Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ ~~No☐~~No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May ~~16, 2022,~~11, 2023, the registrant had ~~11,673,587~~2,698,934 shares of Class A common stock and ~~7,000,000~~700,000 shares of Class B common stock outstanding. All Class A common stock and Class B common stock share data and share-based calculations set forth in this Form 10-Q have been adjusted to reflect the registrant’s 1-for-10 reverse stock split completed on November 10, 2022 on a retroactive basis for the periods presented.

This Quarterly Report on Form 10-Q (this “Report”) of Motorsport Games Inc. (the “Company,” “Motorsport Games,” “we,” “us” or “our”) contains certain statements, which are not historical facts and are “forward-looking statements” within the meaning of federal securities laws. These forward-looking statements are subject to certain risks, trends and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. We use words, such as “could,” “would,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. For example, forward-looking statements include, but are not limited to, statements we make relating to:

The forward-looking statements contained in this Report are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read and consider this Report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions that are difficult to predict. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. Important factors that could cause our actual results to differ materially from those projected in any forward-looking statements are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the “2022 Form 10-K”) and in “Risk Factors” in Part II, Item 1A of this Report, as updated in our subsequent filings with the Securities and Exchange Commission (the “SEC”). In addition to factors that may be described in our filings with the SEC, including this Report, the following factors, among others, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us:

Additionally, there are other risks and uncertainties described from time to time in the reports that we file with the SEC. Should one or more of these risks or uncertainties materialize or should any of these assumptions prove to be incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Report to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances, except as otherwise required by law. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

		March 31, 2022			December 31, 2021			March 31, 2023			December 31, 2022

Assets

Current assets:
Cash and cash equivalents		$	12,367,235		$	17,819,640		$	5,794,556		$	979,306
Accounts receivable, net of allowances of $4,798,124 and $4,563,884, at March 31, 2022 and December 31, 2021, respectively			2,753,873			5,490,272
Accounts receivable, net of allowances of $2,532,383 and $2,252,383 as of March 31, 2023 and December 31, 2022, respectively									899,926			1,809,110
Due from related parties			39,233			137,574			66,295			206,532
Prepaid expenses and other current assets			1,708,330			1,175,354			1,279,767			1,048,392
Total Current Assets			16,868,671			24,622,840			8,040,544			4,043,340
Property and equipment, net			722,982			727,089			466,095			522,433
Operating lease right of use assets			681,315			-			583,112			971,789
Goodwill			-			4,867,465
Intangible assets, net			15,308,597			20,485,809			13,008,061			13,360,230
Total Assets		$	33,581,565		$	50,703,203		$	22,097,812		$	18,897,792

Liabilities and Stockholders’ Equity

Current liabilities:	��
Accounts payable		$	592,667		$	1,784,645		$	1,040,291		$	2,372,219
Accrued expenses and other liabilities			2,574,533			3,524,271
Accrued expenses and other current liabilities									2,983,428			3,416,424
Due to related parties			117,153			119,015			167,860			4,589,211
Purchase commitments			3,276,863			3,170,319			2,486,011			2,563,216
Operating lease liabilities (current)			206,690			-			254,472			380,538
Total Current Liabilities			6,767,906			8,598,250			6,932,062			13,321,608
Operating lease liabilities (non-current)			485,115			-			348,753			617,288
Other non-current liabilities			4,145,094			4,122,950			3,518,364			3,055,498
Total Liabilities			11,398,115			12,721,200			10,799,179			16,994,394

Commitments and contingencies (Note 11)			-			-
Commitments and contingencies (Note 9)									-			-

Stockholders’ Equity:

Preferred stock, $0.0001 par value; authorized 1,000,000 shares; NaN issued and outstanding as of March 31, 2022 and December 31, 2021, respectively			-			-
Class A common stock - $0.0001 par value; authorized 100,000,000 shares; 11,673,797 and 11,635,897 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively			1,168			1,164
Class B common stock - $0.0001 par value; authorized 7,000,000 shares; 7,000,000 and 7,000,000 shares issued and outstanding as of March 31, 2022, and December 31, 2021, respectively			700			700
Preferred stock, $0.0001 par value per share; authorized 100,000,000 and 1,000,000 shares; and none issued and outstanding as of March 31, 2023 and December 31, 2022, respectively									-			-
Class A common stock - $0.0001 par value per share; authorized 100,000,000 and 100,000,000 shares; 2,698,934 and 1,183,808 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively									269			117
Class B common stock - $0.0001 par value per share; authorized 7,000,000 and 7,000,000 shares; 700,000 and 700,000 shares issued and outstanding as of March 31, 2023 and December 31, 2022									70			70
Common stock, value									70			70

Additional paid-in capital			76,004,201			75,651,175			91,215,242			76,446,061
Accumulated deficit			(53,125,943	)		(37,988,326	)		(79,080,078	)		(73,979,131	)
Accumulated other comprehensive loss			(1,070,620	)		(945,375	)		(1,011,994	)		(933,406	)
Total Stockholders’ Equity Attributable to Motorsport Games Inc.			21,809,506			36,719,338			11,123,509			1,533,711
Non-controlling interest			373,944			1,262,665			175,124			369,687
Total Stockholders’ Equity			22,183,450			37,982,003			11,298,633			1,903,398
Total Liabilities and Stockholders’ Equity		$	33,581,565		$	50,703,203		$	22,097,812		$	18,897,792

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

							2023			2022
	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
Revenues	$	3,321,789		$	2,474,132		$	1,729,355		$	3,321,789
Cost of revenues [1]		2,013,806			781,808			1,248,736			2,013,806
Gross profit		1,307,983			1,692,324			480,619			1,307,983

Operating expenses:
Sales and marketing		1,688,449			1,024,218
Development [2]		2,404,338			1,250,362
General and administrative [3]		3,423,153			14,764,038
Sales and marketing [2]								618,410			1,688,449
Development [3]								2,397,134			2,404,338
General and administrative [4]								2,779,110			3,423,153
Impairment of goodwill		4,788,268			-			-			4,788,268
Impairment of intangible assets		4,491,054			-			-			4,491,054
Depreciation and amortization		116,071			30,775			97,354			116,071
Total operating expenses		16,911,333			17,069,393			5,892,008			16,911,333
Loss from operations		(15,603,350	)		(15,377,069	)		(5,411,389	)		(15,603,350	)
Interest expense [4]		(201,596	)		(119,539	)
Gain attributable to equity method investment		-			1,370,837
Other (expense) income, net		(162,099	)		40,347
Interest expense								(199,120	)		(201,596	)
Other income (expense), net								351,317			(162,099	)
Net loss		(15,967,045	)		(14,085,424	)		(5,259,192	)		(15,967,045	)
Less: Net loss attributable to non-controlling interest		(829,428	)		(273,450	)		(158,245	)		(829,428	)
Net loss attributable to Motorsport Games Inc.	$	(15,137,617	)	$	(13,811,974	)	$	(5,100,947	)	$	(15,137,617	)

Net loss attributable to Class A common stock per share:
Basic and diluted	$	(1.30	)	$	(1.30	)	$	(2.33	)	$	(12.97	)

Weighted-average shares of Class A common stock outstanding:
Basic and diluted		11,668,160			10,637,065			2,192,155			1,166,816

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

							2023			2022
	Three Months Ended March 31,						Three Months Ended March 31,
	2022			2021			2023			2022
Net loss	$	(15,967,045	)	$	(14,085,424	)	$	(5,259,192	)	$	(15,967,045	)
Other comprehensive loss:
Foreign currency translation adjustments		(125,245	)		(32,914	)		(78,588	)		(125,245	)
Comprehensive loss		(16,092,290	)		(14,118,338	)		(5,337,780	)		(16,092,290	)
Comprehensive loss attributable to non-controlling interests		(888,721	)		(273,450	)		(194,563	)		(888,721	)
Comprehensive loss attributable to Motorsport Games Inc.	$	(15,203,569	)	$	(13,844,888	)	$	(5,143,217	)	$	(15,203,569	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

NOTE 1 - BUSINESS ORGANIZATION, NATURE OF OPERATIONS, AND RISKS AND UNCERTAINTIES ~~AND BASIS OF PRESENTATION~~

Motorsport Gaming US LLC (“Motorsport Gaming”) was established as a limited liability company on August 2, 2018 under the laws of the State of Florida. On January 8, 2021, Motorsport Gaming converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Motorsport Games Inc. (“Motorsport Games” or the “Company”). Upon effecting the corporate conversion on January 8, 2021, Motorsport Games now holds all the property and assets of Motorsport Gaming, and all of the debts and obligations of Motorsport Gaming were assumed by Motorsport Games by operation of law upon such corporate conversion.

The global spread of the ongoing and prolonged COVID-19 pandemic and its variants has created significant business uncertainty for the Company and others, which has negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets. Additionally, the outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place, stay-at-home or total lock-down (or similar) orders and business limitations and shutdowns. In late fiscal 2020 and throughout fiscal 2021, vaccines for combating COVID-19 were approved by health agencies in certain countries and regions where the Company operates and began to be administered, and the Company saw some loosening of government-mandated COVID-19 restrictions in certain locations, such as the United States, in response to improved COVID-19 infection levels. More recently, new variants of COVID-19, such as the Omicron variant, that are significantly more contagious than previous strains, have emerged. Further, the effectiveness of approved vaccines on these new strains remains uncertain. The spread of these new strains have caused some government authorities to reimpose some or all of the earlier restrictions or impose other restrictions, all in an effort to lessen the spread of COVID-19 and its variants. While these lockdowns have begun to be lifted, the lingering impact of COVID-19 has continued to create significant volatility throughout the global economy, such as supply chain disruptions, limited labor supplies and higher inflation, which in turn has caused constraints on consumer spending.

As a result of the ongoing and prolonged COVID-19 pandemic, including the related responses from government authorities, the Company’s business and operations were impacted, including the temporary closures of its offices in Miami, Florida, Silverstone, England, and Moscow, Russia during 2021, which resulted in many of the Company’s employees working remotely. During the initial COVID-19 outbreak in 2020, demand for the Company’s games generally increased, which the Company believes was primarily attributable to a higher number of consumers staying at home due to COVID-19 related restrictions. Similarly, there was a significant increase in viewership of the Company’s esports events since the initial impact of the virus, as these events began to air on both digital and linear platforms, particularly as the Company was able to attract many of the top “real world” motorsport stars to compete. Conversely, several retailers have experienced, closures, reduced operating hours and/or other restrictions as a result of the ongoing and prolonged COVID-19 pandemic and its variants, which has negatively impacted the sales of the Company’s products from such retailers. Additionally, in the Company’s esports business, the ongoing and prolonged COVID-19 pandemic has resulted in the cancellation or postponement of certain events to later dates or shifting events from an in-person format to online only. The emergence of the significantly more contagious Omicron variant of COVID-19 and the prevalence of breakthrough cases of infection among fully vaccinated people adds additional uncertainty and could result in further impacts to the Company’s business and operations, such as those discussed above and in the section entitled “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2022 (the “2021 Form 10-K”).

Although the Company does not currently expect the COVID-19 pandemic to have a material impact on its future business and operations, the Company continues to monitor the evolving situation caused by the COVID-19 pandemic, and the Company may take further actions required by governmental authorities or that the Company determines are prudent to support the well-being of the Company’s employees, suppliers, business partners and others. The degree to which the ongoing and prolonged COVID-19 pandemic impacts the Company’s operations, business, financial results, liquidity, and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic; its severity; the emergence and severity of its variants; the actions to contain the virus or treat its impact, such as the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; and the effect on discretionary spending by consumers; and how quickly and to what extent normal economic and operating conditions can resume.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In management’s opinion, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022. The Company’s results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related disclosures as of December 31, 2021 and 2020 and for the years then ended which are included in the 2021 Form 10-K.

~~On January 15, 2021, the Company completed its initial public offering which resulted in net proceeds to the Company of approximately $63.1~~ ~~million, after deducting underwriting discounts and commissions and offering expenses paid by the Company.~~

~~For the three months ended March 31, 2022, the~~ Company had a net loss of approximately $~~16.0~~5.3 million, ~~and~~ negative cash flows from operations of approximately $~~5.6~~5.7 ~~million. As of March 31, 2022, the Company had~~million and an accumulated deficit of $~~53.1~~79.1 ~~million. It is expected that~~million for the three months ended March 31, 2023. As of March 31, 2023, the Company ~~will~~had cash and cash equivalents of $5.8 million, which was reduced to $4.9 million as of April 30, 2023. The Company expects to continue to incur significant operating expenses and, as a result, ~~the Company~~ will need ~~to continue~~ to grow revenues to reach profitability and positive cash flows. ~~We expect~~The Company expects to continue to incur losses for the foreseeable future as ~~we continue~~it continues to develop ~~our~~its product portfolio and invest in ~~the development of~~developing new video game titles.

~~In accordance with Accounting Standards Codification (“ASC”) 205-40,~~ ~~Going Concern~~~~, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the~~The Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. The factors described above, in particular the available cash on hand to fund operations over the next year, have raised substantial doubt about the Company’s ability to continue as a going concern.

~~Our~~ future liquidity and capital requirements include funds to support the planned costs to operate ~~our~~its business, including amounts required to fund working capital, support the development and introduction of new products, maintain existing titles, and certain capital expenditures. The adequacy of ~~our~~the Company’s available funds generally depends on many factors, including ~~our~~its ability to successfully develop consumer-preferred new products or enhancements to ~~our~~its existing products, continued development and expansion of ~~our~~its esports platform and ~~our~~its ability to enter into collaborations with other companies and/or acquire other companies or technologies to enhance or complement ~~our~~its product and service offerings.

~~We continue~~The Company continues to explore additional funding in the form of potential equity and/or debt financing arrangements or similar transactions and consider these to be viable options to support future liquidity needs, ~~providing~~provided that such opportunities can be obtained on terms that are commercially competitive and on terms acceptable to the Company. ~~We are~~The Company is also seeking to improve ~~our~~its liquidity by achieving cost reductions by maintaining and enhancing cost control ~~initiatives.~~initiatives, such as those that it expects to achieve through its previously announced organizational restructuring program (the “2022 Restructuring Program”).

As ~~we continue~~the Company continues to evaluate incremental funding solutions, ~~we have~~it has reevaluated ~~our~~its product roadmap in the first quarter of ~~2022~~2023 and modified the expected timing and scope of certain new product releases. These changes have been made not only to maintain the development of high-quality video game titles, but also to improve the timing of certain working capital requirements and reduce expenditures, thereby decreasing our expected future cash-burn and improve our short-term liquidity needs. If needed, further adjustments could be made that would decrease short-term working capital requirements, while pushing out the timing of expected revenues.

~~We expect~~The Company expects to generate additional liquidity through consummating one or more potential equity and/or debt financings or similar transactions, achieving cost reductions by maintaining and enhancing cost control initiatives, such as those that it expects to achieve through the 2022 Restructuring Program, and/or further adjusting ~~our~~its product roadmap to reduce near term need for working capital. If ~~we are~~the Company is unable to generate adequate revenue and profit growth, there can be no assurances that such actions will provide usthe Company with sufficient liquidity to meet ~~our~~its cash requirements as, among other things, ~~our~~its liquidity position can be impacted by a number of factors, including ~~our~~its level of sales, costs and expenditures, economic conditions in the capital markets, especially for technology companies, as well as accounts receivable and sales allowances.

There can be no assurance that wethe Company will be able to obtain funds on commercially acceptable terms, if at all, to satisfy ~~our~~its future needed liquidity and capital resources. If ~~we are~~the Company is unable to obtain adequate funds on acceptable terms, weit may be required to, among other things, significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms.

If ~~we are~~the Company is unable to satisfy ~~our~~its cash requirements from the sources identified above, weit could be required to adopt one or more of the following alternatives:

There can be no assurance that wethe Company would be able to take any of the actions referred to above because of a variety of commercial or market factors, including, without limitation, market conditions being unfavorable for an equity or debt issuance or similar transactions, additional capital contributions and/or loans not being available from Motorsport Network or affiliates and/or third parties, or that the transactions may not be permitted under the terms of ~~our~~the Company’s various debt instruments then in effect, such as due to restrictions on the incurrence of debt, incurrence of liens, asset dispositions and related party transactions. In addition, such actions, if taken, may not enable usthe Company to satisfy ~~our~~its cash requirements if the actions that ~~we are~~the Company is able to consummate do not generate a sufficient amount of additional capital.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Even if ~~we do~~the Company does secure additional financing, if ~~our~~the anticipated level of revenues are not achieved because of, for example, less than anticipated consumer acceptance of ~~our~~the Company’s offering of products and events; less than effective marketing and promotion campaigns, decreased consumer spending in response to weak economic conditions or weakness in the overall electronic games category; adverse changes in ~~currency;~~foreign currency exchange rates; decreased sales of ~~our~~the Company’s products and events as a result of increased competitive activities by ~~our~~the Company’s competitors; changes in consumer purchasing ~~habits;~~habits, such as the impact of higher energy prices on consumer purchasing behavior; retailer inventory management or reductions in retailer display space; less than anticipated results from the Company’s existing or new products or from its advertising and/or marketing plans; or if the Company’s expenses, including, without limitation, for marketing, advertising and promotions, product returns or price protection expenditures, exceed the anticipated level of expenses, ~~our~~the Company’s liquidity position may continue to be insufficient to satisfy ~~our~~its future capital requirements.

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. The factors described above, in particular the available cash on hand to fund operations over the next year, have raised substantial doubt about the Company’s ability to continue as a going concern.

The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~On January 1, 2022, the Company adopted Accounting Standard Update 2016-02,~~ ~~Leases (Topic 842)~~ (“ASC 842”) using the modified retrospective approach and elected the optional transition method, which allows entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Upon adoption, the Company applied the guidance to all existing leases.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In management’s opinion, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a ~~term greater than 12~~fair statementof the Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023. The Company’s results of operations for the ~~new guidance requires~~three months ended March 31, 2023 are not necessarily indicative of the ~~lease rights~~operating results for the full year ending December 31, 2023 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and ~~obligations arising~~related disclosures as of December 31, 2022 and 2021 and for the years then ended which are included in the 2022 Form 10-K.

Effective on November 10, 2022, the Company amended its certificate of incorporation to effectuate a reverse split of the issued and outstanding shares of Class A common stock and Class B common stock at a ratio of 1-for-10. Fractional shares of common stock resulting from the ~~leasing arrangements, including operating leases, to be recognized as assets~~reverse stock split were settled in cash. Shares underlying outstanding equity-based awards were proportionately decreased and ~~liabilities on~~ the ~~balance sheet. Upon adoption~~respective per share exercise prices, if applicable, were proportionately increased in accordance with the terms of ~~ASC 842,~~ the ~~Company recognized approximately $751,000~~agreements governing such securities. All shares of ~~operating lease assets~~common stock, equity-based awards, and ~~operating lease liabilities primarily related to real estate, which were~~per share information presented in the condensed consolidated ~~balance sheet as operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current. There was no cumulative effect of applying~~financial statements have been adjusted to reflect the ~~new standard and accordingly there was no adjustment to retained earnings~~reverse stock split on ~~adoption. The comparative information presented has not been restated and continues to be reported under the accounting standards in effect~~a retroactive basis for those periods. The Company opted to apply the optional package of practical expedients permitted under ASC 842, which eliminated the requirement to reassess prior conclusions regarding lease identification, classification and initial direct costs.all periods presented.

