through internal collaboration.”

Hood added “With the recent announcement of our dedicated Le Mans Ultimate title, which centers around the FIA World Endurance Championship and iconic 24 Hours of Le Mans event, we are excited about the anticipated release of this interesting and innovative title later this year.”

Second Quarter 2023 Business Update

  • Announced “Le Mans Ultimate” –  a brand-new game centered around the 24 Hours of Le Mans and FIA World Endurance Championship (“WEC”) expected to release in December 2023: The expected new title, which was designed using Studio 397’s renowned technology, will for the first time allow users to experience the full FIA WEC grid of the exciting new Hypercar category along with GT machinery on the incredible calendar of race tracks.
  • Released the “Next Gen Car Update” for NASCAR Heat 5 as a purchasable DLC, allowing customers to experience the latest generation of stock cars on the ever-popular game across PlayStation, Xbox and PC: This update allows customers for the first time to experience the Next Gen stock cars for the ever-popular NASCAR Heat 5 game, which continues the appeal of our legacy franchise
  • Released key updates to rFactor 2, including the official FIA Formula E Gen3 car: We continue to expand the roster for our renowned simulation platform with the only currently available official FIA Formula E car, which was also used by the series for their in-house managed “Formula E: Accelerate” esports championship. Other key updates to the software include key Artificial Intelligence (AI) driver updates as well as other well-received quality-of-life improvements.

Select Financial Highlights for the Three Months Ended June 30, 2023

The Company reported a net loss for the second quarter of 2023 (“2023”) of $8.2 million, or $3.02 per share, compared to a net loss of $7.5 million, or $6.34, for the second quarter of 2022 (“2022”). The Company also reported an Adjusted EBITDA loss for 2023 of $2.7 million, compared to an Adjusted EBITDA loss of $6.0 million for the same period in the prior year.

The change in net loss was driven by the Company recognizing impairment losses of $4.0 million in 2023, compared to $0.1 million in impairment losses in 2022, which was partially offset by a $2.2 million reduction in marketing, development and general & administrative spend, driven in part by actions taken by the Company as part of its previously announced 2022 Restructuring Program, as well as $0.4 million in fair value gains from changes in the carrying value of certain liability classified warrants, and favorable foreign currency gains.

Revenue for 2023 was $1.7 million compared to $2.0 million for 2022, a reduction of $0.3 million, or 13.4%. Less favorable pricing and lower volume of digital and mobile games sales, lower revenues earned through the development of third-party simulation platforms for third-parties, and lower revenues earned through esports sponsorships were the primary drivers for the reduction in revenues, which was partially offset by lower sales allowances and reserves in 2023 when compared to 2022.


Quarterly Financial Highlights

Three Months Ended June 30
Revenues $  1,739,130 $  2,008,987
Cost of revenues       866,167       856,157
Gross profit       872,963    1,152,830
Total operating expenses    9,486,270    7,838,245
Loss from operations   8,613,307   6,685,415
Interest expense      244,750      191,662
Other (loss) income, net       657,175      610,594
Net loss   8,200,882   7,487,671
Less: Net loss attributable to non-controlling interest        29,858        82,375
Net loss attributable to Motorsport Games Inc. $ 8,171,024 $ 7,405,296
Net loss attributable to Class A common stock per share:
Basic and diluted $        3.02 $        6.34
Weighted-average shares of Class A common stock outstanding:
Basic and diluted    2,704,106    1,167,359

The following table provides a reconciliation from net loss to Adjusted EBITDA loss for 2023 and 2022, respectively:

Three Months Ended June 30Six Months Ended June 30
Net Loss$ 8,200,882 $ 7,487,671 $ 13,460,074 $ 23,454,716
Interest expense, net       244,750       191,662         443,870         393,258
Depreciation and Amortization       508,874       489,829      1,011,231      1,067,343
EBITDA $ 7,447,258 $ 6,806,180 $ 12,004,973 $ 21,994,115
Acquisition related expenses       231,607       463,065         285,357         464,315
Impairment of goodwill and intangible assets    4,004,627       149,048      4,004,627      9,428,370
Stock-based compensation       521,303       238,573         770,536         591,603
Adjusted EBITDA$ 2,689,721 $ 5,955,494 $  6,944,453 $ 11,509,827

Cash Flow and Liquidity

As of June 30, 2023, the Company had cash and cash equivalents of approximately $2.0 million. During the six months ended June 30, 2023, the Company had negative cash flows from operations of approximately $8.9 million, representing an average monthly net cash burn from operations of approximately $1.5 million. While it has taken measures to reduce its costs, the Company expects to continue to have a net cash outflow from operations for the foreseeable future as it continues to develop its product portfolio and invest in developing new video game titles.

As of July 31, 2023, the Company’s cash and cash equivalents has reduced further to $1.4 million. Based on this cash and cash equivalents position, and the Company’s average cash burn, the Company does not believe it has sufficient cash on hand to fund its operations for the remainder of fiscal year 2023 and that additional funding will be required in order to continue operations. In order to address its liquidity short fall, the Company is actively exploring several options, including, but not limited to: i) additional funding in the form of potential equity and/or debt financing arrangements or similar transactions; ii) strategic alternatives for its business, including, but not limited to, the sale or licensing of the Company’s assets; and iii) further cost reduction and restructuring initiatives.

There can be no assurances that the Company will be able to secure additional liquidity through the means referenced above, nor can there be any assurances that the Company can sufficiently reduce costs and restructure its business to sufficiently lower its cash burn to sustainable levels and therefore meet its ongoing cash requirements. Further, other factors can impact the Company’s liquidity position, including, but not limited to, the Company’s level of sales and expenditures, as well as accounts receivable, sales allowances, prepaid manufacturing expenses and accrued expenses.  For additional information regarding the Company’s liquidity, see the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 to be filed with the Securities and Exchange Commission (the “SEC”).

(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”). 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 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 expense, depreciation and amortization, less income tax benefit (if any), adjusted to exclude: (i) acquisition related expenses; (ii) stock-based compensation expenses; (iii) impairment of goodwill and intangible assets; and (iv) charges or gains resulting from non-recurring events, if any.

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 the Non-GAAP Measure by using it 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 Non-GAAP Measure may not be comparable to other similarly titled measures of other companies.

Conference Call and Webcast Details

The Company will host a conference call and webcast at 5:00 p.m. ET today, August 21, 2023, to discuss its financial results. The live conference call can be accessed by dialing 1-877-407-0784 or from the U.S. or 1-201-689-8560 internationally. Alternatively, participants may access the live webcast on the Motorsport Games Investor Relations website at under “Events.”

About Motorsport Games

Motorsport Games, a Motorsport Network company, is a leading racing game developer, publisher and esports ecosystem provider of official motorsport racing series throughout the world. Combining innovative and engaging video games with exciting esports competitions and content for racing fans and gamers, Motorsport Games strives to make the joy of racing accessible to everyone. 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”), as well as the industry leading rFactor 2 and KartKraft simulations. rFactor 2 also serves as the official sim racing platform of Formula E, while also powering F1 Arcade through a partnership with Kindred Concepts. 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. Motorsport Games is building a virtual racing ecosystem where each product drives excitement, every esports event is an adventure and every story inspires.

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