Motorsport Games(MSGM) - 2025 Q1 - Quarterly Report

Part I: Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Condensed Consolidated Financial Statements (Unaudited) Q1 2025 net income of $1.0 million reversed a prior loss, driven by a legal settlement and cost cuts despite 41.9% revenue decline Condensed Consolidated Balance Sheets As of March 31, 2025, cash was $1.1 million with a $1.9 million working capital deficit, assets and liabilities slightly decreased Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,050,402 | $859,271 | | Total Current Assets | $2,717,743 | $2,796,482 | | Total Assets | $6,063,855 | $6,268,221 | | Total Current Liabilities | $4,636,905 | $5,021,782 | | Total Liabilities | $4,646,970 | $5,042,219 | | Accumulated Deficit | $(90,748,910) | $(91,789,968) | | Total Stockholders' Equity | $1,416,885 | $1,226,002 | - The company reported a working capital deficit of $1.9 million as of March 31, 2025, calculated as Total Current Assets ($2.72 million) minus Total Current Liabilities ($4.64 million)[17][33] Condensed Consolidated Statements of Operations Q1 2025 revenue fell 41.9%, but a $1.0 million net income resulted from a legal settlement and 47.3% reduced operating expenses Q1 2025 vs. Q1 2024 Statement of Operations (Unaudited) | Financial Metric | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $1,758,453 | $3,029,036 | (41.9)% | | Gross Profit | $1,293,067 | $2,362,409 | (45.3)% | | Loss from Operations | $(93,195) | $(1,215,324) | 92.3% | | Other Operating Income | $500,000 | $0 | N/A | | Net Income (Loss) | $1,022,613 | $(1,683,398) | N/A | | Basic and Diluted EPS | $0.33 | $(0.61) | N/A | Condensed Consolidated Statements of Cash Flows The company generated $0.3 million in cash from operations in Q1 2025, ending the quarter with $1.1 million in cash and equivalents Q1 2025 vs. Q1 2024 Cash Flows (Unaudited) | Cash Flow Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $305,221 | $(373,670) | | Net cash used in financing activities | $(150,000) | $(50,000) | | Net increase (decrease) in cash | $191,131 | $(422,519) | | Cash and cash equivalents at end of period | $1,050,402 | $1,252,691 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail going concern doubts, a $2.35 million April 2025 private placement, and a $0.5 million legal settlement gain - Management has concluded there is substantial doubt about the Company's ability to continue as a going concern within one year, citing the lack of available cash to fund operations[48] - In October 2023, the company sold its NASCAR License to iRacing for $6.0 million, recognizing a gain of $0.5 million in Q1 2025[64] - The company reached a settlement in the HC2 and Continental Complaint, resulting in a $0.5 million gain recorded as other operating income in Q1 2025[109] - Subsequent to the quarter end, on April 11, 2025, the company raised approximately $2.5 million in gross proceeds through a private placement of stock and a pre-funded warrant[136] - On April 15, 2025, Nasdaq confirmed that the company regained compliance with the minimum stockholders' equity requirement for continued listing[137] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses 41.9% revenue decline, $1.0 million net income from settlements and cost cuts, and ongoing going concern doubts Results of Operations Q1 2025 revenues fell 41.9%, but $1.0 million net income resulted from 47.3% reduced operating expenses and legal settlements Revenue by Segment (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Revenue | Q1 2024 Revenue | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gaming | $1,758,453 | $3,029,036 | $(1,270,583) | (41.9)% | | Esports | $0 | $0 | $0 | 0% | | Total | $1,758,453 | $3,029,036 | $(1,270,583) | (41.9)% | - The decrease in Gaming segment revenue was primarily due to a $1.5 million drop in NASCAR-related revenues, as the company is no longer authorized to sell these titles starting in 2025[171] Operating Expenses (Q1 2025 vs Q1 2024) | Expense Category | Q1 2025 | Q1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $97,701 | $250,386 | $(152,685) | (61.0)% | | Development | $601,953 | $1,063,357 | $(461,404) | (43.4)% | | General and administrative | $1,168,482 | $2,190,266 | $(1,021,784) | (46.7)% | | Total Operating Expenses | $1,886,262 | $3,577,733 | $(1,691,471) | (47.3)% | - Other operating income of $0.5 million in Q1 2025 represents the reimbursement for legal fees from the Innovate Settlement Agreement[183] Liquidity and Capital Resources Liquidity is critical with going concern doubts and a $1.9 million working capital deficit, despite a $2.35 million capital raise - Management concludes there is substantial doubt about the company's ability to continue as a going concern for at least 12 months, as current capital resources are insufficient to fund operations[188][199] - In October 2024, the company reduced its workforce by approximately 23 individuals, or 38% of its worldwide employees, incurring a restructuring charge of about $0.2 million[37][192] Liquidity Metrics | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,050,402 | $859,271 | | Working capital (deficiency) | $(1,919,162) | $(2,225,300) | - The company believes there is a substantial likelihood that its majority shareholder, Driven Lifestyle, will not fulfill future borrowing requests under the $12 million Line of Credit, making it a non-viable source of liquidity[74][206] Quantitative and Qualitative Disclosures About Market Risk The company states that this item is not applicable for this reporting period - The company has indicated that this section is not applicable for this reporting period[217] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to unremediated material weaknesses - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025[220] - The ineffectiveness is due to ongoing material weaknesses, including: failure to maintain effective monitoring procedures, lack of sufficient accounting personnel, and inadequate independent review of complex accounting analyses[221] - No changes were made to internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[224] Part II: Other Information This section covers legal proceedings, risk factors, equity sales, other information, and exhibits related to the company's operations Legal Proceedings The company is involved in routine legal proceedings, with management believing outcomes are not reasonably likely to have a material adverse effect - The company states that while it is involved in routine legal proceedings, it does not expect them to have a material adverse effect on the business, directing readers to Note 9 for specifics[226] Risk Factors Critical risks include substantial doubt about going concern, unremediated internal control weaknesses, potential Nasdaq delisting, and limitations on future financing - The company's financial condition raises substantial doubt about its ability to continue as a going concern, with an accumulated deficit of $90.7 million as of March 31, 2025[228] - Identified material weaknesses in internal control over financial reporting persist, which could lead to inaccurate financial reporting and adversely affect the stock price[232] - The April 2025 Purchase Agreements restrict the company's ability to issue new stock for 4.5 months and grant investors a right of first refusal on subsequent financings, potentially limiting future fundraising options[234] - Although compliance with Nasdaq's minimum stockholders' equity rule was regained in April 2025, failure to maintain it could lead to delisting, which would negatively impact stock liquidity and price[235][237][238] - The company has a high concentration of revenue from a small number of customers. In Q1 2025, two customers accounted for 74.9% and 10.6% of revenue, respectively[239] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or share repurchases occurred during Q1 2025 beyond previously disclosed Form 8-K filings - No unregistered sales of equity securities occurred during Q1 2025 beyond what was already reported on Form 8-K[242] - The company did not purchase any of its Class A common stock during Q1 2025[243] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans or arrangements during Q1 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2025[246] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and key agreements incorporated by reference - The filing includes CEO and CFO certifications as required by the Exchange Act (Rule 13a-14(a) and 18 U.S.C. Section 1350)[247] - Key agreements filed or incorporated by reference include the April 11, 2025 Securities Purchase Agreement and the February 20, 2025 Settlement Agreement with the sellers of Studio397[247]