[Cover Page and General Information](index=1&type=section&id=Cover%20Page%20and%20General%20Information) [Form 10-Q Filing Details](index=1&type=section&id=Form%2010-Q%20Filing%20Details) Motorsport Games Inc. filed its Form 10-Q for Q2 2021, detailing filing information, SEC compliance, and its filer status - Motorsport Games Inc. filed its **Form 10-Q** for the quarter ended June 30, 2021[2](index=2&type=chunk) Registrant Information | Detail | Value | | :--- | :--- | | State of Incorporation | Delaware | | I.R.S. Employer Identification No. | 86-1791356 | | Principal Executive Offices | 5972 NE 4th Avenue, Miami, FL 33137 | | Telephone Number | (305) 507-8799 | | Trading Symbol | MSGM | | Exchange | The Nasdaq Stock Market LLC (The Nasdaq Capital Market) | - The registrant has filed all required reports during the preceding **12 months** and has been subject to filing requirements for the past **90 days**, also submitting all required Interactive Data Files[4](index=4&type=chunk) Filer Status | Status | Indication | | :--- | :--- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | [Outstanding Shares](index=2&type=section&id=Outstanding%20Shares) As of August 10, 2021, Motorsport Games Inc. reported **11,635,897 Class A** and **7,000,000 Class B** common shares outstanding Outstanding Shares as of August 10, 2021 | Class of Stock | Shares Outstanding (Shares) | | :--- | :--- | | Class A common stock | 11,635,897 | | Class B common stock | 7,000,000 | [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements and Risks](index=4&type=section&id=Forward-Looking%20Statements%20and%20Risks) The report outlines forward-looking statements on future business and product launches, highlighting risks from product popularity, COVID-19, and limited franchises - **Forward-looking statements** cover future business, operations, financial condition, new product offerings (NASCAR 21: Ignition, BTCC, Le Mans, INDYCAR video games), license expansions, and esports business growth[10](index=10&type=chunk) - **Key risks** include: failure to deliver **popular products**, business concentration in racing games, **impact of COVID-19 pandemic**, declines in consumer spending, dependence on limited franchises and a single distribution partner, ability to acquire and maintain intellectual property licenses, reliance on key personnel, and the dual-class common stock structure[10](index=10&type=chunk)[12](index=12&type=chunk) - The company acknowledges that actual operating and financial performance may **vary materially** from projections due to various risks and uncertainties, and undertakes no obligation to update **forward-looking statements** except as required by law[10](index=10&type=chunk)[11](index=11&type=chunk) [Part I. FINANCIAL INFORMATION](index=6&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Motorsport Games Inc.'s unaudited condensed consolidated financial statements and detailed explanatory notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased from **$17.39 million** to **$58.67 million**, liabilities decreased, and equity rose to **$51.95 million** due to IPO Condensed Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2021 (USD) | December 31, 2020 (USD) | | :--- | :--- | :--- | | Cash | $28,303,204 | $3,990,532 | | Accounts receivable, net | $3,840,842 | $5,975,414 | | Prepaid expenses and other current assets | $1,312,923 | $507,177 | | Total Current Assets | $33,456,969 | $10,473,123 | | Property and equipment, net | $452,612 | $162,148 | | Goodwill | $5,099,065 | $137,717 | | Intangible assets, net | $19,657,911 | $5,568,452 | | Total Assets | $58,666,557 | $17,387,010 | | Accounts payable | $268,981 | $705,951 | | Accrued expenses | $2,114,935 | $3,355,003 | | Due to related parties | $285,198 | $10,853,536 | | Purchase commitment liability | $3,126,314 | $- | | Total Current Liabilities | $5,795,428 | $14,914,490 | | Other non-current liabilities | $917,640 | $856,694 | | Total Liabilities | $6,713,068 | $15,771,184 | | Total Stockholders' Equity / Member's Equity | $51,953,489 | $1,615,826 | | Total Liabilities and Stockholders' Equity / Member's Equity | $58,666,557 | $17,387,010 | - **Cash increased significantly** from **$3.99 million** to **$28.30 million**, reflecting the proceeds from the **IPO**[15](index=15&type=chunk) - **Goodwill** and **intangible assets** saw **substantial increases**, indicating recent **acquisitions**[15](index=15&type=chunk) - **Total Stockholders' Equity shifted** from a