The ~~adoption~~Company has revised the presentation of ~~ASC 842 did not have a material impact on~~accounts payable and other non-current liabilities in the ~~Company’s condensed consolidated statements of operations and comprehensive loss or condensed consolidated statements~~statement of cash ~~flows.~~flow as of March 31, 2022, to correct an immaterial error in the presentation of those statement of cash flow line items.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the ~~Company adopted ASU 2020-01,~~ ~~Investments—Equity Securities (“Topic 321”), Investments—Equity Method~~reported amounts of assets and ~~Joint Ventures (“Topic 323”),~~liabilities and ~~Derivatives~~disclosures of contingent assets and ~~Hedging (“Topic 815”)—Clarifying~~liabilities at the ~~Interactions between Topic 321, Topic 323, and Topic 815 (a consensus~~date of the ~~Emerging Issues Task Force)~~ (“ASU 2020-01”). The amendments in this ASU clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323,consolidated financial statements and the ~~guidance in Topic 815, which could change how an entity accounts for an equity security under~~reported amounts of revenue and expenses during the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. The adoption of ASU 2020-01 did not have a material impact on the Company’s condensed consolidated financial statements.

~~On January 1, 2022, the Company adopted ASU 2019 -12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”). The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.reporting period.

~~There have been no material changes to the~~The Company’s significant ~~accounting policies included~~estimates used in ~~the audited~~these consolidated financial statements ~~included in the 2021 Form 10-K, except as disclosed in this note.~~

~~The Company recognizes revenue under ASC 606,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”). The Company determines revenue recognition through the following steps:~~

The Company currently derives revenue principally from sales of its games and related extra content that can be played by customers on a variety of platforms, which include game consoles, PCs, mobile phones and tablets. The Company’s product and service offerings include the following:

~~Sales of Games.~~ Sales of games are generally determined to have a singular distinct performance obligation, as the Company does not have an obligation to provide future update rights or online hosting. As a result, the Company recognizes revenue equal to the full transaction price, less any applicable reserves, at the point in time the customer obtains control of the software license and the Company satisfies its performance obligation.

~~Sales of Extra Content.~~ Revenue recognized from sales of extra content is derived primarily from the sale of digital in-game content that is downloaded by the Company’s console, PC and mobile customers that enhance their gameplay experience, typically by providing car upgrades, additional drivers and/or allows them to customize their gameplay. In-game credit, and other downloadable content, may only be used for in-game purchases and/or customizing the gameplay. Revenue related to extra content is recognized at the point in time the Company satisfies its performance obligation, which is generally at the time the customer obtains control of the extra content, either by downloading the digital in-game content or by purchasing the in-game credits. For console and PC customers, extra content is either purchased in a pack or on a standalone basis.

~~Esports.~~ The Company recognizes sponsorship revenue associated with hosting online esports competition events over the period of time the Company satisfies its performance obligation under the contract, which is generally concurrent with the time the event is held. If the Company enters into a contract with a customer to sponsor a series of esports events, the Company allocates the transaction price between the series of events and recognizes revenue over the period of time that each event is held and the Company satisfies its performance obligations.

The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the Company’s performance obligations are satisfied.

~~During the three months ended March 31, 2022 and 2021, there were no revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods.~~

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct (i.e., the customer can benefit from the goods or services either on its own or together with other resources that are readily available), and are distinct in the context of the contract (i.e., it is separately identifiable from other goods or services in the contract). To the extent a contract includes multiple promises, the Company must apply judgment to determine whether those promises are separate and distinct performance obligations. If these criteria are not met, the promises are accounted for as a combined performance obligation.

The transaction price is determined based on the consideration that the Company will be entitled to receive in exchange for transferring its goods and services to the customer. Determining the transaction price often requires significant judgment based on an assessment of contractual terms and business practices. It further includes reviewing variable consideration such as discounts, sales returns, price protection, and rebates, which is estimated at the time of the transaction. See below for additional information regarding the Company’s sales returns and price protection reserves.

~~Allocating the transaction price requires the Company to determine an estimate of the relative stand-alone selling price for each distinct performance obligation.~~

The Company evaluates sales to end customers of its full games and related content via third-party storefronts, including digital storefronts such as Microsoft’s Xbox Store, Sony’s PlayStation Store, Nintendo’s eShop, Apple’s App Store, and Google’s Play Store, to determine whether the Company is acting as the principal or agent in the sale to the end customer. Key indicators that the Company evaluates in determining gross versus net treatment include, but are not limited to, ~~the following:~~

~~● the underlying contract terms and conditions between the various parties to the transaction;~~

~~● which party is primarily responsible~~revenue recognition criteria, including allowances for ~~fulfilling the promise to provide the specified good or service to the end customer;~~

~~● which party has inventory risk before the specified good or service has been transferred to the end customer; and~~

~~● which party has discretion in establishing the price for the specified good or service.~~

Based on an evaluation of the above indicators, the Company determined that, apart from contracts with customers where revenue is generated via the Apple’s App Store or Google’s Play Store, the third party is considered the principal with the end customer and, as a result, the Company reports revenue net of the fees retained by the storefront. For contracts with customers where revenues are generated via the Apple’s App Store or Google’s Play Store, the Company has determined that it is the principal and, as a result, reports revenues on a gross basis, with mobile platform fees included within cost of revenues.

~~Sales~~ returns and price protection, ~~are considered variable consideration under ASC 606. The Company reduces revenue for estimated future returns~~as well as current expected credit losses, valuation allowance of deferred income taxes, valuation of acquired companies and ~~price protection which may occur with distributors~~equity method investments, the recognition and ~~retailers (“channel partners”). See “Note 2 – Summary~~disclosure of Significant Accounting Policies – Accounts Receivable” in the 2021 Form 10-K for additional details. Price protection represents the Company’s practice to provide channel partners with a credit allowance to lower their wholesale price on a particular game unit that they have not resold to customers. The amount of the price protection for permanent markdowns is the difference between the original wholesale pricecontingent liabilities, goodwill and ~~the new reduced wholesale price. Credits are also given for short-term promotions that temporarily reduce the wholesale price. When evaluating the adequacy of sales returns~~intangible assets impairment testing, and ~~price protection reserves, the Company analyzes the following: historical credit allowances, current sell-through of channel partners’ inventory~~stock-based compensation valuation. Certain of the Company’s ~~products, current trends in retail and the video game industry, changes in customer demand, acceptance of products, and other related factors. In addition,~~estimates could be affected by external conditions, including those unique to the Company ~~monitors the volume of sales to its channel partners~~ and ~~their inventories, as substantial overstocking in the distribution channel~~general economic conditions. It is reasonably possible that these external factors could result in higher than expected returns or higher price protection in subsequent periods. The Company’s sales returns and price protection reserves for the three months ended March 31, 2022 and December 31, 2021 were $~~4,798,124~~ ~~and $4,563,884, respectively. The Company recognized approximately $234,240~~ ~~and $40,800~~ ~~of sales returns and price protection charges as a reduction of revenues for the three months ended March 31, 2022 and 2021, respectively.~~

~~The Company accounts for stock-based compensation in accordance with ASC Subtopic 718-10. The Company measures the cost of services received in exchange for~~have an ~~award of equity instruments based~~effect on the fair value of the award. The fair value of the award is measured on the grant date, using the Black-Scholes option pricing model. The fair value amount is then recognized over the period during which services are requiredCompany’s estimates and may cause actual results to be provided in exchange for the award, usually the vesting period. Upon the exercise of an award, the Company issues new shares of common stock out of its authorized shares. Stock-based compensation is adjusted for any forfeitures, which are accounted for on an as occurred basis.

We account for share-based payments in accordance with ASC Subtopic 718-10. Share-based compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee is being compensated) and is based on the value of share-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We generally estimate the value of stock options using a Black-Scholes option pricing model. This estimate is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over the term of the awards and projected employee stock option exercise behaviors.

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of options, if not anti-dilutive.

~~The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:~~

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.

On January 1, 2023, the ~~FASB issued~~Company adopted ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses” (“ASU 2019-11”)., issued by the Financial Accounting Standards Board (the “FASB”) in November 2019. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instrument”~~” The amendments update~~, issued by the FASB in June 2016. ASU 2016-13, as amended by ASU 2019-11, requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, oneach reporting entity should estimate an allowance for expected credit losses, ~~for financial assets. These amendments affect loans, debt securities,~~which is intended to result in more timely recognition of losses. This model replaces multiple existing impairment models in current U.S. GAAP, which generally require a loss to be incurred before it is recognized. The new standard applies to trade receivables ~~net investments in leases, off balance sheet~~arising from revenue transactions such as contract assets and accounts receivable. Under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”) revenue is recognized when, among other criteria, it is probable that an entity will collect the consideration it is entitled to when goods or services are transferred to a customer. When trade receivables are recorded, they become subject to the CECL model and estimates of expected credit ~~exposures, reinsurance~~losses on trade receivables over their contractual life will be required to be recorded at inception based on historical information, current conditions, and ~~any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2019-11 are~~reasonable and supportable forecasts. This guidance is effective for smaller reporting companies with annual ~~reporting~~ periods beginning after December 15, 2022, including the interim periods in the year. Early adoption is permitted. All entities may adopt the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). Upon adoption, this guidance did not have a material impact on the condensed consolidated financial statements.

On January 1, 2023, the Company adopted ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), issued by the FASB in August 2020. The amendments affect entities that issue convertible instruments, as well as contracts in an entity’s own equity. For convertible instruments, the instruments primarily affected are those issued with beneficial conversion features or cash conversion features because the accounting models for those specific features are removed. However, all entities that issue convertible instruments are affected by the amendments to the disclosure requirements in ASU 202-06. These amendments improve US GAAP by eliminating certain accounting models, therefore, simplifying the accounting for convertible instruments, and reducing complexity for preparers and practitioners, as well as improving the decision usefulness and relevance of the information provided to financial statement users. In addition to eliminating certain accounting models, these amendments enhance information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance. For contracts in an entity’s own equity, the contracts primarily affected are freestanding instruments and embedded features that are accounted for as derivatives under the current guidance because of failure to meet the settlement conditions of the derivatives scope exception related to certain requirements of the settlement assessment. ASU 2020-06 simplifies the settlement assessment by removing the requirements (1) to consider whether the contract would be settled in registered shares, (2) to consider whether collateral is required to be posted, and (3) to assess shareholder rights. These amendments also affect the assessment of whether an embedded conversion feature in a convertible instrument qualifies for the derivatives scope exception. These amendments improve US GAAP by simplifying the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and improving inconsistency in the accounting for some contracts as derivatives while accounting for economically similar contracts as equity. Additionally, the amendments in ASU 2020-06 affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. This guidance is effective for smaller reporting companies with annual periods beginning after December 15, 2023, including the interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years after December 15, 2020, including interim periods within those fiscal years. All entities may adopt the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). ~~The Company is currently evaluating~~Entities may also elect to adopt the amendments using the fully retrospective method of transition, with the cumulative effect of the change recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. Upon adoption, this guidance did not have a material impact ~~of this standard~~ on ~~its~~the condensed consolidated financial statements.

There have been no material changes to the significant accounting policies disclosed in the audited consolidated financial statements for the year ended December 31, 2022, as included in the 2022 Form 10-K, except as disclosed in this note.

The Company accounts for its assets and ~~disclosures.~~liabilities using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the fair-value hierarchy below. This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.

The Company’s liability-classified warrants are measured at fair value on a recurring basis, with subsequent changes in fair value recognized in earnings. Certain assets, including long-lived assets, right of use assets, goodwill, indefinite-lived intangible assets, and purchase commitments are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments using fair value measurements with unobservable inputs are classified as Level 3. Other financial instruments, including cash and cash equivalents, accounts receivable, prepaid and other assets, accounts payable, accrued expenses, and other current liabilities are carried at cost, which approximate their fair values due to their short-term nature.

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 - Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815 - Derivatives and Hedging (“ASC 815”). The Company’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding.

~~On January 8, 2021, Motorsport Gaming, a Florida limited liability company, converted into Motorsport Games, a Delaware corporation, pursuant to a statutory conversion.~~

The Company may permit product returns from, or grant price protection to, its customers under certain conditions. Price protection represents the Company’s practice of providing channel partners with a credit allowance to lower their wholesale price on a particular game unit that they have not resold to customers. The amount of the price protection for permanent markdowns is ~~subject to federal~~the difference between the original wholesale price and ~~state income taxes~~the new reduced wholesale price. Credits are also given for short-term promotions that temporarily reduce the wholesale price.

Allowances for returns and price protection are considered variable consideration under ASC 606. The Company reduces revenue for estimated future returns and price protections that may occur with distributors and retailers (“channel partners”). See Note 2 – Basis of Presentation and Summary of Significant Accounting Policies – Accounts Receivable in the ~~U.S. The~~2022 Form 10-K for additional details.

When evaluating the adequacy of allowances for returns and price protection, the Company ~~files income tax returns~~analyzes the following: historical credit allowances, current sell-through of channel partners’ inventory of the Company’s products, current trends in retail and the video game industry, changes in customer demand, acceptance of products, and other related factors. In addition, the Company monitors the volume of sales to its channel partners and their inventories, as substantial overstocking in the ~~jurisdictions~~distribution channel could result in ~~which nexus threshold requirements are met.~~higher-than-expected returns or higher price protection in subsequent periods.

The Company ~~recognizes deferred tax assets~~recognized an expense of approximately $0.3 million and ~~liabilities~~$0.2 million for sales returns and price protections as a reduction of revenues for the ~~expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets~~three months ended March 31, 2023 and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse. ASC 740, ~~Taxes~~ ~~requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized.~~2022, respectively.

The ~~Company utilizes a recognition threshold~~Company’s deferred revenue, or contract liability, is classified as current and ~~measurement process~~is included within accrued expenses and other current liabilities on the unaudited condensed consolidated balance sheets (Also refer Note 4 – Accrued Expenses and Other Current Liabilities). Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Development and coding revenues are also recorded as deferred revenue until the Company’s performance obligation is performed.

Revenue recognized in the period from amounts included in contract liability at the beginning of the period was approximately $0.3 million and $0.5 million for ~~financial statement recognition~~the three months ended March 31, 2023 and ~~measurement of a tax position taken or expected to be taken in a tax return.~~2022, respectively.

~~The Company’s policy~~Basic net loss per common share is ~~to classify assessments,~~computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of shares of options and warrants, if ~~any, for tax-related interest as interest expense and penalties as general and administrative expenses in its condensed consolidated statements of operations.~~not anti-dilutive.

The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

~~Motorsport Games Inc. and Subsidiaries~~SCHEDULE OF CALCULATION WEIGHTED AVERAGE DILUTIVE COMMON SHARES

The Company has license agreements with various entities related to the development of video games and the organization and facilitation of esports events, including BARC (TOCA) Limited (“BARC”) with respect to the British Touring Car Championship (the “BTCC”), and INDYCAR LLC (“INDYCAR”) with respect to the INDYCAR SERIES. As of March 31, ~~2022 and March 31, 2021,~~2023, the Company had a remaining liability in connection with these licensing agreements of approximately $~~3,812,559~~0.8 million and $~~822,184~~3.3~~, respectively,~~ million, which is included in purchase commitments and other non-current liabilities, respectively, on the condensed consolidated balance sheets.

During the three months ended March 31, 2022, the Company identified triggering events that indicated its allocated intangible and finite-lived intangible assets were at risk of impairment and as such, performed quantitative impairment assessments of all its intangible and finite-lived intangible assets. The primary triggers for the impairment review were changes made to the Company’s product roadmap in the first quarter of the fiscal year ending December 31, 2022, which resulted in changes to the scope and timing of certain product releases, as well as changes in the value of the Company’s market capitalization which had reduced significantly since December 31, 2021, the date of the last impairment assessment. These changes were made by the Company to better align the product roadmap with the Company’s ability to produce and release high quality games.

As a result of the quantitative assessments, the Company determined the fair value of its rFactor 2 trade name and Le Mans video gaming license (the “Le Mans Gaming License”) indefinite-lived intangible assets, as well as certain finite-lived technology intangible assets, were lower than their carrying values and recorded an impairment loss for the indefinite-lived intangible assets for the period ended March 31, 2022 of $~~2,051,852~~ ~~for rFactor 2 trade name~~ ~~and $1,118,209for the Le Mans Gaming License. Additionally, the Company recorded impairment of finite-lived software technology for $1,320,993~~ ~~during the period ended March 31, 2022.~~

The Company determined the fair value of the indefinite-lived intangible assets using a relief-from-royalty method for the trade name and a discounted cash flow valuation model for the Le Mans Gaming License and used a cost to recreate valuation model for the finite-lived technology intangible asset. The impairment loss for indefinite- and finite-lived intangible assets was primarily driven by a reduction in expected future revenues, following changes to the Company’s product roadmap, as well as changes to the discount rates applied, royalty rates and technological obsolescence assumptions used in the valuation models. The principal assumptions used in the relief-from-royalty method analysis used to determine the fair value of the rFactor 2 trade name consisted of forecasted revenues, royalty rate and weighted average cost of capital (i.e., discount rate), while the principal assumptions used in the discounted cash flow valuation model for the Le Mans Gaming License were forecasted revenues and weighted average cost of capital. The principal assumptions used in determining the fair value of the finite-lived technology intangible asset were number of production hours, cost per hour and technological obsolescence. The Company considers these assumptions to be judgmental and subject to risk and uncertainty, which could result in further changes in subsequent periods.

~~The impairment loss is presented as impairment of intangible assets in the condensed consolidated statements of operations and comprehensive loss.~~

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Estimated aggregate amortization expense of intangible assets for the next five years and thereafter is as follows:

For the Years Ending December 31,	Total
2022 (remaining period)	$	978,499
2023		1,739,553
For the Years Ended December 31,			Total
2023 (remaining period)			$	1,318,924
2024		1,679,637		1,652,026
2025		1,532,268		1,568,894
2026		1,302,260		1,322,107
2027				482,338
Thereafter		2,027,226		1,702,871
Estimated aggregate amortization expense	$	9,259,443	$	8,047,160

Amortization expense related to intangible assets was approximately $~~482,716~~0.4 million and $~~110,297~~ 0.5 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Within intangible assets is approximately $~~3,457,202~~1.5 million of ~~non-amortizing assets.~~licensing agreements that are not presently subject to amortization. These non-amortizing licensing agreements will ~~commence~~begin amortizing upon release of the first title under the respective license agreement.

