Motorsport Games Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with the year ended December 31, 2020. The filing was signed March 30, 2022. Motorsport Games develops and publishes licensed racing games and organizes esports events. Revenue remained concentrated in NASCAR products.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $15.08 million | $19.05 million |
| Gross profit / margin | $7.55 million / 50% | $12.45 million / 65% |
| Operating income (loss) | $(34.53) million | $1,147 |
| Net loss, consolidated | $(33.70) million | $(0.68) million |
| Net cash from (used in) operations | $(20.94) million | $4.05 million |
- Revenue declined about 21%; gaming revenue fell 24% to $14.27 million, principally because NASCAR 21: Ignition generated lower sales than NASCAR Heat 5 and launched later in the year. Esports revenue rose to $0.81 million from $0.30 million, partly following consolidation of the Le Mans esports venture.
- Sales and marketing expense increased 90% to $6.48 million; development expense increased 107% to $9.62 million; and general and administrative expense increased 485% to $25.38 million. G&A included $9.50 million of stock-based compensation and approximately $5.02 million of IPO- and acquisition-related costs.
- Cash and equivalents were $17.82 million at year-end, versus $3.99 million; working capital was $16.02 million, versus a $4.44 million deficit. The company reported an accumulated deficit of $37.99 million.
- Investing cash outflow was $14.61 million, mainly for Studio397 and KartKraft acquisitions. Financing cash inflow was $49.49 million, principally from the IPO. The $12.0 million related-party credit line from Motorsport Network was repaid; no principal or accrued interest remained at year-end.
- Total liabilities were $12.72 million. Contractual cash requirements totaled $43.35 million, including $35.84 million of minimum payment guarantees, $3.42 million of purchase commitments and $2.39 million of operating lease obligations.
Material changes and significant events
- Motorsport Games completed its IPO in January 2021, receiving approximately $63.1 million in net proceeds, and used proceeds in part to repay related-party debt and fund acquisitions.
- It acquired KartKraft and Studio397, including the rFactor 2 simulator technology, and acquired the remaining minority interest in 704Games. Its Le Mans esports venture became majority-owned and consolidated; it also obtained INDYCAR game and esports licenses.
- NASCAR represented approximately 88% of 2021 revenue, compared with 98% in 2020. Four customers accounted for approximately 83% of 2021 revenue; a single retail distribution partner represented about 28%.
- The company recorded a $317,113 impairment charge on the rFactor 2 trade name after results were below expectations. Stock-based compensation was $9.73 million, including fully vested IPO-related share awards.
Outlook, risks and contingencies
- Going concern: Management said existing cash would not fund operations for at least the next 12 months. The company expects continued losses and concluded substantial doubt exists about its ability to continue as a going concern. No financing commitments were in place; additional equity or debt, cost reductions, or changes to planned spending may be needed. The auditor’s report also highlighted substantial doubt.
- Product plans: Management anticipated releases of games based on INDYCAR, BTCC and Le Mans/WEC in 2023 and 2024, and planned additional NASCAR mobile titles. These are expectations, not guaranteed launch dates; the filing provides no numerical earnings or revenue guidance.
- Key operating risks: Dependence on racing games, NASCAR and a few customers; uncertain consumer response to new releases; reliance on licenses, platforms and one physical-games distributor; and development costs, seasonality and retail inventory/returns.
- Geopolitical and public-health exposure: Management warned that Russia’s invasion of Ukraine and related sanctions could disrupt access to Russian development staff and funds, delay releases and affect currency exposure. COVID-19, inflation, labor constraints and consumer spending were also cited as uncertainties.
- Controls and litigation: Management found disclosure controls ineffective and reported material weaknesses in accounting documentation/review, segregation of duties and monitoring controls. Remediation was underway. A shareholder lawsuit alleging securities-law and other violations survived a motion to dismiss on March 28, 2022; the company said the potential loss could not be reasonably estimated and had not accrued an amount. A separate EleDa lawsuit was also pending without an accrued loss. Other routine proceedings were not considered likely, in aggregate, to have a material adverse effect.
- Governance: Motorsport Network held approximately 94.3% of combined voting power as of March 28, 2022 through the dual-class structure. The company reported no dividend plans for the foreseeable future.
Important facts for investors to verify
- Whether additional financing was obtained after the filing date, on what terms, and whether liquidity is sufficient to address the stated going-concern risk and contractual commitments.
- Sales, reviews, returns and price-protection exposure for NASCAR 21: Ignition, alongside the status and timing of planned licensed-game launches.
- Progress in remediating material weaknesses and whether subsequent reporting confirms controls are operating effectively.
- Developments in the HC2/Continental and EleDa litigation, including any change in estimated exposure or accruals.
- Execution of customer and distributor diversification, and the effect of Russia-related disruption on staffing, development schedules and cash transfers.