deficit to a **positive balance**, primarily due to the **IPO** and related capital increases[15](index=15&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a **significant net loss** for Q2 and H1 2021, driven by decreased revenues and substantially increased operating expenses Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2021 (USD) | Three Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2021 (USD) | Six Months Ended June 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,238,927 | $3,888,817 | $4,713,059 | $7,123,384 | | Cost of revenues | $906,303 | $1,272,239 | $1,688,111 | $2,340,736 | | Gross profit | $1,332,624 | $2,616,578 | $3,024,948 | $4,782,648 | | Total operating expenses | $7,306,028 | $2,515,308 | $24,375,421 | $4,800,954 | | (Loss) income from operations | $(5,973,404) | $101,270 | $(21,350,473) | $(18,306) | | Net loss | $(5,960,943) | $(31,534) | $(20,046,367) | $(232,042) | | Net loss attributable to Motorsport Games Inc. | $(5,780,094) | $(78,315) | $(19,592,068) | $(317,946) | | Basic and diluted net loss per Class A common stock | $(0.50) | N/A | $(1.88) | N/A | | Weighted-average shares of Class A common stock outstanding | 11,494,919 | N/A | 10,421,910 | N/A | - **Revenues decreased** by **42%** for Q2 2021 YoY and **34%** for H1 2021 YoY, primarily due to lower sales of console and PC games and reduced mobile revenues, partially offset by **increased demand** in 2020 due to COVID-19 restrictions[17](index=17&type=chunk)[186](index=186&type=chunk)[202](index=202&type=chunk) - **Operating expenses increased significantly** by **190%** for Q2 2021 YoY and **408%** for H1 2021 YoY, mainly driven by **acquisition-related expenses**, **increased development staff**, and higher general and administrative costs (including **IPO-related expenses** and professional fees)[17](index=17&type=chunk)[193](index=193&type=chunk)[209](index=209&type=chunk) - **Net loss attributable to Motorsport Games Inc. widened substantially** to **$(5.78) million** for Q2 2021 and **$(19.59) million** for H1 2021, compared to **$(0.08) million** and **$(0.32) million** in the respective prior periods[17](index=17&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The company reported a **comprehensive loss** of **$(6.03) million** for Q2 2021 and **$(20.15) million** for H1 2021, due to **net loss** and FX adjustments Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | Metric | Three Months Ended June 30, 2021 (USD) | Three Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2021 (USD) | Six Months Ended June 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(5,960,943) | $(31,534) | $(20,046,367) | $(232,042) | | Foreign currency translation adjustments | $(70,809) | $- | $(103,723) | $- | | Comprehensive loss | $(6,031,752) | $(31,534) | $(20,150,090) | $(232,042) | | Comprehensive loss attributable to Motorsport Games Inc. | $(5,850,903) | $(78,315) | $(19,695,791) | $(317,946) | - Foreign currency translation adjustments contributed to the **comprehensive loss** in 2021, reflecting **increased international operations** in the U.K., Australia, and Netherlands subsidiaries[19](index=19&type=chunk)[201](index=201&type=chunk)[217](index=217&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity / Member's Equity (Deficiency)](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20%2F%20Member's%20Equity%20(Deficiency)) Equity transformed from a deficit to **$50.60 million** by June 30, 2021, driven by **IPO**, **stock-based compensation**, and **corporate conversion** Condensed Consolidated Statements of Changes in Stockholders' Equity / Member's Equity (Unaudited) | Metric | January 1, 2021 (USD) | June 30, 2021 (USD) | | :--- | :--- | :--- | | Member's Equity (Deficiency) | $(1,029,733) | N/A | | Class A Common Stock (Shares) | - | 11,635,897 | | Class A Common Stock (Amount) | $- | $1,164 | | Class B Common Stock (Shares) | - | 7,000,000 | | Class B Common Stock (Amount) | $- | $700 | | Additional Paid-In Capital | $- | $75,117,703 | | Accumulated Deficit | $(4,826,335) | $(24,418,403) | | Accumulated Other Comprehensive Income (Loss) | $4,928 | $(98,795) | | Total Stockholders' Equity / Member's Equity Attributable to Motorsport Games Inc. | $(1,029,733) | $50,602,369 | | Non-controlling interest | $2,645,559 | $1,351,120 | | Total Stockholders' Equity / Member's Equity | $1,615,826 | $51,953,489 | - The company completed a **corporate conversion** on January 8, 2021, from a Florida LLC to a Delaware