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What changed in Motorsport Games Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Motorsport Games Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+377 added−446 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-24)

Top changes in Motorsport Games Inc.'s 2023 10-K

377 paragraphs added · 446 removed · 266 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeMicrosoft Windows via Steam January 26, 2022 (full release) NASCAR Rivals NASCAR Rivals is a racing video game simulating the 2022 NASCAR Cup Series season Nintendo Switch October 14, 2022 Esports Partnerships and Franchises We recognize the growing importance and business viability of esports, especially within the racing and motorsport genres.
Biggest changeMicrosoft Windows via Steam January 26, 2022 (full release) NASCAR Rivals* NASCAR Rivals is a racing video game simulating the 2022 NASCAR Cup Series season Nintendo Switch October 14, 2022 Le Mans Ultimate Le Mans Ultimate is the official game of the FIA World Endurance Championship and 24 Hours of Le Mans Microsoft Windows via Steam February 20, 2024 * Pursuant to the NASCAR New Limited License, we have a limited non-exclusive right and license to, among other things, sell these NASCAR games and DLCs through December 31, 2024. 11 Esports Partnerships and Franchises We recognize the growing importance and business viability of esports, especially within the racing and motorsport genres.
These agreements typically limit our use of the third party’s respective intellectual property to specific uses and for specific time periods, in consideration for up-front and recurring royalty payments that are typically based upon our sales of the respective products. We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions.
These agreements typically limit our use of the third party’s respective intellectual property to specific uses and for specific time periods, in consideration for up-front and recurring royalty payments that are typically based upon our sales of the respective products. 15 We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions.
See Part I, Item 1A, “Risk Factors—Risks Related to Our Business and Industry—Government regulations applicable to us may negatively impact our business” of this Report for additional information. 18 Intellectual Property Our business is based on the creation, acquisition, use and protection of intellectual property.
See Part I, Item 1A, “Risk Factors—Risks Related to Our Business and Industry—Government regulations applicable to us may negatively impact our business” of this Report for additional information. Intellectual Property Our business is based on the creation, acquisition, use and protection of intellectual property.
Microsoft Windows via Steam March 28, 2013 NASCAR Heat Mobile NASCAR Heat Mobile is the only officially licensed, authentic NASCAR racing experience for mobile devices. iOS and Android April 25, 2017 NASCAR Heat 3 NASCAR Heat 3 is a racing video game simulating the 2018 NASCAR Cup Series and feeder competitions.
Microsoft Windows via Steam March 28, 2013 NASCAR Heat Mobile* NASCAR Heat Mobile is the only officially licensed, authentic NASCAR racing experience for mobile devices. iOS and Android April 25, 2017 10 NASCAR Heat 3* NASCAR Heat 3 is a racing video game simulating the 2018 NASCAR Cup Series and feeder competitions.
We compete with other publishers of virtual racing video games for console, PC, and mobile entertainment, including Codemasters and other major video game publishers and esports companies, such as Electronic Arts.
We compete with other publishers of virtual racing video games for console, PC, and mobile entertainment, including Codemasters, iRacing and other major video game publishers and esports companies, such as Electronic Arts.
We continue to utilize our resources and expertise to enhance the rFactor 2 platform, especially in areas highlighted by the racing community. In July 2021, we entered into certain license agreements with INDYCAR LLC to use certain licensed intellectual property for motorsports and/or racing video gaming products and esports events related to, themed as, or containing the INDYCAR SERIES.
We continue to utilize our resources and expertise to enhance the rFactor 2 platform, especially in areas highlighted by the racing community. In July 2021, we entered into certain license agreements to use certain licensed intellectual property for motorsports and/or racing video gaming products and esports events related to, themed as, or containing the INDYCAR racings series.
We have also historically experienced a higher demand for our games during our fourth calendar quarter due to seasonal holiday demand. Employees Our business relies on our ability to attract and retain the right team to enable us to be a leading game developer, publisher and esports ecosystem provider of official motorsport racing series throughout the world.
We have also historically experienced a higher demand for our games during our fourth calendar quarter due to seasonal holiday demand. Employees Our business relies on our ability to attract and retain the right team to enable us to be a game developer, publisher and esports ecosystem provider of official motorsport racing series.
Effective as of January 8, 2021, 100% of the membership interests held by the sole member of Motorsport Gaming US LLC, Motorsport Network, converted into an aggregate of (i) 700,000 shares of Class A common stock of Motorsport Games Inc., which have 1 vote per share (the “MSN Initial Class A Shares”) and (ii) 700,000 shares of Class B common stock, which have 10 votes per share, of Motorsport Games Inc., which represented all of the outstanding shares of Class A and Class B common stock immediately following the corporate conversion.
Effective as of January 8, 2021, 100% of the membership interests held by the sole member of Motorsport Gaming US LLC, Driven Lifestyle, converted into an aggregate of (i) 700,000 shares of Class A common stock of Motorsport Games Inc., which have 1 vote per share (the “DL Initial Class A Shares”) and (ii) 700,000 shares of Class B common stock, which have 10 votes per share, of Motorsport Games Inc., which represented all of the outstanding shares of Class A and Class B common stock immediately following the corporate conversion.
Our esports business generates revenues from sponsorships, advertising and media rights for events and competitions. In addition, should audience patterns continue to grow, we believe the esports business has the potential to generate incremental revenues through the further sale of media rights to the Company’s esports events and competitions, as well as merchandising and sports betting.
Our esports business generates revenues from sponsorships, advertising and media rights for events and competitions. In addition, should audience patterns continue to grow, we believe the esports business has the potential to generate incremental revenues through the further sale of media rights to the Company’s esports events and competitions, as well as, among other things, merchandising.
Motorsport Network is the only holder of shares of the Company’s Class B common stock and does not have any transfer, conversion, registration, or economic rights with respect to such shares of Class B common stock.
Driven Lifestyle is the only holder of shares of the Company’s Class B common stock and does not have any transfer, conversion, registration, or economic rights with respect to such shares of Class B common stock.
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).
(“Nintendo”), Google and Steam. Our physical gaming products have historically been 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).
In exchange for such license, we agreed to fund up to €8,000,000 (approximately $8,530,000 USD as of December 31, 2022) as needed for development of the video game products, to be contributed on an as-needed basis during the term of the license.
In exchange for such license, we agreed to fund up to €8,000,000 (approximately $8,830,000 as of December 31, 2023) as needed for development of the video game products, to be contributed on an as-needed basis during the term of the license.
In addition to third-party software competitors, integrated video game console hardware and software companies, such as Microsoft, Sony, and Nintendo, compete directly with us in the development of game titles for their respective platforms, including titles in the motorsport racing genre, even though they generally cannot create branded NASCAR, Le Mans, INDYCAR or BTCC games for which we hold licenses.
In addition to third-party software competitors, integrated video game console hardware and software companies, such as Microsoft, Sony, and Nintendo, compete directly with us in the development of game titles for their respective platforms, including titles in the motorsport racing genre, even though they generally cannot create branded Le Mans games for which we hold an exclusive license.
In April 2021, we acquired the remaining equity interests in 704Games Company whereby 704Games Company merged with 704Games LLC, a newly-formed Delaware limited liability company and our wholly-owned subsidiary, with 704Games LLC being the surviving entity in such merger.
In April 2021, we acquired the remaining equity interests in 704Games Company whereby 704Games Company merged with 704Games LLC, a newly formed Delaware limited liability company and our wholly-owned subsidiary, with 704Games LLC being the surviving entity in such merger (collectively referred to as “704Games” herein).
Our products and content are available for consumers to purchase and download at their convenience directly to their video game console, PC, or mobile device through our platform partners, including Microsoft Corporation (“Microsoft”), Sony Interactive Entertainment Inc. (“Sony”), Apple Inc. (“Apple”), Nintendo Co., Ltd. (“Nintendo”), Google and Steam.
We also are able to sell directly to consumers through various digital platforms. Our products and content are available for consumers to purchase and download at their convenience directly to their video game console, PC, or mobile device through our platform partners, including Microsoft Corporation (“Microsoft”), Sony Interactive Entertainment Inc. (“Sony”), Apple Inc. (“Apple”), Nintendo Co., Ltd.
For the year ended December 31, 2022, four customers accounted for approximately 90% of our accounts receivable, and for the year ended December 31, 2021, two customers accounted for approximately 70% of our accounts receivable. No other customer accounted for 10% or more of our accounts receivable in those periods.
No other customer accounted for 10% or more of our revenues in those periods. For the year ended December 31, 2023, three customers accounted for approximately 89% of our accounts receivable and for the year ended December 31, 2022, four customers accounted for approximately 90% of our accounts receivable.
The latest figures reported from 2021 show NASCAR, INDYCAR and Le Mans, which includes the WEC, having an estimated combined global fanbase of over 1 billion, while the global fanbase for Formula 1 was estimated to be 757 million.
The latest figures reported from 2023 show Le Mans, which includes the WEC, having an estimated combined global fanbase of over 113 million, while the global fanbase for Formula 1 was estimated to be 1.61 billion.
Motorsport Games’ purpose is to make the thrill of motorsports accessible to everyone by creating the highest quality, most sophisticated and innovative experiences for racers, gamers and fans of all ages. Our products and services target a large global motorsport audience.
(“Studio397”) and their rFactor 2 realistic racing simulator technology and platform. Our purpose is to make the thrill of motorsports accessible to everyone by creating the highest quality, most sophisticated and innovative experiences for racers, gamers and fans of all ages. Our products and services target a large global motorsport audience.
This Agreement was assigned from MS Gaming Development LLC to Motorsport Games Inc. on September 3, 2021. Pursuant to the agreement, we were granted a 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 our next generation of games.
Pursuant to the agreement, we were granted a 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 our next generation of games.
If certain events of defaults occur, the non-defaulting party has a call option pursuant to which it can force the defaulting party to sell all (but not part) of its ownership in the joint venture in accordance with the joint venture agreement. 15 BTCC On May 29, 2020, we entered into a license agreement with BARC (TOCA) Limited (“BARC”), the exclusive promoter of the BTCC.
If certain events of defaults occur, the non-defaulting party has a call option pursuant to which it can force the defaulting party to sell all (but not part) of its ownership in the joint venture in accordance with the joint venture agreement.
In 2022, Traxion published over 2,000 articles and attracted nearly 10 million pageviews. 9 Company Background Motorsport Games was formed in 2018 by Motorsport Network as a wholly-owned subsidiary in connection with the acquisition by Motorsport Games of a controlling interest in 704Games Company (“704Games”), which holds the exclusive license to be the official video game developer and publisher for the NASCAR video game racing franchise, subject to certain limited exceptions.
