Motorsport Games Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared with FY2022. The filing was signed April 1, 2024. This is an annual report, not a standalone fourth-quarter report.
Business context
Motorsport Games develops and publishes racing games and organizes esports events. Its principal retained gaming property is Le Mans/WEC, alongside rFactor 2 and KartKraft. NASCAR products generated 72% of FY2023 revenue, but the company sold its NASCAR license to iRacing in October 2023 and may sell existing NASCAR games and downloadable content only through December 31, 2024. BTCC and INDYCAR licenses were also terminated in 2023.
Financial performance and condition
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $6.9 million | $10.3 million |
| Gross profit / margin | $3.3 million / 47.6% | $5.4 million / 52.0% |
| Operating loss | $19.4 million | $35.0 million |
| Net loss | $14.3 million | $36.8 million |
| Net cash used in operations | $12.9 million | $19.5 million |
| Cash and cash equivalents at year-end | $1.7 million | $1.0 million |
| Working capital (deficiency) | $(4.1) million | $(9.3) million |
| Total assets / liabilities | $9.8 million / $7.7 million | $18.9 million / $17.0 million |
Gaming revenue fell 27.6%, mainly reflecting no new NASCAR game release in 2023, weaker sales of existing titles, and lower development revenue. Esports revenue fell 75.4% to $0.3 million because the Le Mans Virtual Series was not run in the 2023/24 season; the segment recorded an $0.1 million gross loss. Three customers represented 82.8% of revenue and 88.7% of year-end receivables.
Operating expenses declined 43.8% to $22.7 million, including lower sales and marketing, development, and general and administrative spending. FY2023 included a $4.0 million impairment of intangible assets; FY2022 included $4.8 million of goodwill impairment and $4.8 million of intangible-asset impairment. Other income included a $3.0 million gain on the NASCAR license sale and gains related to litigation and license-liability reductions.
Investing activities provided $4.2 million, primarily from the NASCAR license sale. Financing activities provided $9.9 million, principally from $10.4 million of registered direct stock offerings. The $12 million related-party credit line had a zero balance at year-end after approximately $3.9 million of principal and accrued interest was exchanged for shares; management says it does not consider the line a reliable source of future liquidity. Purchase commitments and minimum license guarantees totaled approximately $6.3 million, including $5.1 million of license and royalty guarantees.
Material changes and unusual items
- The company sold the NASCAR license for $5.0 million at closing and recognized a $3.0 million gain. Additional contingent payments of up to $1.0 million were described, subject to stated conditions.
- BTCC and INDYCAR license terminations reduced the company’s portfolio and left approximately $0.9 million and $2.9 million, respectively, in related liabilities at year-end.
- A further restructuring closed the Australian development studio and reduced the workforce by about 40 people, approximately 40% of global headcount; the company recorded about $0.5 million of restructuring expense. Earlier cost reductions under the 2022 program reached $6.7 million by year-end, against approximately $1.3 million of related costs.
- The company recorded $0.9 million of foreign-currency translation loss. It also reported a $0.8 million transaction gain in other income.
Outlook, liquidity, and key risks
Management expects continued operating cash outflows and losses, with average FY2023 operating cash burn of approximately $1.1 million per month. Cash had fallen to $1.3 million by March 29, 2024. Management says available cash is insufficient to fund operations for the next year and additional funding is required. The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern; the financial statements contain no adjustments for a possible outcome of that uncertainty.
The company is exploring equity or debt financing, asset sales or licensing, and further cost reductions and restructuring. Its ATM program had $1.1 million of capacity available as of the report date, subject to SEC “baby shelf” limits; management states this would not meet ongoing funding needs. No future financing commitment is assured. If funding and other measures fail, the company says it may need to curtail or discontinue operations or liquidate assets.
Nasdaq had granted the company until May 15, 2024 to regain compliance with its $2.5 million minimum stockholders’ equity requirement; year-end equity was $2.1 million. The company planned equity financing and negotiations to reduce licensing liabilities, but gave no assurance these steps would succeed. Other key risks include declining NASCAR-related revenue, concentrated customers and racing-game exposure, reliance on licensors and distribution/platform partners, potential dilution from equity financing, and continued product-roadmap changes. The company also reported ineffective disclosure controls and material weaknesses in internal control over financial reporting, including deficient monitoring controls and insufficient accounting personnel. Remediation was ongoing.
Management planned to organize the 2024/25 Le Mans Virtual Series later in 2024. Le Mans Ultimate launched on PC on February 20, 2024. The filing provides no quantified revenue, earnings, or cash-flow guidance.
Important facts for investors to verify
- Whether the company secured sufficient funding to meet its near-term obligations and reduce going-concern risk.
- Whether Nasdaq compliance was regained by the May 15, 2024 deadline and what financing or liability reductions were completed.
- Actual subsequent NASCAR-product revenue and cash receipts, including any remaining sale proceeds, as the limited sales license expires at year-end 2024.
- Progress and commercial performance of Le Mans Ultimate and the planned 2024/25 esports series, including their cash requirements.
- Current status and settlement exposure of the remaining Innovate litigation and the Wesco insurance-coverage dispute.
- Whether internal-control weaknesses were remediated, and the extent of dilution or new obligations from subsequent financing.