Motorsport Games Inc. (NASDAQ:MSGM) has a Return on Invested Capital (ROIC) of -28.03% and a Weighted Average Cost of Capital (WACC) of 13.67%, resulting in a ROIC to WACC ratio of -2.05.Magic Empire Global Limited stands out with the highest ROIC to WACC ratio of -0.48, indicating it is the least inefficient among its peers in terms of capital utilization.Motorsport Games Inc. (NASDAQ:MSGM) is a company that specializes in developing and publishing racing video games. It is part of the broader gaming indus ...

Summary of Motorsport Games Inc. Conference Call Company Overview - **Company**: Motorsport Games Inc. - **Ticker**: MSGM - **Industry**: Video Game Development, specifically focused on racing games and eSports - **Staff**: 41 employees, primarily developers and engineers [5] Core Business Model - Motorsport Games develops, publishes, and manages a backend platform for racing games, aiming to enhance customer experience and monetize through subscription services [4] - The company focuses on simplifying the sim racing segment, which has been characterized by outdated products and fragmented experiences [4] Key Products - **Le Mans Ultimate**: - Recently launched version 1.0 after 18 months in Early Access [6] - Officially licensed title associated with the 24 Hours of Le Mans race [7] - Features a unique squad-based gameplay allowing players to take turns in a single car [10] - Sold over 240,000 units with a strong following despite minimal marketing [11] - **rFactor 2**: - Legacy product known for high-end racing simulation technology [15] - Continues to perform well and supports the development of newer titles [15] Financial Performance - Significant operating losses were reported historically, with a peak loss of $16 million in Q1 2022 [22] - Recent turnaround efforts led to a net income of $4.2 million in Q2 2025, with revenues up 37.7% year-over-year [23] - First quarter in company history to generate income from operations [23] - Monthly cash flow from operations averaged $46,000 for the first half of 2025, significantly improved from previous years [24] Market Insights - The racing video game market was valued at over $5 billion in 2024 and is projected to grow to over $6.9 billion by 2032 [27] - The racing simulator market is expected to grow at a rate of 15.6% during the same period [27] - The acquisition of Codemasters by Electronic Arts for $1.2 billion highlights the market's potential [27] Strategic Initiatives - Plans to port Le Mans Ultimate to gaming consoles (Xbox and PlayStation) to reach a larger audience [29] - Ongoing discussions for potential new driving or racing experiences leveraging existing technology [30] - Collaboration with F1 Arcade and Liberty Media to expand opportunities in the racing simulation space [30] Management and Governance - New management team and Board of Directors in place to drive the company's turnaround [28] - Leadership includes experienced professionals from the gaming industry and finance [25][26] Conclusion - Motorsport Games Inc. is positioned for growth with a strong product lineup and strategic initiatives aimed at expanding its market presence and improving financial performance [28][30]

Company Overview - Motorsport Games Inc. is a racing game developer, publisher, and esports ecosystem provider, focusing on official motorsport racing series [4] - The company is known for its innovative video games and engaging esports competitions, aiming to create racing games that closely resemble reality [4] - Motorsport Games holds licenses for iconic racing series such as the 24 Hours of Le Mans and the FIA World Endurance Championship, with recent releases including Le Mans Ultimate Version 1.0 [4] Upcoming Events - The CEO Stephen Hood and CFO Stanley Beckley will present and host one-on-one meetings with investors at the H.C. Wainwright 27th Annual Global Investment Conference from September 8-10, 2025, in New York City [1][7] - Investors can schedule one-on-one meetings with the executives by contacting the company via email [2] Investor Relations - A replay of the conference webcast will be available on the investor section of Motorsport Games' website [2] - The company utilizes various channels, including its investor relations website and social media, to communicate material financial information to investors [6]

Summary of Motorsport Games (MSGM) Conference Call - August 20, 2025 Company Overview - **Company**: Motorsport Games (MSGM) focuses on creating video games, primarily in the racing and simulation segments, predominantly for the PC platform [2][3] - **Staff**: The company has approximately 41 employees, with 32 developers, positioning itself as a boutique racing game developer [4] Core Products and Services - **Main Title**: "Le Mans Ultimate" is the flagship game, officially licensed and based on the famous Le Mans 24-hour race, featuring various categories of cars [6][7][10] - **Game Features**: The game allows players to race together, share cars, and participate in competitions, enhancing the multiplayer experience [9][10] - **Sales Performance**: The base game has sold over 240,000 units, and the company has seen significant player engagement and interest in updates [11][12] Financial Performance - **Recent Financials**: - Q2 2025 reported net income of $4.2 million, with revenues 37% higher than the same period the previous year [26] - Earnings per share for Q2 2025 was 82¢, up from 33¢ in Q1 2025 [26] - Adjusted EBITDA for Q2 2025 was $3.7 million, marking the first quarter with income from operations [26] - **Cost Management**: The company has implemented cost-cutting measures, reducing monthly cash burn to less than $100,000, significantly lower than previous years [27][45] Market Insights - **Industry Growth**: The racing games market was valued at over $5 billion in 2024 and is expected to grow to $6.9 billion by 2032, with the racing simulator market forecasted to grow at 15.6% [30][31] - **Competitor Activity**: Codemasters was acquired by EA for $1.2 billion, indicating strong interest in the racing game segment [31] Future Opportunities - **Expansion Plans**: The company aims to port "Le Mans Ultimate" to gaming consoles (Xbox and PlayStation) to reach a larger audience, with a timeline of 12 to 18 months for this transition [33][34] - **New Titles and Features**: Plans to develop new titles and enhance existing ones, leveraging technology from "R Factor 2" and exploring partnerships with Liberty Media [34][35] Community Engagement - **User Community Relationship**: The company has worked to improve its reputation and relationship with the gaming community, receiving positive feedback and support from players and influencers [54][56] Conclusion - **Outlook**: The company is optimistic about its product offerings and financial performance, with a focus on continuous updates and community engagement to drive future growth [49][50]

Company Overview - Motorsport Games Inc. is a racing game developer, publisher, and esports ecosystem provider, focusing on official motorsport racing series [4] - The company is the officially licensed developer for notable racing series such as the 24 Hours of Le Mans and the FIA World Endurance Championship [4] - Recent product releases include Le Mans Ultimate Version 1.0, featuring new cars and updated 2025 content [4] Investor Engagement - The company will present at the Sidoti August Virtual Investor Conference on August 20-21, 2025, with CEO Stephen Hood and CFO Stanley Beckley hosting one-on-one meetings with investors [1][2] - The presentation is scheduled to begin at 9:15 AM ET on August 20, 2025, and will be accessible via a provided link [2] Industry Context - Sidoti & Company, LLC has established Sidoti Events, LLC to enhance its conference business, focusing on small and microcap companies [3] - Sidoti's coverage includes approximately 150 equities, with a significant portion participating in its Company Sponsored Research and Lighthouse Equity Research programs [3]