Company Background Motorsport Games was formed in 2018 by Driven Lifestyle as a wholly-owned subsidiary in connection with the acquisition by Motorsport Games of a controlling interest in 704Games Company, which previously held the exclusive license to be the official video game developer and publisher for the NASCAR video game racing franchise, subject to certain limited exceptions.
It features mixed class road racing with realistic dynamics, an immersive sound environment, and stunning graphics, that are perfect for top-level esports and a rich single-player experience.
It features mixed class road racing with realistic dynamics, an immersive sound environment, and stunning graphics, that are perfect for top-level esports and a rich single-player experience. Content updates were released in 2022 and 2023, as well as the rFactor 2: RaceControl multiplayer update in October 2023.
In a broad sense, we compete for the leisure time and discretionary spending of consumers with other interactive entertainment companies, as well as with providers of different forms of entertainment, such as film, television, social networking, music and other consumer products.
A number of software publishers have developed and commercialized, or are currently developing, online games for use by consumers, and we must compete with them for our audience base. 14 In a broad sense, we compete for the leisure time and discretionary spending of consumers with other interactive entertainment companies, as well as with providers of different forms of entertainment, such as film, television, social networking, music and other consumer products.
Item 1. Business Company Overview 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.
Item 1. Business Company Overview Motorsport Games is a racing game developer, publisher and esports ecosystem provider of official motorsport racing series, including the iconic 24 Hours of Le Mans endurance race (“Le Mans”) and the associated FIA World Endurance Championship (the “WEC”). Our portfolio also includes the KartKraft karting simulation game, as well as Studio 397 B.V.
We make available free of charge through our website copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC.
Our Internet address is www.motorsportgames.com . We regularly file reports with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Xbox One, PlayStation 4, and Microsoft Windows via Steam September 13, 2019 11 NASCAR Heat 5 NASCAR Heat 5 is a racing video game simulating the 2020 NASCAR season. Xbox One, PlayStation 4, and Microsoft Windows via Steam July 7 and 10, 2020 NASCAR 21: Ignition NASCAR 21: Ignition is a racing video game simulating the 2021 NASCAR season.
Xbox One, PlayStation 4, and Microsoft Windows via Steam July 7 and 10, 2020 NASCAR 21: Ignition* NASCAR 21: Ignition is a racing video game simulating the 2021 NASCAR season. A 2022 season update was provided as a DLC in October 2022, free of charge.
For the years ended December 31, 2022 and 2021, we sold substantially all of our physical disk products for the retail channel through a single distribution partner, which represented approximately 9% and 28% of our total revenue for the years ended December 31, 2022 and 2021, respectively.
Due to our modified pro duct release schedule, we recognized minimal revenue from sales of physical gaming products for the year ended December 31, 2023. For the year ended December 31, 2022, we sold substantially all of our physical gaming products for the retail channel through a single distribution partner, which represented approximately 9% of our total revenue for 2022.
This partnership shall continue until dissolved by the approval of the board of Racing Pro League, LLC and each of 704Games and RTA, as members, or as required by law. 16 Epic Games On August 11, 2020, through our wholly owned subsidiary, MS Gaming Development LLC, we 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.
Epic Games On August 11, 2020, through our wholly owned subsidiary, MS Gaming Development LLC, we 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. This Agreement was assigned from MS Gaming Development LLC to Motorsport Games Inc. on September 3, 2021.
Arrangements with Console Manufacturers Under the terms of agreements entered into separately with Sony, Microsoft, Nintendo and their affiliates, we are authorized to develop and distribute disc-based and digitally-delivered software products and services compatible with PlayStation, Xbox and Switch consoles, respectively.
The agreement is effective until terminated under the provisions of the agreement; however, pursuant to the terms of the agreement, we can only actively develop new or existing authorized products during a five-year active development period, which terminates on August 11, 2025. 13 Arrangements with Console Manufacturers Under the terms of agreements entered into separately with Sony, Microsoft, Nintendo and their affiliates, we are authorized to develop and distribute disc-based and digitally-delivered software products and services compatible with PlayStation, Xbox and Switch consoles, respectively.
The SEC maintains a website, www.sec.gov that contains the reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The information contained on our website is not included as a part of, or incorporated by reference into, this Report. 19
The information contained on our website is not included as a part of, or incorporated by reference into, this Report.
Pursuant to the agreement, we were granted an exclusive license to use certain licensed intellectual property for motorsports and/or racing video gaming products related to, themed as, or containing the BTCC, on consoles and mobile applications, esports series and esports events (including our esports platform).
In May 2020, we entered into a multi-year licensing agreement to use certain licensed intellectual property for motorsports and/or racing video gaming products related to, themed as, or containing the British Touring Car Championship (the “BTCC”), on consoles and mobile applications, esports series and esports events.
Quality assurance personnel are also involved throughout the development and production of published content. We subject all such content to extensive testing before public release to ensure compatibility with appropriate hardware systems and configurations and to minimize the number of bugs and other defects found in the products.
We subject all such content to extensive testing before public release to ensure compatibility with appropriate hardware systems and configurations and to minimize the number of bugs and other defects found in the products. To support our content, we generally provide rapid game support to players through various means, primarily online through our social media channels.
In addition, through this joint venture with ACO, we have the right to create and organize esports leagues and events for the Le Mans Esports Series. In May 2020, we secured a multi-year licensing agreement to exclusively develop and publish the video games for the BTCC racing series across console, mobile and casual gaming channels.
In addition, through this joint venture with ACO, we have the right to create and organize esports leagues and events for the Le Mans Esports Series.
In addition, through this license, we have the right to create and organize esports leagues and events for the BTCC racing series. The agreement expires on December 31, 2026. In January 2021, we completed our initial public offering (“IPO”).
As a result, we no longer have the right to develop and publish the video games for the BTCC racing series or to create and organize its esports leagues and events. 9 In January 2021, we completed our initial public offering (“IPO”).
Subsequently, in the first quarter of 2023, we announced our viewership figures for the 2022-23 Le Mans Virtual Series, including the 24 Hours of Le Mans Virtual, which had a global audience of 8.5 million across television (TV)/over-the-top (OTT) channels, 36 million social media impressions and over 10 million video views across the full 5-race season.
In 2023, we organized the grand finale of the Le Mans Virtual Series 2022/23, the 24 Hours of Le Mans Virtual event, which had a cumulative total of approximately 8.8 million video views with approximately 27 million minutes watched. The 24 Hours of Le Mans Virtual event had a global audience of 5 million across television (TV)/over-the-top (OTT) channels.
In March 2021, we acquired all assets comprising the KartKraft computer video game from Black Delta Holdings PTY, Black Delta Trading Pty Ltd and Black Delta IP Pty Ltd (collectively, “Black Delta”) .
Prior to our IPO, Motorsport Games was a wholly-owned subsidiary of Driven Lifestyle and, following the completion of our IPO, Driven Lifestyle continues to be our majority stockholder. In March 2021, we acquired all assets comprising the KartKraft computer video game from Black Delta Holdings PTY, Black Delta Trading Pty Ltd and Black Delta IP Pty Ltd.
In 2021, we added the KartKraft karting simulation game and the rFactor 2 realistic racing simulation game to our portfolio, and completed KartKraft’s full release on the Steam platform in January 2022. Our current video game catalog includes the following titles: Game Image Overview Platforms Release Date rFactor 2 rFactor 2 is a realistic racing simulation game.
Our Products Game Products Portfolio We develop and publish multi-platform racing video games including for game consoles, PCs and mobile platforms through various retail and digital channels, including full-game and DLCs. Our current video game catalog includes the following titles: Game Image Overview Platforms Release Date rFactor 2 rFactor 2 is a realistic racing simulation game.
None of our employees were covered by collective bargaining agreements, and we believe that relations with our employees are generally good.
Our headcount as of December 31, 2023 was 71, of which 50 were full-time employees, including 52 developers, located primarily in the United States and the United Kingdom. None of our employees were covered by collective bargaining agreements, and we believe that relations with our employees are generally good.
The license arrangement also requires us to pay royalties, including certain minimum annual guarantees, on an ongoing basis to NASCAR and to meet certain product distribution, development, marketing and related milestones. 24 Hours of Le Mans On March 15, 2019, we formed Le Mans Esports Series Limited as a joint venture between Motorsport Games and ACO with the primary purpose of carrying on the promotion of and running of an esports event business replicating races of the WEC and the 24 Hours of Le Mans race on an electronic gaming platform.
A reduction in sales from or loss of these customers would have a material adverse effect on the Company’s results of operations and financial condition. 12 Strategic Licenses and Partnerships 24 Hours of Le Mans On March 15, 2019, we formed Le Mans Esports Series Limited as a joint venture between Motorsport Games and ACO with the primary purpose of carrying on the promotion of and running of an esports event business replicating races of the WEC and the 24 Hours of Le Mans race on an electronic gaming platform.
We are striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games. 2022 was another successful year in esports, which began with the grand finale of the second running of the 24 Hours of Le Mans Virtual in January, the INDYCAR-Motorsport Games Pro Challenge in February and the continuation and re-brand of elite single seater esports rFactor 2 Formula Pro.
We are striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games. In 2023, we organized the grand finale of the Le Mans Virtual Series 2022/23, the 24 Hours of Le Mans Virtual event, which had a cumulative total of approximately 8.8 million video views with approximately 27 million minutes watched.
To support our content, we generally provide rapid game support to players through various means, primarily online through our social media channels. 17 Competition The interactive entertainment industry is intensely competitive and new interactive entertainment software products and platforms are regularly introduced.
Competition The interactive entertainment industry is intensely competitive and new interactive entertainment software products and platforms are regularly introduced.
Customer Concentration For the years ended December 31, 2022 and 2021, three customers accounted for approximately 61% and four customer accounted for 83% of our consolidated revenues, respectively. No other customer accounted for 10% or more of our revenues in those periods.
However, w e expect to continue to use a limited number of distribution partners in the future for sales of our physical gaming products. Customer Concentration For the years ended December 31, 2023 and 2022, three customers accounted for approximately 83% and 61% of our consolidated revenues, respectively.
We develop and publish multi-platform racing video games for consoles (such as Xbox, PlayStation, and Nintendo Switch), personal computers (PCs) and mobile platforms (such as iOS and Android) through various retail and digital channels, including full-game and downloadable content. For fiscal years 2022 and 2021, a majority of our revenue was generated from sales of our NASCAR racing video games.
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 (“DLC”) . We have obtained the official licenses to develop multi-platform games for the 24 Hours of Le Mans race and the WEC.