~~The carrying amount of goodwill attributable to our Gaming and esports reporting units and the changes in such balances during the three months ended March 31, 2022 were as follows:~~

During the three months ending March 31, 2022, the Company identified triggering events that indicated its goodwill associated with the acquisition of Studio397 was at risk of impairment and as such, performed a quantitative impairment assessment to determine whether the fair value of the associated reporting unit exceeded its fair value. The primary triggers for the impairment review were changes made to Motorsport Games’ product roadmap in the first quarter of the fiscal year ending December 31, 2022, which resulted in changes to the scope and timing of certain product releases, as well as changes in the value of Motorsport Games’ market capitalization which had reduced significantly since December 31, 2021, the date of the last impairment assessment. These changes were made by the Company to better align the product roadmap with the Company’s ability to produce and release high quality games.

As a result of the quantitative assessment, the Company determined the carrying value of its Gaming reporting unit exceeded its fair value and determined the associated goodwill was fully impaired. An impairment loss of $~~4,788,268~~ was recorded for the three-months ended March 31, 2022. The Company determined the fair value of the Gaming reporting unit using a discounted cash flow valuation model. The impairment loss was primarily driven by a reduction in expected future revenues, following changes to the Company’s product roadmap, as well as higher discount rate applied in the valuation model. The principal assumptions used in the discounted cash flow valuation model were forecasted revenues and weighted average cost of capital (i.e., discount rate).

~~The impairment loss is presented as impairment of goodwill in the condensed consolidated statements of operations and comprehensive loss.~~

The Company’s operating leases primarily relate to real estate, which include office space in the U.S., the U.K., and Russia. The Company’s leases have established fixed payment terms that are typically subject to annual rent increases throughout the term of each lease agreement. The Company’s lease agreements have varying noncancelable rental periods and do not typically include options for the Company to extend the lease terms.

The Company’s operating leases have been presented in operating right-of-use assets, operating lease liabilities (short-term) and operating lease liabilities (long-term), on the Company’s condensed consolidated balance sheet as of March 31, 2022. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Refer to Note 1, ~~Business Organization, Nature of Operations, Risks and Uncertainties and Basis of Presentation~~~~, for further information on the adoption of ASC 842.~~

The Company’s lease agreements do not provide an implicit rate to determine the present value of lease payments. As such, the Company uses its incremental borrowing rate to determine the present value of lease payments. The Company derives its incremental borrowing rate from information available at the lease commencement date, which represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. As the Company did not have external borrowings at the adoption date with comparable terms to its lease agreements, the Company estimated its borrowing rate based on Prime Rate, adjusted for the US Treasury note rates for the same term as the associated lease and the Company’s credit risk spread.

~~Weighted average of the remaining lease terms and weighted average discount rates are as follows:~~

~~As of March 31, 2022, maturities related to lease liabilities were as follows:~~

~~The above operating lease payments exclude $1,300,740~~ ~~of required minimum lease payments for operating lease agreements executed but not commenced, as the Company has not received control of the leased assets as of March 31, 2022. See Note 8 –~~ ~~Related Party Transactions~~ ~~for further details.~~

~~Under ASC 840~~~~, Leases~~~~, future minimum lease payments under noncancelable operating leases as of December 31, 2021 were as follows:~~

On April 1, 2020, the Company entered into a promissory note (the “$12million Line of Credit”) with the Company’s majority stockholder, Motorsport Network, ~~LLC (“Motorsport Network”),~~ that provides the Company with a line of credit of up to $~~10,000,000~~ 10~~(and after the amendment described below, up to $12,000,000~~) million at an interest rate of 10%per annum, the availability of which is dependent on Motorsport Network’s available liquidity. ~~The principal amount~~On November 23, 2020, the Company and Motorsport Network entered into an amendment to the $12 million Line of Credit, effective in 2020, pursuant to which the availability under the $12million Line of Credit was ~~primarily funded through one or more advances~~increased from ~~Motorsport Network, including advances in August and October 2020 for purposes of acquiring an additional ownership interest in 704Games.~~$10 million to $12 million, with no changes to the other terms. The $12million Line of Credit does not have a stated maturity date and is payable upon demand at any time at the sole and absolute discretion of Motorsport ~~Network, which has agreed, pursuant to a Side Letter Agreement related to the $~~12 ~~million Line of Credit,~~ ~~dated September 4, 2020, not to demand or otherwise accelerate any amount due under the $~~12 ~~million Line of Credit~~ ~~that would otherwise constrain the Company’s liquidity position, including the Company’s ability to continue as a going concern.~~Network. The Company may prepay the $12million Line of Credit in whole or in part at any time or from time to time without penalty or charge. In the event the Company or any of its subsidiaries consummates certain corporate events, including any capital reorganization, consolidation, joint venture, spin off, merger or any other business combination or restructuring of any nature, or if certain events of default occur, the entire principal amount and all accrued and unpaid interest will be accelerated and become payable.

On ~~November 23, 2020,~~September 8, 2022, the Company ~~and~~entered into a support agreement with Motorsport Network ~~entered into an amendment~~(the “Support Agreement”) pursuant to which Motorsport Network issued approximately $3 million (the “September 2022 Cash Advance”) to the Company in accordance with the $12million Line of Credit, ~~effective in 2020, pursuant to~~ the proceeds of which the ~~availability under~~Company is using for general corporate purposes and working capital. In the $12 ~~million Line of Credit~~ ~~was increased from $10,000,000~~ ~~to $12,000,000, with no changes to the other terms. The Company recorded related party interest expense of $~~0 Support Agreement, Motorsport Network and $~~105,845~~ ~~during the three months ended March 31, 2022 and 2021, respectively.~~

~~During the three months ended March 31, 2021,~~ the Company ~~drew down an additional $1,906,248~~ terminated the Side Letter Agreement dated September 4, 2020 and agreed that until June 30, 2024, Motorsport Network would not demand repayment of the September 2022 Cash Advance or other advances under the $12 million Line of Credit unless and ~~repaid approximately~~until such time that any of the following shall occur or exist: (i) the Company enters into a new financing arrangement (whether debt, equity or otherwise) under which the Company is then able to draw or provides the Company with available cash in excess of amounts required in the Company’s reasonable judgment to run its operations in the ordinary course of business; (ii) the Company generates from operations available cash in excess of amounts required in the Company’s reasonable judgment to run its operations in the ordinary course of business; or (iii) the Company’s independent auditors issue an unqualified opinion on its financial statements and the Company’s repayment of the advances, in whole or in part, would not otherwise cause the independent auditor to issue a going concern qualified opinion. Upon the occurrence of any of the foregoing events, the Company shall prepay on such date principal amount of the September 2022 Cash Advance and other advances under the $12 million Line of Credit then outstanding in an amount equal to such available excess cash or, in the case of (iii) above, the amount that would not cause the Company’s independent auditor to issue a going concern qualified opinion, together with interest accrued but unpaid on the unpaid September 2022 Cash Advance and other advances, which repayment obligation shall continue until all such advances under the $12 million Line of Credit are paid in full. The entire aggregate principal amount of the September 2022 Cash Advance and the other advances under the $12 million Line of Credit, together with interest accrued but unpaid thereon, shall also become immediately and automatically due and payable, and the $12 million Line of Credit shall immediately and automatically terminate, in each case without any action required by Motorsport Network, if (i) the Company experience an event of default under any other debt instrument, agreement or arrangement; or (ii) any final judgment or final judgments for the payment of money in excess (net of amounts covered by third-party insurance with insurance carriers who have not disclaimed liability with respect to such judgment or judgments) of $500,000 or its foreign currency equivalent is entered against the Company or any subsidiary and is not discharged and either (a) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (b) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed and, in the case of (b), such default continues for 60 consecutive days.

On January 30, 2023, the Company entered into a debt-for-equity exchange agreement with Motorsport Network, where the Company issued to Motorsport Network 338,983 shares of the Company’s Class A common stock with an approximate fair market value of $~~11,800,000~~ 1 million, representing a portion of the Company’s outstanding debt (including the principal and unpaid interest) under the $12 million Line of ~~Credit~~Credit. On February 1, 2023, the Company entered into a second debt-for-equity exchange agreement with Motorsport Network, where the Company issued to Motorsport Network ~~such~~441,402 shares of the Company’s Class A common stock with an approximate fair market value of $2.9 million, representing the Company’s remaining debt outstanding (including the principal and unpaid interest) under the $12 million Line of Credit. The shares of the Company’s Class A common stock issued to Motorsport Network on January 30, 2023 and February 1, 2023 under the debt-for-equity exchange agreements were issued in consideration for the cancellation of all amounts outstanding under the $12 million Line of Credit.

Given the state of the financial markets, the Company continues to assess its exposure to any potential non-performance by Motorsport Network and believes that there is a substantial likelihood that Motorsport Network may not fulfill the Company’s future borrowing requests.

As of March 31, 2023 and December 31, 2022, the balance due to Motorsport Network under the $12 million Line of Credit was $~~959,784~~0 and $3,670,000, respectively, as well as unpaid accrued related party interest of ~~March 31, 2021. As of both March 31, 2022 and December 31,2021, the Company owed~~ $0~~of principal~~ and ~~accrued interest on the~~ $1296,667 ~~million Line of Credit.~~, respectively.

Notes to ~~the $~~12 ~~million Line of Credit, the Company had regular related party receivables and payables outstanding as of March 31, 2022. Specifically, the Company owed $117,153~~ ~~to its related parties as a related party payable and was due $39,233~~ ~~from its related parties as a related party receivable. $71,864~~ ~~has been paid to related parties during the three months ended March 31, 2022, in settlement of related party payables.~~Unaudited Condensed Consolidated Financial Statements

~~From~~In addition to the $12 million Line of Credit, which is discussed in Note 5 – Related Party Loans, from time to time, Motorsport Network, and other related entities pay for Company expenses on the Company’s behalf. ~~In addition, Motorsport Network occasionally advances funds to the Company under the $~~12 ~~million Line of Credit.~~ During the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the Company incurred expenses of approximately $0 0.1 million and $~~5,562~~0, respectively, that were paid by Motorsport Network on its behalf and are reimbursable by the Company to Motorsport ~~Network under the $~~12 ~~million Line of Credit.~~Network. During both the three months ended March 31, 2023 and 2022, approximately $0.1 million was paid to related parties in settlement of related party payables.

The Company has regular related party receivables and ~~2021,~~payables outstanding as of March 31, 2023 and December 31, 2022. Specifically, the Company ~~received~~owed approximately $0.2 million to its related parties as a related party payable and was due approximately $0.1 million from its related parties as a related party receivable as of March 31, 2023. As of December 31, 2022, the Company owed approximately $0.8 million to its related parties as a related party payable and was due approximately $0.2 million from its related parties as a related party receivable.

On March 23, 2023 (but effective as of January 1, 2023), the Company entered into a new Backoffice Services Agreement with Motorsport Network ~~cash proceeds~~(the “Backoffice Services Agreement”), following the expiration of the Company’s prior services agreement with Motorsport Network. Pursuant to the Backoffice Services Agreement, Motorsport Network will provide accounting, payroll and benefits, human resources and other back-office services on a full-time basis to support the Company’s business functions. The term of the Backoffice Services Agreement is 12-months from the effective date. The term will automatically renew for successive 12-month terms unless either party provides written notice of nonrenewal at least 30 days prior to the end of the then current term. The Backoffice Services Agreement may be terminated by either party at any time with 60 days prior notice. Pursuant to the Backoffice Services Agreement, the Company is required to pay a monthly fee to Motorsport Network of $0 17,500~~and $1,906,248, respectively,~~ ~~in connection with advances under the $~~12 ~~million Line of Credit.~~

~~During~~. For the three months ended March 31, ~~2022 and 2021, an entity wholly owned by Motorsport Network provided services associated with In-Kind Consideration of~~2023, the Company incurred $052,500 ~~and $27,900, respectively, to 704Games~~in fees in connection with the ~~terms of the acquisition. Such amounts are reflected as related party operating~~Backoffice Service Agreement, presented in general and administrative expenses onwith the condensed consolidated statements of operations.

~~As of March 31, 2022 and December 31, 2021, there was $33,856~~ ~~and $24,348, respectively, related to these services included within due to related parties on the consolidated balance sheets.~~

~~On February 8, 2022, the Company entered into a new lease agreement with Lemon City Group, LLC, an entity controlled by Mike Zoi, for office space located in Miami, Florida.~~ ~~The term of this new lease is 5 years which commenced April 1, 2022 and expires on March 31, 2027, and is terminable with a 60-day written notice, by either party, with no penalty.~~ ~~The base rent from this new lease is fixed at approximately $22,000~~ ~~per month. On April 1, 2022, the previous lease agreement for office space in Miami, Florida between 704Games LLC and Lemon City Group, LLC was terminated without penalty.~~

As of March 31, 2023, the Company had 2,698,934 shares of Class A common stock and 700,000 shares of Class B common stock outstanding. Holders of Class A and Class B common stock are entitled to one-vote and ten-votes, respectively, for each share held on all matters submitted to a vote of stockholders.

~~On January 15, 2021,~~ Effective on November 10, 2022, the Company ~~completed~~amended its ~~initial public offering~~certificate of ~~3,450,000~~ incorporation to effectuate a reverse split of the issued and outstanding shares of ~~its~~ Class A common stock and Class B common stock at a ~~price to the public~~ratio of $~~20.00~~ 1-for-10~~per share, which includes the exercise in full by the underwriters of their option to purchase from the Company an additional~~ ~~450,000~~ ~~shares of the Company’s Class A common stock. The net proceeds to the Company from the initial public offering were $63,073,783, after deducting underwriting discounts and commissions and offering expenses paid by the Company during 2020 and 2021.~~.

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, 704Games has outstanding 10-year warrants to purchase 4,000 shares of common stock at an exercise price of $93.03 per share that were issued on October 2, 2015. As of March 31, ~~2022,~~2023, the warrants had no intrinsic value and a remaining life of ~~3.5~~2.6 years.

On February 1, February 2 and February 3, 2023, the Company completed three separate registered direct offerings (the “Offerings”) priced at-market under NASDAQ rules with H.C. Wainwright & Co., LLC acting as the exclusive placement agent for each transaction (the “Agent”). In connection with the Offerings, the Company paid the Agent a transaction fee equal to 7.0% of the aggregate gross proceeds from each offering, non-accountable expenses and certain other closing fees. In addition, the Company granted warrants to the Agent (or its designees) to purchase shares of the Company’s Class A common stock equal to 6.0% of the aggregate number of shares of Class A common stock placed in each Offering (collectively, the “Wainwright Warrants”). The Offerings are summarized as follows:

As of March 31, 2023, the Wainwright Warrants were assessed to have a fair value of approximately $0.5 million and deemed to be liability-classified awards, which were recorded within other non-current liabilities on the unaudited condensed consolidated balance sheet.

The Company utilized a Black-Scholes Option Pricing Model to determine the fair value of the Wainwright Warrants. The Black-Scholes model requires management to make a number of key assumptions, including expected volatility, expected term, and risk-free interest rate. The risk-free interest rate is estimated using the rate of return on U.S. treasury notes with a life that approximates the expected term. The expected term assumption used in the Black-Scholes model represents the period of time that the Wainwright Warrants are expected to be outstanding and is estimated using the contractual term of the Wainwright Warrants. As of March 31, 2023, the Wainwright Warrants had no intrinsic value.

During the three months ended March 31, 2023, the Company issued 175,167 shares of the Company’s Class A common stock, with a fair value of $657,850, to Alumni Capital LP (“Alumni Capital”). The shares were sold pursuant to a stock purchase commitment agreement, that was entered into on December 9, 2022 with Alumni Capital (the “Alumni Purchase Agreement”). Under the Alumni Purchase Agreement, the Company may sell Alumni Capital up to $2,000,000 of shares of the Company’s Class A common stock, subject to certain restrictions, through the commitment period expiring December 31, 2023. As of March 31, 2023, the remaining commitment amount under the Alumni Purchase Agreement amounted to $1,302,676.

On January 12, 2021, in connection with its initial public offering, Motorsport Games established the Motorsport Games Inc. 2021 Equity Incentive Plan (the “MSGM 2021 Stock Plan”). The MSGM 2021 Stock Plan provides for the grant of options, stock appreciation rights, restricted stock awards, performance share awards and restricted stock unit awards, and initially authorized ~~1,000,000~~ 100,000shares of Class A common stock to be available for issuance. As of March 31, ~~2022,~~2023, ~~140,383~~ 47,264shares of Class A common stock were available for issuance under the MSGM 2021 Stock Plan. Shares issued in connection with awards made under the MSGM 2021 Stock Plan are generally issued as new issuances of Class A common stock.

In conjunction with the Company’s initial public offering, the Company granted an aggregate of 33,063 shares of Class A common, with an aggregate grant date fair value of $661,266. These shares were primarily awarded to a third-party consultant, with a portion allocated to the Company’s former Chief Executive Officer and three of its former directors. The grant date fair value of these shares was recognized as stock-based compensation expense on the date of grant as the awards were fully vested on such date.

The majority of the options issued under the MSGM 2021 Stock Plan have time-based vesting schedules, typically vesting ratably over a three-year period. Certain stock option awards differed from this vesting schedule, notably awards made to ~~Motorsport Games’~~the Company’s former Chief Executive Officer in conjunction with ~~Motorsport Games’~~the Company’s initial public offering that vested immediately, as well as those made to ~~Motorsport Games’~~the Company’s former directors that vested on the one-year anniversary of award issuance. All stock options issued under the MSGM 2021 Stock Plan expire 10 years from the grant date.

~~The following is a summary of stock-based compensation award activity for the periods ended March 31, 2022 and 2021:~~

~~For three months ended March 31, 2022 and 2021, the Company recognized aggregate stock-based compensation expense of $353,030~~ ~~and $9,076,916, respectively, related to the issuances of stock options and restricted stock awards. As of March 31, 2022, there was $2,394,810~~ ~~of unrecognized stock-based compensation expense which will be recognized over approximately~~ ~~3 years~~.

The following is a summary of stock-based compensation award activity for the three months ended March 31, 2023:

On April 4, 2023, the Company granted an aggregate of 26,316 stock option awards under the MSGM 2021 Stock Plan to its directors with a grant date fair value of approximately $0.1 million. Refer to Note 12 – Subsequent Events for further information.

The following table summarizes stock-based compensation expense resulting from equity awards included in the Company’s condensed consolidated statements of operations:

As of March 31, 2023, there was approximately $0.7 million of unrecognized stock-based compensation expense which will be recognized over approximately 2.0 years.

The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash ~~flows. However, in~~flows, except as otherwise disclosed below. In light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period. Litigation or other legal proceedings, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our management personnel from their normal responsibilities.

Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. ~~As of March 31, 2022 and December 31, 2021, the Company has not accrued any amounts for contingencies.~~

On February 11, 2021, HC2 Holdings 2 Inc. (now known as Innovate 2) and Continental General Insurance Company, former minority stockholders of 704Games, filed a complaint (the “HC2 and Continental Complaint”) in the U.S. District Court for the District of Delaware against the Company, the Company’s Chief Executive Officer and Executive Chairman, the Company’s Chief Financial Officer, and the ~~sole~~ manager of Motorsport Network. The complaint was later amended and added Leo Capital Holdings LLC as an additional plaintiff and the controller of Motorsport Network ~~(collectively, the “Individual Defendants”).~~as an additional individual defendant. The complaint alleges, among other things, purported misrepresentations and omissions ~~by the Company~~ concerning 704Games’ financial condition made in connection with the Company’s purchase of these minority shareholders’ interest in 704Games in August and ~~future prospects in violation of~~October 2021. The complaint asserts claims under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 ~~under the Exchange Act; joint and several liability of the Individual Defendants under~~thereunder; Section 20(a) of the Exchange ~~Act with respect to the alleged violation of Section 10(b) and Rule 10(b); alleged violation by the Company of~~Act; Section 20A of the Exchange ~~Act in connection with plaintiffs’ August 18, 2020 sale to the Company of an aggregate of~~ ~~106,307~~ ~~shares of common stock of 704Games, which is equal to~~ ~~26.2% of the outstanding common stock of 704Games (the “Stock Sale”); alleged~~Act; breach of the Company’s obligations under the Stockholders’ Agreement dated August 14, 2018, by and among the Company and the other stockholders of 704Games, in connection with 704Games’ requirement to provide financial information about 704Games to the plaintiffs; the defendants’ alleged2018; fraudulent ~~inducement of the plaintiffs to enter into a stock purchase agreement for the Stock Sale; the defendants’ alleged~~inducement; breach of fiduciary ~~duty by alleged failure to disclose key financial~~duties; and ~~other information about 704Games and allegedly diverting corporate opportunities for the benefit of defendants; and alleged~~ unjust enrichment. The plaintiffs seek, among other things, damages from the defendants, jointly and severally, based on the alleged difference between the fair market value of the shares of common stock of 704Games on ~~August 18, 2020,~~ the date of ~~the Stock Sale,~~plaintiffs’ sale and the purchase price that was paid, ~~in the Stock Sale,~~ as well as punitive damages and other relief. In May 2021, the Company, along with the other defendants, filed a motion to dismiss the plaintiffs’ ~~amended~~ complaint. On March 28, 2022, the court entered an order denying the motion to dismiss.

On January 11, 2023, in connection with the HC2 and Continental Complaint, the Company, along with other defendants, entered into a settlement agreement with one of the plaintiffs, Continental, to settle the claims made by Continental against the defendants and the claims made by the defendants against Continental. Under the terms of the settlement agreement, the Company is obligated to pay the sum of $1.1 million to Continental. The Company paid an initial payment of approximately $0.1 million on January 17, 2023, and is obligated to make payments of no less than approximately $40,000 every 30 days after the initial payment date until the settlement amount of $1.1 million is paid in full. As of March 31, 2023, all required payments under the settlement agreement have been made. As of March 31, 2023 and December 31, 2022, the Company has accrued $0.9 million and $1.1 million, respectively in other current liabilities as it relates to this case. The Company continues to defend its position with the remaining plaintiffs, the outcome of which is uncertain at this time. Refer to Note 4 – Accrued Expenses and Other Current Liabilities.

At this time, it is premature to determine the outcome of this litigation. As a result, the Company has not accrued for any loss contingencies related to this claim because the amount and range of loss, if any, cannot currently be reasonably estimated. The Company believes that the plaintiff’s allegations are without merit and the Company intends to continue to vigorously defend its position to the fullest extent permitted by law.Commitments

On ~~March 22,~~January 25, 2021, the Company entered into ~~a binding term sheet (as amended,~~an amendment (the “Le Mans Amendment”) to the ~~“Digital Tales Term Sheet”) with EleDa s.r.l. (“EleDa”)~~Le Mans Esports Series Ltd joint venture agreement, which resulted in an increase of the Company’s ownership interest in the Le Mans Esports Series Ltd joint venture from 45% to 51%. Additionally, through certain multi-year licensing agreements that were entered into in connection with ~~a contemplated acquisition by~~the Le Mans Amendment, the Company secured the rights to be the exclusive video game developer and publisher for the 24 Hours of Le Mans race and the WEC, as well as the rights to create and organize esports leagues and events for the 24 Hours of Le Mans race, the WEC and the 24 Hours of Le Mans Virtual event. In exchange for certain of these license rights, the Company agreed to fund up to €8,000,000 (approximately $8,700,000 USD as of March 31, 2023) as needed for development of the ~~shares of Digital Tales USA, LLC, a Florida limited liability company. The Digital Tales Term Sheet expired~~video game products, to be contributed on ~~September 30, 2021, and~~an as-needed basis during the Company and EleDa did not consummate any transaction by such date, nor does the Company expect to complete any such transaction. On September 29, 2021, EleDa filed a complaint in the Eleventh Judicial Circuit Court of Florida against the Company and its Chief Executive Officer relating to the expirationterm of the Digital Tales Term Sheet, without having consummated any transaction. In November 2021, the Company filed a motion to dismiss the plaintiffs’ complaint and EleDa filed an amended complaint on February 2, 2022. The Company filed a motion to extend case management deadlines in March 2022. The Company subsequently completed an out of court settlement with the plaintiff in April 2022. Please see Note 14 – Subsequent Events, for further details.applicable license.

On August 11, 2020, the Company entered into a licensing agreement with Epic Games International (“Epic”) for worldwide licensing rights to Epic’s proprietary computer program known as the Unreal Engine 4. Pursuant to the agreement, upon payment of the initial license fee described below, the Company was granted a ~~non-exclusive,~~nonexclusive, non-transferable and terminable license to develop, market and sublicense (under limited circumstances and subject to conditions of the agreement) certain products using the Unreal Engine 4 for its next generation of games.

The Company will pay Epic a license fee royalty payment equal to 5%5% of product revenue, as defined in the licensing agreement. During the three months ended March 31, ~~2022,~~2023, the Company paid royalties to Epic ~~earned royalties~~ of approximately $~~114,738~~32,000 under the agreement. ~~During a 2-year support period, Epic will use commercially reasonable efforts to provide the Company with updates to the Unreal Engine 4 and technical support.~~ Pursuant to the terms of the agreement, the Company has the right to actively develop new or existing authorized products during a 5-year period ending on August 11, 2025.

The Company is required to make certain minimum royalty guarantee payments to third-party licensors, arising primarily from its NASCAR, INDYCAR and BTCC licenses, Le Mans Video Gaming License and Le Mans Esports License. These minimum royalty guarantee payments apply throughout the duration of the licensing agreements, which expire between fiscal years ending December 31, 2026 and ~~2031,~~2032, and give rise to a commitment of approximately $~~35.5~~28.3 million, in the aggregate, for the duration of these arrangements. The Company ~~expects to pay $3.55~~ paid $0.1 million in cash payments ~~in order~~ to comply with the license agreements’ minimum royalty guarantees during the three months ended March 31, 2023, and expects to pay further $2.4 million during the remainder of fiscal year ending December 31, ~~2022.~~2023.

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the following periods:

	For the Three Months Ended March 31,						Three Months Ended March 31,
Customer	2022			2021			2023			2022
Customer A		15.3	%		-*			-*	%		15.3	%
Customer B		18.2	%		35.8	%		29.3	%		24.1	%
Customer C								27.2	%		18.2	%
Customer D		24.1	%		42.1	%		27.7	%		16.8	%
Customer E		16.8	%		-*
Total		74.4	%		77.9	%		84.2	%		74.4	%

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s trade accounts receivable as of:

	March 31,			December 31,
Customer	2022			2021			March 31, 2023			December 31, 2022
Customer A		36.6	%		51.9	%		-*	%		50.5	%
Customer B		22.6	%		17.7	%		29.0	%		11.2	%
Customer C		17.4	%		*			40.3	%		15.2	%
Customer D								18.7	%		13.1	%
Total		76.6	%		69.6	%		88.0	%		90.0	%

A reduction in sales from or loss of these customers, in a significant amount, could have a material adverse effect on the Company’s results of operations and financial condition.

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s cost of revenues for the following periods:

	For the Three Months Ended March 31,					Three Months Ended March 31,
Supplier	2021		2020			2023			2022
Supplier A		19.0		39.5	%		20.6	%		19.0	%
Supplier B		14.8		-*			*	%		14.8	%
Supplier C		11.3		18.4	%		*	%		11.3	%
Total		45.1		57.9	%		20.6	%		45.1	%

The Company’s principal operating segments coincide with the types of products and services to be sold. The products and services from which revenues are derived are consistent with the reporting structure of the Company’s internal organization. The Company’s 2two reportable segments for the three months ended March 31, 2023 and 2022 ~~and 2021 were:~~were (i) the development and publishing of interactive racing video games, entertainment content and services (the “Gaming segment”); and (ii) the organization and facilitation of esports tournaments, competitions and events for the Company’s licensed racing games as well as on behalf of third-party video game racing series and other video game publishers (the ~~“esports~~“Esports segment”). The Company’s ~~chief operating decision-maker~~Chief Operating Decision Maker (“CODM”) has been identified as the Company’s Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon the Company’s management organization structure as of March 31, ~~2022~~2023 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed. There are no inter-segment revenue transactions and, therefore, revenues are only to external customers. As the Company primarily generates its revenues from customers in the ~~U.S.,~~United States, no geographical segments are presented.

Segment operating profit is determined based upon internal performance measures used by the ~~chief operating decision-maker.~~CODM. The Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to derive reportable segment results are the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including net revenues, gross profit and operating loss. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. The Company manages certain operating expenses separately at the corporate level and does not allocate such expenses to the segments. Segment income from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, and unallocated costs in measuring the performance of the reportable segments.

Segment information available with respect to these reportable business segments was as follows:

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the consolidated financial statements were issued. ~~The Company did not identify any subsequent events that would have required adjustments or disclosure in the condensed consolidated financial statements or notes.~~

On April ~~12, 2022, Motorsport Games Inc. reached a settlement agreement with Eleda, paying Eleda $325,000~~ ~~as consideration for a full release and dismissal of all claims.~~

On April 22, 2022, Motorsport Games entered into a letter agreement (the “Amendment”) amending the terms of (i) the share purchase agreement dated March 31, 2021 (the “SPA”) with Luminis International BV, Technology In Business B.V. (“TIB”) and certain TIB’s shareholders parties to such amendment and (ii) the related deed of pledge that secured payment by4, 2023, the Company ~~of the $~~granted ~~3,200,000~~26,316 ~~deferred installment of the purchase price~~stock option awards under the ~~SPA.~~

~~Pursuant~~MSGM 2021 Stock Plan to its board of directors with a grant date fair value of approximately $0.1 million. The options vest ratably over a three-year term and expire 10 yearsfrom the ~~Amendment, the deferred installment amount due~~grant date. Also refer to be paid under the SPA by the Company on the first anniversary of closing was reduced from $3,200,000 to $1,000,000, with the remaining $2,200,000 further deferred and to be paid within 90 days of the date that the Company makes such $~~1,000,000~~ payment. Further, pursuant to the Amendment, secured obligations under the deed of pledge were correspondingly reduced from $3,200,000 to $2,200,000 following the finalization of an amendment to the deed of pledge on May 12, 2022.Note 8 – Share-Based Compensation.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March ~~30, 2022~~31, 2023 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Report. Unless the context requires otherwise, references to the “Company,” “Motorsport Games,” “we,” “us” and “our” refer to Motorsport Games Inc., a Delaware corporation.

The following overview is a high-level discussion of our operating results, as well as some of the trends and drivers that affect our business. Management believes that an understanding of these trends and drivers provides important context for our results for the three months ended March 31, 2022, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Report.

Motorsport Games is a leading racing game developer, publisher and esports ecosystem provider of official motorsport racing series throughout the world, including NASCAR, the iconic 24 Hours of Le Mans endurance race (“Le Mans”) and the associated FIA World Endurance Championship (the “WEC”), INDYCAR, the British Touring Car Championship (the “BTCC”) and others. Our portfolio is comprised of some of the most prestigious motorsport leagues and events in the world. Further, in 2021 we acquired the KartKraft karting simulation game as well as ~~Studio397~~Studio 397 B.V. (“Studio397”) and their rFactor 2 realistic racing simulator technology and platform, adding both games and their underlying technology to our portfolio.

Started in 2018 as a wholly-owned subsidiary of Motorsport Network, we are currently the official developer and publisher of the NASCAR video game racing franchise and have obtained the ~~exclusive~~official licenses to develop multi-platform games for the BTCC, the 24 Hours of Le Mans race and the ~~WEC.~~WEC, as well as INDYCAR. We develop and publish multi-platform racing video games including for game consoles, personal computers (PCs) and mobile platforms through various retail and digital channels, including full-game and downloadable ~~content (sometimes known as “games-as-a-service”).~~content. For ~~fiscal year 2021 and~~the three months ended March 31, 2023 and 2022, a majority of our revenue was generated from sales of our NASCAR racing video games.

As of March 31, ~~2022,~~2023, we have ~~increased our~~a total headcount ~~to 194~~of 128 people, made up of ~~193~~127 full-time employees, including ~~134~~90 dedicated to game development, ~~in order~~ to continue ~~the development of~~developing our expanded product offerings.

~~The global spread~~ Our headcount numbers as of the ongoing and prolonged COVID-19 pandemic and its variants has created significant business uncertainty for us and others, which has negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets. Additionally, the outbreak has resultedMarch 31, 2023, reflect that we have ceased our development operations in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place, stay-at-home or total lock-down (or similar) orders and business limitations and shutdowns. In late fiscal 2020 and throughout fiscal 2021, vaccines for combating COVID-19 were approved by health agencies in certain countries and regions where we operate and began to be administered, and we saw some loosening of government-mandated COVID-19 restrictions in certain locations, such as the U.S., in response to improved COVID-19 infection levels. More recently, new variants of COVID-19, such as the Omicron variant and its subvariants, that are significantly more contagious than previous strains, have emerged. Further, the effectiveness of approved vaccines on these new strains remains uncertain. The spread of these new strains have caused some government authorities to reimpose some or all of the earlier restrictions or impose other restrictions, all in an effort to lessen the spread of COVID-19 and its variants. While these lockdowns have begun to be lifted, the lingering impact of COVID-19 has continued to create significant volatility throughout the global economy, such as supply chain disruptions, limited labor supplies and higher inflation, which in turn has caused constraints on consumer spending.

As a result of the ongoing and prolonged COVID-19 pandemic, including the related responses from government authorities, our business and operations were impacted, including the temporary closures of our offices in Miami, Florida, Silverstone, England, and Moscow, Russia during 2021, which has resulted in many of our employees working remotely. During the initial COVID-19 outbreak in 2020, demand for our games generally increased, which we believe was primarily attributable to a higher number of consumers staying at home due to COVID-19 related restrictions. Similarly, there was a significant increase in viewership of our esports events since the initial impact of the virus, as these events began to air on both digital and linear platforms, particularly as we were able to attract many of the top “real world” motorsport stars to compete. Conversely, several retailers have experienced closures, reduced operating hours and/or other restrictionseffective September 2022, as a result of the ~~ongoing~~Ukraine-Russia conflict and ~~prolonged COVID-19 pandemic and its variants, which has negatively impacted the sales of our products from~~as such, retailers. Additionally, in our esports business, the ongoing and prolonged COVID-19 pandemic has resulted in the cancellation or postponement of certain events to later dates or shifting events from an in-person format to online only. The emergence of the significantly more contagious Omicron variant of COVID-19 and the prevalence of breakthrough cases of infection among fully vaccinated people adds additional uncertainty and could result in further impacts to our business and operations, such as those discussed above and in the section entitled “Risk Factors” in Part I, Item 1A of the 2021 Form 10-K.

~~Although~~ we do not ~~currently~~ expect the ~~COVID-19 pandemic~~Company’s development operations to have ~~a material impact on our future business and operations, we will continue~~significant exposure to monitor the evolving situation caused by the COVID-19 pandemic, and we may take further actions required by governmental authorities or that we determine are prudent to support the well-being of our employees, suppliers, business partners and others. The degree to which the ongoing and prolonged COVID-19 pandemic impacts our operations, business, financial results, liquidity, and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic; its severity; the emergence and severity of its variants; the actions to contain the virus or treat its impact, such as the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to utilize them; the effect on discretionary spending by consumers; and how quickly and to what extent normal economic and operating conditions can resume.

Further discussion of the potential impacts on our business, financial condition, results of operations, liquidity and the market price of our Class A common stock due to the ongoing and prolonged COVID-19 pandemic is providedchanges in ~~the section entitled “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K.~~

Our financial results are affected by the timing of our product releases and the commercial success of those titles. Our NASCAR products have historically accounted for the majority of our revenue , however we have diversified our product offerings and are generating revenues from KartKraft, rFactor2 and Le Mans 24 hour virtual event reducing the percentage of revenues from NASCAR. We released: (i) our next generation NASCAR console/PC game, NASCAR 21: Ignition, on October 28, 2021; (ii) NASCAR Heat Ultimate Edition+ on Nintendo Switch on November 19, 2021, the first-ever NASCAR title to come to Nintendo Switch; and (iii) the full release of the KartKraft kart racing simulator on January 26, 2022 for the PC. Additionally, in May 2020 and January 2021, respectively, we obtained the exclusive licenses to develop multi-platform games for the BTCC and the WEC series, including the iconic 24 hours of Le Mans race, and in July 2021, we obtained the license to develop multi-platform games for INDYCAR. During the three months ended March 31, 2022, we modified our product release schedule such that our next NASCAR title for 2022 will be an update to our 2021 release and the anticipated timing of some of our other planned product releases for other racing series have been moved to later periods. The INDYCAR, BTCC and Le Mans games are currently under development, and we currently anticipate releasing games for these racing series in 2023 and 2024. Going forward, we intend to expand our license arrangements to other internationally recognized racing series and the platforms we operate on. We believe that having a broader product portfolio will improve our operating results and provide a revenue stream that is less cyclical based on the release of a single game per year.

Our physical gaming products are sold through a distribution network with an exclusive partner who specializes in the distribution of games through mass-market retailers (e.g., Target, Wal-Mart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop) and other online retail stores (e.g., Amazon). We expect to continue to derive significant revenues from sales of our physical gaming products to a very limited number of distribution partners. For the year ended December 31, 2021 and the three months ended March 31, 2022, we sold substantially all of our physical disk products for the retail channel through a single distribution partner, which represented approximately 28% and 15% of our total revenue for such periods, respectively. See “Risk Factors—Risks Related to Our Business and Industry—The importance of retail sales to our business exposes us to the risks of that business model” and “Risk Factors—Risks Related to Our Business and Industry—We primarily depend on a single third-party distribution partner to distribute our games for the retail channel, and our ability to negotiate favorable terms with such partner and its continued willingness to purchase our games is critical for our business” in Part I, Item 1A of the 2021 Form 10-K for additional information regarding the importance of retail sales and our distribution partners to our business.