Financial Data and Key Metrics Changes - Revenues for Q2 2025 were $2.6 million, an increase of $700,000 or 37.7% compared to the same period in the prior year [22] - Net income for the quarter was $4.2 million, compared to $2.1 million for the same period in the prior year, an improvement of 103% [24] - Adjusted EBITDA for Q2 2025 was $3.7 million, compared to an adjusted EBITDA loss of $500,000 for the same period in the prior year, reflecting a $4.2 million improvement [25] Business Line Data and Key Metrics Changes - Game revenues from "Le Mans Ultimate" increased by $1.3 million, particularly from DLC sales, contributing significantly to overall revenue growth [22] - The subscription service "Race Control" saw a net monthly recurring revenue (MRR) growth of 296% in June alone, indicating strong player engagement [14] Market Data and Key Metrics Changes - The company reported record game revenues in June, outside of the original product release month, demonstrating strong continued interest in "Le Mans Ultimate" [10] - The subscription service has over 200,000 registered accounts, contributing significantly to the business since its introduction [14] Company Strategy and Development Direction - The company is focusing on the development of "Le Mans Ultimate" and plans to expand its gaming franchise beyond sim racing endurance titles [21] - There are ongoing discussions with potential partners for publishing responsibilities to maximize the game's long-term potential [12] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with the turnaround progress and highlighted the importance of the subscription service as a predictable cash flow source [15][27] - The company aims to attract new players through the introduction of a career mode feature, expanding its audience [20] Other Important Information - The company has completed the purchase of Studio 397, gaining full control over the technology and intellectual property, which is expected to enhance future game development [18] - The company is investing in its SaaS infrastructure and has hired a new vice president of revenue and growth to maximize game content and subscription revenues [16] Q&A Session Summary - There were no questions during the Q&A session, and the call concluded without any inquiries from participants [29]

Financial Performance - Revenue for Q2 2025 was $2.6 million, a 37.7% increase year-over-year, driven by growth in Le Mans Ultimate downloadable content sales and Race Control subscription services [2][39] - Net income reached $4.2 million, up 103% year-over-year, attributed to revenue growth, cost controls, and an $800,000 benefit from a Wesco Insurance Company settlement [3][40] - Adjusted EBITDA was $3.7 million, a significant improvement from an adjusted EBITDA loss of $500,000 in the prior year, primarily due to revenue growth and lower stock-based compensation [3][41] Operational Highlights - The company achieved positive income from operations for the first time, reporting $2 million after adjusting for $1.1 million in non-recurring income [4][34] - NASCAR-related revenues declined by $900,000 due to the exit from sales of that title beginning in 2025 [4][39] - Le Mans Ultimate contributed significantly to revenue, with a $1.3 million increase in sales, particularly from downloadable content [5][39] Subscription Services - Race Control subscription service surpassed 2,000 registered accounts, with net monthly recurring revenue (MRR) growth of 296% in June [5][29] - Annual recurring revenue (ARR) was approximately $972,000 as of June, with MRR at about $81,000 [6][31] - The quick ratio peaked at 4.66 in June, indicating strong subscriber growth [30] Product Development and Market Strategy - Le Mans Ultimate exited early access with version 1.0 in July, achieving new records for concurrent and daily active users [7][23] - The final DLC pack for the 2024 season was released, adding new vehicles and circuits, with plans for further expansions [7][22] - The company is in late-stage negotiations for console ports on Xbox and PlayStation, aiming to expand its market reach [8][25] Management and Strategic Initiatives - John Tibble was appointed as Vice President of Revenue and Growth to enhance game content and subscription monetization efforts [9][32] - The settlement of Studio 397 acquisition costs has provided full control over technology and intellectual property, enabling further product leverage [9][33] - The company is exploring partnerships for publishing responsibilities to maximize the potential of its gaming franchises [26]

Financial Performance - Q2 2025 revenues reached $2.6 million[6] - Net income for Q2 2025 was $4.2 million[6] - Adjusted EBITDA for Q2 2025 amounted to $3.7 million[6] - Earnings per share (EPS) for Q2 2025 were $0.82, compared to $0.77 in Q2 2024[6] - Net income attributable to Motorsport Games Inc increased by $2.2 million, reaching $4.3 million in Q2 2025, a 102.2% improvement compared to $2.1 million in Q2 2024[6] Liquidity and Cash Flow - The company generated $0.3 million in cash from operations during the six months ending June 30, 2025[6] - As of June 30, 2025, the company's cash and cash equivalents were approximately $2.4 million, increasing to $2.8 million by July 31, 2025[10] - The company generated an average positive cash flow from operations of approximately $46,000 per month during the six months ended June 30, 2025[10] Product Release - Le Mans Ultimate Version 1.0 was released on July 22, 2025, featuring new cars, advanced team management, and customer liveries[6]

Core Viewpoint - Motorsport Games Inc. reported significant growth in its second quarter of 2025, with record player activity and increased revenues driven by the success of the Le Mans Ultimate game and its marketing efforts [2][3]. Financial Highlights - Consolidated revenue for Q2 2025 was approximately $2.6 million, a 37.7% increase from approximately $1.9 million in Q2 2024 [3]. - Gross profit rose to $2.1 million, up from $1.1 million year-over-year, with a gross profit margin increase to 82.4% from 59.0% [3]. - Net income for Q2 2025 was $4.2 million, an improvement of 103.0% compared to $2.1 million in Q2 2024, with net income per share for Class A common stock at $0.82, up from $0.77 [4][10]. - Adjusted EBITDA for Q2 2025 was $3.7 million, a significant improvement from an Adjusted EBITDA loss of $0.5 million in the same period last year [5]. Operational Developments - The company released Le Mans Ultimate Version 1.0 on July 22, 2025, featuring new cars and advanced game mechanics [10]. - The expansion downloadable content for Le Mans Ultimate, including the European Le Mans Series, is expected to be delivered by the end of Q3 2025 [2]. Cash Flow and Liquidity - As of June 30, 2025, the company had cash and cash equivalents of approximately $2.4 million, which increased to $2.8 million by July 31, 2025 [11]. - The company generated an average positive cash flow from operations of approximately $46,000 per month during the first half of 2025, primarily due to settlements with Wesco Insurance Company and HC2 Holdings [11]. Future Outlook - The company is focused on further growing the Le Mans franchise and exploring new titles to diversify its income streams [2]. - Future liquidity and capital requirements will support ongoing operations, product development, and capital expenditures [12].