corporation, resulting in the issuance of **Class A** and **Class B common stock**[21](index=21&type=chunk)[28](index=28&type=chunk)[106](index=106&type=chunk) - The initial public offering (**IPO**) in January 2021 generated **$63.07 million** in **additional paid-in capital**, **significantly boosting total equity**[21](index=21&type=chunk)[111](index=111&type=chunk) - **Stock-based compensation** of **$9.08 million** was recognized, contributing to the **increase in additional paid-in capital**[21](index=21&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Cash significantly increased** due to **$49.50 million** from **IPO financing**, despite **$11.26 million** operating and **$14.01 million** investing cash usage Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric | Six Months Ended June 30, 2021 (USD) | Six Months Ended June 30, 2020 (USD) | | :--- | :--- | :--- | | Net Cash (Used In) Provided By Operating Activities | $(11,264,546) | $2,297,962 | | Net Cash Used In Investing Activities | $(14,008,174) | $(903,154) | | Net Cash Provided By (Used In) Financing Activities | $49,501,815 | $(66,794) | | Effect of foreign exchange rate changes on cash | $83,577 | $- | | Net Increase In Cash | $24,312,672 | $1,328,014 | | Cash - End of the period | $28,303,204 | $3,288,293 | - **Operating activities shifted** from providing **$2.30 million** in **cash** in H1 2020 to using **$11.26 million** in H1 2021, primarily due to the **increased net loss**[24](index=24&type=chunk)[222](index=222&type=chunk) - **Investing activities significantly increased cash usage** from **$0.90 million** in H1 2020 to **$14.01 million** in H1 2021, driven by the **acquisitions** of KartKraft (**$1.0 million**) and Studio397 (**$12.79 million**), and other **intangible asset purchases**[24](index=24&type=chunk)[223](index=223&type=chunk) - **Financing activities provided $49.50 million** in H1 2021, a **substantial increase** from using **$0.07 million** in H1 2020, mainly due to **$63.66 million** from the **IPO**, partially offset by **$12.66 million** in repayments to **related parties** and **$3.60 million** for the 704Games minority interest purchase[24](index=24&type=chunk)[224](index=224&type=chunk) [NOTE 1 - Business Organization, Nature of Operations, Risks and Uncertainties and Basis of Presentation](index=12&type=section&id=NOTE%201%20-%20Business%20Organization%2C%20Nature%20of%20Operations%2C%20Risks%20and%20Uncertainties%20and%20Basis%20of%20Presentation) Motorsport Games Inc. converted to a Delaware corporation, expanded through key acquisitions, and faces ongoing COVID-19 pandemic impacts - Motorsport Gaming US LLC converted to **Motorsport Games Inc.**, a Delaware corporation, on January 8, 2021[28](index=28&type=chunk) - The company is a leading racing game developer, publisher, and esports ecosystem provider for official motorsport series including NASCAR, INDYCAR, 24 Hours of Le Mans, and British Touring Car Championship[29](index=29&type=chunk) - **Key acquisitions** in 2021 include the remaining equity interests in 704Games (April 16, 2021) and **100%** of Studio397 B.V. (April 20, 2021)[30](index=30&type=chunk) - The **COVID-19 pandemic** has **impacted operations**, leading to temporary office closures and remote work, **increased demand** for games in 2020, but **negatively affected retail sales** and caused cancellations/postponements of esports events[31](index=31&type=chunk)[155](index=155&type=chunk) [NOTE 2 - Summary of Significant Accounting Policies](index=13&type=section&id=NOTE%202%20-%20Summary%20of%20Significant%20Accounting%20Policies) This note details **significant accounting policies**, including goodwill impairment, revenue recognition, sales allowances, **stock-based compensation**, and income tax policies - **Goodwill** and indefinite-lived **intangible assets** are reviewed annually for impairment, or more frequently if indicators arise, using qualitative and quantitative assessments[36](index=36&type=chunk) Intangible Asset Useful Lives | Intangible Asset | Useful Life (Years) | | :--- | :--- | | License agreements | 6.5-16 years | | Software | 6-10 years | | Distribution contracts | 1 year | | Employment and non-compete agreements | 3 years | - **Revenue is recognized** under ASC 606, primarily from sales of games (singular performance obligation), extra content (recognized upon customer control/usage), and esports sponsorships (recognized over the event period)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - The company generally reports **revenue net** of third-party storefront fees, except for Apple's App Store and Google's Play Store, where it acts as principal and reports **gross revenue**[50](index=50&type=chunk) Sales Allowances and Price Protection Reserves | Period | Amount (USD) | | :--- | :--- | | Three months ended June 30, 2021 | $81,600 | | Six months ended June 30, 2021 | $199,940 | | Three months ended June 30, 2020 | $216,689 | | Six months ended June 30, 2020 | $314,517 | - A **full valuation allowance** has been established for deferred tax assets as of June 30, 2021, due to uncertainty regarding future realization[63](index=63&type=chunk) [NOTE 3 – Acquisitions](index=18&type=section&id=NOTE%203%20%E2%80%93%20Acquisitions) Motorsport Games Inc. completed **strategic acquisitions** in early 2021, expanding its racing game and esports portfolio with Le Mans, KartKraft, Studio397, and 704Games - In January 2021, Motorsport Games **increased its ownership** in the Le Mans Joint Venture from **45%** to **51%**, gaining **majority control** and **exclusive licenses** for FIA World Endurance Championship and 24 Hours of Le Mans video games and esports events[67](index=67&type=chunk)[68](index=68&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk)[75](index=75&type=chunk) Le Mans Joint Venture Purchase Price Allocation (January 2021) | Asset/Liability | USD | | :--- | :--- | | Cash | $350,626 | | Other assets | $1,169 | | Le Mans Gaming license | $1,150,000 | | Le Mans Esport license | $1,660,000 | | Goodwill | $66,280 | | Accounts payable | $(7,016) | | Non-controlling interest | $(1,573,624) | | FX translation adjustment | $(1,059) | | Total Fair value of Member's equity | $1,646,376 | | Fair value of previously held interest | $1,449,000 | | Fair value of consideration | $197,376 | - In March 2021, the company acquired all **assets** of the KartKraft computer video game for **$1,000,000**, aiming to enter the simulated kart-racing space[81](index=81&type=chunk) KartKraft Acquisition Purchase Price Allocation (March 2021) | Intangible Asset | USD | | :--- | :--- | | KartKraft Trade Name | $108,000 | | Technology | $833,000 | | Employment & Non-Compete | $59,000 | | Total Consideration | $1,000,000 | - In April 2021, Motorsport Games acquired **100%** of Studio397 B.V. for **$16,000,000** (with **$12.8 million** paid at closing and **$3.2 million** deferred), gaining its rFactor2 racing simulation platform[85](index=85&type=chunk)[86](index=86&type=chunk) Studio397 Acquisition Purchase Price Allocation (April 2021) | Asset/Liability | Amount (USD) | | :--- | :--- | | Debt-free net working capital | $(12,450) | | Fixed assets | $21,504 | | rFactor 2 Trade Name | $3,040,000 | | Technology | $7,010,000 | | Employment & Non-Compete Agreements | $214,000 | | Internally developed franchise | $678,000 | | Goodwill | $4,895,069 | | FX translation adjustment | $65,658 | | Total Consideration | $15,911,781 | - In April 2021, the company acquired all remaining equity interests in 704Games through a merger, issuing **Class A common stock** and **cash**, and resolving prior derivative legal actions[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) [NOTE 4 - Intangible Assets](index=22&type=section&id=NOTE%204%20-%20Intangible%20Assets) **Intangible assets**, primarily licenses and software from **acquisitions**, **significantly increased** to **$19.66 million** by June 30, 2021, with higher **amortization expense** - The company secured a licensing agreement with BARC (TOCA) Limited in May 2020 for the BTCC, acquiring a license with a **cost** of **$891,999** and a **useful life** of **6.5 years**[99](index=99&type=chunk) Intangible Assets Acquired from Le Mans Joint Venture (January 2021) | Intangible Asset | Useful Life (Years) | Cost (USD) | | :--- | :--- | :--- | | Gaming license | Indefinite | $1,150,000 | | Esport license | Indefinite | $1,660,000 | | Total | | $2,810,000 | Intangible Assets Acquired from KartKraft (March 2021) | Intangible Asset | Useful Life (Years) | Cost (USD) | | :--- | :--- | :--- | | KartKraft Trade Name | Indefinite | $108,000 | | Software | 6 Years | $833,000 | | Employment & Non-Compete | 3 Years | $59,000 | | Total | | $1,000,000 | Intangible Assets Acquired from Studio397 (April 2021) | Intangible Asset | Useful Life (Years) | Cost (USD) | | :--- | :--- | :--- | | Technology | 6 years | $7,010,000 | | rFactor 2 Trade Name | Indefinite | $3,040,000 | | Internally developed