Additionally, we continue to monitor economic conditions, including the impact of the ongoing and prolonged COVID-19 pandemic, that may unfavorably affect our businesses, such as deteriorating consumer demand, delays in development, pricing pressure on our products, increased inflation, supply chain constraints, labor supply issues, credit quality of our receivables and foreign currency exchange rates. The COVID-19 pandemic has affected and may continue to affect our business operations, including our employees, customers, partners, and communities, and there is substantial uncertainty in the nature and degree of its continued effects over time, particularly due to the emergence of the significantly more contagious Omicron variant of COVID-19 and the prevalence of breakthrough cases of infection among fully vaccinated people. For example, several retailers have experienced closures, reduced operating hours and/or other restrictions as a result of the ongoing and prolonged COVID-19 pandemic, which has negatively impacted the sales of our products from such retailers. “See COVID-19 Pandemic Update” for additional information regarding the impact of COVID-19 on our business and operations.

~~We derive most of our revenue~~circumstances arising from the sale of products made for PCs and video game consoles manufactured by third parties, such as Sony Interactive Entertainment Inc.’s (“Sony”) PlayStation and Microsoft Corporation’s (“Microsoft”) Xbox consoles, which comprised approximately 18% and 36% of our total revenue for the three-month periods ended March 31, 2022 and 2021, respectively. For the three-month periods ended March 31, 2022 and 2021, the sale of products for Microsoft Windows via Steam comprised approximately 17% and 8% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 3% and 11% of our total revenue, respectively. The success of our business is dependent upon consumer acceptance of video game console/PC platforms and continued growth in the installed base of these platforms. When new hardware platforms are introduced, such as those recently released by Sony and Microsoft, demand for interactive entertainment used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. The latest generation of Sony and Microsoft consoles provide “backwards compatibility” (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline. However, we cannot be certain how backwards compatibility will affect demand for our products.Ukraine-Russia conflict.

Players increasingly purchase our games as digital downloads, as opposed to purchasing physical discs. All of our titles that are available through retailers as packaged goods products are also available through direct digital download. For the year ended December 31, 2021 and the three months ended March 31, 2022, approximately 61% and 65%, respectively, of our revenue from sales of video games for game consoles and PCs was through digital channels. We believe this trend of increasing direct digital downloads is primarily due to benefits relating to convenience and accessibility that digital downloads provide, which has been heightened during the COVID-19 pandemic. In addition, as part of our digital business strategy, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content.

We are striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games as well as on behalf of third-party racing game developers and publishers. During the first quarter of 2022, we announced our viewership figures for the 2021-22 Le Mans Virtual Series, which reached 7 million views and registered cumulated television and digital audience figures of more than 81 million through its 5-month season. During 2021, we organized several esports competitions, including the DiRT Rally 2.0 World Series on the popular Codemasters game, the Winter Heat and Summer Showdown on NASCAR Heat 5, and the expansion of the 24 Hours of Le Mans Virtual event into a part of a longer annual series with professional teams and real-world racing drivers. In addition, we also organized competitions to drive user engagement on our rFactor 2 platform. For 2021, our esports events had cumulative total viewership of approximately 1.5 million views with approximately 3.8 million minutes watched.

As our digital business has grown, our games and services increasingly depend on the reliability, availability and security of our technological infrastructure. We are investing and expect to continue to invest in technology, hardware and software to support our games and services, including with respect to security protections. Our industry is prone to, and our systems and networks are subject to, cyberattacks, computer viruses, worms, phishing attacks, malicious software programs, and other information security incidents that seek to exploit, disable, damage, disrupt or gain access to our networks, our products and services, supporting technological infrastructure, intellectual property and other assets. As a result, we continually face cyber risks and threats that seek to damage, disrupt or gain access to our networks and our gaming platform, supporting infrastructure, intellectual property and other assets. See “Risks Related to Our Business and Industry—We may experience security breaches and cyber threats” in the section entitled “Risk Factors” in Part I, Item 1A of the 2021 Form 10-K for additional information.

We operate in a dynamic industry that regularly experiences periods of rapid, fundamental change. In order to remain successful, we are required to anticipate, sometimes years in advance, the ways in which our products and services will compete. For example, the global adoption of portable and mobile gaming devices has led to significant growth in portable and mobile gaming, which we believe is a continuing trend. Accordingly, in conjunction with the launch of our next generation NASCAR console/PC game, NASCAR 21: Ignition, we launched an updated NASCAR Heat Ultimate Edition+ on Nintendo Switch in the fourth quarter of 2021.

Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized sports franchise (currently NASCAR) for game consoles, PC and mobile platforms. We deem this recurring because many existing game owners purchase annual updates, which includes updated drivers, liveries and cars as they are released. We have been able to forecast the revenue from this area of our business with greater relative confidence than for new games, services and business models. As we continue to incorporate new business models and modalities of play into our games, our goal is to continue to look for opportunities to expand the recurring portion of our business.

We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments. Our chief operating decision maker is our Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We classified our reportable operating segments into (i) the development and publishing of interactive racing video games, entertainment content and services (the “Gaming segment”) and (ii) the organization and facilitation of esports tournaments, competitions, and events for our licensed racing games as well as on behalf of third-party video game racing series and other video game publishers (the ~~“esports~~“Esports segment”).

On September 8, 2022, the Company announced an organization restructuring (the “2022 Restructuring Program”) designed to reduce the Company’s marketing, general and administrative expenses, improve the Company’s profit and maximize efficiency, cash flow and liquidity. The 2022 Restructuring Program includes right-sizing the organization and operating with more efficient workflows and processes. The primary components of the organizational restructuring involve consolidating certain functions; reducing layers of management, where appropriate, to increase accountability and effectiveness; and streamlining support functions to reflect the new organizational structure. The leaner organizational structure is also expected to improve communication flow and cross-functional collaboration, leveraging the more efficient business processes. In addition, given the ongoing uncertain economic environment and the potential effect that it could have on the Company’s net sales, these actions will also provide the Company with additional flexibility.

As a result of the 2022 Restructuring Program, the Company expects to eliminate approximately 20% of its overhead costs worldwide and deliver approximately $4 million of total annualized cost reductions by the end of 2023, of which $2.5 million was achieved by the end of 2022. As of March 31, 2023, the Company had increased its annualized savings to $3.9 million, while having incurred restructuring costs of approximately $0.2 million to date, which primarily consisted of severance payments.

Product Release Schedule: Our financial results are impacted by the timing of our product releases and the commercial success of those titles. Our recent product releases include:

We continually evaluate our product release schedule and modify the timing of upcoming products if we believe it will result in a better consumer experience. We recently modified the timing of the upcoming INDYCAR game to 2024, from an original planned release in 2023. We continue to work on this upcoming title, as well as NASCAR, BTCC and Le Mans game experiences that we currently anticipate releasing in 2023 and 2024.

Concentration of Sales: Our NASCAR products have historically accounted for the majority of our revenue; however, we have diversified our product offerings and are generating revenues from KartKraft, rFactor 2 and the 24 Hours of Le Mans Virtual event, which reduced the percentage of our revenues derived from NASCAR products for the three months ended March 31, 2023 and 2022. For example, revenues associated with our NASCAR franchise accounted for approximately 57% and 69% of our total revenue for the three months ended March 31, 2023 and 2022, respectively. Additionally, with the acquisitions of licenses to develop multi-platform games for INDYCAR, BTCC and the WEC series, including the iconic 24 hours of Le Mans race, we expect our future revenue streams will become further diversified and consist of revenues from multiple games and different franchises.

Retail Distribution: Our physical gaming products are sold through a distribution network with an exclusive partner who specializes in the distribution of games through mass-market retailers (e.g., Target, Wal-Mart), consumer electronics stores (e.g., Best Buy), discount warehouses, game specialty stores (e.g., GameStop) and other online retail stores (e.g., Amazon). We expect to continue to derive significant revenues from sales of our physical gaming products to a very limited number of distribution partners. For the three months ended March 31, 2023 and 2022, we sold substantially all of our physical disk products for the retail channel through a single distribution partner, which represented approximately 0% and 15% of our total revenue for the three months ended March 31, 2023 and 2022, respectively. See “Risk Factors—Risks Related to Our Business and Industry—The importance of retail sales to our business exposes us to the risks of that business model” and “Risk Factors—Risks Related to Our Business and Industry—We primarily depend on a single third-party distribution partner to distribute our games for the retail channel, and our ability to negotiate favorable terms with such partner and its continued willingness to purchase our games is critical for our business” in Part I, Item 1A of the 2022 Form 10-K for additional information regarding the importance of retail sales and our distribution partners to our business.

Hardware Platforms: We derive most of our revenue from the sale of products made for PCs, mobile devices, and video game consoles manufactured by third parties, such as Sony Interactive Entertainment Inc.’s (“Sony”) PlayStation and Microsoft Corporation’s (“Microsoft”) Xbox consoles. Sale of physical disk products for video game consoles comprised approximately 0% and 15% of our total revenue for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023 and 2022, the sale of products for Microsoft Windows via Steam comprised approximately 28% and 17% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 6% and 3% of our total revenue, respectively. The success of our business is dependent upon consumer acceptance of video game console/PC platforms and continued growth in the installed base of these platforms. When new hardware platforms are introduced, such as those released by Sony and Microsoft in November 2020, demand for interactive entertainment used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. The latest generation of Sony and Microsoft consoles provide “backwards compatibility” (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline. However, we cannot be certain how backwards compatibility will affect demand for our products.

Digital Business: Players increasingly purchase our games as digital downloads, as opposed to purchasing physical discs. All of our titles that are available through retailers as packaged goods products are also available through direct digital download. For the three months ended March 31, 2023, and 2022, approximately 92% and 65%, respectively, of our revenue from sales of video games for game consoles and PCs was through digital channels. We believe this trend of increasing direct digital downloads is primarily due to benefits relating to convenience and accessibility that digital downloads provide. In addition, as part of our digital business strategy, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content.

Esports: We are striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games as well as on behalf of third-party racing game developers and publishers. The first quarter of 2023 was another successful quarter for our Esports segment, with the grand finale of the Le Mans Virtual Series 2022/23, the 24 Hours of Le Mans Virtual, in January and the return of the popular community rFactor2 competition ‘GT Challenge’. Our dedicated esports events had a cumulative total of approximately 8.8 million video views with approximately 27 million minutes watched for the three months ended March 31, 2023.

Recurring Revenue Sources: Our business model includes revenue that we deem recurring in nature, such as revenue from our annualized sports franchise (currently NASCAR) for game consoles, PC, and mobile platforms. We deem this recurring because many existing game owners purchase, sometimes free of charge, annual updates, which includes updated drivers, liveries, and cars as they are released. We have been able to forecast the revenue from this area of our business with greater relative confidence than for new games, services, and business models. As we continue to incorporate new business models and modalities of play into our games, our goal is to continue to look for opportunities to expand the recurring portion of our business.

We have historically derived substantially all of our revenue from sales of our games and related extra content that can be played by customers on a variety of platforms, including game consoles, mobile phones, PCs and tablets. Starting in 2019, we began generating sponsorship revenues from our production of live and virtual esports events. In early 2022, we also began offering software development services for racing simulators.

Our product and service offerings included within the Gaming segment primarily include, but are not limited to, full PC, console, and mobile games with both online and offline functionality, which generally include:

~~● the initial game delivered digitally or via physical disk at the time of sale, which also typically provides access to offline core game content; and~~

~~● updates to previously-released games on a when-and-if-available basis, such as software patches or updates, and/or additional content to be delivered in the future, both paid and free.~~

Our product and service offerings included within the ~~esports~~Esports segment relate primarily to curating esports events.

Cost of revenues for our Gaming segment is primarily comprised of royalty expenses attributable to our license arrangement with NASCAR and certain other ~~third-parties~~third parties relating to our NASCAR racing series games. Cost of revenues for our Gaming segment is also comprised of merchant fees, disk manufacturing costs, packaging costs, shipping costs, warehouse costs, distribution fees to distribute products to retail stores, mobile platform fees associated with our mobile revenue (for transactions in which we are acting as the principal in the sale to the end customer) and amortization of certain acquired license agreements and other intangible assets acquired through our various acquisitions. Furthermore, cost of revenues for our Gaming segment includes costs associated with our outsourced code and content development services. Cost of revenues for our ~~esports~~Esports segment consists primarily of the cost of event staffing and event production.

Sales and marketing expenses are primarily composed of salaries, benefits and related taxes of our in-house marketing teams, advertising, marketing, and promotional expenses, including fees paid to social media platforms, Motorsport Network and other websites where we market our products.

Development expenses consist of the cost to develop the games we produce, which includes salaries, benefits, and operating expenses of our ~~in- house~~in-house development teams, as well as consulting expenses for any contracted external development. Development expenses also include expenses relating to our software licenses, maintenance, and studio operating expenses.

General and administrative expenses consist primarily of salaries, benefits and other costs associated with our operations including, finance, human resources, information technology, public relations, legal audit and compliance fees, facilities, and other external general and administrative services.

Depreciation and amortization expenses include depreciation on fixed assets (primarily computers and office equipment), as well as amortization of ~~finite~~definite lived intangible assets acquired through our various acquisitions.

Three Months Ended March 31, ~~2022~~2023 compared to Three Months Ended March 31, ~~2021~~2022

In this section, references to 2023 refer to the three months ended March 31, 2023 and references to 2022 refer to the three months ended March 31, 2022.

		For the Three Months Ended,
		March 31,
		2022		2021		For the Three Months Ended March 31,				Change
						2023		2022		$			%
Revenues:
	Gaming	$	2,958,388	$	2,450,213
	Esports		363,401		23,919
Total Segment and Consolidated Revenues		$	3,321,789	$	2,474,132
Gaming						$	1,439,217	$	2,958,388	$	(1,519,171	)		(51.4	)%
Esports							290,138		363,401		(73,263	)		(20.2	)%
Total Revenues						$	1,729,355	$	3,321,789	$	(1,592,434	)		(47.9	)%

~~Revenues~~Consolidated revenues were ~~$3,321,789~~$1.7 million and $3.3 million for ~~the three months ended March 31,~~2023 and 2022, ~~versus $2,474,132 for the three months ended March 31, 2021. The $847,657,~~respectively, a decrease of $1.6 million, or ~~34%~~47.9%, period over period increase reflects $508,175 of higher game sales from our Gaming segment, primarily from sales of our rFactor 2 racing simulation game, which we acquired in April 2021. For the three months ended March 31, 2022 revenues from our esports segment increased $339,482when compared to the ~~three months ended March 31, 2021.~~prior period.

Gaming segment revenues represented 83.2% and 89.1% of our total 2023 and 2022 revenues, respectively, decreasing by $1.5 million, or 51.4%, when compared to the prior period. The ~~increase~~decrease in Gaming segment revenues was primarily due to ~~an increase~~$0.6 million in ~~sponsorship~~lower digital game sales and ~~events~~$0.8 million in lower retail sales, which were primarily driven by lower volumes of sales, as well as less favorable pricing and higher than expected retail pricing concessions on existing games in our product portfolio. This was furthered by a $0.1 million reduction in revenues earned through the development of simulation platforms for third-parties. The change in digital game sales was primarily driven by a $0.5 million and $0.1 million reduction in NASCAR title sales on PC, consoles and mobile platforms and KartKraft title sales on PC, respectively. The reduction in retail game sales of $0.8 million was due to lower retail sales of our NASCAR titles in 2023 when compared to the same period in 2022.

Esports segment revenues represented 16.8% and 10.9% of our total 2023 and 2022 revenues, respectively, decreasing by $0.1 million, or 20.2%, when compared to the prior period. The decrease in Esports segment revenue was primarily due to lower sponsorship revenue from ~~Le Mans Esports Series Ltd, which held the final of its 2022~~our Le Mans Virtual Series, which completed its 2022-23 season in January ~~2022.~~2023.

~~Cost~~Consolidated cost of revenues were ~~$2,013,806~~$1.2 million and $2.0 million for ~~the three months ended March 31,~~2023 and 2022, asrespectively, a decrease of $0.8 million, or 38.0%, when compared to ~~$781,808 for~~ the ~~three months ended March 31, 2021 representing an increase of $1,231,998 or 158%. Cost~~prior period.

Gaming segment cost of revenues ~~from~~represented 70.1% and 69.7% of our total 2023 and 2022 cost of revenues, respectively, decreasing by $0.5 million, or 37.7%, when compared to the prior period. The decrease in Gaming segment cost of revenues was primarily driven by a $0.2 million reduction in game production costs, a $0.2 million reduction in royalty payments and a $0.1 million reduction in license and developed technology amortization expense The decrease in production costs was due to no new physical inventory production in 2023, compared to additional units of NASCAR 21: Ignition being produced in 2022, and the reduction in royalty payments was driven by the decrease in digital and retail game sales.

Esports segment cost of revenues represented 29.9% and 30.3% of our total 2023 and 2022 cost of revenues, respectively, decreasing by $0.2 million, or 38.7%, when compared to the prior period. The decrease in Esports segment cost of revenues was primarily driven by $0.2 million of lower studio and televised production costs associated with the final round of the Le Mans Virtual Series event, which took place in January 2023.

Consolidated gross profit was $0.5 million and $1.3 million for 2023 and 2022, respectively, a decrease of $0.8 million, or 63.3%, when compared to the prior period. Gross profit margin was 27.8% in 2023, compared to 39.4% in 2022, where the basis point decrease was driven primarily by lower gaming revenues and certain fixed expenses such as the minimum annual royalty guarantees, as well as amortization costs of developed technology in the Gaming segment.

Gaming segment gross profit was $0.6 million for 2023, compared to $1.6 million for 2022, representing a gross profit margin of 39.2% for 2023 and 52.5% for 2022. The decrease in our Gaming segment ~~increased $688,891, or 96%. The increase~~gross profit of $1.0 million, and corresponding decrease in gross profit margin, was primarily due to ~~a $355,617 increase in~~lower retail and digital game sales of $1.5 million, whereas royalty costs declined by $0.2 million, and amortization of ~~intangible assets primarily driven~~developed technology declined by ~~the acquisition~~approximately $0.1 million.

Esports segment gross loss was $0.1 million for 2023, compared to $0.2 million for 2022, representing a negative gross profit margin of ~~Studio397, a $198,998 increase~~28.9% and 67.8% for 2023 and 2022, respectively. This improvement in ~~license/royalty fees,~~our Esports segment gross loss of $0.1 million, and ~~a $131,642 increase~~corresponding improvement in ~~game production costs due to manufacturing costs for Nintendo Switch.~~

~~For the three months ended March 31, 2022, cost of revenues from our esports segment increased by $543,107 to $609,799 from $66,692 for the three months ended March 31, 2021. The increase~~negative gross profit margin, was primarily due to lower production costs associated with ~~conducting~~ the ~~2022~~final round of the Le Mans Virtual ~~Series.~~Series event, which took place in January 2023.

Gross profit was $1,307,983 for the three months ended March 31, 2022, versus $1,692,324 for the three months ended March 31, 2021, a decrease of $384,341 or 23%. Gross profit from our gaming segment decreased $180,712, or 10%. The gross profit margin for the gaming segment was 53% and 71% of revenues for the three months ended March 31, 2022 and 2021, respectively. The decrease in the gaming segment gross profit was primarily due to a decrease in mobile game sales, which have a higher gross margin than the sale of physical game discs, as well as a higher cost of revenues driven by increased royalty and amortization expenses primarily from the acquisition of Studio397. Gross profit from our esports segment decreased $203,628 primarily due to costs relating to TV production and event staff used in connection with the final of the 2022 Le Mans Virtual Series.