Part I. Financial Information This section presents Motorsport Games Inc.'s unaudited financial statements and management's discussion [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) Unaudited consolidated financial statements and notes for Motorsport Games Inc. for periods ending June 30, 2025 and December 31, 2024 [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%20and%20December%2031%2C%202024%20%28Unaudited%29) Balance sheets show increased cash, total assets, and stockholders' equity, with decreased current liabilities, leading to positive working capital | Metric | June 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $2,365,410 | $859,271 | | Total Current Assets | $4,756,491 | $2,796,482 | | Total Assets | $8,154,140 | $6,268,221 | | Total Current Liabilities | $2,572,456 | $5,021,782 | | Total Liabilities | $2,583,900 | $5,042,219 | | Total Stockholders' Equity | $5,570,240 | $1,226,002 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20%28Unaudited%29) Statements of operations show significant net income increase for Q2 and H1 2025, driven by higher revenues, reduced expenses, and settlement gains | Metric | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $2,591,840 | $1,881,653 | $4,350,293 | $4,910,689 | | Gross profit | $2,136,953 | $1,110,006 | $3,430,020 | $3,472,415 | | Total operating expenses | $1,273,387 | $2,549,258 | $3,159,649 | $6,126,991 | | Net income | $4,238,172 | $2,087,483 | $5,260,785 | $404,085 | | Net income attributable to Motorsport Games Inc. | $4,258,400 | $2,105,928 | $5,299,458 | $440,972 | | Basic and diluted EPS | $0.82 | $0.77 | $1.26 | $0.16 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20%28Unaudited%29) Comprehensive income was reported, but foreign currency translation adjustments led to significant other comprehensive losses for Q2 and H1 2025 | Metric | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $4,238,172 | $2,087,483 | $5,260,785 | $404,085 | | Foreign currency translation adjustments | $(2,338,360) | $(60,886) | $(3,170,090) | $456,442 | | Comprehensive income | $1,899,812 | $2,026,597 | $2,090,695 | $860,527 | | Comprehensive income attributable to Motorsport Games Inc. | $1,916,796 | $2,025,623 | $2,068,974 | $940,900 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20%28Unaudited%29) Stockholders' equity significantly increased from December 2024 to June 2025, driven by net income and equity issuance, despite foreign currency losses | Metric | January 1, 2025 (USD) | June 30, 2025 (USD) | | :-------------------------------- | :-------------- | :------------ | | Class A Common Stock Shares | 3,183,558 | 5,456,286 | | Class A Common Stock Amount | $315 | $504 | | Additional Paid-In Capital | $92,960,275 | $95,213,629 | | Accumulated Deficit | $(91,789,968) | $(86,490,510) | | Accumulated Other Comprehensive Gain (Loss) | $(674,434) | $(3,904,918) | | Total Stockholders' Equity Attributable to Motorsport Games Inc. | $496,258 | $4,818,775 | | Total Stockholders' Equity | $1,226,002 | $5,570,240 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024%20%28Unaudited%29) Positive operating cash flow for H1 2025, a significant improvement from prior year, driven by net income and equity issuance, despite investing activities | Metric | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $274,747 | $(1,069,590) | | Net cash used in investing activities | $(370,000) | $(25,145) | | Net cash provided by (used in) financing activities | $1,653,543 | $(50,000) | | Net increase (decrease) in cash and cash equivalents | $1,506,139 | $(1,145,772) | | Total cash and cash equivalents at end of period | $2,365,410 | $529,438 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain Motorsport Games Inc.'s business, accounting policies, assets, liabilities, equity, and segment reporting, highlighting key changes [NOTE 1 - Business Organization, Nature of Operations, and Risks and Uncertainties](index=12&type=section&id=NOTE%201%20-%20BUSINESS%20ORGANIZATION%2C%20NATURE%20OF%20OPERATIONS%2C%20AND%20RISKS%20AND%20UNCERTAINTIES) Motorsport Games Inc. faces substantial doubt about its going concern ability due to an **$86.5 million** accumulated deficit and insufficient cash, prompting funding and cost reduction efforts - The Company had net income of **$5.3 million** and generated cash flows from operations of **$0.3 million** for the six months ended June 30, 2025[32](index=32&type=chunk) - As of June 30, 2025, the Company had an accumulated deficit of **$86.5 million**, working capital of **$2.2 million**, and cash and cash equivalents of **$2.4 million**[32](index=32&type=chunk) - Management concludes there is substantial doubt about the Company's ability to continue as a going concern for a period of at least 12 months[47](index=47&type=chunk) - The Company is exploring additional funding (equity/debt), strategic alternatives (asset sales/licensing), and cost reduction/restructuring initiatives to address liquidity[35](index=35&type=chunk)[41](index=41&type=chunk)[211](index=211&type=chunk) - Workforce reduction in October 2024 impacted approximately **38%** of worldwide employees, resulting in a **$0.2 million** restructuring charge[36](index=36&type=chunk)[212](index=212&type=chunk) - The Company completed a private placement in April 2025, raising approximately **$2.35 million** net proceeds for working capital and general corporate expenses[39](index=39&type=chunk) [NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies](index=14&type=section&id=NOTE%202%20%E2%80%93%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Unaudited financial statements adhere to U.S. GAAP; ASU No. 2023-07 had no material impact. Key policies include ratable subscription revenue and capitalized software development costs - The Company adopted ASU No. 2023-07, Segment Reporting, on January 1, 2024, which requires enhanced disclosures about significant segment expenses and interim disclosures, but had no material impact on financial position, results of operations, or cash flows[58](index=58&type=chunk) - Revenue from subscription-based matchmaking and online racing system (RaceControl) is recognized ratably over the subscription term[60](index=60&type=chunk) - Software development costs are expensed until technological feasibility is reached, then capitalized and amortized to cost of revenue over the estimated lives of the products[61](index=61&type=chunk) [NOTE 3 – Intangible Assets](index=16&type=section&id=NOTE%203%20%E2%80%93%20INTANGIBLE%20ASSETS) Intangible assets decreased slightly by June 30, 2025, due to amortization and foreign currency