franchise | 10 years | $678,000 | | Employment & Non-Compete Agreements | 3 years | $214,000 | | Total | | $10,942,000 | Total Intangible Assets, Net | Date | Total Intangible Assets, Net (USD) | | :--- | :--- | | January 1, 2021 | $5,568,452 | | June 30, 2021 | $19,657,911 | Amortization Expense Related to Intangible Assets | Period | 2021 (USD) | 2020 (USD) | | :--- | :--- | :--- | | Three months ended June 30, | $471,114 | $160,806 | | Six months ended June 30, | $581,411 | $275,869 | [NOTE 5 – Accrued Expenses](index=23&type=section&id=NOTE%205%20%E2%80%93%20Accrued%20Expenses) **Accrued expenses decreased** from **$3.36 million** to **$2.11 million**, mainly due to lower royalties, development costs, and payroll Accrued Expenses | Accrued Expense | June 30, 2021 (USD) | December 31, 2020 (USD) | | :--- | :--- | :--- | | Accrued royalties | $424,223 | $1,485,261 | | Accrued professional fees | $57,478 | $129,291 | | Accrued consulting fees | $603,988 | $398,526 | | Payable to Le Mans joint venture | $647,630 | $234,667 | | Accrued development costs | $683 | $196,845 | | Accrued hosting fees | $40,787 | $551 | | Accrued rent | $31,491 | $40,787 | | Accrued taxes | $136,531 | $54,880 | | Accrued payroll | $30,250 | $778,918 | | Accrued director payment | $13,820 | $- | | Accrued other | $128,054 | $35,277 | | Total | $2,114,935 | $3,355,003 | - **Significant decreases** were observed in **accrued royalties**, **development costs**, and **payroll**, while **payable to Le Mans joint venture** and **accrued consulting fees increased**[104](index=104&type=chunk)[105](index=105&type=chunk) [NOTE 6 – Stockholders' Equity](index=24&type=section&id=NOTE%206%20%E2%80%93%20Stockholders'%20Equity) The company underwent a **corporate conversion**, completed an **IPO** generating **$63.1 million net proceeds**, and issued **significant equity grants** - On January 8, 2021, Motorsport Gaming converted into **Motorsport Games Inc.**, a Delaware corporation, with Motorsport Network holding all **7,000,000 Class A** and **7,000,000 Class B common shares** immediately after conversion[106](index=106&type=chunk)[109](index=109&type=chunk) - The company completed its **IPO** on January 15, 2021, selling **3,450,000 shares** of **Class A common stock** at **$20.00 per share**, generating approximately **$63.1 million** in **net proceeds**[111](index=111&type=chunk) - During the six months ended June 30, 2021, **330,633 shares** of **Class A common stock** were granted to the CEO, a consultant, and directors, with an aggregate fair value of **$6,612,660**, recognized as immediate compensation expense[113](index=113&type=chunk) - **Stock options** to purchase **574,073 shares** of **Class A common stock** were granted to the CEO, employees, and directors, with an aggregate grant date fair value of approximately **$5.35 million**, leading to **$9.19 million** in **total stock-based compensation expense** for the six months ended June 30, 2021[55](index=55&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - As of June 30, 2021, **$2,936,411** of **unrecognized stock-based compensation expense** remains, to be recognized over approximately **4 years**[121](index=121&type=chunk) [NOTE 7 – Related Party Transactions](index=27&type=section&id=NOTE%207%20%E2%80%93%20Related%20Party%20Transactions) Motorsport Games Inc. repaid a **significant portion** of its **promissory note** to Motorsport Network, reducing the balance due to **$285,198** - The company drew down an additional **$1,868,312** and repaid **$12,663,168** of the **promissory note** to Motorsport Network during the six months ended June 30, 2021[124](index=124&type=chunk) Balance Due to Related Parties | Date | Amount (USD) | | :--- | :--- | | June 30, 2021 | $285,198 | | December 31, 2020 | $10,853,536 | [NOTE 8 – Commitments and Contingencies](index=27&type=section&id=NOTE%208%20%E2%80%93%20Commitments%20and%20Contingencies) The company faces ongoing legal proceedings, including a new complaint regarding the 704Games stock sale, and has licensing and lease commitments - A derivative legal action filed by Ascend on behalf of 704Games was **dismissed with prejudice** on April 25, 2021, following the **acquisition** of 704Games' remaining equity interests[95](index=95&type=chunk)[128](index=128&type=chunk)[164](index=164&type=chunk) - HC2 Holdings 2 Inc. and Continental General Insurance Company filed a **complaint** on February 11, 2021, alleging **misrepresentations**, omissions, and **breach