Operating Expenses were $16,911,333 for the three months ended March 31, 2022, compared to $17,069,393 for the three months ended March 31, 2021, which reflects a decrease of $158,060 as described below.

Sales and marketing expenses were ~~$1,688,449~~$0.6 million and ~~$1,024,218~~$1.7 million for 2023 and 2022, respectively, representing a $1.1 million, or 63.4%, decrease when compared to the ~~three months ended March 31, 2022 and 2021, respectively.~~prior period. The ~~$664,231 or 65%, increase~~reduction in sales and marketing ~~expenses were~~expense was primarily driven by ~~an increase~~a $0.8 million reduction in ~~headcount to support the promotion of additional games and platforms that were added to product and platform offerings,~~external marketing expense, as well as ~~planned future releases~~a $0.3 million reduction in ~~our product roadmap.~~payroll expense as a result of lower headcount when compared to the prior period.

Development expenses were ~~$2,404,338~~$2.4 million for both 2023 and ~~$1,250,362 for~~2022, representing no significant change when compared to the ~~three months ended March 31, 2022~~prior period. Internal development services decreased by $0.5 million compared to the prior period, whereas external development services increased by $0.3 million and ~~2021, respectively.~~technology costs increased by $0.2 million compared to the prior period. The ~~$1,153,976, or 92%, increase in~~ development expenses ~~were due~~incurred relate to ~~internal~~the production and ~~external development expenses required to~~ support of existing games in our product portfolio, as well as the development ~~and launch~~ of future ~~new platform and game releases.~~games such as the planned INDYCAR title.

General and administrative (“G&A”) expenses were ~~$3,423,153~~$2.8 million and ~~$14,764,038~~$3.4 million for 2023 and 2022, respectively, a decrease of $0.6 million, or 18.8%, when compared to the ~~three months ended March 31, 2022 and 2021, respectively, resulting in a $11,340,885 decrease~~prior period. The reduction in G&A ~~expenses. The decrease~~expense was primarily driven by a $0.2 million reduction in G&A expenses reflects $12,189,032 of expenses incurred in the first quarter of 2021 in connection with the 2021 acquisition of Studio397 and our initial public offering in January 2021 (the “IPO”), including IPO-related bonuses and stock-based compensation expense, a $0.2 million reduction in payroll and employee related expenses, ~~that did not recur~~following certain headcount reductions in ~~the first quarter of~~ 2022, a $0.1 million reduction in software expenditures, a $0.1 million reduction in insurance allocations, and a $0.1 million reduction in travel costs. These reductions were partially offset by ~~$295,382 of increased investor relations expenses, $224,274 of increased insurance expenses, $270,123~~a $0.1 million increase in ~~additional non-cash compensation expenses~~legal, consultant, and ~~$132,330~~other professional fees incurred in ~~increased costs for software licenses and subscriptions incurred during the three months ended March 31, 2022.~~2023.

~~Loss on impairment of~~ goodwill was ~~$4,788,268 for the three months ended March 31,~~$0 and $4.8 million in 2023 and 2022, ~~versus $0 for the three months ended March 31, 2021.~~respectively. The impairment loss for 2022 primarily relates to goodwill acquired in connection with the acquisition of ~~Studio397.~~Studio397 that was deemed impaired as a result of impairment assessments performed during the year. The ~~trigger~~triggers for the ~~interim assessment was~~assessments were primarily by revisions made in the first quarter of 2022 to the scope and timing of certain product releases included in our product roadmap, as well as a significant reduction in the Company’s market capitalization since the date of the last annual impairment assessment. Changes to the forecasted revenues and discount rates, as a result of the triggers identified, were the primary drivers for the change in fair value since the annual ~~assessment and impairment loss recorded in the three months ended March 31, 2022.~~assessment.

Impairment of indefinite-lived intangible assets was ~~$3,170,061~~$0 and $3.2 million in 2023 and 2022, respectively. The triggers for the ~~three months ended March 31, 2022 versus $0 for the three months ended March 31, 2021. The trigger for the interim assessment was~~assessments were the changes to the Company’s product roadmap and the Company’s market capitalization, ~~of the Company,~~ as referenced above. The ~~loss on impairment of~~ indefinite-lived intangible ~~assets relates~~asset impairment losses primarily relate to the rFactor 2 trade name and the Le Mans Video Gaming License and ~~is primarily~~are mainly driven by a reduction in expected future revenues following changes made to the Company’s product roadmap in the first quarter of 2022, as well as changes to the discount rates and royalty rates used when valuing the assets.

~~Loss on impairment~~Impairment of finite-lived intangible assets was ~~$1,320,993~~$0 and $1.3 million in 2023 and 2022, respectively. The triggers for the ~~three months ended March 31, 2022 versus $0 for the three months ended March 31, 2021. The trigger for the interim assessment was~~assessments were the changes to the Company’s product roadmap and the Company’s market capitalization, ~~of the Company,~~ as referenced above. The ~~loss on impairment of~~ finite-lived intangible ~~assets relates~~asset impairment losses relate to the rFactor 2 technology and was primarily driven by a change in the technical obsolescence assumption used when determining the fair value of the asset.

Depreciation and amortization expenses ~~were $116,071~~for 2023 and ~~$30,775 for~~2022 presented no significant changes to the ~~three months ended March 31, 2022 and 2021, respectively, an increase~~depreciation of ~~$85,296, or 277%. The increase was primarily due to additional depreciation expense for fixed assets acquired during 2021 and the first quarter of 2022.~~capital assets.

Interest expense was ~~$201,596~~$0.2 million for both 2023 and ~~$119,539 for the three months ended March 31,~~ 2022 ~~and 2021, respectively. The increase of $82,057, or 69%, was~~ primarily ~~due to an increase in~~from ongoing non-cash interest ~~for~~ accretion of our INDYCAR and BTCC license ~~liability.~~

The gain attributable to equity method investment in Le Mans Esports Series Ltd was $0 and $1,370,837 for the three months ended March 31, 2022 and 2021, respectively. We discontinued equity method accounting and began to fully consolidate Le Mans Esports Series Ltd upon acquiring a majority interest during the first quarter of 2021.liabilities.

Other ~~expense, net was $162,099 for the three months ended March 31, 2022. For the three months ended March 31, 2021, other~~ income, net was ~~$40,347. The change~~$0.4 million for 2023, compared to other expense, net of $0.2 million for 2022, an increase of $0.6 million compared to the prior period. Other income, net of $0.4 million for 2023 was primarily ~~due to changes~~comprised of foreign currency gains of $0.2 million, incurred remeasuring transactions denominated in a currency other than U.S. dollars, as well as $0.05 million in rental income from the sub-lease of our Charlotte, NC office space, and $0.1 million in interest expense forgiveness. Other expenses, net of $0.2 million for 2022 was primarily comprised of foreign currency losses ~~recorded during the three months ended March 31, 2022 and 2021.~~of $0.2 million, incurred remeasuring transactions denominated in a currency other than U.S. dollars, partially offset by rental income.

Other comprehensive loss was ~~$125,245 and $32,914~~$0.01 million for ~~the three months ended March 31, 2022 and 2021, respectively. This~~2023, compared to other comprehensive loss of $0.02 million for 2022. The $0.01 million improvement was primarily due to ~~increased~~ activity in our ~~subsidiaries in the~~ U.K., ~~Australia, Russia~~Australian, Georgian and ~~the~~ Netherlands subsidiaries and represents ~~unrecognized~~unrealized foreign currency ~~exchange losses.~~translation adjustments.

For 2023, the loss attributable to the non-controlling interest decreased by $0.6 million, or 81%, to a loss of $0.2 million as compared to a loss of $0.8 million for 2022. The improvement was attributed to the reduction of net losses in Le Mans Esports Series Ltd (the “Le Mans Joint Venture”). For 2023 and 2022, the Le Mans Joint Venture incurred a net loss of $0.2 million and $0.8 million respectively.

Since our inception and prior to our IPO, we financed our operations primarily through advances from Motorsport Network, which were subsequently incorporated into a line of credit provided by Motorsport Network pursuant to the $12 million Line of Credit, as described below.

On January 15, 2021, we completed our IPO of ~~3,450,000~~345,000 shares of Class A common stock at a price to the public of ~~$20.00~~$200 per share, which includes the exercise in full by the underwriters of their option to purchase from us an additional ~~450,000~~45,000 shares of Class A common stock. We received net proceeds of approximately ~~$63,073,783~~$63.1 million from the IPO, after deducting underwriting discounts and offering expenses paid by us in 2020 and 2021.

Following our IPO, we have financed our operations primarily through cash generated from operations, advances from Motorsport Network pursuant to the $12 million Line of Credit and through sales of our equity securities.

Liquidity Measure

March 31, 2022

December 31, 2021

March 31,

2023

December 31,

2022

Cash and cash equivalents

12,367,235

17,819,640

5,794,556

979,306

Working capital

10,100,765

16,024,590

1,108,482

(9,278,268

)

~~In addition, as of March 31, 2022, the $12 million Line of Credit (as defined below) was undrawn.~~

For the three months ended March 31, ~~2022,~~2023, the Company had a net loss of approximately ~~$16.0~~$5.3 million, ~~and~~ negative cash flows from operations of approximately ~~$5.6~~$5.7 million and an accumulated deficit of $79.1 million. As of March 31, ~~2022,~~2023, we had ~~an accumulated deficit~~cash and cash equivalents of ~~$53.1 million.~~$5.8 million, which was reduced to $4.9 million as of April 30, 2023. We expect to continue to incur significant operating expenses ~~and, as a result, we will need to continue to grow revenues to reach profitability and positive cash flows. We expect to continue to incur losses for the foreseeable future~~ as we ~~continue to~~ develop our product portfolio and, ~~invest in~~as a result, expect to have negative cash flows from operations for the ~~development of new video game titles. Accordingly,~~foreseeable future until our product base is suitably established to create sufficient revenues and cash inflows to support the Company’s operations. Based on the Company’s cash and cash equivalents position and the Company’s average cash burn, we do not believe ~~that our existing~~we have sufficient cash on hand ~~will be sufficient~~ to fund our operations for ~~at least~~ the ~~next 12 months.~~

remainder of 2023 and that additional funding will be required in order to continue operations.

Our future liquidity and capital requirements include funds to support the planned costs to operate our business, including amounts required to fund working capital, support the development and introduction of new products, maintain existing titles, and certain capital expenditures. The adequacy of our available funds generally depends on many factors, including our ability to successfully develop consumer-preferred new products or enhancements to our existing products, continued development and expansion of our esports platform and our ability to enter into collaborations with other companies and/or acquire other companies or technologies to enhance or complement our product and service offerings.

We continue to explore additional funding in the form of potential equity and/or debt financing arrangements and similar transactions and consider these to be viable options to support future liquidity needs, ~~providing~~provided that such opportunities can be obtained on terms that are commercially competitive and on terms acceptable to the Company. We are also seeking to improve our liquidity by achieving cost reductions by maintaining and enhancing cost control ~~initiatives.~~initiatives, such as those that we expect to achieve through the 2022 Restructuring Program. See “2022 Restructuring Program” above for additional information.

As we continue to evaluate incremental funding solutions, we ~~have reevaluated~~re-evaluated our product roadmap in the first quarter of 2022 and modified the expected timing and scope of certain new product releases. These changes have been made not only to maintain the development of high-quality video game titles, but also to improve the timing of certain working capital requirements and reduce expenditures, thereby decreasing our expected future cash-burn and improve short-term liquidity needs. If needed, further adjustments could be made that would decrease short-term working capital requirements, while pushing out the timing of expected revenues.

We expect to generate additional liquidity through consummating equity and/or debt financings or similar transactions, achieving cost reductions by maintaining and enhancing cost control initiatives, such as those that we expect to achieve through the 2022 Restructuring Program and/or further adjusting our product roadmap to reduce ~~nearterm~~near term need for working capital. If we are unable to generate adequate revenue and profit growth, there can be no assurances that such actions will provide us with sufficient liquidity to meet our cash requirements as, among other things, our liquidity can be impacted by a number of factors, including our level of sales, costs and expenditures, economic conditions in the capital markets, especially for technology companies, as well as accounts receivable and sales allowances.

There can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all, to satisfy our future needed liquidity and capital resources. If we are unable to obtain adequate funds on acceptable terms, we may be required to, among other things, significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms.

If we are unable to satisfy our cash requirements from the sources identified above, we could be required to adopt one or more of the following alternatives:

There can be no assurance that we would be able to take any of the actions referred to above because of a variety of commercial or market factors, including, without limitation, market conditions being unfavorable for an equity or debt issuance or similar transactions, additional capital contributions and/or loans not being available from Motorsport Network or affiliates and/or third parties, or that the transactions may not be permitted under the terms of our various debt instruments then in effect, such as due to restrictions on the incurrence of debt, incurrence of liens, asset dispositions and related party transactions. In addition, such actions, if taken, may not enable us to satisfy our cash requirements if the actions that we are able to consummate do not generate a sufficient amount of additional capital.

Even if we do secure additional financing, if our anticipated level of revenues are not achieved because of, for example, less than anticipated consumer acceptance of our offering of products and events; less than effective marketing and promotion campaigns, decreased consumer spending in response to weak economic conditions or weakness in the overall electronic games category; adverse changes in ~~currency;~~foreign currency exchange rates; decreased sales of our products and events as a result of increased competitive activities by our competitors; changes in consumer purchasing ~~habits;~~habits, such as the impact of higher energy prices on consumer purchasing behavior; retailer inventory management or reductions in retailer display space; less than anticipated results from the Company’s existing or new products or from its advertising and/or marketing plans; or if the Company’s expenses, including, without limitation, for marketing, advertising and promotions, product returns or price protection expenditures, exceed the anticipated level of expenses, our liquidity may continue to be insufficient to satisfy our future capital requirements.

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that ~~these condensed~~the accompanying consolidated financial statements to this Report are issued. The factors described above, in particular the available cash on hand to fund operations over the next year, have raised substantial doubt about the Company’s ability to continue as a going concern.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the ~~condensed~~ consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Net cash used in operating activities for the three months ended March 31, 2023 and 2022 was $5.7 million and ~~2021 was $5,589,106 and $6,834,752,~~$5.6 million, respectively. The net cash used in operating activities for the three months ended March 31, ~~2022~~2023 was primarily a result of cash used to fund a net loss of ~~$15,967,045,~~$5.3 million, adjusted for net non-cash adjustments of ~~$10,514,807~~$1.2 million and ~~$136,868~~$1.6 million of cash used by changes in the levels of operating assets and liabilities. Net cash used in by operating activities for the three months ended March 31, ~~2021~~2022 was primarily due to net loss of ~~$14,085,424,~~$16.0 million, adjusted for non-cash expenses in the amount of ~~$7,883,479~~$10.5 million and by ~~$632,807~~$0.1 million of cash used to fund changes in the levels of operating assets and liabilities.

Net cash used in investing activities for the three months ended March 31, 2023 and 2022 was ~~$101,004,~~$0.02 million and $0.1 million, respectively, which was ~~primarily~~ attributable to the purchases of property and equipment. During the three months ended March 31, 2021, net cash used in investing activities was $956,501, which was attributable to $1,000,000 paid in connection with the acquisition of KartKraft, the purchases of intangible assets and property and equipment of $26,000 and $83,751, respectively, partially offset by $153,250 of net cash acquired in the purchase of an additional controlling interest in Le Mans Esports Series Ltd.

Net cash provided by financing activities during the three months ended March 31, 2023 and 2022 was $10.7 million and ~~2021 was $148,152 and $53,633,631,~~$0.1 million, respectively. Cash flows ~~from~~provided by financing activities for the three months ended March 31, ~~2022 was~~2023 were primarily attributable to $0.6 million raised in connection with shares sold under the ~~receipts~~Alumni Purchase Agreement (as defined below) and $10.4 million raised in connection with shares sold in the Company’s registered direct offerings, partially offset by $0.3 million of ~~advances from related parties.~~payments for purchase commitments. During the three months ended March 31, ~~2021,~~2022, net cash provided by financing activities was primarily attributable to ~~$63,073,783~~approximately $0.1 million of ~~net cash provided by the sale of Class A Common stock in our IPO, partially offset by $10,027,497 of net repayments to Motorsport Network.~~advances from related parties.

On April 1, 2020, the Company entered into a promissory note (the “$12 million Line of Credit”) with the Company’s majority stockholder, Motorsport Network, that provides the Company with a line of credit of up to ~~$10,000,000 (and after the~~$10 million (which was subsequently increased to $12 million pursuant to an amendment ~~described below, up to $12,000,000)~~executed in November 2020), at an interest rate of 10% per annum, the availability of which is dependent on Motorsport Network’s available liquidity. The principal amount under the $12 million Line of Credit was primarily funded through one or more advances from Motorsport Network, including advances in August and October 2020 for purposes of acquiring an additional ownership interest in 704Games. The $12 million Line of Credit does not have a stated maturity date and is payable upon demand at any time at the sole and absolute discretion of Motorsport Network, which has agreed, pursuant to a Side Letter Agreement related to the $12 million Line of Credit, dated September 4, 2020, not to demand or otherwise accelerate any amount due under the $12 million Line of Credit that would otherwise constrain the Company’s liquidity position, including the Company’s ability to continue as a going concern.Network. The Company may prepay the $12 million Line of Credit in whole or in part at any time or from time to time without penalty or charge. In the event the Company or any of its subsidiaries consummates certain corporate events, including any capital reorganization, consolidation, joint venture, spin off, merger or any other business combination or restructuring of any nature, or if certain events of default occur, the entire principal amount and all accrued and unpaid interest will be accelerated and become payable. ~~On November 23, 2020,~~Additionally, see “Risk Factors – Risks Related to Our Financial Condition and Liquidity - Limits on the ~~Company and Motorsport Network entered into an amendment to~~Company’s borrowing capacity under the $12 million Line of Credit may affect the Company’s ability to finance its operations” in Part I, Item 1A of the 2022 Form 10-K.