adjustments, following the **$6.0 million** NASCAR License sale in October 2023 - The Company secured exclusive video game developer and publisher rights for the 24 Hours of Le Mans race and FIA World Endurance Championship (WEC) for a ten-year period through a joint venture with ACO[63](index=63&type=chunk) - In October 2023, the Company sold its NASCAR License to iRacing.com Motorsport Simulations, LLC for **$6.0 million**, fully paid by December 31, 2024[65](index=65&type=chunk) Intangible Assets Summary | Intangible Asset Category | Balance as of January 1, 2025 (USD) | Additions (USD) | Amortization Expense (USD) | Foreign Currency Translation Adjustments (USD) | Balance as of June 30, 2025 (USD) | | :------------------------ | :---------------------------- | :-------- | :------------------- | :--------------------------------------- | :---------------------------- | | Licensing Agreements (Finite) | $2,381,743 | - | - | $19,939 | $2,401,682 | | Software (Finite) | $7,976,068 | $370,000 | - | $139,868 | $8,485,936 | | Distribution Contracts (Finite) | $560,000 | - | - | - | $560,000 | | Trade Names (Indefinite) | $201,969 | - | - | $21,225 | $223,194 | | Non Compete Agreements (Finite) | $170,222 | - | - | $10,044 | $180,266 | | Accumulated Amortization | $(7,924,704) | - | $(476,169) | $(119,207) | $(8,520,080) | | **Total** | **$3,365,298** | **$370,000** | **$(476,169)** | **$71,869** | **$3,330,998** | - Amortization expense for intangible assets was approximately **$0.5 million** for the six months ended June 30, 2025, down from **$1.1 million** in the prior year[68](index=68&type=chunk) [NOTE 4 – Accrued Expenses and Other Current Liabilities](index=18&type=section&id=NOTE%204%20%E2%80%93%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses and other current liabilities increased from **$1.07 million** to **$1.35 million** by June 30, 2025, driven by royalties, professional fees, and deferred revenue Accrued Expenses and Other Current Liabilities Summary | Category | June 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------ | :------------------ | | Accrued royalties | $252,647 | $148,006 | | Accrued professional and consulting fees | $97,191 | $68,517 | | Accrued development costs | $59,436 | $26,925 | | Accrued taxes | $216,008 | $55,131 | | Accrued payroll | $125,895 | $191,736 | | Deferred revenue | $507,137 | $390,463 | | Loss contingency reserves | - | $41,764 | | Accrued other | $89,387 | $147,521 | | **Total** | **$1,347,701** | **$1,070,063** | - Revenue recognized from contract liability at the beginning of the period was approximately **$0.4 million** for the six months ended June 30, 2025, up from **$0.3 million** in the prior year[72](index=72&type=chunk) [NOTE 5 – Related Party Loans](index=18&type=section&id=NOTE%205%20%E2%80%93%20RELATED%20PARTY%20LOANS) The company has a **$12 million** line of credit with Driven Lifestyle at **10%** interest, not a viable future liquidity source, with no balance due as of June 30, 2025 - The Company has a **$12 million** line of credit with Driven Lifestyle, bearing **10%** annual interest, but does not view it as a viable source for future liquidity due to uncertainty of future borrowing requests[73](index=73&type=chunk)[74](index=74&type=chunk)[227](index=227&type=chunk) - As of June 30, 2025, there was no balance due to Driven Lifestyle under the **$12 million** Line of Credit[75](index=75&type=chunk)[226](index=226&type=chunk) [NOTE 6 – Related Party Transactions](index=18&type=section&id=NOTE%206%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) Ongoing related party transactions include payables and a sponsorship agreement; Backoffice Services Agreement fees with Driven Lifestyle were significantly reduced - The Company owed approximately **$12,000** to related parties as of June 30, 2025, down from **$26,000** at December 31, 2024[76](index=76&type=chunk) - In June 2025, the Company entered a sponsorship agreement with a significant shareholder, generating approximately **$25,000** in revenue[78](index=78&type=chunk) - The Backoffice Services Agreement with Driven Lifestyle was revised, reducing the monthly fee from **$17,500** (effective Jan 2023) to **$12,500** (effective July 2024), and further to **$5,000** (July-Aug 2025) then **$500** (starting Sep 2025) for U.S. payroll services only[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Fees incurred for Backoffice Services Agreement were **$75,000** for the six months ended June 30, 2025, a decrease from **$105,000** in the prior year[83](index=83&type=chunk) [NOTE 7 – Stockholders' Equity](index=19&type=section&id=NOTE%207%20%E2%80%93%20STOCKHOLDERS'%20EQUITY) As of June 30, 2025, the company had **5,078,450** Class A and **700,000** Class B common shares outstanding, following recent offerings that raised **$1.0 million** and **$2.5 million** gross proceeds - As of June 30, 2025, the Company had **5,078,450** shares of Class A common stock and **700,000** shares of Class B common stock outstanding[84](index=84&type=chunk) - In July 2024, the Company completed offerings that raised approximately **$1.0 million** in gross proceeds, involving shares, pre-funded warrants, and purchase warrants[89](index=89&type=chunk)[228](index=228&type=chunk) - In April 2025, the Company completed a private placement, issuing **1,894,892** shares of Class A common stock and a pre-funded warrant for **377,836** shares, raising approximately **$2.5 million** in gross proceeds (**$2.35 million** net)[39](index=39&type=chunk)[96](index=96&type=chunk)[149](index=149&type=chunk)[229](index=229&type=chunk) - The April 2025 private placement included a Right of First Refusal for purchasers in certain subsequent financings and the appointment of a Class II director to the board[151](index=151&type=chunk)[152](index=152&type=chunk)[229](index=229&type=chunk) [NOTE 8 – Share-Based Compensation](index=21&type=section&id=NOTE%208%20%E2%80%93%20SHARE-BASED%20COMPENSATION) The MSGM 2021 Stock Plan had **96,828** options outstanding at **$61.76** weighted average exercise price, with no stock-based compensation expense recognized for Q2 and H1 2025 - As of June 30, 2025, **3,172** shares of Class A common stock were available for issuance under the MSGM 2021 Stock Plan[97](index=97&type=chunk) - There were **96,828** options outstanding under the MSGM 2021 Stock Plan as of June 30, 2025, with a weighted average exercise price of **$61.76**[98](index=98&type=chunk)[101](index=101&type=chunk) Stock-based Compensation Expense | Expense Category | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and Administrative | $- | $9,643 | $- | $79,374 | | Sales and Marketing | $- | $125 | $- | $1,472 | | Development | $- | $890 | $- | $(1,997) | | **Total Stock-based compensation expense** | **$-** | **$10,658** | **$-** | **$78,849** | [NOTE 9 – Commitments and Contingencies](index=22&type=section&id=NOTE%209%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in legal proceedings and has significant commitments; recent settlements include gains of **$0.5 million**, **$0.8 million**, and **$0.175 million** - The Company settled claims with Innovate 2 Corp. (formerly HC2 Holdings 2 Inc.) for **$500,000**, with **$300,000** paid by March 31, 2025, and the remaining **$200,000** due by October 31, 2025[110](index=110&type=chunk)[202](index=202&type=chunk) - A settlement with Wesco Insurance Company in June 2025 resulted in an **$800,000** payment to Driven Lifestyle for the Company's benefit, recorded as other operating income[112](index=112&type=chunk)[202](index=202&type=chunk) - The Company secured exclusive video game developer and publisher rights for the 24 Hours of Le Mans race and WEC, committing to fund up to **€8 million** for development and an annual royalty of **€250,000**[115](index=115&type=chunk) - The Prior BTCC License Agreement was terminated in November 2023, and a settlement in April 2024 resulted in a **$0.6 million** gain and a new non-exclusive license for BTCC downloadable content for rFactor 2[118](index=118&type=chunk)[119](index=119&type=chunk)[201](index=201&type=chunk) - INDYCAR Licenses were terminated in November 2023, leading to a settlement in May 2024 where the Company paid **$400,000** and recognized a **$2.5 million** gain, granting INDYCAR a royalty-free, perpetual license to use the licensed IP[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[201](index=201&type=chunk) - The deferred payment for the Studio397 acquisition was settled for **$750,000**, payable in five installments, resulting in a gain of approximately **$175,000**. The final payment was made on July 2, 2025[126](index=126&type=chunk)[148](index=148&type=chunk)[204](index=204&type=chunk) [NOTE 10 – Concentrations](index=26&type=section&id=NOTE%2010%20%E2%80%93%20CONCENTRATIONS) Revenue and accounts receivable are highly concentrated, with Customer D and Customer H accounting for **65.5%** and **18.1%** of H1 2025 revenues Revenue Concentration by Customer | Customer | Three Months Ended June 30, 2025 (Revenue %) | Three Months Ended June 30, 2024 (Revenue %) | Six Months Ended June 30, 2025 (Revenue %) | Six Months Ended June 30, 2024 (Revenue %) | | :--------- | :------------------------------------------- | :------------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Customer B | *% | 23.6% | *% | 21.2% | | Customer C | *% | 20.5% | *% | 20.6% | | Customer D | 58.2% | 41.2% | 65.5% | 47.3% | | Customer H | 23.2% | *% | 18.1% | *% | | **Total** | **81.4%** | **85.3%** | **83.6%** | **89.1%** | Accounts Receivable Concentration by Customer | Customer | June 30, 2025 (Accounts Receivable %) | December 31, 2024 (Accounts Receivable %) | | :--------- | :------------------------------------ | :---------------------------------------- | | Customer B | *% | 16.8% | | Customer C | *% | 15.1% | | Customer D | 52.0% | 45.2% | | Customer H | 30.3% | *% | | **Total** | **82.3%** | **77.1%** | - A reduction in sales from or loss of these concentrated customers could have a material adverse effect on the Company's results of operations and financial condition[129](index=129&type=chunk) [NOTE 11 – Segment Reporting](index=27&type=section&id=NOTE%2011%20%E2%80%93%20SEGMENT%20REPORTING) The company operates in Gaming and Esports segments; Gaming generated all revenues and gross profit, while Esports reported operating losses - The Company's two reportable segments are Gaming (interactive racing video games) and Esports (esports tournaments and events)[131](index=131&type=chunk) - All reported revenues for the three and six months ended June 30, 2025 and 2024, were generated by the Gaming segment[135](index=135&type=chunk) Segment Financial Performance | Metric | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | **Revenues:** | | | | | | Gaming | $2,591,840 | $1,881,653 | $4,350,293 | $4,910,689 | | Esports | - | - | - | - | | **Total Revenues** | **$2,591,840** | **$1,881,653** | **$4,350,293** | **$4,910,689** | | **Gross Profit:** | | | | | | Gaming | $2,136,953 | $1,110,006 | $3,430,020 | $3,472,415 | | Esports | - | - | - | - | | **Total Gross Profit** | **$2,136,953** | **$1,110,006** | **$3,430,020** | **$3,472,415** | | **Income (Loss) From Operations:** | | | | | | Gaming | $1,989,365 | $2,091,424 | $1,917,646 | $967,877 | | Esports | $(21,302) | $(32,676) | $(42,778) | $(124,453) | | **Total Income From Operations** | **$1,968,063** | **$2,058,748** | **$1,874,868** | **$843,424** | | **Total Assets:** | | | | | | Gaming | $6,674,308 | $5,065,073 | $6,674,308 | $5,065,073 | | Esports | $1,479,832 | $1,203,148 | $1,479,832 | $1,203,148 | | **Total Assets** | **$8,154,140** | **$6,268,221** | **$8,154,140** | **$6,268,221** | [NOTE 12 - Subsequent Events](index=29&type=section&id=NOTE%2012%20-%20SUBSEQUENT%20EVENTS) Subsequent to June 30, 2025, Motorsport Games released Le Mans Ultimate Version 1.0 and revised its Backoffice Services Agreement, reducing monthly fees to **$500** - On July 22, 2025, the Company released Le Mans Ultimate Version 1.0, completing its Early Access phase[138](index=138&type=chunk) - Effective July 1, 2025, the Revised Backoffice Services Agreement with Driven Lifestyle reduced the monthly fee to **$5,000** for July and August 2025, and then to **$500** for U.S. payroll services only starting September 1, 2025[139](index=139&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Motorsport Games' financial condition and operational results for Q2 and H1 2025, detailing revenue drivers, expense changes, liquidity, and strategic initiatives [About Motorsport Games](index=30&type=section&id=About%20Motorsport%20Games) Motorsport Games is a racing game developer, publisher, and esports provider with Le Mans and WEC licenses, developing new titles after selling NASCAR and terminating other licenses - Motorsport Games is a racing game developer, publisher, and esports ecosystem provider for official motorsport racing series, including the 24 Hours of Le Mans and FIA World Endurance Championship[141](index=141&type=chunk) - The company sold its NASCAR licensed rights in October 2023 and had a limited non-exclusive right to sell NASCAR games and DLCs through December 31, 2024[143](index=143&type=chunk) - Le Mans Ultimate, the