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) Unaudited consolidated financial statements and notes for Motorsport Games Inc. for periods ending June 30, 2025 and December 31, 2024 Condensed Consolidated Balance Sheets 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 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) 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 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 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 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 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, 202532 - 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 million32 - Management concludes there is substantial doubt about the Company's ability to continue as a going concern for a period of at least 12 months47 - The Company is exploring additional funding (equity/debt), strategic alternatives (asset sales/licensing), and cost reduction/restructuring initiatives to address liquidity3541211 - Workforce reduction in October 2024 impacted approximately 38% of worldwide employees, resulting in a $0.2 million restructuring charge36212 - The Company completed a private placement in April 2025, raising approximately $2.35 million net proceeds for working capital and general corporate expenses39 NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies 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 flows58 - Revenue from subscription-based matchmaking and online racing system (RaceControl) is recognized ratably over the subscription term60 - Software development costs are expensed until technological feasibility is reached, then capitalized and amortized to cost of revenue over the estimated lives of the products61 NOTE 3 – Intangible Assets 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 ACO63 - In October 2023, the Company sold its NASCAR License to iRacing.com Motorsport Simulations, LLC for $6.0 million, fully paid by December 31, 202465 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 year68 NOTE 4 – Accrued Expenses and Other Current Liabilities 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 year72 NOTE 5 – Related Party Loans 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 requests7374227 - As of June 30, 2025, there was no balance due to Driven Lifestyle under the $12 million Line of Credit75226 NOTE 6 – Related Party Transactions 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, 202476 - In June 2025, the Company entered a sponsorship agreement with a significant shareholder, generating approximately $25,000 in revenue78 - 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 only808182 - 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 year83 NOTE 7 – Stockholders' Equity 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 outstanding84 - In July 2024, the Company completed offerings that raised approximately $1.0 million in gross proceeds, involving shares, pre-funded warrants, and purchase warrants89228 - 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)3996149229 - 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 board151152229 NOTE 8 – Share-Based Compensation 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 Plan97 - There were 96,828 options outstanding under the MSGM 2021 Stock Plan as of June 30, 2025, with a weighted average exercise price of $61.7698101 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 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, 2025110202 - 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 income112202 - 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 €250,000115 - 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 2118119201 - 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 IP121122123201 - 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, 2025126148204 NOTE 10 – Concentrations 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 condition129 NOTE 11 – Segment Reporting 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 - All reported revenues for the three and six months ended June 30, 2025 and 2024, were generated by the Gaming segment135 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 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 phase138 - 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, 2025139 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 Championship141 - 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, 2024143 - Le Mans Ultimate, the official game of WEC and 24 Hours of Le Mans, was released on PC in early access on February 20, 2024144 Recent Events 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 Traxion146 - 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, 2025148 Private Placement Offering 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 shares149 - 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 director151152 Nasdaq Compliance 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 - Nasdaq granted an extension until April 14, 2025, to regain compliance154 - As of June 30, 2025, the Company's stockholders' equity was $5,570,240, indicating compliance with the Nasdaq Stockholders' Equity Requirement155 Trends and Factors Affecting Our Business 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 channels158 - The company plans to organize the 2025/26 Le Mans Virtual Series and expand its esports segment beyond Le Mans159 - 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 - The company aims to expand recurring revenue through subscriptions (e.g., RaceControl) and new annualized sports franchise games, such as with Le Mans161 Components of Our Results of Operations 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 - 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 software167 - Development expenses include in-house team salaries, operating expenses, consulting for external development, and software licenses/maintenance169 - General and administrative expenses cover salaries, benefits, and other costs for finance, HR, IT, legal, facilities, and external services170 Results of Operations 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 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 revenues174 - Gross profit margin increased to 82.4% in 2025 from 59.0% in 2024, driven by reduced royalty payments related to NASCAR titles178 - Development expenses decreased by $0.6 million (68.9%) due to lower payroll from reduced headcount and capitalization of internally-developed software costs182 - General and administrative expenses decreased by $0.5 million (38.7%) primarily due to a reduction in legal and professional fees183 - Other operating income increased by $0.9 million to $1.1 million, including $0.8 million from the Wesco Insurance Company settlement186 - Other income, net increased by $2.2 million to $2.3 million, primarily from foreign currency gains188 Six Months Ended June 30, 2025 compared to Six Months Ended June 30, 2024 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 RaceControl192 - Gross profit margin increased to 78.8% in 2025 from 70.7% in 2024, mainly due to reduced royalty payments for NASCAR titles195 - Development expenses decreased by $1.0 million (54.9%) due to lower payroll from reduced headcount and capitalization of internally-developed software costs198 - General and administrative expenses decreased by $1.6 million (43.5%) primarily due to a $1.1 million decrease in legal and professional fees199 - 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. settlement202 - 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 settlement204 Liquidity and Capital Resources 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. settlement208 - 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 year208 - Management concludes there is substantial doubt about the Company's ability to continue as a going concern208219 - The Company is exploring additional funding (equity/debt), strategic alternatives (asset sales/licensing), and cost reduction/restructuring initiatives211 - 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 flexibility214229 - 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 year222 - 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 offering224 Off-Balance Sheet Arrangements 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 currently232 Critical Accounting Policies and Estimates 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 products233 - Technological feasibility is generally reached shortly before products are released to production233 - Sales returns and price protection reserves are no longer relevant critical accounting estimates starting in 2025234 Recently Issued Accounting Standards 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 standards235 Non-GAAP Financial Measures 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 expenses237 - 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 business238 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 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 applicable243 Item 4. Controls and Procedures 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 reporting245 - Material weaknesses include failure to design and maintain effective monitoring procedures, lack of sufficient accounting personnel, and inadequate independent review of complex accounting analyses246257 - The company plans to make progress on remediation plans described in its 2024 Form 10-K247 - 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, 2025249 Part II. Other Information This section provides other information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings 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 disclosed251 Item 1A. Risk Factors 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 concern253254 - Un-remediated material weaknesses in internal control over financial reporting could adversely affect financial reporting accuracy and timeliness, potentially impacting business and stock price257258 - 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 operations259 - 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 stock261264 - 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, 2025265 - 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 products266 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 reported268 - The Company did not purchase any shares of its Class A common stock during the quarter ended June 30, 2025269 Item 5. Other Information 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, 2025272 Item 6. Exhibits 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 documents273 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 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, 2025276
Motorsport Games(MSGM) - 2025 Q2 - Quarterly Report