On September 8, 2022, the Company entered into a support agreement with Motorsport Network (the “Support Agreement”) pursuant to which Motorsport Network issued approximately $3 million (the “September 2022 Cash Advance”) to the Company in accordance with the $12 million Line of Credit, the proceeds of which the Company is using for general corporate purposes and working capital. In the Support Agreement, Motorsport Network and the Company terminated the Side Letter Agreement dated September 4, 2020 and agreed that until June 30, 2024, Motorsport Network would not demand repayment of the September 2022 Cash Advance or other advances under the $12 million Line of Credit unless and until such time that any of the following shall occur or exist: (i) the Company enters into a new financing arrangement (whether debt, equity or otherwise) under which the Company is then able to draw or provides the Company with available cash in excess of amounts required in the Company’s reasonable judgment to run its operations in the ordinary course of business; (ii) the Company generates from operations available cash in excess of amounts required in the Company’s reasonable judgment to run its operations in the ordinary course of business; or (iii) the Company’s independent auditors issue an unqualified opinion on its financial statements and the Company’s repayment of the advances, in whole or in part, would not otherwise cause the independent auditor to issue a going concern qualified opinion. Upon the occurrence of any of the foregoing events, the Company shall prepay on such date principal amount of the September 2022 Cash Advance and other advances under the $12 million Line of Credit then outstanding in an amount equal to such available excess cash or, in the case of (iii) above, the amount that would not cause the Company’s independent auditor to issue a going concern qualified opinion, together with interest accrued but unpaid on the unpaid September 2022 Cash Advance and other advances, which repayment obligation shall continue until all such advances under the $12 million Line of Credit are paid in full. The entire aggregate principal amount of the September 2022 Cash Advance and the other advances under the $12 million Line of Credit, together with interest accrued but unpaid thereon, shall also become immediately and automatically due and payable, and the $12 million Line of Credit shall immediately and automatically terminate, in each case without any action required by Motorsport Network, if (i) the Company experience an event of default under any other debt instrument, agreement or arrangement; or (ii) any final judgment or final judgments for the payment of money in excess (net of amounts covered by third-party insurance with insurance carriers who have not disclaimed liability with respect to such judgment or judgments) of $500,000 or its foreign currency equivalent is entered against the Company or any subsidiary and is not discharged and either (a) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (b) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed and, in the case of (b), such default continues for 60 consecutive days.

On January 30, 2023 and February 1, 2023, the Company entered into certain debt-for-equity exchange agreements with Motorsport Network pursuant to which the ~~availability~~entire outstanding amount due under the $12 million Line of Credit was ~~increased from $10,000,000~~cancelled in exchange for an aggregate of 780,385 shares of the Company’s Class A common stock issued to ~~$12,000,000, with no changes~~Motorsport Network. See Note 5 – Related Party Loans in our condensed consolidated financial statements for further information. As of March 31, 2023, the balance due to Motorsport Network under the ~~other terms.~~$12 million Line of Credit was $0.

On December 9, 2022, the Company entered into a stock purchase commitment agreement (the “Alumni Purchase Agreement”) with Alumni Capital LP (“Alumni Capital”), which provides that the Company may sell to Alumni Capital up to $2,000,000 of shares (the “commitment amount”) of the Company’s Class A common stock, through the commitment period expiring on December 31, 2023, or earlier if the commitment amount is reached. Furthermore, the Company has an option to increase the commitment amount up to $10,000,000 of shares of the Company’s Class A common stock, subject to certain terms and conditions. During the three months ended March 31, ~~2022, there was no activity~~2023, the Company issued an aggregate of 175,167 shares of the Company’s Class A common stock to Alumni Capital under the ~~$12 million Line~~Alumni Purchase Agreement with an aggregate fair market value of ~~Credit and the balance due to Motorsport Network was $0 as~~approximately $0.65 million. As of March 31, ~~2022. Subsequent~~2023, the remaining commitment amount under the Alumni Purchase Agreement amounted to ~~March 31, 2022,~~approximately $1.3 million.

On February 1, 2023, the Company ~~has not made any advances or repayments~~issued 183,020 shares of the ~~$12~~Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $3.9 million ~~Line of Credit. For~~(the “$3.9 million RDO”), before deducting placement agent fees and other offering expenses payable by the ~~three months ended March 31, 2021,~~Company. H.C. Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the $3.9 million RDO, pursuant to the engagement letter with the Company, ~~was advanced $1,772,503 and repaid $11,800,000~~dated as of January 9, 2023. In connection with the $3.9 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the ~~$12~~aggregate gross proceeds from the registered direct offering, non-accountable expenses of $50,000 and closing fees of $15,950. The Company has also issued to Wainwright warrants to purchase up to 10,981 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $3.9 million ~~Line~~RDO, at an exercise price of ~~Credit.~~$26.75 per share and will expire five years from the closing of the $3.9 million RDO.

On February 2, 2023, the Company issued 144,366 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $3.4 million (the “$3.4 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company. Wainwright acted as the exclusive placement agent for the $3.4 million RDO. In connection with the $3.4 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950. The Company has also issued to Wainwright warrants to purchase up to 8,662 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $3.4 million RDO, at an exercise price of $29.375 per share and will expire five years from the closing of the $3.4 million RDO.

On February 3, 2023, the Company issued 232,188 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $4.0 million (the “$4.0 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company. Wainwright acted as the exclusive placement agent for the $4.0 million RDO. In connection with the $4.0 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950. The Company has also issued to Wainwright and its designees warrants to purchase up to 13,931 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $4.0 million RDO, at an exercise price of $21.738 per share and will expire five years from the closing of the $4.0 million RDO.

The nature of the Company’s operations does not require significant ~~expenditures~~expenditure on capital assets, nor does the Company typically enter into significant commitments to acquire capital assets. The Company does not have material commitments to acquire capital assets as of March 31, ~~2022.~~2023.

There have been no material changes in our reported material cash requirements as described under “Liquidity and Capital ~~Resources—~~Resources – Material Cash Requirements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the ~~2021~~2022 Form 10-K.

We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

There have been no material changes to the items disclosed as critical accounting policies and estimates under “Liquidity and Capital Resources—Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the ~~2021~~2022 Form ~~10-K, with the exception of an additional critical estimate identified in respect of finite-lived intangible assets.~~10-K.

We review our finite-lived assets for impairment whenever events or changes in circumstances indicate, based on recent and projected cash flow performance and remaining useful lives, that the carrying value of these assets may not be fully recoverable. We evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the intangible asset level, with the exception of technology intangible assets which are at the reporting unit level. If estimated undiscounted future cash flows are less than the carrying value of an asset, an impairment charge is recognized to the extent its carrying value exceeds fair value.

~~We typically estimate fair value a cost to recreate valuation technique, however the valuation method used will be dependent on the finite-lived intangible asset subject to fair value assessment.~~

~~The principal assumptions used in our cost to recreate model for our interim impairment review for the three month period ended March 31, 2022 were:~~

If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If the fair value exceeds its carrying value, the finite-life intangible asset is not considered impaired.

As an “emerging growth company”, the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS ~~Act. We have elected to use this extended transition period under the JOBS~~ Act until such time as we are no longer considered to be an emerging growth company.

Our analysis of recently issued accounting standards are more fully described in our condensed consolidated financial statements included elsewhere in this Report.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, ~~2022.~~2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, ~~2022~~2023 because of the material ~~weaknesses~~weakness in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as discussed in Part II, Item 9A, “Controls and Procedures” of the ~~2021~~2022 Form 10-K, and that continued to exist as of March 31, ~~2022.~~2023.

During the first quarter of our fiscal year ended December 31, 2023, we implemented internal control procedures to address previously identified material weaknesses related to (1) the documentation of significant accounting positions, estimates and conclusions that were not contemporaneously formalized and reviewed independently of the preparer; and (2) the segregation of duties. In connection with the identification of material weaknesses in our internal control over financial reporting, we evaluated, designed, and implemented controls and procedures to address these weaknesses. These measures included enhanced documentation of accounting positions, estimates and conclusions, including reviews independent of the preparer, and the removal of segregation of duties conflicts within our key financial reporting processes. During the first quarter of our fiscal year ended December 31, 2023, we completed our assessment of the operating effectiveness of these controls. After completing our assessment of the design and operating effectiveness of these new controls and procedures, we concluded that we have remediated the previously identified material weaknesses as of March 31, 2023.

~~Although we~~We have not yet remediated the material ~~weaknesses,~~weakness relating to our failure to design and maintain effective monitoring procedures and controls to evaluate the effectiveness of our individual control activities, that we identified in the ~~2021~~2022 Form ~~10-K, we~~10-K. We believe that we have made and continue to make progress on the remediation plans described in our ~~2021~~2022 Form 10-K, under Item 9A, “Controls and Procedures.”

During the period ended March 31, ~~2022,~~2023, we continued to make improvements to controls and continued our evaluation and documentation of risks and key controls forming part of the significant business processes, including the internal control over financial reporting risk assessment scoping, development of risk control matrices and identification of key transaction level and entity level controls (ELCs), disclosure controls and procedures, financial statement close and financial reporting (FSCFR), revenue, equity, accounts payable and information technology general controls. Management plans to complete the remediation of the previously identified material weaknesses during 2023.

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Except as described above, there were no other changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act during the quarter ended March 31, ~~2022,~~2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash ~~flows. However,~~flows, except as otherwise disclosed in this Report. In light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period. See Note 119 – Commitments and Contingencies ~~– Litigation~~ in our condensed consolidated financial statements for additional information.

In additionto the other information set forth in this Report, you should carefully consider the factors discussed in “Risk Factors” in Part I, Item 1A of the ~~2021~~2022 Form 10-K, and the risk ~~factor~~factors described below, which could materially affect our business, financial condition or future results. The risks described in the ~~2021~~2022 Form 10-K and below, are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.

~~There~~Other than the following, there have been no significant changes to the risk factors set forth in the ~~2021~~2022 Form ~~10-K, however we have updated our risk factor regarding the Russian military action against Ukraine to reflect the changing circumstance.~~10-K:

We ~~are subject to risks related to~~may not successfully manage the ~~Russian military action against Ukraine.~~transitions associated with certain of our executive officers, which could have an adverse impact on us.

On September 9, 2022, Jonathan New notified us of his decision to resign from his role as our Chief Financial Officer, effective September 23, 2022. Effective March 20, 2023, we appointed Jason Potter to serve as our Chief Financial Officer. Prior to Mr. Potter’s appointment to the permanent Chief Financial Officer role, we had other individuals, including Dmitry Kozko, our former Chief Executive Officer, serve in an Interim Chief Financial Officer capacity. Additionally, on April 14, 2023, the Company’s board of directors determined to terminate Mr. Kozko’s employment with the Company as its Chief Executive Officer without “Cause” (as such term is defined in Mr. Kozko’s employment agreement) effective as of April 19, 2023. In ~~February 2022, Russian forces launched significant military actions against Ukraine, and sustained conflict and disruption in~~connection with Mr. Kozko’s termination, the ~~region has subsequently occurred. We have no way to predict the progress or outcome~~Company’s board of ~~the current situation in Ukraine,~~directors appointed Stephen Hood as the ~~conflict~~Company’s new Chief Executive Officer and ~~governmental reactions are rapidly developing~~President. Leadership transitions may be inherently difficult to manage, and ~~beyond~~inadequate transitions to a new Chief Executive Officer and/or Chief Financial Officer may cause disruption within the Company. In addition, our ~~control. However, the~~financial performance and ability to meet operational goals and strategic plans may be adversely impacted. This may also impact to Ukraine, as well as the actions taken by other countries, including new and stricter sanctions imposed by Canada, the U.K., the European Union, the U.S. and other nations against officials, individuals, regions, and industries in Russia, Ukraine and Belarus, each country’s potential response to such sanctions, tensions and military actions, could all have a material adverse effect on our business, financial condition, liquidity and/or results of operations in various manners.

~~The current and potential sanctions against Russia could have a material adverse effect on~~ our ability to ~~use our Russian development staff for future game development. A significant portion~~retain and hire other key members of our development staff is based in Russia. Our software development team in Russia continues to engage in remote software development services for us without significant interruption and we continue to pay the staff located in Russia. However, international sanctions and potential responses to such sanctions, including those that may limit or restrict our ability to transfer funds into Russia to pay for such development services or any frozen or lost funds, could significantly affect our ability to pay our developers based in Russia. Further, efficient data transfer and internet accessibility from and to Russia may also be jeopardized, such as in the event of an internet blockade by the Russian government, which may cause certain disruptions in development and maintenance activities by our Russian development staff. Any of the foregoing could result in us having to look to alternative development arrangements, which would likely delay our ability to release future game titles.management.

In addition, we have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompany transactions outside the U.S. In addition, some currencies may be subject to limitations on conversion into other currencies, which can limit our ability to otherwise react to rapid foreign currency devaluations. Because we have operations in Russia, our exchange rate risk is highly sensitive to the prevailing value of the U.S. dollar relative to the Russian ruble, which exchange rate has fluctuated significantly, in particular due to the recent Russian invasion of Ukraine, as well as continued sanctions and any new sanctions against Russia. While we cannot predict with precision the effect of future exchange-rate fluctuations, further significant rate fluctuations could have a material adverse effect on our business, financial condition and/or results of operations.

~~Our business, financial condition, liquidity and/or results of operations could also be adversely affected in a number of other ways, including, but not limited to, the following:~~

There were no unregistered sales of equity securities during the quarter ended March 31, ~~2022.~~2023, other than as reported in our Current Reports on Form 8-K filed with the SEC.

We did not purchase any shares of our Class A common stock during the quarter ended March 31, ~~2022.~~2023.

On January 15, 2021, we completed our IPO pursuant to our registration statement on Form S-1 (File No. 333-251501), as amended (the “Registration Statement”), which was declared effective by the SEC on January 12, 2021. As previously reported, we received net proceeds of approximately $63,074,128 from our IPO after deducting fees paid in connection with the IPO in 2020 and 2021. There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus, dated January 12, 2021, filed with the SEC pursuant to Rule 424(b) relating to our Registration Statement.

As of March 31, 2022, we have used $55,730,128 of the net proceeds from our IPO, including (i) approximately $12,967,000 for the repayment of a the outstanding amount due under the $12 million Line of Credit entered into with Motorsport Network, our majority stockholder; (ii) approximately $17,384,674 in connection with the acquisitions of Studio397, KartKraft and 704Games; (iii) $21,575,956 for working capital and general corporate purposes; (iv) $855,306 in capital expenditures; and (v) $2,947,192 in IPO-related expenses and bonuses.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, ~~2022~~2023

		or

	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ___________ to ___________

Delaware		86-1791356
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

5972 NE 4th Avenue Miami, FL		33137
Address of Principal Executive Offices		Zip Code

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

		Page
Part I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3437
Item 4.	Controls and Procedures	3437

Part II.	OTHER INFORMATION	3539
Item 1.	Legal Proceedings	3539
Item 1A.	Risk Factors	3539
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3640
Item 5.	Other Information	3640
Item 6.	Exhibits	3741
Signatures		3843

	(ii)	difficulties, delays or less than expected results in achieving our growth plans, objectives and expectations, such as due to a slower than anticipated economic recovery and/or our inability, in whole or in part, to continue to execute our business strategies and plans, such as due to less than anticipated customer acceptance of our new game titles, our experiencing difficulties or the inability to launch our games as planned, less than anticipated performance of the games impacting customer acceptance and sales and/or greater than anticipated costs and expenses to develop and launch our games, including, without limitation, higher than expected labor costs;

	(iii)	difficulties, delays in or unanticipated events that may impact the timing and scope of new product launches, such as due to difficulties or delays inrelated to our transition from using ~~its product~~ development ~~personnel~~staff in Russia ~~due~~ to ~~Russia’s invasion of Ukraine and the related sanctions and/or more restrictive sanctions rendering transacting~~using development staff in ~~the region more difficult or costly~~other countries and/or difficulties and/or delays arising out of any resurgence of the ongoing and prolonged COVID-19 pandemic;

	(iv)	less than expected benefits from implementing our management strategies and/or adverse economic, market and geopolitical conditions that negatively impact industry trends, such as significant changes in the labor markets, an extended or higher than expected inflationary environment (such as the impact on consumer discretionary spending as a result of significant increases in energy and gas prices which have been increasing since early in 2020), a higher interest rate environment, tax increases impacting consumer discretionary spending and or quantitative easing that results in higher interest rates that negatively impact consumers’ discretionary spending, or adverse developments relating to ~~Russia’s invasion of~~the ongoing war between Russia and Ukraine;

	(v)	delays and higher than anticipated expenses related to the ongoing and prolonged COVID-19 pandemic;

	(vi)	difficulties and/or delays adversely impacting our ability (or inability) to maintain existing, and to secure additional, licenses and other agreements with various racing series;

	(vii)	difficulties and/or delays adversely impacting our ability to successfully manage and integrate any joint ventures, acquisitions of businesses, solutions or technologies;

	(viii)	unanticipated operating costs, transaction costs and actual or contingent liabilities;

	(ix)	difficulties and/or delays adversely impacting our ability to attract and retain qualified employees and key personnel;

	(x)	adverse effects of increased competition;

	(xi)	changes in consumer behavior, including as a result of general economic factors, such as increased inflation, recessionary factors, higher energy prices and higher interest rates;

	(xii)	difficulties and/or delays adversely impacting our ability to protect ~~its~~our intellectual property;

	●	our future business, results of operations, financial condition and/or liquidity, including with respect to the ongoing effects of ~~Russia’s invasion~~the war between Russia and Ukraine;

	●	our intended corporate purpose to make the thrill of ~~Ukraine, as well as~~motorsports accessible to everyone by creating the ~~coronavirus (“COVID-19”) pandemic;~~highest quality, most sophisticated and most innovative experiences for racers, gamers and fans of all ages;

	●	new or planned products or offerings, including the anticipated timing of our new product launches under our updated product roadmap, such as our ~~expectation that our next NASCAR title for 2022 will be an update to our 2021 release and our~~ anticipated release of NASCAR, INDYCAR, British Touring Car Championship and Le Mans games in 2023 and 2024;

	●	our intentions with respect to our mobile games, including expectations that we will continue to focus on developing and further enhancing our multi-platform games for mobile phones, as well as the anticipated timing of the release of our future mobile games;

	●	our plans to strive to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games as well as on behalf of third-party racing game developers and publishers;
	●	our belief that connecting virtual racing gamers and esports fans on a digital entertainment and social platform represents the greatest opportunity to enhance the way that people learn, watch, play, and experience racing video games and racing esports;

	●	our future plans and expectations for Traxion .GG (“Traxion”), our online destination for the virtual racing community, including with regards to its functionality and content;

	●	our beliefs regarding the growing importance and business viability of esports, especially within the racing and motorsport genres;

	●	our intention to expand our license arrangements to other internationally recognized racing series and the platforms we operate on;

	●	our ~~expectations~~expectation that we will be able to extend or re-negotiate our promotion agreement with Motorsport Network, LLC (“Motorsport Network”) on reasonable terms;

	●	our intention to continue seeking to expand our audience base through traditional marketing and sales distribution channels including Facebook, Twitter, Twitch, YouTube and other online social networks;

	●	our belief that our esports business has the ~~COVID-19 pandemic will not have a material impact on~~potential to generate incremental revenues through the further sale of media rights to our ~~future business~~esports events and ~~operations;~~competitions, as well as merchandising and sports betting, if the esports audience pattern continues to grow;

	●	our expectation that having a broader product portfolio will improve our operating results and provide a revenue stream that is less cyclical ~~based on the release of~~than releasing a single game per year;

	●	our expectation that future revenue streams will become further diversified and consist of revenues from multiple games and different franchises;

	●	our plans to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content;

	●	our expectation that we will continue to derive significant revenues from sales of our products to a very limited number of distribution partners;

	●	our expectation that we will continue to invest in technology, hardware and software to support our games and services, including with respect to security protections;

	●	our belief that the global adoption of portable and mobile gaming devices leading to significant growth in portable and mobile gaming is a continuing trend;