official game of WEC and 24 Hours of Le Mans, was released on PC in early access on February 20, 2024[144](index=144&type=chunk) [Recent Events](index=31&type=section&id=Recent%20Events) The company explores strategic alternatives like asset sales to improve working capital and reduce cash burn, and settled the Studio397 acquisition deferred payment for **$750,000** - The Company continues to explore strategic alternatives, including asset sales or licensing, to improve working capital and reduce cash burn, in addition to past sales of its NASCAR License and Traxion[146](index=146&type=chunk) - The deferred payment for the Studio397 acquisition was settled for **$750,000**, payable in five equal installments, with the final payment made on July 2, 2025[148](index=148&type=chunk) [Private Placement Offering](index=31&type=section&id=Private%20Placement%20Offering) An April 2025 private placement raised **$2.35 million** net proceeds through Class A common stock and pre-funded warrant issuance, including a Right of First Refusal and a new director appointment - In April 2025, the Company completed a private placement, raising approximately **$2.35 million** net proceeds from the issuance of **1,894,892** shares of Class A common stock and a pre-funded warrant for **377,836** shares[149](index=149&type=chunk) - The private placement included a Right of First Refusal for purchasers to participate in certain subsequent financings and the appointment of Mr. Guoquan (Paul) Huang as a Class II director[151](index=151&type=chunk)[152](index=152&type=chunk) [Nasdaq Compliance](index=32&type=section&id=Nasdaq%20Compliance) Motorsport Games regained Nasdaq Stockholders' Equity Requirement compliance by April 15, 2025, reporting **$5,570,240** in equity as of June 30, 2025 - The Company received a deficiency letter from Nasdaq on November 20, 2024, for non-compliance with the Stockholders' Equity Requirement (**$2.5 million** minimum)[153](index=153&type=chunk) - Nasdaq granted an extension until April 14, 2025, to regain compliance[154](index=154&type=chunk) - As of June 30, 2025, the Company's stockholders' equity was **$5,570,240**, indicating compliance with the Nasdaq Stockholders' Equity Requirement[155](index=155&type=chunk) [Trends and Factors Affecting Our Business](index=32&type=section&id=Trends%20and%20Factors%20Affecting%20Our%20Business) Financial results are driven by product releases like Le Mans Ultimate; the company focuses on digital downloads, expanding recurring revenue via subscriptions and new annualized sports games Le Mans Ultimate Release Schedule | Title | Release Date and Platform | | :-------------------------- | :------------------------ | | Le Mans Ultimate | February 20, 2024, available on PC | | Le Mans Ultimate – 2024 DLC Pack 1 | July 23, 2024, available on PC | | Le Mans Ultimate – 2024 DLC Pack 2 | September 24, 2024, available on PC | | Le Mans Ultimate – 2024 DLC Pack 3 | December 10, 2024, available on PC | | Le Mans Ultimate – 2024 DLC Pack 4 | February 25, 2025, available on PC | | Le Mans Ultimate – 2024 DLC Pack 5 | June 10, 2025, available on PC | | Le Mans Ultimate – Version 1.0 Release | July 22, 2025, available on PC | - Substantially all revenue from video games for game consoles and PCs for the six months ended June 30, 2025 and 2024, was through digital channels[158](index=158&type=chunk) - The company plans to organize the 2025/26 Le Mans Virtual Series and expand its esports segment beyond Le Mans[159](index=159&type=chunk) - For the six months ended June 30, 2025, sales for Microsoft Windows via Steam comprised approximately **68%** of total revenue, and sales via Genba comprised approximately **15%**[160](index=160&type=chunk) - The company aims to expand recurring revenue through subscriptions (e.g., RaceControl) and new annualized sports franchise games, such as with Le Mans[161](index=161&type=chunk) [Components of Our Results of Operations](index=33&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section outlines key financial components: Revenues, Cost of Revenues, Sales and Marketing, Development, General and Administrative, and Depreciation and Amortization - Revenues are primarily derived from sales of games and related content, with new sources including sponsorship from esports events, software development services, and subscription services (RaceControl launched December 2024)[163](index=163&type=chunk) - Cost of revenues for the Gaming segment includes royalty expenses (historically NASCAR), merchant fees, manufacturing/packaging/hosting/shipping costs, distribution fees, mobile platform fees, and amortization of acquired licenses and internally-developed software[167](index=167&type=chunk) - Development expenses include in-house team salaries, operating expenses, consulting for external development, and software licenses/maintenance[169](index=169&type=chunk) - General and administrative expenses cover salaries, benefits, and other costs for finance, HR, IT, legal, facilities, and external services[170](index=170&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Results of operations show significant improvements in net income and gross profit margins for Q2 and H1 2025, driven by Le Mans Ultimate sales, reduced expenses, and substantial settlement gains [Three Months Ended June 30, 2025 compared to Three Months Ended June 30, 2024](index=34&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20compared%20to%20Three%20Months%20Ended%20June%2030%2C%202024) For Q2 2025, consolidated revenues increased by **37.7%** to **$2.6 million**, gross profit surged by **92.5%** to **$2.1 million**, and net income reached **$4.2 million** Three Months Ended June 30, 2025 vs 2024 Financial Summary | Metric | June 30, 2025 (USD) | June 30, 2024 (USD) | Change (USD) | Change (%) | | :-------------------------------- | :------------ | :------------ | :--------- | :--------- | | Revenues | $2,591,840 | $1,881,653 | $710,187 | 37.7% | | Cost of Revenues | $454,887 | $771,647 | $(316,760) | (41.0)% | | Gross Profit | $2,136,953 | $1,110,006 | $1,026,947 | 92.5% | | Sales and marketing | $126,307 | $205,549 | $(79,242) | (38.6)% | | Development | $270,343 | $868,745 | $(598,402) | (68.9)% | | General and administrative | $865,040 | $1,411,826 | $(546,786) | (38.7)% | | Total Operating Expenses | $1,273,387 | $2,549,258 | $(1,275,871) | (50.0)% | | Net income | $4,238,172 | $2,087,483 | $2,150,689 | 103.0% | - Increase in Gaming segment revenues was primarily due to a **$1.3 million** increase from Le Mans Ultimate sales (especially DLCs) and **$0.2 million** from RaceControl, offset