We continue to leverage esports competitions to bring wider awareness to our gaming products, while creating events that are adventures for viewers.
In recognition of this importance, we manage and operate the esports platforms for numerous racing series and organizations. We also continue to leverage esports competitions to bring wider awareness and engagement to our gaming products, while creating inspiring event spectacles for our viewers.
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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 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.
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Additionally, we have a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that are currently in our product portfolio through December 31, 2024. For fiscal years 2023 and 2022, 72% and 63% of our total revenue, respectively, was generated from sales of our NASCAR racing video games.
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Motorsport Games scales its business by releasing more games on more platforms under unique licenses, while continuing to evolve scalable technology platforms to “wow” users.
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The 24 Hours of Le Mans Virtual event had a global audience of 5 million across television (TV)/over-the-top (OTT) channels. We continue to leverage esports competitions to bring wider awareness and engagement to our gaming products, while creating inspiring event spectacles for our viewers.
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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 official licenses to develop multi-platform games for the BTCC, the 24 Hours of Le Mans race and the WEC, as well as INDYCAR.
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On October 3, 2023, we sold our NASCAR licensed rights under that certain Second Amended and Restated Distribution and License Agreement with NASCAR Team Properties (“NTP”) (the “NASCAR License”) to iRacing.com Motorsport Simulations, LLC (“iRacing”).
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According to data from NewZoo, an industry source for games market insight and analytics, total global mobile gaming revenues were estimated to be 92.2 billion for 2022. We presently offer NASCAR Heat Mobile for iOS and Android and continue to evaluate further opportunities to add to our mobile gaming portfolio to capture this large audience.
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Concurrently with the sale of our NASCAR License, we entered into an agreement with NTP pursuant to which we have a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that are currently in our product portfolio through December 31, 2024 (the “NASCAR New Limited License”).
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The year concluded with the first 4 rounds of the 2022-23 Le Mans Virtual Series in September, October, November and December. In addition, we also organized competitions to drive user engagement on our rFactor 2 platform, as well as successfully delivering onsite esports activations with rFactor 2 at selected BTCC events in Autumn.
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In October 2023, BARC (TOCA) Limited, the exclusive promoter of the BTCC, delivered notice to the Company terminating the BTCC license agreement, effective as of November 3, 2023.
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For 2022, our esports events had a cumulative total of approximately 2.3 million video views with approximately 6.3 million minutes watched.
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In November 2023, INDYCAR, LLC delivered notice to the Company terminating the INDYCAR license agreements, effective immediately. As a result, we no longer have the right to develop and publish the video games for the INDYCAR racing series or to create and organize its esports leagues and events .
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We believe that connecting virtual racing gamers, motorsport 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.
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Xbox One, PlayStation 4, and Microsoft Windows via Steam September 13, 2019 NASCAR Heat 5* NASCAR Heat 5 is a racing video game simulating the 2020 NASCAR season. The NASCAR Heat 5 – Next Gen Car Update DLC was released in June 2023.
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To that end, we have developed Traxion, a collective of racing, esports and gaming enthusiasts building a positive community of likeminded gamers, sim racers.
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Although we did not organize the Le Mans Virtual Series for the 2023/24 season, we currently plan on organizing the 2024/25 Le Mans Virtual Series to commence later this year. We also intend to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans.
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After launching in 2021, Traxion continues to grow across social, video and editorial channels, while feeding the community the latest news, reviews, updates, opinions, and insight from the most recognized and respected names from the world of racing games.
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No other customer accounted for 10% or more of our accounts receivable in those periods.
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Simultaneously with the acquisition of 704Games in 2018, we extended the NASCAR license for 10 years until December 31, 2029. In addition, we have the exclusive right to create and organize esports leagues and events for NASCAR using our NASCAR racing video games, subject to certain limited exceptions.
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NASCAR As discussed above, concurrently with the sale of our NASCAR License, we entered into an agreement with NTP pursuant to which we have a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that are currently in our product portfolio through December 31, 2024.
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Prior to our IPO, Motorsport Games was a wholly-owned subsidiary of Motorsport Network and, following the completion of our IPO, Motorsport Network continues to be our majority stockholder.
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From time to time, we also acquire the license rights to publish and/or distribute software products. We also provide various forms of product support. Central technology and development teams review, assess, and provide support to products throughout the development process. Quality assurance personnel are also involved throughout the development and production of published content.
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Through this acquisition, we entered the simulated kart-racing space and formed Motorsport Games Australia Pty Ltd. to support the Black Delta development team, which joined Motorsport Games Australia following the acquisition .
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We make available free of charge through our website copies of these reports as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. The SEC also maintains a website, www.sec.gov that contains the reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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The license agreements are long-term agreements, in connection with which the parties intend to create a relationship for the development of video games and events to be the official video games and esports events of the INDYCAR SERIES. 10 Our Products Game Products Portfolio We develop and publish multi-platform racing video games including for game consoles, PCs and mobile platforms through various retail and digital channels, including full-game and downloadable content.
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Our current video game product portfolio is comprised of officially licensed NASCAR games. We have obtained licenses to develop multi-platform games for INDYCAR, the BTCC, the 24 Hours of Le Mans race, and the WEC.
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Since our formation in 2018, we have published NASCAR Heat 3, NASCAR Heat 4, NASCAR Heat 5, NASCAR 21: Ignition, NASCAR Heat Ultimate Edition+ and NASCAR Rivals for various platforms, including Xbox, PlayStation, PC, and Nintendo Switch. Our current mobile offering for NASCAR is NASCAR Heat Mobile for iOS and Android.
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This is a first installment of the new series, which changes the game engine, physics, artificial intelligence, and many other game fundamental components. A 2022 season update was provided as DLC in October 2022, free of charge.
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In recognition of this importance, we manage and operate the esports platforms for numerous racing series and organizations. 2022 was another successful year in esports which began with the second running of the 24 Hours of Le Mans Virtual in January, the continuation and re-brand of elite single seater esports rFactor 2 Formula Pro as well as the INDYCAR-Motorsport Games Pro Challenge.
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In addition, we also organized competitions to drive user engagement on our rFactor 2 platform, as well as successfully delivering onsite esports activations with rFactor 2 at selected BTCC events in Autumn.
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In 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 towards the end of the year with professional teams and real-world racing drivers.
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In addition, we also organized competitions to drive user engagement on our rFactor 2 platform. Our Audience and Our Community Our majority stockholder, Motorsport Network, is a leading global motorsport and automotive digital media platform.
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Founded in 2015, Motorsport Network offers hundreds of millions of fans and enthusiasts around the globe an interactive experience to engage with motorsports and cars by leveraging its technology, customer intelligence and brands.
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Motorsport Network’s global team creates engaging, around-the-clock content and experiences for passionate fans of motorsports and the automotive industry world-wide. 12 Pursuant to a promotion agreement we entered into with Motorsport Network in August 2018, Motorsport Network provides us with exclusive promotion services consisting of the use of its and its affiliates’ various media platforms to promote our business, organizations, products and services in racing video games and related esports activities.
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Our relationship with Motorsport Network provides us access to its highly engaged, brand-loyal and affluent audience, including in the form of editorial coverage, ad stack and special organic integrations that puts us in front of this targeted audience.
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We believe this allows us to cultivate a passionate fanbase to engage in our offered products and services that is similar to the target audience for our racing game products, and racing esports events and platform. We also believe this audience has a passion for everything motorsport and auto-related.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf securities industry analysts cease to publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Class A common stock could be negatively affected. The trading market for our Class A common stock will be influenced in part by any research reports that securities industry analysts publish about us.
Biggest changeIf we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. 45 If securities industry analysts cease to publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Class A common stock could be negatively affected.
Certain employees, such as game designers, product managers and engineers, are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. We have historically hired a number of key personnel through acquisitions, and as competition with several other game companies increases, we may incur significant expenses in continuing this practice.
Certain employees, such as game designers, product managers and engineers, are in high demand, and we devote significant resources to identifying, hiring, training, and successfully integrating and retaining these employees. We have historically hired a number of key personnel through acquisitions, and as competition with several other game companies increases, we may incur significant expenses in continuing this practice.
If these technologies fail, or otherwise become unavailable, or we cannot maintain our relationships with the technology providers and we cannot find suitable alternatives, our financial condition and operating results may be adversely affected. Our international operations are subject to increased challenges and risks. Attracting players in international markets is a critical element of our business strategy.
If these technologies fail, or otherwise become unavailable, or we cannot maintain our relationships with the technology providers and we cannot find suitable alternatives, our financial condition and operating results may be adversely affected. 33 Our international operations are subject to increased challenges and risks. Attracting players in international markets is a critical element of our business strategy.
There can be no assurance that our products will be sufficiently successful so that we can recoup these costs or make a profit on these products. Additionally, the amount of lead time and cost involved in the development of high-quality products is increasing due to growing technical complexities and higher expectations from consumers.
There can be no assurance that our products will be sufficiently successful so that we can recoup these costs or make a profit on these products. 19 Additionally, the amount of lead time and cost involved in the development of high-quality products is increasing due to growing technical complexities and higher expectations from consumers.
We plan to derive significant revenues from the distribution of certain of our future products on third-party mobile and web platforms, such as the Apple App Store, the Google Play Store, and Facebook. These platforms may also serve as significant online distribution platforms for, and/or provide other services critical for the operation of, a number of our games.
We plan to derive significant revenues from the distribution of certain of our future products on third-party mobile and web platforms, such as the Apple App Store, Steam, the Google Play Store, and Facebook. These platforms may also serve as significant online distribution platforms for, and/or provide other services critical for the operation of, a number of our games.
Moreover, the costs of compliance may continue to increase when more content is made available on our platform as a result of our growing base of gamers, which may adversely affect our results of operations. Additionally, we currently generate, and intend to generate in the future, revenue through offering advertising within certain of our franchises.
Moreover, the costs of compliance may continue to increase when more content is made available on our platform as a result of our growing base of gamers, which may adversely affect our results of operations. 29 Additionally, we currently generate, and intend to generate in the future, revenue through offering advertising within certain of our franchises.
In addition, we may be subject to audits of our income, sales and other transaction taxes in various jurisdictions. Outcomes from these audits could have an adverse effect on our operating results and financial condition. We may not successfully manage the transitions associated with certain of our executive officers, which could have an adverse impact on us.
In addition, we may be subject to audits of our income, sales and other transaction taxes in various jurisdictions. Outcomes from these audits could have an adverse effect on our operating results and financial condition. 41 We may not successfully manage the transitions associated with certain of our executive officers, which could have an adverse impact on us.