of fiduciary duty** related to the August 2020 sale of 704Games common stock[129](index=129&type=chunk) - The company has not accrued for any loss contingencies related to the HC2 and Continental Complaint, believing the allegations are **without merit** and intending to **vigorously defend its position**[131](index=131&type=chunk) - The company has a licensing agreement with Epic Games for Unreal Engine 4, effective until August 11, 2025, for active product development[132](index=132&type=chunk) Rent Expense Under Operating Leases | Period | 2021 (USD) | 2020 (USD) | | :--- | :--- | :--- | | Three months ended June 30, | $101,403 | $67,658 | | Six months ended June 30, | $191,158 | $121,959 | [NOTE 9 – Concentrations](index=28&type=section&id=NOTE%209%20%E2%80%93%20Concentrations) Motorsport Games Inc. exhibits **significant customer and supplier concentrations**, posing a **material adverse effect risk** if relationships are disrupted Customer Revenue Concentrations | Customer | Three Months Ended June 30, 2021 (%) | Three Months Ended June 30, 2020 (%) | Six Months Ended June 30, 2021 (%) | Six Months Ended June 30, 2020 (%) | | :--- | :--- | :--- | :--- | :--- | | Customer A | * | 11.16% | * | * | | Customer B | 24.56% | 30.59% | 30.29% | 32.86% | | Customer C | 30.60% | * | 19.24% | * | | Customer D | 31.37% | 33.49% | 36.85% | 32.69% | | Total | 86.53% | 75.24% | 86.38% | 65.55% | Customer Accounts Receivable Concentrations | Customer | June 30, 2021 (%) | December 31, 2020 (%) | | :--- | :--- | :--- | | Customer A | 60.94% | 81.84% | | Customer C | 15.65% | * | | Total | 76.60% | 81.84% | Supplier Cost of Revenues Concentrations | Supplier | Three Months Ended June 30, 2021 (%) | Three Months Ended June 30, 2020 (%) | Six Months Ended June 30, 2021 (%) | Six Months Ended June 30, 2020 (%) | | :--- | :--- | :--- | :--- | :--- | | Supplier A | 27.40% | 42.34% | 36.41% | 42.28% | | Supplier B | * | 10.57% | * | * | | Supplier C | 50.86% | 12.64% | 33.67% | 11.79% | | Total | 78.26% | 65.55% | 70.08% | 54.07% | - The company's business is **highly dependent** on a limited number of customers and suppliers, posing a **material adverse effect risk** if these relationships are disrupted[137](index=137&type=chunk) [NOTE 10 – Segment Reporting](index=29&type=section&id=NOTE%2010%20%E2%80%93%20Segment%20Reporting) The company operates two segments, Gaming and Esports, with Gaming revenues declining and both segments incurring **operating losses** in 2021 - The company has two reportable segments: Gaming (development and publishing of interactive racing video games) and Esports (organization and facilitation of esports tournaments and events)[139](index=139&type=chunk) Segment Revenues | Segment | Three Months Ended June 30, 2021 (USD) | Three Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2021 (USD) | Six Months Ended June 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Gaming | $2,238,927 | $3,795,652 | $4,689,140 | $7,030,219 | | Esports | $- | $93,165 | $23,919 | $93,165 | | Total | $2,238,927 | $3,888,817 | $4,713,059 | $7,123,384 | Segment (Loss) Income From Operations | Segment | Three Months Ended June 30, 2021 (USD) | Three Months Ended June 30, 2020 (USD) | Six Months Ended June 30, 2021 (USD) | Six Months Ended June 30, 2020 (USD) | | :--- | :--- | :--- | :--- | :--- | | Gaming | $(5,716,887) | $149,581 | $(20,910,146) | $330,597 | | Esports | $(256,517) | $(48,311) | $(440,327) | $(348,903) | | Total | $(5,973,404) | $101,270 | $(21,350,473) | $(18,306) | - The **Gaming segment's operating income shifted** to a **significant loss** in 2021, while the **Esports segment continued to incur operating losses**[142](index=142&type=chunk) [NOTE 11 - Subsequent Events](index=31&type=section&id=NOTE%2011%20-%20Subsequent%20Events) Subsequent to Q2 2021, Motorsport Games Inc. secured a **long-term exclusive license agreement** with INDYCAR LLC for video games and esports events - On July 13, 2021, the company entered into a **long-term license agreement** with INDYCAR LLC for **exclusive rights** to develop video games and esports events for the INDYCAR SERIES[144](index=144&type=chunk)[148](index=148&type=chunk)[166](index=166&type=chunk) - The debut INDYCAR SERIES title is expected to launch in **2023** on Xbox, PlayStation, and PC[144](index=144&type=chunk)[167](index=167&type=chunk) - The INDYCAR Gaming License involves **annual development fees** and **royalties based on sales**, while the INDYCAR Esports License