by a **$0.9 million** decrease in NASCAR-related revenues[174](index=174&type=chunk) - Gross profit margin increased to **82.4%** in 2025 from **59.0%** in 2024, driven by reduced royalty payments related to NASCAR titles[178](index=178&type=chunk) - Development expenses decreased by **$0.6 million** (**68.9%**) due to lower payroll from reduced headcount and capitalization of internally-developed software costs[182](index=182&type=chunk) - General and administrative expenses decreased by **$0.5 million** (**38.7%**) primarily due to a reduction in legal and professional fees[183](index=183&type=chunk) - Other operating income increased by **$0.9 million** to **$1.1 million**, including **$0.8 million** from the Wesco Insurance Company settlement[186](index=186&type=chunk) - Other income, net increased by **$2.2 million** to **$2.3 million**, primarily from foreign currency gains[188](index=188&type=chunk) [Six Months Ended June 30, 2025 compared to Six Months Ended June 30, 2024](index=37&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024) For H1 2025, consolidated revenues decreased by **11.4%** to **$4.4 million**, gross profit remained stable at **$3.4 million**, and net income significantly increased to **$5.3 million** Six Months Ended June 30, 2025 vs 2024 Financial Summary | Metric | June 30, 2025 (USD) | June 30, 2024 (USD) | Change (USD) | Change (%) | | :-------------------------------- | :------------ | :------------ | :--------- | :--------- | | Revenues | $4,350,293 | $4,910,689 | $(560,396) | (11.4)% | | Cost of Revenues | $920,273 | $1,438,274 | $(518,001) | (36.0)% | | Gross Profit | $3,430,020 | $3,472,415 | $(42,395) | (1.2)% | | Sales and marketing | $224,008 | $455,935 | $(231,927) | (50.9)% | | Development | $872,296 | $1,932,102 | $(1,059,806) | (54.9)% | | General and administrative | $2,033,522 | $3,602,092 | $(1,568,570) | (43.5)% | | Total Operating Expenses | $3,159,649 | $6,126,991 | $(2,967,342) | (48.4)% | | Net income | $5,260,785 | $404,085 | $4,856,700 | 1201.9% | - Decrease in Gaming segment revenues was primarily due to a **$2.4 million** decrease in NASCAR-related revenues, offset by a **$1.6 million** increase from Le Mans Ultimate sales and **$0.3 million** from RaceControl[192](index=192&type=chunk) - Gross profit margin increased to **78.8%** in 2025 from **70.7%** in 2024, mainly due to reduced royalty payments for NASCAR titles[195](index=195&type=chunk) - Development expenses decreased by **$1.0 million** (**54.9%**) due to lower payroll from reduced headcount and capitalization of internally-developed software costs[198](index=198&type=chunk) - General and administrative expenses decreased by **$1.6 million** (**43.5%**) primarily due to a **$1.1 million** decrease in legal and professional fees[199](index=199&type=chunk) - Other operating income increased by **$1.3 million** to **$1.6 million**, including **$0.8 million** from Wesco settlement and **$0.5 million** from HC2 Holdings 2 Inc. settlement[202](index=202&type=chunk) - Other income, net increased by **$3.8 million** to **$3.4 million**, primarily from foreign currency gains and a **$0.2 million** gain from the Luminis settlement[204](index=204&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Motorsport Games faces substantial doubt about its going concern ability due to an **$86.5 million** accumulated deficit and insufficient cash, prompting funding, asset sales, and cost reduction efforts Liquidity Summary | Metric | June 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $2,365,410 | $859,271 | | Working capital (deficiency) | $2,184,035 | $(2,225,300) | - The Company had net income of **$5.3 million** and generated cash flows from operations of **$0.3 million** for the six months ended June 30, 2025, primarily due to **$0.8 million** from Wesco settlement and **$0.5 million** from HC2 Holdings 2 Inc. settlement[208](index=208&type=chunk) - As of June 30, 2025, the Company had an accumulated deficit of **$86.5 million** and does not believe current capital resources are sufficient to fund operations over the next year[208](index=208&type=chunk) - Management concludes there is substantial doubt about the Company's ability to continue as a going concern[208](index=208&type=chunk)[219](index=219&type=chunk) - The Company is exploring additional funding (equity/debt), strategic alternatives (asset sales/licensing), and cost reduction/restructuring initiatives[211](index=211&type=chunk) - The April Purchase Agreements include a prohibition on issuing certain securities for **4.5 months** and a Right of First Refusal for purchasers in subsequent financings, limiting future fundraising flexibility[214](index=214&type=chunk)[229](index=229&type=chunk) - Net cash provided by operating activities for the six months ended June 30, 2025, was **$0.3 million**, a significant improvement from **$1.1 million** used in the prior year[222](index=222&type=chunk) - Net cash provided by financing activities for the six months ended June 30, 2025, was **$1.7 million**, primarily from **$2.3 million** raised in a private placement offering[224](index=224&type=chunk) [Off-Balance Sheet Arrangements](index=44&type=section&id=Off-Balance%20Sheet%20Arrangements) Motorsport Games Inc. did not have any off-balance sheet arrangements during the periods presented or currently - The Company did not have any off-balance sheet arrangements during the periods presented or currently[232](index=232&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The primary critical accounting policy is Development Costs, capitalized post-technological feasibility; no other material changes were reported - Costs incurred internally for software product development are expensed until technological feasibility is established, then capitalized and amortized over the estimated life of the products[233](index=233&type=chunk) - Technological feasibility is generally reached shortly before products are released to production[233](index=233&type=chunk) - Sales returns and price protection reserves are no longer relevant critical accounting estimates starting in 2025[234](index=234&type=chunk) [Recently Issued Accounting Standards](index=44&type=section&id=Recently%20Issued%20Accounting%20Standards) As an emerging growth company, Motorsport Games elected to delay new accounting pronouncement adoption until applicable to private companies - As an emerging growth company, Motorsport Games has elected to use the extended transition period under the JOBS Act for complying with new or revised financial accounting standards[235](index=235&type=chunk) [Non-GAAP