The success and profitability, as well as the expansion, of our international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as: ● the inability to offer certain games in certain foreign countries; ● recruiting and retaining talented and capable management and employees in foreign countries; ● challenges caused by distance, language and cultural differences; ● developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets; ● competition from local game makers with intellectual property rights and significant market share in those markets and with a better understanding of local player preferences; ● utilizing, protecting, defending and enforcing our intellectual property rights; ● negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights; ● the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; 37 ● implementing alternative payment methods for virtual items in a manner that complies with local laws and practices and protects us from fraud; ● compliance with applicable foreign laws and regulations, including privacy laws and laws relating to content and consumer protection, including, but not limited to, the United States Federal Trade Commission Act, various state consumer protection and video game control laws, and the United Kingdom’s Office of Fair Trading’s 2014 principles relating to in-app purchases in free-to-play games that are directed toward children 16 and under; ● compliance with anti-bribery laws, including the Foreign Corrupt Practices Act in the United States and the Bribery Act 2010 in the United Kingdom; ● credit risk and higher levels of payment fraud; ● currency exchange rate fluctuations; ● protectionist laws and business practices that favor local businesses in some countries; ● potentially adverse tax consequences due to changes in the tax laws of the U.S. or the foreign jurisdictions in which we operate; ● political, economic and social instability, including acts of war, such as the ongoing war between Russia and Ukraine (as discussed further below); ● public health crises, such as the COVID-19 pandemic, which can result in varying impacts to our employees, players, vendors and commercial partners internationally; ● work stoppages or other changes in labor conditions; ● higher costs associated with doing business internationally; and ● trade and tariff restrictions.
The success and profitability, as well as the expansion, of our international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as: ● the inability to offer certain games in certain foreign countries; ● recruiting and retaining talented and capable management and employees in foreign countries; ● challenges caused by distance, language and cultural differences; ● developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets; ● competition from local game makers with intellectual property rights and significant market share in those markets and with a better understanding of local player preferences; ● utilizing, protecting, defending and enforcing our intellectual property rights; ● negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights; ● the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; ● implementing alternative payment methods for virtual items in a manner that complies with local laws and practices and protects us from fraud; ● compliance with applicable foreign laws and regulations, including privacy laws and laws relating to content and consumer protection, including, but not limited to, the United States Federal Trade Commission Act, various state consumer protection and video game control laws, and the United Kingdom’s Office of Fair Trading’s 2014 principles relating to in-app purchases in free-to-play games that are directed toward children 16 and under; ● compliance with anti-bribery laws, including the Foreign Corrupt Practices Act in the United States and the Bribery Act 2010 in the United Kingdom; ● credit risk and higher levels of payment fraud; ● currency exchange rate fluctuations; ● protectionist laws and business practices that favor local businesses in some countries; ● potentially adverse tax consequences due to changes in the tax laws of the U.S. or the foreign jurisdictions in which we operate; ● political, economic and social instability, including acts of war, such as the ongoing wars between Russia and Ukraine (as discussed further below) and between Israel and Hamas; ● public health crises, such as the COVID-19 pandemic, which can result in varying impacts to our employees, players, vendors and commercial partners internationally; 34 ● work stoppages or other changes in labor conditions; ● higher costs associated with doing business internationally; and ● trade and tariff restrictions.
This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. 49 If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired.
This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired.
If we are unable to recover our marketing costs, or if our broad marketing campaigns are not successful or are terminated, it could have a material adverse effect on our growth, results of operations and financial condition. 31 Our games are subject to scrutiny regarding the appropriateness of their content.
If we are unable to recover our marketing costs, or if our broad marketing campaigns are not successful or are terminated, it could have a material adverse effect on our growth, results of operations and financial condition. Our games are subject to scrutiny regarding the appropriateness of their content.
As a result, we may not be able to acquire or maintain all domain names that are otherwise important for our business. 35 The costs involved in enforcement of our intellectual property rights could harm our business, financial condition and results of operations.
As a result, we may not be able to acquire or maintain all domain names that are otherwise important for our business. The costs involved in enforcement of our intellectual property rights could harm our business, financial condition and results of operations.
Any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant legal liability. Certain of our business models could be subject to new laws or regulations or evolving interpretations of existing laws and regulations.
Any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant legal liability. 28 Certain of our business models could be subject to new laws or regulations or evolving interpretations of existing laws and regulations.
The occurrence of any of these events could damage our systems and hardware or could cause them to fail. 34 Problems faced by our third-party web hosting providers could adversely affect the experience of our customers. For example, our third-party web hosting providers could close their facilities without adequate notice.
The occurrence of any of these events could damage our systems and hardware or could cause them to fail. Problems faced by our third-party web hosting providers could adversely affect the experience of our customers. For example, our third-party web hosting providers could close their facilities without adequate notice.
If one or more of such analysts downgrade our securities, or otherwise report on us unfavorably, or discontinue coverage of us, the market price and market trading volume of our Class A common stock could be negatively affected. 48 The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
If one or more of such analysts downgrade our securities, or otherwise report on us unfavorably, or discontinue coverage of us, the market price and market trading volume of our Class A common stock could be negatively affected. The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position. 33 Our business could be adversely affected if our data privacy and security practices are inadequate, or are perceived as being inadequate, to prevent data breaches, or under the applicable data privacy and security laws generally.
This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position. Our business could be adversely affected if our data privacy and security practices are inadequate, or are perceived as being inadequate, to prevent data breaches, or under the applicable data privacy and security laws generally.
Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs. Because of the importance of our online business to our revenues and results of operations, our ability to access adequate Internet bandwidth and online computational resources to support our business is critical.
Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs. 30 Because of the importance of our online business to our revenues and results of operations, our ability to access adequate Internet bandwidth and online computational resources to support our business is critical.
If we are unable to maintain these licenses and rights or obtain additional licenses or rights with significant commercial value, our ability to develop successful and engaging games and services may be adversely affected and our revenue, profitability and cash flows may decline significantly.
Furthermore, if we are unable to maintain these licenses and rights or obtain additional licenses or rights with significant commercial value, our ability to develop successful and engaging games and services may be adversely affected and our revenue, profitability and cash flows may decline significantly.
Delays in product releases or disruptions following the commercial release of one or more new products could negatively impact our business, our revenues and reputation and could cause our results of operations to be materially different from expectations.
Additionally, delays in product releases or disruptions following the commercial release of one or more new products could negatively impact our business, our revenues and reputation and could cause our results of operations to be materially different from expectations.
If we fail to satisfy our obligations under agreements with third-party developers and licensors, the agreements may be terminated or modified in ways that are burdensome to us, and have a material adverse effect on our business, financial condition and operating results. 27 Our business depends in part on the success and availability of platforms and mass media channels developed by third parties and our ability to develop commercially successful content, products, and services for those platforms.
If we fail to satisfy our obligations under agreements with third-party developers and licensors, the agreements may be terminated or modified in ways that are burdensome to us, and have a material adverse effect on our business, financial condition and operating results. 23 Our business depends in part on the success and availability of platforms and mass media channels developed by third parties and our ability to develop commercially successful content, products, and services for those platforms.
Natural disasters, cyber-incidents, weather events, wildfires, power disruptions, telecommunications failures, public health outbreaks, such as the COVID-19 pandemic, failed upgrades of existing systems or migrations to new systems, acts of terrorism, acts of war, including the ongoing war between Russia and Ukraine, geopolitical and social turmoil or other events could cause outages, disruptions and/or degradations of our infrastructure, including our or our partners’ information technology and network systems, a failure in our ability to conduct normal business operations, or the closure of public spaces in which players engage with our games and services.
Natural disasters, cyber-incidents, weather events, wildfires, power disruptions, telecommunications failures, public health outbreaks, such as the COVID-19 pandemic, failed upgrades of existing systems or migrations to new systems, acts of terrorism, acts of war, including the ongoing wars between Russia and Ukraine and between Israel and Hamas, geopolitical and social turmoil or other events could cause outages, disruptions and/or degradations of our infrastructure, including our or our partners’ information technology and network systems, a failure in our ability to conduct normal business operations, or the closure of public spaces in which players engage with our games and services.
The report of our independent registered public accountant on our financial statements as of and for the years ended December 31, 2022 and 2021 also includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern. There have been no adjustments to the accompanying financial statements to reflect this uncertainty.
The report of our independent registered public accountant on our financial statements as of and for the years ended December 31, 2023 and 2022 also includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern. There have been no adjustments to the accompanying financial statements to reflect this uncertainty.
In addition, a continuing industry shift to free-to-play games could result in a reprioritization of our other products by traditional retailers and distributors. 29 We are subject to risks associated with operating in a rapidly developing industry and a relatively new market. Many elements of our business are unique, evolving and relatively unproven.
In addition, a continuing industry shift to free-to-play games could result in a reprioritization of our other products by traditional retailers and distributors. 25 We are subject to risks associated with operating in a rapidly developing industry and a relatively new market. Many elements of our business are unique, evolving and relatively unproven.
In addition, competitors with large portfolios and popular games typically have greater influence with platform providers, retailers, distributors and other customers who may, in turn, provide more favorable support to those competitors’ games. 30 Further, the esports gaming industry generally is highly competitive.
In addition, competitors with large portfolios and popular games typically have greater influence with platform providers, retailers, distributors and other customers who may, in turn, provide more favorable support to those competitors’ games. 26 Further, the esports gaming industry generally is highly competitive.
There can be no assurance that our efforts to prevent or minimize these unauthorized or fraudulent transactions will be successful. The success of our business relies heavily on our marketing and branding efforts, and these efforts may not be accepted by consumers to the extent we planned.
There can be no assurance that our efforts to prevent or minimize these unauthorized or fraudulent transactions will be successful. 27 The success of our business relies on our marketing and branding efforts, and these efforts may not be accepted by consumers to the extent we planned.
Because we are a consumer brand, we rely heavily on marketing and advertising to increase brand visibility with potential customers.
Because we are a consumer brand, we rely on marketing and advertising to increase brand visibility with potential customers.
A substantial number of shares of our Class A common stock are freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares of our Class A common stock that may be held or acquired by our directors, executive officers and other affiliates (as that term is defined in the Securities Act), including Motorsport Network, which generally may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
A substantial number of shares of our Class A common stock are freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares of our Class A common stock that may be held or acquired by our directors, executive officers and other affiliates (as that term is defined in the Securities Act), including Driven Lifestyle, which generally may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
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, 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.
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 Driven Lifestyle 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.
Enforcement of our intellectual property rights to certain trademarks and service marks, such as NASCAR, the BTCC, INDYCAR and/or Le Mans, will require reliance on enforcement efforts of third parties. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others.