	●	our intention to continue to look for opportunities to expand the recurring portion of our business;

	●	our liquidity and capital requirements, including, without limitation, as to our ability to continue as a going concern, our belief that ~~our existing~~we will not have sufficient cash on hand ~~together with~~to fund our operations for the remainder of 2023 based on the cash and cash equivalents available as of April 30, 2023 and our average cash burn, our belief that additional funding will be required in order to continue operations, our belief that there is a substantial likelihood that Motorsport Network may not fulfill our future borrowing ~~availability~~requests under the $12 million Line of Credit ~~will not be sufficient to fund our operations for at least the next 12 months,~~(as defined in this Report), our belief that it will be necessary for us to secure additional funds, whether through a variety of equity and/or debt financing arrangements or similar transactions or implementing cost reductions through cost control initiatives, to continue our existing business operations and to fund our ~~obligations,~~obligations; our expectation to generate additional liquidity through consummating one or more potential equity and/or debt financings, achieving cost reductions by maintaining and ~~through~~enhancing cost control initiatives, ~~and our belief~~such as those that we ~~have access~~expect to achieve through the 2022 Restructuring Program (as defined in this Report), and/or adjusting our product roadmap to reduce the near-term need for working capital, ~~resources,~~ as well as statements regarding our cash flows and anticipated uses of ~~cash;~~cash, as well as our belief that additional funding in the form of potential equity and/or debt financing arrangements or similar transactions are viable options to support our future liquidity needs, provided that such opportunities can be obtained on terms that are commercially competitive and on terms acceptable to us;

	●	our expectations that we will continue to incur losses for the foreseeable future as we continue to incur significant expenses;

	●	our intended use of proceeds from the sales of our equity securities;

	●	our expectations relating to future impairment of intangible assets;

	●	our plans and intentions with respect to our remediation efforts to address the material ~~weaknesses~~weakness in our internal control over financial reporting;

	●	our belief that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows, ~~but~~except as otherwise disclosed in this Report, and that in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period, including, without limitation, our beliefs regarding the merit of any plaintiff’s allegations and the impact of any claims and litigation that we are subject to;

	●	our intention to not declare dividends in the foreseeable future;

	●	our ability to utilize net operating loss carryforwards; ~~and~~

	●	our expectations regarding the future impact of implementing management strategies, potential acquisitions and industry ~~trends.~~trends;

	●	our belief that we may decide in the future to avail ourselves of certain corporate governance requirements of The Nasdaq Stock Market LLC (“NASDAQ”) as a result of being a “controlled company” within the meaning of the NASDAQ rules;

	●	our expectations regarding the 2022 Restructuring Program, such as: (i) our expectations to eliminate approximately 20% of our overhead costs worldwide; (ii) our expectations regarding the amount and timing of the charges and payments related to the 2022 Restructuring Program; (iii) our expectations that as a result of the 2022 Restructuring Program, we will deliver approximately $4 million of total annualized cost reductions by the end of 2023; (iv) our expectations that total restructuring costs will fall within the previously estimated range of $0.1 million to $0.3 million; and (v) our plans to continue our efforts to achieve further cost reductions; and

	●	our expectation that our current development operations will not have significant exposure to changes in circumstances arising from the Ukraine-Russia conflict.

	(xiii)	local, industry and general business and economic conditions;

	~~(xiii)~~(xiv)	~~local, industry and general business and economic conditions; and/or~~

	~~(xiv)~~	unanticipated adverse effects on our business, prospects, results of operations, financial condition, cash flows and/or liquidity as a result of unexpected developments with respect to our legal ~~proceedings.~~proceedings;

	(xv)	difficulties, delays or our inability to successfully complete the 2022 Restructuring Program, in whole or in part, which could result in less than expected operating and financial benefits from such actions, as well as delays in completing the 2022 Restructuring Program, which could reduce the benefits realized from such activities; and
	(xvi)	higher than anticipated restructuring charges and/or payments and/or changes in the expected timing of such charges and/or payments; and/or less than anticipated annualized cost reductions from our plans and/or changes in the timing of realizing such cost reductions, such as due to less than anticipated liquidity to fund such activities and/or more than expected costs to achieve the expected cost reductions.

[1]	Includes related party costs of $0 and $6,228 for the three months ended March 31, 2023 and 2022, respectively.
[2]	Includes related party expenses of $17,076 and $0 for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.


	For the Three Months Ended March 31, 2022
	Class A Common Stock				Class B Common Stock				Member’s		Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’ Equity Attributable to Motorsport			Non- controlling			Total Stockholders’
	Shares		Amount		Shares		Amount		Equity		Capital		Deficit			Income (Loss)			Games Inc.			Interest			Equity
Balance - January 1, 2022		11,635,897	$	1,164		7,000,000	$	700	$	-	$	75,651,175	$	(37,988,326	)	$	(945,375	)	$	36,719,338		$	1,262,665		$	37,982,003
Stock-based compensation		37,900		4		-		-		-		353,026		-			-			353,030			-			353,030
Other comprehensive loss		-		-		-		-		-		-					(125,245	)		(125,245	)		(59,293	)		(184,538	)
Net loss		-		-		-		-		-		-		(15,137,617	)		-			(15,137,617	)		(829,428	)		(15,967,045	)
Balance - March 31, 2022		11,673,797	$	1,168		7,000,000	$	700	$	-	$	76,004,201	$	(53,125,943	)	$	(1,070,620	)	$	21,809,506		$	373,944		$	22,183,450

	For the Three Months Ended March 31, 2021

Balance - January 1, 2021		-	$	-	-	$	-	$	3,791,674		$	-	$	(4,826,335	)	$	4,928		$	(1,029,733	)	$	2,645,559		$	1,615,826
Beginning balance		-	$	-	-	$	-	$	3,791,674		$	-	$	(4,826,335	)	$	4,928		$	(1,029,733	)	$	2,645,559		$	1,615,826
Conversion of membership interests into shares of common stock		7,000,000		700	7,000,000		700		(3,791,674	)		3,790,274		-			-			-			-			-
Issuance of common stock in initial public offering, net [1]		3,450,000		345	-		-		-			63,073,783		-			-			63,074,128			-			63,074,128
Stock-based compensation		330,633		33	-		-		-			9,076,883		-			-			9,076,916			-			9,076,916
Purchase of additional interest in Le Mans		-		-	-		-		-			-		-			-			-			1,584,892			1,584,892
Comprehensive loss:																				-
Other comprehensive loss		-		-	-		-		-			-		-			(32,914	)		(32,914	)		-			(32,914	)
Net loss		-		-	-		-		-			-		(13,811,974	)		-			(13,811,974	)		(273,450	)		(14,085,424	)
Balance - March 31, 2021		10,780,633	$	1,078	7,000,000	$	700	$	-		$	75,940,940	$	(18,638,309	)	$	(27,986	)	$	57,276,423		$	3,957,001		$	61,233,424
Ending balance		10,780,633	$	1,078	7,000,000	$	700	$	-		$	75,940,940	$	(18,638,309	)	$	(27,986	)	$	57,276,423		$	3,957,001		$	61,233,424

	For the Three Months Ended March 31, 2022
																	Total
																	Stockholders’
	Class A Common Stock				Class B Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Equity Attributable to Motorsport			Non- controlling			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Loss			Games Inc.			Interest			Equity
Balance – January 1, 2022		1,163,590	$	116		700,000	$	70	$	75,652,853	$	(37,988,326	)	$	(945,375	)	$	36,719,338		$	1,262,665		$	37,982,003
Beginning balance		1,163,590	$	116		700,000	$	70	$	75,652,853	$	(37,988,326	)	$	(945,375	)	$	36,719,338		$	1,262,665		$	37,982,003
Stock-based compensation		3,769		-		-		-		353,030		-			-			353,030			-			353,030
Other comprehensive loss		-		-		-		-		-		-			(125,245	)		(125,245	)		(59,293	)		(184,538	)
Net loss		-		-		-		-		-		(15,137,617	)		-			(15,137,617	)		(829,428	)		(15,967,045	)
Balance – March 31, 2022		1,167,359	$	116		700,000	$	70	$	76,005,883	$	(53,125,943	)	$	(1,070,620	)	$	21,809,506		$	373,944		$	22,183,450
Ending balance		1,167,359	$	116		700,000	$	70	$	76,005,883	$	(53,125,943	)	$	(1,070,620	)	$	21,809,506		$	373,944		$	22,183,450


	For the Three Months Ended
	March 31,
	2022			2021

Cash flows from operating activities:
Net Loss	$	(15,967,045	)	$	(14,085,424	)
Adjustments to reconcile net income to net cash used in operating activities:
Impairment of intangible assets		4,491,054			-
Impairment of goodwill		4,788,268			-
Depreciation and amortization		577,514			136,600
Non-cash lease expense		70,701			-
Stock-based compensation		353,030			9,076,916
Gain on equity method investment		-			(1,370,837	)
Sales return and price protection reserves		234,240			40,800
Changes in assets and liabilities, net of acquisitions and the effect of consolidation of equity affiliates:
Account receivable		2,497,895			362,766
Operating lease liabilities		(60,211	)		-
Prepaid expenses		(541,640	)		(347,787	)
Other assets		-			25,000
Accounts payable		37,705			(288,733	)
Other non-current liabilities		(1,187,721	)		50,555
Accrued expenses		(882,896	)		(434,608	)
Net Cash used in operating activities		(5,589,106	)		(6,834,752	)

Cash flows from investing activities:
Acquisition of Le Mans, net of cash acquired		-			153,250
Acquisition of Motorsport Games Australia		-			(1,000,000	)
Purchase commitment liability		-			(26,000	)
Purchase of property and equipment		(101,004	)		(83,751	)
Net cash used in investing activities		(101,004	)		(956,501	)

Cash flows from financing activities:
Advances from related parties		148,152			1,772,503
Repayments on advances from related parties		-			(11,800,000	)
Proceeds from issuance of Class A common stock sold in initial public offering, net of underwriting costs		-			63,661,128
Net cash provided by financing activities		148,152			53,633,631

Effect of exchange rate changes on cash and cash equivalents		89,553			(54,433	)

Net (decrease) increase in cash and cash equivalents		(5,452,405	)		45,787,945

Cash and cash equivalents at the beginning of period		17,819,640			3,990,532
Cash and cash equivalents at the end of period	$	12,367,235		$	49,778,477

Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest	$	-		$	639,786

Non-cash investing and financing activities:
Purchase of Le Mans additional interest	$	-		$	1,584,892
Reduction of additional paid-in capital for initial public offering issuance costs that were previously paid	$	-		$	587,000

	●	selling assets or operations;
	●	seeking additional capital contributions and/or loans from Motorsport Network, the Company’s other affiliates and/or third parties; and/or
	●	reducing other discretionary spending.

●	~~Identification of a contract with a customer;~~
●	~~Identification of the performance obligations in the contract;~~
●	~~Determination of the transaction price;~~
●	~~Allocation of the transaction price to the performance obligations in the contract; and~~
●	~~Recognition of revenue when or as the performance obligations are satisfied.~~

	1)	~~Sales of Games~~ ~~- Full console, PC and mobile games contain a software license that is delivered digitally or via physical disk at the time of sale;~~

	2)	~~Sales of Extra Content~~ – Includes (a) extra content that is downloaded by console and PC players that provides the ability to customize and/or enhance their gameplay and (b) virtual currencies that provide mobile players with the ability to purchase extra content that allows them to customize and/or enhance their gameplay; and

	3)	~~Esports Competition Events~~ ~~- Hosting of online esports competitions that generate sponsorship revenue.~~

	●	Level 1 – Quoted prices for identical instruments in active markets;
	●	Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
	●	Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

	Licensing Agreements (Finite)		Licensing Agreements (Indefinite)			Software Licenses (Finite)		Distribution Contracts (Finite)		Trade Names (Indefinite)		Non-Compete Agreements (Finite)		Accumulated Amortization			Total
Balance as of January 1, 2023	$	7,198,363	$	1,546,645		$	8,656,842	$	560,000	$	212,185	$	243,243	$	(5,057,048	)	$	13,360,230
Amortization expense		-		-			-		-		-		-		(439,640	)		(439,640	)
FX translation adjustments		27,507		(4,353	)		72,920		-		500		2,054		(11,157	)		87,471
Balance as of March 31, 2023	$	7,225,870	$	1,542,292		$	8,729,762	$	560,000	$	212,685	$	245,297	$	(5,507,845	)	$	13,008,061

Weighted average remaining amortization period at March 31, 2023		4.7		-			4.1		-		-		1.0		-			-

	Licensing Agreements (Finite)				Licensing Agreements (Indefinite)		Software Licenses (Finite)			Distribution Contracts (Finite)		Trade Names (Indefinite)			Non-Compete Agreement (Finite)			Accumulated Amortization			Total
Balance as of January 1, 2022	$	7,198,363		$	2,810,000		$	10,364,541		$	560,000	$	2,672,581		$	257,530		$	(3,377,206	)	$	20,485,809
Amortization expense		-			-			-			-		-			-			(482,716	)		(482,716	)
Impairment of intangible assets		-			(1,118,209	)		(1,320,993	)		-		(2,051,852	)		-			-			(4,491,054	)
FX translation adjustments		(66,276	)		-			(108,717	)		-		(40,285	)		(2,048	)		13,884			(203,442	)
Balance as of March 31, 2022	$	7,132,087		$	1,691,791		$	8,934,831		$	560,000	$	580,444		$	255,482		$	(3,846,038	)	$	15,308,597

	Licensing Agreements		Software			Distribution Contracts		Non-Compete Agreement			Accumulated Amortization
Balance as of January 1, 2022	$	912,260	$	1,843,715		$	560,000	$	61,231		$	3,377,206
Amortization expense		57,186		404,257			-		21,273			482,716
FX translation adjustments		-		(13,470	)		-		(414	)		(13,884	)
Balance as of March 31, 2022	$	969,446	$	2,234,502		$	560,000	$	82,090		$	3,846,038

	Games			Esports			Total
Balance as of January 1, 2022	$	4,802,882		$	64,583		$	4,867,465
Impairment of Goodwill		(4,723,685	)		(64,583	)		(4,788,268	)
Foreign exchange		(79,197	)		-			(79,197	)
Balance as of March 31, 2022	$	-		$	-		$	-

	Condensed Consolidated Statement of Comprehensive Loss Classification	Three Months Ended March 31, 2022
Short-term operating lease expense		$	28,965
Operating lease expense	G&A		70,701
Total lease costs		$	99,666

	Operating Leases
2022 (remaining period)	$	210,952
2023		285,528
2024		196,377
2025		38,749
2026		13,374
Thereafter		-
Total lease payments	$	744,980
Less effects of imputed interest		(53,175	)
Present value of lease liabilities	$	691,805

For the Years Ending December 31,	Total
2022	$	299,442
2023		289,218
2024		189,786
2025		48,104
2026		24,069
Total	$	850,619

	Offering Date	Shares Issued		Gross Proceeds		Net Proceeds		Warrants Issued		Warrant Strike Price		Warrant Term
Registered direct offering 1	February 1, 2023		183,020	$	3.9 million	$	3.6 million		10,981	$	26.75	5 years
Registered direct offering 2	February 2, 2023		144,366	$	3.4 million	$	3.1 million		8,662	$	29.375	5 years
Registered direct offering 3	February 3, 2023		232,188	$	4.0 million	$	3.7 million		13,931	$	21.738	5 years

	For the Three Months Ended March 31, 2022
	Number of Options			Vesting Term		Contractual Term		Grant Date Fair Value
Awards outstanding under the MSGM 2021 Stock Plan as of January 1, 2022 (net of forfeitures)		312,689
Stock options award to employees under the MSGM 2021 Stock Plan		559,347			3 Years		10 Years	$	1,151,495
Stock options awarded to Board of Directors under the MSGM 2021 Stock Plan		57,108			1 Year		10 Years	$	120,630
Restricted share awards to Board of Directors under the MSGM 2021 Stock Plan		37,690			Immediate		-	$	148,499
Forfeited, cancelled or expired		(107,218	)
Awards outstanding under the MSGM 2021 Stock Plan as of March 31, 2022 (net of forfeitures)		859,616

	Number of Options
Awards outstanding under the MSGM 2021 Stock Plan as of January 1, 2023 (net of forfeitures)		74,285
Forfeited, cancelled or expired		(21,549	)
Awards outstanding under the MSGM 2021 Stock Plan as of March 31, 2023 (net of forfeitures)		52,736

	2023			2022
	For the Three Months Ended March 31,
	2023			2022
General and Administrative	$	19,426		$	16,394
Sales and Marketing		239,717			302,007
Development		(9,910	)		34,629
Stock-based compensation expense	$	249,233		$	353,030

		March 31, 2022		December 31, 2021
Segment Total Assets:
	Gaming	$	31,493,831	$	47,511,471
	Esports		2,087,734		3,191,732
Consolidated Total Assets		$	33,581,565	$	50,703,203

	March 31, 2023		December 31, 2022
Total Assets:
Gaming	$	20,026,416	$	16,315,359
Esports		2,071,396		2,582,433
Total Assets	$	22,097,812	$	18,897,792

Title		Release Date and Platform
NASCAR 21: Ignition		October 28, 2021, available on PC and next generation consoles
NASCAR Heat Ultimate Edition+		November 19, 2021, available on Nintendo Switch
KartKraft		January 26, 2022, available on PC (full release)
rFactor 2 Q1 2022 Content Update		February 7, 2022, available on PC
rFactor 2 Q2 2022 Content Update		May 10, 2022, available on PC
rFactor 2 Q3 2022 Content Update		August 8, 2022, available on PC
NASCAR 21: Ignition 2022 Season Expansion		October 6, 2022, available on PC and next generation consoles
NASCAR Rivals		October 14, 2022, available on Nintendo Switch
rFactor 2 Q4 2022 Content Update		November 7, 2022, available on PC
rFactor 2 Q1 2023 Content Update		February 21, 2023, available on PC

	●	the initial game delivered digitally or via physical disk at the time of sale, which also typically provides access to offline core game content;
	●	updates to previously released games on a when-and-if-available basis, such as software patches or updates, and/or additional content to be delivered in the future, both paid and free; and
	●	outsourced code and content development services.

Gaming - Gross Profit Margin	39.2	%		52.5	%
Esports - Gross Profit Margin	(28.9	)%	$	(67.8	)%
Total Gross Profit Margin	27.8	%		39.4	%

	For the Three Months Ended March 31,				Change
	2023		2022		$			%
Operating Expenses:
Sales and marketing	$	618,410	$	1,688,449	$	(1,070,039	)		(63.4	)%
Development		2,397,134		2,404,338		(7,204	)		(0.3	)%
General and administrative		2,779,110		3,423,153		(644,043	)		(18.8	)%
Impairment of goodwill		-		4,788,268		(4,788,268	)		(100.0	)%
Impairment of intangible assets		-		4,491,054		(4,491,054	)		(100.0	)%
Depreciation and amortization		97,354		116,071		(18,717	)		(16.1	)%
Total Operating Expenses	$	5,892,008	$	16,911,333	$	(11,019,325	)		(65.2	)%