Financial Measures](index=44&type=section&id=Non-GAAP%20Financial%20Measures) The company uses Adjusted EBITDA as a non-GAAP financial measure to assess operating performance, excluding specific items to enhance understanding of normalized operating performance - Adjusted EBITDA is defined as EBITDA adjusted to exclude gain from settlement of license liabilities and other agreements, impairment of intangible assets, loss contingency expense, and stock-based compensation expenses[237](index=237&type=chunk) - Management uses Adjusted EBITDA to assess operating performance, as it eliminates items affecting comparability between periods and is believed to be representative of core ongoing operating business[238](index=238&type=chunk) Adjusted EBITDA (Three Months) | Metric | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net income | $4,238,172 | $2,087,483 | | Interest expense, net | $4,740 | $29,746 | | Depreciation and amortization | $253,935 | $587,160 | | **EBITDA** | **$4,496,847** | **$2,704,389** | | Gain from settlement of license liabilities | - | $(3,248,000) | | Gain from Wesco Settlement Agreement | $(800,000) | - | | Stock-based compensation | - | $10,658 | | **Adjusted EBITDA** | **$3,696,847** | **$(532,953)** | Adjusted EBITDA (Six Months) | Metric | Six Months Ended June 30, 2025 (USD) | Six Months Ended June 30, 2024 (USD) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net income | $5,260,785 | $404,085 | | Interest expense, net | $17,750 | $60,628 | | Depreciation and amortization | $505,992 | $1,189,106 | | **EBITDA** | **$5,784,527** | **$1,653,819** | | Gain from settlement of license liabilities | - | $(3,248,000) | | Gain from settlement of purchase commitment liabilities | $(175,460) | - | | Gain from Settlement Agreement | $(500,000) | - | | Gain from Wesco Settlement Agreement | $(800,000) | - | | Stock-based compensation | - | $78,849 | | **Adjusted EBITDA** | **$4,309,067** | **$(1,515,332)** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the company - The company states that quantitative and qualitative disclosures about market risk are not applicable[243](index=243&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to un-remediated material weaknesses in internal control - Disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in internal control over financial reporting[245](index=245&type=chunk) - Material weaknesses include failure to design and maintain effective monitoring procedures, lack of sufficient accounting personnel, and inadequate independent review of complex accounting analyses[246](index=246&type=chunk)[257](index=257&type=chunk) - The company plans to make progress on remediation plans described in its 2024 Form 10-K[247](index=247&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control during the quarter ended June 30, 2025[249](index=249&type=chunk) Part II. Other Information This section provides other information including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings, but believes the aggregate outcome is not reasonably likely to have a material adverse effect on its business - The Company believes the outcome of all pending legal proceedings in aggregate is not reasonably likely to have a material adverse effect on its business, prospects, results of operations, financial condition, and/or cash flows, except as otherwise disclosed[251](index=251&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) The company highlights significant risks, including substantial doubt about its going concern ability, un-remediated material weaknesses, limitations on future equity sales, potential Nasdaq delisting, and high revenue concentration - The Company has incurred significant losses since inception and expects to continue incurring losses, raising substantial doubt about its ability to continue as a going concern[253](index=253&type=chunk)[254](index=254&type=chunk) - Un-remediated material weaknesses in internal control over financial reporting could adversely affect financial reporting accuracy and timeliness, potentially impacting business and stock price[257](index=257&type=chunk)[258](index=258&type=chunk) - Limitations on the ability to sell securities under the April Purchase Agreements (e.g., **4.5-month** prohibition on new issuances and Right of First Refusal) may affect the company's ability to finance operations[259](index=259&type=chunk) - Failure to maintain compliance with Nasdaq's listing requirements, specifically the Stockholders' Equity Requirement, could lead to delisting, adversely affecting market price and liquidity of Class A common stock[261](index=261&type=chunk)[264](index=264&type=chunk) - The company depends on a relatively small number of franchises and customers for a significant portion of its revenues and profits, with top two customers accounting for **84%** of revenue for the six months ended June 30, 2025[265](index=265&type=chunk) - The sale of the NASCAR License and termination of BTCC and INDYCAR licenses will materially adversely impact cash flows and results of operations as no more revenues are anticipated from these products[266](index=266&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during Q2 2025, other than previously reported, and no Class A common stock shares were purchased - No unregistered sales of equity securities occurred during the quarter ended June 30, 2025, other than those previously reported[268](index=268&type=chunk) - The Company did not purchase any shares of its Class A common stock during the quarter ended June 30, 2025[269](index=269&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information) During Q2 2025, no directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - None of the company's directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[272](index=272&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, warrant agreements, securities purchase agreements, certifications, and XBRL - Exhibits include Certificate of Incorporation, Bylaws, Pre-Funded Warrant, Form of Securities Purchase Agreement, CEO and CFO Certifications, and Inline XBRL documents[273](index=273&type=chunk) Signatures The report is duly signed on behalf of Motorsport Games Inc. by its Chief Executive Officer and Chief Financial Officer as of August 13, 2025 [Signatures](index=52&type=section&id=Signatures) The report is duly signed by Stephen Hood, CEO, and Stanley Beckley, CFO, on behalf of Motorsport Games Inc. as of August 13, 2025 - The report was signed by Stephen Hood, Chief Executive Officer, and Stanley Beckley, Chief Financial Officer, on August 13, 2025[276](index=276&type=chunk)