includes **annual royalties based on net revenue from events**[147](index=147&type=chunk)[148](index=148&type=chunk)[167](index=167&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, COVID-19 impact, IPO, strategic acquisitions, and key trends like digital sales and esports expansion - **Motorsport Games** is a leading racing game developer, publisher, and esports ecosystem provider for official motorsport series globally, including NASCAR, Le Mans, BTCC, and INDYCAR[152](index=152&type=chunk) - The **COVID-19 pandemic continues to impact operations**, leading to remote work, **increased demand** for games in 2020, but **negative effects on retail sales** and esports events due to restrictions and new variants[154](index=154&type=chunk)[155](index=155&type=chunk) - **Recent developments** include a **successful IPO** in January 2021 (**$63.1 million net proceeds**), **increased ownership** in Le Mans Joint Venture, **acquisitions** of KartKraft and Studio397, full **acquisition** of 704Games, and a new INDYCAR license agreement[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk)[162](index=162&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - The company plans to release NASCAR 21: Ignition in Q4 2021, BTCC and Le Mans games in 2022, and INDYCAR game in 2023, aiming for a broader, less cyclical product portfolio[168](index=168&type=chunk) - **Digital sales are increasing**, accounting for **97%** of console/PC game revenue in H1 2021, and the company is investing in **mobile gaming** (updated NASCAR Heat Mobile, new NASCAR casual games) and esports to drive **recurring revenue**[172](index=172&type=chunk)[174](index=174&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) Revenue Performance (YoY Change) | Period | 2021 Revenue (USD) | 2020 Revenue (USD) | Change (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $2,238,927 | $3,888,817 | $(1,649,890) | -42% | | Six Months Ended June 30, | $4,713,059 | $7,123,384 | $(2,410,325) | -34% | Operating Expenses Performance (YoY Change) | Period | 2021 Expenses (USD) | 2020 Expenses (USD) | Change (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $7,306,028 | $2,515,308 | $4,790,720 | 190% | | Six Months Ended June 30, | $24,375,421 | $4,800,954 | $19,574,467 | 408% | - The **increase in operating expenses** was primarily due to **acquisition-related costs**, **non-cash compensation expenses** (**$9.19 million**), **IPO-related expenses** (**$2.95 million**), **increased headcount** for development, and higher professional fees for corporate transactions and litigation[195](index=195&type=chunk)[196](index=196&type=chunk)[209](index=209&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) - The company believes existing **cash on hand is sufficient for the next 12 months**, but may seek additional financing. **Cash flows from operating activities** were **negative** (**$11.26 million**) for H1 2021, while **financing activities provided significant cash** (**$49.50 million**) due to the **IPO**[220](index=220&type=chunk)[222](index=222&type=chunk)[224](index=224&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to Motorsport Games Inc. for the reported period - The company has **no applicable quantitative and qualitative disclosures about market risk**[232](index=232&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) **Disclosure controls** were **ineffective** due to **material weaknesses**, prompting **active remediation efforts** including advisory firm engagement and new hires - As of June 30, 2021, **disclosure controls and procedures** were **not effective** due to **material weaknesses in internal control over financial reporting**[235](index=235&type=chunk) - **Remediation efforts** include engaging a SOX compliance advisory firm, preparing a **Financial Risk Assessment**, finalizing a **Delegation of Authority Matrix**, and planning a top-down SOX assessment for 2021[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) - The company has hired additional qualified finance and accounting personnel to assist in financial statement preparation and SEC filings[239](index=239&type=chunk) - Management will continue to review and document Segregation of Duties (SOD) and Access Rules, and implement a process for formal documentation of management estimates and judgments[239](index=239&type=chunk) [Part II. OTHER INFORMATION](index=48&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in claims and litigation, including a new complaint regarding the 