Enforcement of our intellectual property rights to certain trademarks and service marks, such as Le Mans, will require reliance on enforcement efforts of third parties. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others.
Adverse economic, market and geopolitical conditions, such as a prolonged U.S. or international general economic downturn, whether or not caused by the COVID-19 pandemic or geopolitical issues, including the ongoing war between Russia and Ukraine, could result in further periods of increased inflation, unemployment levels, tax rates, interest rates, energy prices, or declining consumer confidence, which would also reduce consumer spending.
Adverse economic, market and geopolitical conditions, such as a prolonged U.S. or international general economic downturn, whether or not caused by the COVID-19 pandemic or geopolitical issues, including the ongoing wars between Russia and Ukraine and between Israel and Hamas, could result in further periods of increased inflation, unemployment levels, tax rates, interest rates, energy prices, or declining consumer confidence, which would also reduce consumer spending.
As a result, Motorsport Network will be able to control, directly or indirectly and subject to applicable law, all matters affecting us, including: ● any determination with respect to our business direction and policies, including the appointment and removal of officers and directors; ● any determinations with respect to mergers, business combinations or the disposition of assets; ● compensation and benefit programs and other human resources policy decisions; ● the payment of dividends on our common stock; and ● determinations with respect to tax matters.
As a result, Driven Lifestyle will be able to control, directly or indirectly and subject to applicable law, all matters affecting us, including: ● any determination with respect to our business direction and policies, including the appointment and removal of officers and directors; ● any determinations with respect to mergers, business combinations or the disposition of assets; ● compensation and benefit programs and other human resources policy decisions; ● the payment of dividends on our common stock; and ● determinations with respect to tax matters.
There is no assurance that we will be able to attract a sufficiently large number of customers or recover costs incurred in developing and marketing any of these new products or services. For example, we may offer games that do not attract sufficient purchases of virtual currency, which may cause our investments to fail to realize the expected benefits.
There is no assurance that we will be able to attract a sufficiently large number of customers or recover costs incurred in developing and marketing any of these new products or services. For example, we may offer games that do not attract sufficient purchases of subscriptions or DLCs, which may cause our investments to fail to realize the expected benefits.
Potential conflicts or disputes may arise between Motorsport Network or its subsidiaries and us in a number of areas relating to our past or ongoing relationships, including: ● tax, employee benefit, indemnification and other matters arising from our relationship with Motorsport Network or its subsidiaries; ● business combinations involving us; ● business opportunities that may be attractive to us and Motorsport Network or its subsidiaries; ● intellectual property or other proprietary rights; and ● joint sales and marketing activities with Motorsport Network or its subsidiaries.
Potential conflicts or disputes may arise between Driven Lifestyle or its subsidiaries and us in a number of areas relating to our past or ongoing relationships, including: ● tax, employee benefit, indemnification and other matters arising from our relationship with Driven Lifestyle or its subsidiaries; ● business combinations involving us; ● business opportunities that may be attractive to us and Driven Lifestyle or its subsidiaries; ● intellectual property or other proprietary rights; and ● joint sales and marketing activities with Driven Lifestyle or its subsidiaries.
An event that results in the disruption or degradation of any of our critical business functions or information technology systems and harms our ability to conduct normal business operations or causes a decrease in consumer demand for our products and services could materially impact our reputation and brand, financial condition and operating results. 39 Risks Related to Our Relationship with Motorsport Network Motorsport Network controls more than a majority of our Class A common stock and Class B common stock and therefore it has the ability to exert significant control over the direction of our business, which could prevent other stockholders from influencing significant decisions regarding our business plans and other matters.
An event that results in the disruption or degradation of any of our critical business functions or information technology systems and harms our ability to conduct normal business operations or causes a decrease in consumer demand for our products and services could materially impact our reputation and brand, financial condition and operating results. 35 Risks Related to Our Relationship with Driven Lifestyle Driven Lifestyle controls more than a majority of our Class A common stock and Class B common stock and therefore it has the ability to exert significant control over the direction of our business, which could prevent other stockholders from influencing significant decisions regarding our business plans and other matters.
In addition, if Motorsport Network sells a controlling interest in our Company to a third party, any outstanding indebtedness may be subject to acceleration and our commercial agreements and relationships could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our results of operations and financial condition.
In addition, if Driven Lifestyle sells a controlling interest in our Company to a third party, any outstanding indebtedness may be subject to acceleration and our commercial agreements and relationships could be impacted, all of which may adversely affect our ability to run our business as described herein and may have a material adverse effect on our results of operations and financial condition.
For example, our NASCAR 21: Ignition game released in October 2021 was generally not well-received and, as a result, our revenues for the year ended December 31, 2022 were adversely affected due to lower game sales.
For example, our NASCAR 21: Ignition game released in October 2021 was generally not well-received and, as a result, our revenues for the years ended December 31, 2023 and 2022 were adversely affected due to lower game sales.
These 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).
These physical gaming products have historically been 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).
The ability of Motorsport Network to privately sell its shares of our Class A common stock, with no requirement for a concurrent offer to be made to acquire all of the outstanding shares of our Class A common stock, could prevent you from realizing any change-of-control premium on your shares of our Class A common stock that may otherwise accrue to Motorsport Network on its private sale of our Class A common stock.
The ability of Driven Lifestyle to privately sell its shares of our Class A common stock, with no requirement for a concurrent offer to be made to acquire all of the outstanding shares of our Class A common stock, could prevent you from realizing any change-of-control premium on your shares of our Class A common stock that may otherwise accrue to Driven Lifestyle on its private sale of our Class A common stock.
Additionally, if Motorsport Network either privately sells a controlling interest in our Company, or pledges such shares in the future and secured parties foreclose on the shares, then we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest with those of other stockholders.
Additionally, if Driven Lifestyle either privately sells a controlling interest in our Company, or pledges such shares in the future and secured parties foreclose on the shares, then we may become subject to the control of a presently unknown third party. Such third party may have conflicts of interest with those of other stockholders.
Our Class B common stock has ten times the voting power of our Class A common stock. As long as Motorsport Network continues to control a majority of the voting power of our outstanding common stock, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors.
Our Class B common stock has ten times the voting power of our Class A common stock. As long as Driven Lifestyle continues to control a majority of the voting power of our outstanding common stock, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors.
As discussed above, 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, consumer electronics stores, discount warehouses, game specialty stores and other online retail stores.
As discussed above, our physical gaming products have historically been sold through a distribution network with an exclusive partner who specializes in the distribution of games through mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores and other online retail stores.
Moreover, Mike Zoi, who is the manager of Motorsport Network and has sole voting and dispositive power with respect to the shares of our common stock held by Motorsport Network, may also have interests that are not the same as, or may conflict with, the interests of our other stockholders.
Moreover, Mike Zoi, who is the manager of Driven Lifestyle and has sole voting and dispositive power with respect to the shares of our common stock held by Driven Lifestyle, may also have interests that are not the same as, or may conflict with, the interests of our other stockholders.
Accordingly, sales of substantial amounts of our Class A common stock in the public market, or the perception that these sales could occur, including sales by Motorsport Network, could adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional shares.
Accordingly, sales of substantial amounts of our Class A common stock in the public market, or the perception that these sales could occur, including sales by Driven Lifestyle, could adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional shares.
Motorsport Network has the ability, should it choose to do so, to sell some or all of its shares of our Class A common stock in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our Company.
Driven Lifestyle has the ability, should it choose to do so, to sell some or all of its shares of our Class A common stock in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our Company.
The resolution of any potential conflicts or disputes between us and Motorsport Network or its subsidiaries over these or other matters may be less favorable to us than the resolution we might achieve if we were dealing with an unaffiliated party.
The resolution of any potential conflicts or disputes between us and Driven Lifestyle or its subsidiaries over these or other matters may be less favorable to us than the resolution we might achieve if we were dealing with an unaffiliated party.
Even if Motorsport Network were to control less than a majority of the voting power of our outstanding common stock, it may be able to influence the outcome of such corporate actions so long as it owns a significant portion of our common stock.
Even if Driven Lifestyle were to control less than a majority of the voting power of our outstanding common stock, it may be able to influence the outcome of such corporate actions so long as it owns a significant portion of our common stock.
While Motorsport Network controls a majority of the voting power of our outstanding common stock, we may decide in the future to avail ourselves of these controlled company exemptions in accordance with the NASDAQ Listing Rules.
While Driven Lifestyle controls a majority of the voting power of our outstanding common stock, we may decide in the future to avail ourselves of these controlled company exemptions in accordance with the NASDAQ Listing Rules.
If and to the extent that Motorsport Network were to be unable to fund any such requests, we will not have complete access to some or all of the commitment available under the $12 million Line of Credit, but rather would have access to a lesser amount as determined by Motorsport Network’s ability to fund our borrowing requests.
If and to the extent that Driven Lifestyle were to be unable to fund any such requests, we will not have complete access to some or all of the commitment available under the $12 million Line of Credit, but rather would have access to a lesser amount as determined by Driven Lifestyle’s ability to fund our borrowing requests.
Further, we may become subject to the control of a presently unknown third party in such instance or in the event Motorsport Network pledges a controlling interest in our Company that is foreclosed upon.
Further, we may become subject to the control of a presently unknown third party in such instance or in the event Driven Lifestyle pledges a controlling interest in our Company that is foreclosed upon.
For example, these companies may favor our competitors over us due to our relationship with Motorsport Network and to avoid indirectly supporting Motorsport Network. 41 Our inability to resolve in a manner favorable to us any potential conflicts or disputes that arise between us and Motorsport Network or its subsidiaries with respect to our past and ongoing relationships may adversely affect our business and prospects.
For example, these companies may favor our competitors over us due to our relationship with Driven Lifestyle and to avoid indirectly supporting Driven Lifestyle. 37 Our inability to resolve in a manner favorable to us any potential conflicts or disputes that arise between us and Driven Lifestyle or its subsidiaries with respect to our past and ongoing relationships may adversely affect our business and prospects.
Holders of our Class A common stock will not be able to affect the outcome of any stockholder vote while Motorsport Network controls the majority of the voting power of our outstanding common stock.
Holders of our Class A common stock will not be able to affect the outcome of any stockholder vote while Driven Lifestyle controls the majority of the voting power of our outstanding common stock.
The trading price of our Class A common stock is likely to be volatile due several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.
We expect that the price of our Class A common stock will fluctuate substantially. The trading price of our Class A common stock is likely to be volatile due several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.
Motorsport Network currently controls a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the NASDAQ Listing Rules.
Driven Lifestyle currently controls a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the NASDAQ Listing Rules.
