Motorsport Games(MSGM) - 2022 Q1 - Quarterly Report

Revenue and Sales Performance - For the three months ended March 31, 2022, Motorsport Games generated approximately 28% of total revenue from a single distribution partner for physical disk products [165]. - The company reported that 61% of revenue from sales of video games for consoles and PCs was through digital channels for the year ended December 31, 2021, increasing to 65% for the three months ended March 31, 2022 [168]. - Total revenues for the three months ended March 31, 2022, were $3,321,789, a 34% increase from $2,474,132 in the same period of 2021, driven by higher game sales and esports sponsorships [183]. - Gaming segment revenues increased to $2,958,388, up from $2,450,213, while esports segment revenues rose to $363,401 from $23,919, reflecting a significant growth in esports activities [183]. - The sales of products for Microsoft Windows via Steam comprised approximately 17% of total revenue for the three-month period ended March 31, 2022, compared to 8% for the same period in 2021 [167]. Game Development and Releases - As of March 31, 2022, Motorsport Games had a total headcount of 194 employees, with 134 dedicated to game development [157]. - The company released NASCAR 21: Ignition on October 28, 2021, and the full release of the KartKraft kart racing simulator on January 26, 2022 [164]. - Motorsport Games aims to expand its license arrangements to other internationally recognized racing series, with anticipated releases for INDYCAR, BTCC, and Le Mans games in 2023 and 2024 [164]. - The company has diversified its product offerings, reducing the percentage of revenues from NASCAR, with additional revenue streams from KartKraft and rFactor2 [164]. Financial Performance and Expenses - Cost of revenues surged to $2,013,806, a 158% increase from $781,808, primarily due to higher amortization of intangible assets and increased production costs [184]. - Gross profit decreased to $1,307,983, down 23% from $1,692,324, with gaming segment gross profit margin dropping from 71% to 53% [186]. - Development expenses rose by 92% to $2,404,338, reflecting increased costs for future game releases [189]. - General and administrative expenses decreased significantly to $3,423,153 from $14,764,038, largely due to non-recurring IPO-related expenses in 2021 [190]. - The company reported a net loss of approximately $16.0 million for the three months ended March 31, 2022, with an accumulated deficit of $53.1 million [203]. Cash Flow and Liquidity - As of March 31, 2022, cash and cash equivalents were $12,367,235, down from $17,819,640 at the end of 2021 [201]. - The company plans to explore additional funding options to support future liquidity needs and has reevaluated its product roadmap to improve cash flow [205][206]. - Net cash used in operating activities for Q1 2022 was $5,589,106, compared to $6,834,752 in Q1 2021, primarily due to a net loss of $15,967,045 in 2022 [213]. - Net cash used in investing activities for Q1 2022 was $101,004, primarily for purchases of property and equipment, while Q1 2021 saw $956,501 used, including $1,000,000 for the acquisition of KartKraft [214]. - Net cash provided by financing activities in Q1 2022 was $148,152, significantly lower than $53,633,631 in Q1 2021, which included $63,073,783 from the IPO [215]. Business Risks and Concerns - The ongoing COVID-19 pandemic has created significant business uncertainty, impacting global supply chains and consumer spending, but the company does not currently expect a material impact on future operations [161]. - The company has raised substantial doubt about its ability to continue as a going concern due to available cash on hand to fund operations over the next year [211]. - The company may need to seek additional capital contributions or loans, or reduce discretionary spending to meet cash requirements [212]. - The company has a $12 million line of credit with Motorsport Network, with no activity under this line as of March 31, 2022, and a balance of $0 [216][217]. - Impairment losses totaled $9,279,322 for goodwill and intangible assets, reflecting changes in the product roadmap and market conditions [191][192][193].