704Games stock sale, which it intends to vigorously defend - The company is subject to **claims and litigation** arising in the ordinary course of business[245](index=245&type=chunk) - A **derivative legal action** by Ascend against the company was **dismissed with prejudice** on April 25, 2021[128](index=128&type=chunk) - A **complaint filed** by HC2 Holdings 2 Inc. and Continental General Insurance Company on February 11, 2021, alleges **misrepresentations** and **breach of fiduciary duty** concerning the **704Games stock sale**[129](index=129&type=chunk) - The company believes the allegations in the HC2 and Continental Complaint are **without merit** and intends to **vigorously defend its position**[131](index=131&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) Readers are directed to the 2020 Form 10-K and subsequent SEC filings for a comprehensive understanding of potential risks - Readers are directed to the '**Risk Factors**' section in the **2020 Form 10-K** and **subsequent SEC filings** for a comprehensive understanding of potential risks[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) **No unregistered equity sales** occurred in Q2 2021; **$37.5 million** of **IPO proceeds** were used for debt repayment, **acquisitions**, and working capital - **No unregistered sales of equity securities** occurred during Q2 2021, beyond those previously reported[247](index=247&type=chunk) - The company received approximately **$63.1 million** in **net proceeds** from its **IPO** on January 15, 2021[248](index=248&type=chunk) Use of IPO Net Proceeds (as of June 30, 2021) | Purpose | Amount Used (USD) | | :--- | :--- | | Repayment of promissory note to Motorsport Network | ~$12,700,000 | | Acquisitions (Studio397 and KartKraft) | ~$13,800,000 | | Working capital and general corporate purposes | ~$11,000,000 | | Total Used | ~$37,500,000 | - The company did not purchase any shares of its **Class A common stock** during the quarter ended June 30, 2021[250](index=250&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) **No other information is reported** in this section - **No other information is reported** in this section[253](index=253&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the **Form 10-Q**, including various agreements, corporate documents, and certifications - The **exhibits include various agreements** and corporate documents, such as the Plan of Merger for 704Games, Certificate of Incorporation, Share Purchase Agreement for Studio397, and License Agreements with INDYCAR LLC[254](index=254&type=chunk) - **Certifications from the Chief Executive Officer and Chief Financial Officer** pursuant to the Exchange Act and 18 U.S.C. Section 1350 are also included[254](index=254&type=chunk) [Signatures](index=51&type=section&id=Signatures) [Report Signatures](index=51&type=section&id=Report%20Signatures) The report was **duly signed** by Dmitry Kozko, CEO, and Jonathan New, CFO, on August 11, 2021 - The report was **signed** by Dmitry Kozko, Chief Executive Officer, and Jonathan New, Chief Financial Officer, on August 11, 2021[258](index=258&type=chunk)

l:1 motorsportgames Investor Presentation _June 2021 GAMES motorsport 1 LEGAL DISCLOSURES motorsportgames This presentation has been prepared by Motorsport Games Inc. ("Motorsport Games," "us," "our," "we" or the "Company"). For additional information regarding the Company, we urge you to read our reports filed with the Securities and Exchange Commission (the "SEC"), including our Quarterly Report on Form 10-Qfor the quarter ended March31, 2021. Cautionary Note Regarding Forward-Looking Statements Certain s ...

Motorsport Games Inc. (NASDAQ:MSGM) Q1 2021 Earnings Conference Call May 17, 2021 5:00 PM ET Company Participants Dmitry Kozko - Executive Chairman and Chief Executive Officer Stephen Hood - President Jon New - Chief Financial Officer Conference Call Participants Michael Graham - Canaccord Mike Hickey - Benchmark Company Franco Granda - D.A. Davidson Operator Thank you for standing by and welcome to the First Quarter 2021 Conference Call and Webcast for Motorsport Games Inc. On today???s call are Dmitry Koz ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number: 001-39868 Motorsport Games Inc. (Exact Name of Registrant as Specified in Its Charter) | Delaware | 86- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number: 001-39868 Motorsport Games Inc. (Exact Name of Registrant as Specified in Its Charter) | Delaware | 86-1791356 | | --- | ...