In the event Motorsport Network or its affiliates relinquish beneficial ownership of any of the MSN Initial Class A Shares at any time, one share of Class B common stock held by Motorsport Network will be cancelled for each such MSN Initial Class A Share no longer beneficially owned by Motorsport Network or its affiliates.
In the event Driven Lifestyle or its affiliates relinquish beneficial ownership of any of the DL Initial Class A Shares at any time, one share of Class B common stock held by Driven Lifestyle will be cancelled for each such DL Initial Class A Share no longer beneficially owned by Driven Lifestyle or its affiliates.
Motorsport Network’s competitive position in certain markets may constrain our ability to build and maintain certain partnerships or relationships in the motorsport industry. We do and may partner in the future with companies that compete with Motorsport Network in certain markets relating to the motorsport industry.
Driven Lifestyle’s competitive position in certain markets may constrain our ability to build and maintain certain partnerships or relationships in the motorsport industry. We do and may partner in the future with companies that compete with Driven Lifestyle in certain markets relating to the motorsport industry.
In particular, while we are an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); we will be exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
In particular, while we are an emerging growth company, we are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); we are exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; we are subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and we are not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. 39 In addition, while we are an emerging growth company, we can take advantage of an extended transition period for complying with new or revised accounting standards.
Given the state of the financial markets, we have recently assessed our exposure to any potential non-performance by Motorsport Network and believes that there is a substantial likelihood that Motorsport Network may not fulfill our future borrowing requests.
Given the state of the financial markets, we have recently assessed our exposure to any potential non-performance by Driven Lifestyle and believe that there is a substantial likelihood that Driven Lifestyle may not fulfill our future borrowing requests.
Because Motorsport Network’s interests may differ from ours or from those of our other stockholders, actions that Motorsport Network takes with respect to us, as our controlling stockholder, may not be favorable to us or our other stockholders, including holders of our Class A common stock.
Because Driven Lifestyle’s interests may differ from ours or from those of our other stockholders, actions that Driven Lifestyle takes with respect to us, as our controlling stockholder, may not be favorable to us or our other stockholders, including holders of our Class A common stock.
The risks we face in connection with acquisitions include: ● diversion of management time and focus from operating our business; ● coordination of technology, research and development and sales and marketing functions; ● transition of the acquired company’s users to our website and mobile applications; ● retention of employees from the acquired company; ● cultural challenges associated with integrating employees from the acquired company into our organization; ● integration of the acquired company’s accounting, management information, human resources and other administrative systems; ● the need to implement or improve controls, policies and procedures at a business that prior to the acquisition may have lacked effective controls, policies and procedures; ● potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results; ● known and unknown liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, and tax liabilities; and ● litigation or other claims resulting from the acquisition of the company, including claims from terminated employees, consumers, former stockholders, or other third parties. 44 Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments and to incur unanticipated liabilities and otherwise harm our business.
The risks we face in connection with acquisitions include: ● diversion of management time and focus from operating our business; ● coordination of technology, research and development and sales and marketing functions; ● transition of the acquired company’s users to our website and mobile applications; ● retention of employees from the acquired company; ● cultural challenges associated with integrating employees from the acquired company into our organization; ● integration of the acquired company’s accounting, management information, human resources and other administrative systems; ● the need to implement or improve controls, policies and procedures at a business that prior to the acquisition may have lacked effective controls, policies and procedures; 40 ● potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results; ● known and unknown liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, and tax liabilities; and ● litigation or other claims resulting from the acquisition of the company, including claims from terminated employees, consumers, former stockholders, or other third parties.
Motorsport Network is a one of the leading global motorsport and automotive data-driven digital platforms that owns and operates a unique collection of digital media motorsport and automotive brands. We rely, in part, on Motorsport Network to provide digital access to this audience to market, communicate and engage with users regarding our product offerings and services.
Driven Lifestyle is one of the leading global motorsport and automotive data-driven digital platforms that owns and operates a unique collection of digital media motorsport and automotive brands. We have historically relied, in part, on Driven Lifestyle to provide digital access to its audience to market, communicate and engage with users regarding our product offerings and services.
If a court were to find these types of provisions to be inapplicable or unenforceable, and if a court were to find the exclusive forum provision in our certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations. 47 We expect that the price of our Class A common stock will fluctuate substantially.
If a court were to find these types of provisions to be inapplicable or unenforceable, and if a court were to find the exclusive forum provision in our certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations.
If, however, Motorsport Network does not dispose of its MSN Initial Class A Shares, it could remain our controlling stockholder for an extended period of time or indefinitely. Motorsport Network’s interests may not be the same as, or may conflict with, the interests of our other stockholders.
If, however, Driven Lifestyle does not dispose of its DL Initial Class A Shares, it could remain our controlling stockholder for an extended period of time or indefinitely. Driven Lifestyle’s interests may not be the same as, or may conflict with, the interests of our other stockholders.
Further, Motorsport Network has registration rights, subject to certain conditions, to require us to file registration statements to register the resale of 780,385 shares of our Class A common stock or to include such shares for resale in registration statements that we may file for ourselves or other stockholders.
Further, Driven Lifestyle has registration rights, subject to certain conditions, to require us to file registration statements to register the resale of certain shares of our Class A common stock it holds or to include such shares for resale in registration statements that we may file for ourselves or other stockholders.
Motorsport Network’s control over us may affect our ability to effectively build and maintain our relationships with these companies.
Driven Lifestyle’s control over us may affect our ability to effectively build and maintain our relationships with these companies.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we expect to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies.
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we have availed ourselves of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies.
If any of these issues occur, consumers may stop playing the game and may be less likely to return to the game as often in the future, which may negatively impact our business. If we fail to deliver products in a timely manner, our business may be negatively impacted.
If any of these issues occur, consumers may stop playing the game and may be less likely to return to the game as often in the future, which may negatively impact our business.
Generally, quality third-party developers are continually in high demand. Software developers who have helped develop titles for us in the past may not be available to develop software for us in the future for various reasons, including their engagement on other projects.
Software developers who have helped develop titles for us in the past may not be available to develop software for us in the future for various reasons, including their engagement on other projects.
An important part of targeting international markets is developing offerings that are localized and customized for the players in those markets. Additionally, we currently have operations in the United Kingdom, Republic of Georgia, Australia, and the Netherlands and may seek to further expand our international operations.
An important part of targeting international markets is developing offerings that are localized and customized for the players in those markets. Additionally, we currently have operations in the United Kingdom and the Netherlands.
If we are no longer controlled by or affiliated with Motorsport Network, we may be unable to continue to benefit from that relationship, which may adversely affect our operations and have a material adverse effect on us and our financial performance, financial condition, liquidity and/or cash flows.
If we are no longer controlled by or affiliated with Driven Lifestyle, we may be unable to continue to benefit from that relationship, which may adversely affect our operations and have a material adverse effect on us and our business, results of operations and financial condition.
Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: ● breach of their duty of loyalty to us or our stockholders; ● act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; ● unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or ● transactions for which the directors derived an improper personal benefit.
Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: ● breach of their duty of loyalty to us or our stockholders; ● act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; ● unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or ● transactions for which the directors derived an improper personal benefit. 43 These limitations of liability will not apply to liabilities arising under the federal or state securities laws and will not affect the availability of equitable remedies such as injunctive relief or rescission.
We currently rely on third-party software developers for the partial development of all of our titles, and in the future, we expect to continue to rely on third-party software developers for the partial development of some of our titles. Accordingly, our success depends in part on our ability to enter into successful software development arrangements with such third-party developers.
Our business is partly dependent on our ability to enter into successful software development arrangements with third parties. We currently rely on third-party software developers for the partial development of all of our titles, and in the future, we expect to continue to rely on third-party software developers for the partial development of some of our titles.
Throughout the initial outbreak of the COVID-19 pandemic, several retailers experienced closures, reduced operating hours and/or other restrictions, which negatively impacted the sales of our products from such retailers .
Additionally, throughout the initial outbreak of the COVID-19 pandemic, several retailers experienced reduced operating hours and/or other restrictions as a result of the COVID-19 pandemic, which negatively impacted the sales of our products from such retailers primarily in 2020 and 2021.
We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property, technology and confidential information.
Our business depends on our intellectual property, technology and confidential information, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property, technology and confidential information.
We believe that consumer spending is influenced by general economic conditions and the availability of discretionary income. This makes our products particularly sensitive to general economic conditions and economic cycles as consumers are generally more willing to make discretionary purchases, including purchases of products like ours, during periods in which favorable economic conditions prevail.
This makes our products particularly sensitive to general economic conditions and economic cycles as consumers are generally more willing to make discretionary purchases, including purchases of products like ours, during periods in which favorable economic conditions prevail.
Consumers may be critical of our brands, games, services and/or business practices for a wide variety of reasons, and such negative reactions may not be foreseeable or within our control to manage effectively.
Consumer expectations regarding the quality, performance and integrity of our products and services are high. Consumers may be critical of our brands, games, services and/or business practices for a wide variety of reasons, and such negative reactions may not be foreseeable or within our control to manage effectively.
We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies that have adopted the new or revised accounting standards. 43 We may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our IPO, though we may cease to be an emerging growth company earlier under certain circumstances, including if (i) we have $1.07 billion or more in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act; or (iii) we issue more than $1.0 billion of non- convertible debt over a three-year period.
We may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our IPO, though we may cease to be an emerging growth company earlier under certain circumstances, including if (i) we have $1.235 billion or more in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act; or (iii) we issue more than $1.0 billion of non- convertible debt over a three-year period.
In addition, although we take steps to enforce and police our rights, factors such as the proliferation of technology designed to circumvent the protection measures used by our business partners or by us, the availability of broadband access to the Internet, the refusal of Internet service providers or platform holders to remove infringing content in certain instances, and the proliferation of online channels through which infringing product is distributed all may contribute to an expansion in unauthorized copying of our technology, content, and brands. 36 We use open source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.
In addition, although we take steps to enforce and police our rights, factors such as the proliferation of technology designed to circumvent the protection measures used by our business partners or by us, the availability of broadband access to the Internet, the refusal of Internet service providers or platform holders to remove infringing content in certain instances, and the proliferation of online channels through which infringing product is distributed all may contribute to an expansion in unauthorized copying of our technology, content, and brands.
If we are unable to satisfy our cash requirements, including from any equity and/or debt financing arrangements, we could be required to adopt one or more of the following alternatives: ● delaying the implementation of or revising certain aspects of our business strategy; ● reducing or delaying the development and launch of new products and events; ● reducing or delaying capital spending, product development spending and marketing and promotional spending; ● 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.
If we are unable to satisfy our capital requirements, we could be required to adopt one or more of the following alternatives: ● delaying the implementation of or revising certain aspects of our business strategy; ● further reducing or delaying the development and launch of new products and events; ● further reducing or delaying capital spending, product development spending and marketing and promotional spending; ● selling additional assets or operations; ● seeking additional capital contributions and/or loans from Driven Lifestyle, our other affiliates and/or third parties; ● further reducing other discretionary spending; ● entering into financing agreements on unattractive terms; and/or ● significantly curtailing or discontinuing operations.
Our retail products, online gaming platform and the games offered through our gaming platform are extremely complex and are difficult to develop and distribute. We have quality controls in place to detect defects in our retail products and gaming platform before they are released. Nonetheless, these quality controls are subject to human error, overriding, and resource or technical constraints.
Our retail products, online gaming platform and games offered through our gaming platform may contain defects. Our retail products, online gaming platform and the games offered through our gaming platform are extremely complex and are difficult to develop and distribute. We have quality controls in place to detect defects in our retail products and gaming platform before they are released.
If Motorsport Network is unable to fulfill their commitment to advance funds to us under the $12 million Line of Credit, it would impact our potential sources of liquidity and, depending upon the amount involved and our liquidity requirements, it could have an adverse effect on our ability to fund our operations, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
If Driven Lifestyle is unable to fulfill their commitment to advance funds to us under the $12 million Line of Credit, it would impact our potential sources of liquidity and, depending upon the amount involved and our liquidity requirements, it could have an adverse effect on our ability to fund our operations, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. 18 Risks Related to Our Business and Industry If we do not consistently deliver popular products or if consumers prefer competing products, our business may be negatively impacted.
Additionally, our ability to successfully gain market acceptance in any particular market is uncertain, and the distraction of our senior management team could harm our business, financial condition and results of operations. 38 The exit by the United Kingdom from the European Union could harm our business, financial condition and results of operations.
Additionally, our ability to successfully gain market acceptance in any particular market is uncertain, and the distraction of our senior management team could harm our business, financial condition and results of operations. Catastrophic events may disrupt our business.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 13 – Commitments and Contingencies – Litigation and Note 17 – Subsequent Events in our consolidated financial statements for additional information.
Biggest changeSee Note 12 – Commitments and Contingencies – Litigation in our consolidated financial statements for additional information.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere is no public trading market for our Class B common stock. Holders As of March 24, 2023, there were approximately 15 holders of record of our Class A common stock and one holder of record of our Class B common stock.
Biggest changeThere is no public trading market for our Class B common stock. Holders As of April 1, 2024, there were approximately 11 holders of record of our Class A common stock and one holder of record of our Class B common stock.
Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the year ended December 31, 2022 other than as reported in our Current Reports on Form 8-K filed with the SEC. Purchases of Equity Securities We did not purchase any shares of our Class A common stock during the quarter ended December 31, 2022.
Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the year ended December 31, 2023 other than as reported in our Current Reports on Form 8-K filed with the SEC. Purchases of Equity Securities We did not purchase any shares of our Class A common stock during the quarter ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOur recent product releases include: (i) our upgrade to our NASCAR game for next generation consoles and PCs, NASCAR 21: Ignition, on October 28, 2021, and a 2022 Season Expansion update on October 6, 2022; (ii) NASCAR Heat Ultimate Edition+ on Nintendo Switch on November 19, 2021, the first-ever NASCAR title to come to Nintendo Switch; (iii) the full release of the KartKraft kart racing simulator on January 26, 2022 for the PC; (iv) NASCAR Rivals, the official game of the 2022 NASCAR Cup Series season , on Nintendo Switch on October 14, 2022 and (v) four quarterly content releases in 2022 for our rFactor 2 realistic racing simulation game .
Biggest changeOur recent product releases include: Title Release Date and Platform NASCAR 21: Ignition October 28, 2021, available on PC and 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 NASCAR Heat 5 – Next Gen Car Update June 23, 2023, available on PC and consoles rFactor 2: RaceControl multiplayer October 5, 2023, available on PC Le Mans Ultimate February 20, 2024, available on PC We continually evaluate our planned product release schedule and modify the timing of upcoming products based on developments in our business, or if we believe it will result in a better consumer experience.
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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The factors described above, in particular the lack of 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have discussed these accounting policies and estimates with the Audit Committee of our Board of Directors. We believe our most critical accounting policies and estimates are as follows: Valuation of Goodwill and Indefinite-Lived Intangible Assets We review goodwill at the reporting unit level and indefinite-lived intangible assets for impairment annually or when events or circumstances dictate, more frequently.
We have discussed these accounting policies and estimates with the Audit Committee of our Board of Directors. We believe our most critical accounting policies and estimates are as follows: Valuation of Goodwill and Indefinite-Lived Intangible Assets We review goodwill at the reporting level and indefinite-lived intangible assets for impairment annually or when events or circumstances dictate, more frequently.
We discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital. 65 If the fair value of the reporting unit exceeds its carrying value, no write-down of goodwill is required.
We discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital. If the fair value of the reporting unit exceeds its carrying value, no write-down of goodwill is required.
For the year ended December 31, 2022, the principal assumptions used to develop our sales allowances and price protection reserves were: - Expected future selling prices - Expected future sell through of units in the channel Recently Issued Accounting Standards 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.
For the year ended December 31, 2023, the principal assumptions used to develop our sales allowances and price protection reserves were: - Expected future selling prices - Expected future sell through of units in the channel Recently Issued Accounting Standards 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.
The principal assumptions used in our cash flow models and relief from royalty models for our 2022 and 2021 impairment assessments were: - Forecasted net revenues; - Weighted average cost of capital (i.e., discount rate); and - Royalty rate (relief from royalty method only) If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The principal assumptions used in our cash flow models and relief from royalty models for our 2023 and 2022 impairment assessments were: - Forecasted net revenues; - Weighted average cost of capital (i.e., discount rate); and - Royalty rate (relief from royalty method only) If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Depreciation and Amortization Depreciation and amortization expenses include depreciation on fixed assets (primarily computers and office equipment), as well as amortization of definite lived intangible assets acquired through our various acquisitions.
Depreciation and Amortization Depreciation and amortization expenses include depreciation on fixed assets (primarily computers and office equipment), as well as amortization of certain definite lived intangible assets acquired through our various acquisitions.
The principal assumptions used in our cost to recreate model for the interim and annual impairment reviews completed during the year ended December 31, 2022 were: - Number of hours to recreate; - Rate per hour; and - Technological obsolescence. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The principal assumptions used in our cost to recreate model for the interim and annual impairment reviews completed during the year ended December 31, 2023 were: - Number of hours to recreate; - Rate per hour; and - Technological obsolescence. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The principal assumptions used in the discounted cash flow model for our 2022 and 2021 impairment assessment were: - Forecasted net revenues; and - Weighted average cost of capital (i.e., discount rate) The discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base.
The principal assumptions used in the discounted cash flow model for our 2023 and 2022 impairment assessment were: - Forecasted net revenues; and - Weighted average cost of capital (i.e., discount rate) The discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base.
Additionally, see “Risk Factors – Risks Related to Our Financial Condition and Liquidity - Limits on the 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 this Report.
Additionally, see “Risk Factors – Risks Related to Our Financial Condition and Liquidity - Limits on our borrowing capacity under the $12 million Line of Credit may affect our ability to finance our operations” in Part I, Item 1A of this Report.
Please see “—Liquidity and Going Concern” above and Note 1 – Business Organization, Nature of Operations and Risks and Uncertainties – Liquidity in our consolidated financial statements for further details on the Company’s going concern position as of December 31, 2022.
Please see “—Liquidity and Going Concern” above and Note 1 – Business Organization, Nature of Operations and Risks and Uncertainties – Liquidity in our consolidated financial statements for further details on the Company’s going concern position as of December 31, 2023.
Our analysis of recently issued accounting standards are more fully described in our consolidated financial statements (Note 2 – Summary of Significant Accounting Policies in our consolidated financial statements for the years ended December 31, 2022 and 2021).
Our analysis of recently issued accounting standards are more fully described in our consolidated financial statements (Note 2 – Summary of Significant Accounting Policies in our consolidated financial statements for the years ended December 31, 2023 and 2022).
Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the $3.9 million RDO, pursuant to the engagement letter with the Company, dated as of January 9, 2023.
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, dated as of January 9, 2023.
Economic Environment and Retailer Performance 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).
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).
Trends and Factors Affecting Our Business Product Release Schedule Our financial results are affected by the timing of our product releases and the commercial success of those titles.
Trends and Factors Affecting Our Business Product Release Schedule Our financial results are impacted by the timing of our product releases and the commercial success of those titles.
For the years ended December 31, 2022 and 2021, approximately 68% and 61%, 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.
For the years ended December 31, 2023 and 2022, approximately 88% and 68%, 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.
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 Company’s future liquidity and capital requirements include funds to support the planned costs to operate its business, including amounts required to fund working capital, support the development and introduction of new products, maintain existing titles, and certain capital expenditures.
Cash flows provided by financing activities for the year ended December 31, 2022 were primarily attributable to $3.8 million in advances from Motorsport Network under the $12 million Line of Credit in September 2022, partially offset by $1.7 million in payments of purchase commitment liability relating to a portion of the deferred installment amount due in connection with our acquisition of Studio397 and $0.4 million in game license payments.
Cash flows provided by financing activities for the year ended December 31, 2022 were primarily attributable to $3.8 million in advances from Driven Lifestyle under the $12 million Line of Credit in September 2022, partially offset by $1.7 million of payments for purchase commitment liabilities relating to a portion of the deferred installment amount due in connection with our acquisition of Studio397 and $0.4 million of payments for game license liabilities.
The triggers for the assessments were the changes to the Company’s product roadmap and the Company’s market capitalization, as referenced above.
The triggers for the assessments in 2022 were changes to the Company’s product roadmap and the Company’s market capitalization, as referenced above.
Sales and Marketing 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.
Sales and Marketing 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, Driven Lifestyle and other websites where we market our products.
Management believes that an understanding of these trends and drivers provides important context for our results for the fiscal year ended December 31, 2022 and 2021, as well as our future prospects.
Management believes that an understanding of these trends and drivers provides important context for our results for the fiscal years ended December 31, 2023 and 2022, as well as our future prospects.
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. 58 Impairment of Intangible Assets Impairment of indefinite-lived intangible assets was $3.5 million and $0.3 million in 2022 and 2021, respectively.
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. Impairment of Intangible Assets Impairment of indefinite-lived intangible assets was $0 and $3.5 million in 2023 and 2022, respectively.
The net cash used in operating activities for the year ended December 31, 2022 was primarily a result of cash used to fund a net loss of $36.8 million, adjusted for net non-cash adjustments in the amount of $15.4 million and $1.6 million of cash provided by changes in the levels of operating assets and liabilities.
Net cash used in operating activities for the year ended December 31, 2022 was primarily due to net loss of $36.8 million, adjusted for net non-cash adjustments of $15.4 million and $1.6 million of cash used by changes in the levels of operating assets and liabilities.
For example, revenues associated with our NASCAR franchise accounted for approximately 63% and 88% of our total revenue for the years ended December 31, 2022 and 2021, respectively.
For example, revenues associated with our NASCAR franchise accounted for approximately 72% and 63% of our total revenue for the years ended December 31, 2023 and 2022, respectively.
The impairment loss primarily relates to goodwill acquired in connection with the acquisition of Studio397 that was deemed impaired as a result of impairment assessments performed during the year.
The impairment loss for 2022 primarily related to goodwill acquired in connection with the acquisition of Studio397 that was deemed impaired as a result of impairment assessments performed during 2022.
For the years ended December 31, 2022 and 2021, the sale of products for Microsoft Windows via Steam comprised approximately 21% and 11% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 5% for both the years ended December 31, 2022 and 2021.
For the years ended December 31, 2023 and 2022, the sale of products for Microsoft Windows via Steam comprised approximately 23% and 21% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 4% and 5% for the years ended December 31, 2023 and 2022.
Valuation of Finite-Lived Intangible Assets and Other Long-Lived Assets 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.
If the fair value exceeds its carrying value, the indefinite-life intangible asset is not considered impaired. 64 Valuation of Finite-Lived Intangible Assets and Other Long-Lived Assets 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.
Cash Flows From Operating Activities Net cash used in operating activities for the year ended December 31, 2022 and 2021 was $19.5 million and $20.9 million, respectively.
Cash Flows From Operating Activities Net cash used in operating activities for the years ended December 31, 2023 and 2022 was $12.9 million and $19.5 million, respectively.
The indefinite-lived intangible asset impairment losses primarily relate to the rFactor 2 trade name and the Le Mans Video Gaming License and 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.
The indefinite-lived intangible asset impairment losses primarily related to the rFactor 2 trade name and the Le Mans video gaming license and were mainly driven by a reduction in expected future revenues following changes made to the Company’s product roadmap during the three months ended March 31, 2022, as well as changes to the discount rates and royalty rates used when valuing the assets.
Our product and service offerings included within the esports segment relate primarily to curating esports events. 55 Cost of Revenues 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 relating to our NASCAR racing series games.
Our product and service offerings included within the esports segment relate primarily to curating esports events. 53 Cost of Revenues Cost of revenues for our Gaming segment is primarily comprised of royalty expenses, which historically has been attributable to our NASCAR License prior to its sale and certain other third parties relating to our NASCAR racing series games.
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. 60 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 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, 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.
Even if the Company does secure additional Capital Financing, if the anticipated level of revenues are not achieved because of, for example, decreased sales of the Company’s products due to the disposition of key assets, such as the sale of its NASCAR License, further changes in the Company’s product roadmap and/or the Company’s inability to deliver new products for its various other licenses; less than anticipated consumer acceptance of 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 foreign currency exchange rates; decreased sales of the Company’s products and events as a result of increased competitive activities by the Company’s competitors; changes in consumer purchasing 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, the Company’s liquidity position may continue to be insufficient to satisfy its future capital requirements.
General and Administrative General and administrative (“G&A”) expenses were $13.8 million and $25.4 million for 2022 and 2021, respectively, a decrease of $11.6 million, or 45.8%, when compared to the prior year.
General and Administrative General and administrative (“G&A”) expenses were $9.4 million and $13.8 million for 2023 and 2022, respectively, a decrease of $4.4 million, or 31.9%, when compared to the prior year.
The triggers for the assessments was primarily 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.
The triggers for the assessments were primarily revisions made during the three months ended March 31, 2022 to the scope and timing of certain product releases included in the Company’s product roadmap, as well as a significant reduction in the Company’s market capitalization since the date of the last annual impairment assessment.
As of December 31, 2022, we have a total headcount of 134 people, made up of 133 full-time employees, including 91 dedicated to game development, to continue developing our expanded product offerings.
As of December 31, 2023, we have a total headcount of 71 people, made up of 50 full-time employees, including 52 dedicated to game development, to continue developing our product offerings.
On February 1, 2023, the Company issued 183,020 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 $3.9 million (the “$3.9 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company. H.C.
The Alumni Purchase Agreement expired on December 31, 2023 and has not been renewed as of the date of this Report. 61 On February 1, 2023, the Company issued 183,020 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 $3.9 million (the “$3.9 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company.
The Company has also issued to Wainwright 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. 63 Capital Expenditures The nature of the Company’s operations does not require significant expenditures on capital assets, nor does the Company typically enter into significant commitments to acquire capital assets.
The Company has also issued to Wainwright 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.
While our significant accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements, we believe that certain of these policies and estimates are deemed critical, as they require management’s highest degree of judgment, estimates and assumptions.
Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. 63 While our significant accounting policies are more fully described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements, we believe that certain of these policies and estimates are deemed critical, as they require management’s highest degree of judgment, estimates and assumptions.
Cash Flows From Investing Activities Net cash used in investing activities for the year ended December 31, 2022, was $0.3 million, which was primarily attributable to the purchase of property and equipment.
Net cash used in investing activities for the year ended December 31, 2022 was $0.3 million, which was attributable to the purchase of property and equipment. 60 Cash Flows From Financing Activities Net cash provided by financing activities during the years ended December 31, 2023 and 2022 was $9.9 million and $1.7 million, respectively.
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.
On September 8, 2022, the Company entered into a support agreement with Driven Lifestyle (the “Support Agreement”) pursuant to which Driven Lifestyle issued approximately $3 million (the “September 2022 Cash Advance”) to the Company in accordance with the $12 million Line of Credit.
Net cash used in operating activities for the year ended December 31, 2021 was primarily due to net loss of $33.7 million, adjusted for net non-cash adjustments of $14.4 million and $1.6 million of cash used by changes in the levels of operating assets and liabilities.
The net cash used in operating activities for the year ended December 31, 2023 was primarily a result of cash used to fund a net loss of $14.3 million, adjusted for net non-cash adjustments in the amount of $4.2 million and $2.8 million of cash used by changes in the levels of operating assets and liabilities.
The finite-lived intangible 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.
The triggers for the impairment in 2022 were changes to the Company’s product roadmap and the Company’s market capitalization, as referenced above. The finite-lived intangible asset impairment losses in 2022 related 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.
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 historically 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.
Based on the Company’s cash and cash equivalents position and the Company’s average cash burn, we do not believe we have sufficient cash on hand to fund our operations for the remainder of 2023 and that additional funding will be required in order to continue operations.
Based on the Company’s cash and cash equivalents position and its average cash burn, the Company does not believe it has sufficient cash on hand to fund its operations over the next year and that additional funding will be required in order to continue operations.
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. 62 Other Financing Activity 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.
Other Financing Activity On December 9, 2022, the Company entered into a stock purchase commitment agreement (the “Alumni Purchase Agreement”) with Alumni Capital LP (“Alumni Capital”), which provided that the Company could 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.
This was primarily driven by the release of one NASCAR game title in 2022, compared to two in 2021, resulting in 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 decrease in Gaming segment revenues reflects no NASCAR game titles being released in 2023, compared to one in 2022, resulting in lower volumes of game sales, as well as less favorable pricing and higher than expected retail pricing concessions on existing games in our product portfolio.
Liquidity and Capital Resources Liquidity 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.
The $0.9 million decrease was primarily due to activity in our U.K., Australian, and Netherlands subsidiaries, and represents unrealized foreign currency translation adjustments. 57 Liquidity and Capital Resources Liquidity Since our inception and prior to our IPO, we financed our operations primarily through advances from Driven Lifestyle, which were subsequently incorporated into a line of credit provided by Driven Lifestyle pursuant to the $12 million Line of Credit, as described below.
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, including in the “Business” section and “Risk Factors” above, the remainder of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or the consolidated financial statements and related notes.
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, including in the “Business” section and “Risk Factors” above, the remainder of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or the consolidated financial statements and related notes. 49 Our Business Motorsport Games is a racing game developer, publisher and esports ecosystem provider of official motorsport racing series, including the iconic 24 Hours of Le Mans endurance race (“Le Mans”) and the associated FIA World Endurance Championship (the “WEC”).
The reduction in sales and marketing expense was primarily driven by a $1.0 million reduction in external marketing expense, which was partially offset by an increase in payroll expense of $0.7 million as a result of higher headcount when compared to the prior year.
The reduction in sales and marketing expense was primarily driven by a $ 2.5 million reduction in external marketing expense, a $1.5 million decrease in payroll and employee related expenses as a result of lower headcount when compared to the prior period, and a $0.5 million decrease in sales and marketing expense to related parties.
Gaming segment cost of revenues represented 82% and 94% of our total 2022 and 2021 cost of revenues, respectively, decreasing by $3.0 million, or 42.0%, when compared to the prior year.
Esports segment revenues represented 4.2% and 11.4% of our total 2023 and 2022 revenues, respectively, decreasing by $0.9 million, or 75.4%, when compared to the prior year.
Development Development expenses were $10.4 million and $9.6 million for 2022 and 2021, respectively, representing an increase of $0.8 million, or 8.3%, when compared to the prior year.
Development Development expenses were $ 7.2 million and $10.4 million for 2023 and 2022, respectively, representing a decrease of $ 3.2 million, or 30.5 %, when compared to the prior year.
For the years ended December 31, 2022 and 2021, we sold substantially all of our physical disk products for the retail channel through a single distribution partner, which represented approximately 9% and 28% of our total revenue for the years ended December 31, 2022 and 2021, respectively.
Due to our modified pro duct release schedule, we recognized minimal revenue from sales of physical gaming products for the year ended December 31, 2023. For the year ended December 31, 2022, we sold substantially all of our physical gaming products for the retail channel through a single distribution partner, which represented approximately 9% of our total revenue for 2022.
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.
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. 52 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.
Specifically, the change in digital game sales was driven by a $3.4 million reduction in NASCAR title sales on consoles and mobile platforms, partially offset by a $0.8 million and $0.2 million increase in rFactor 2 and KartKraft title sales, respectively, on PC platforms.
Specifically, the change in digital and mobile game sales was driven by a $1.9 million reduction in NASCAR title sales, as well as decreases of $0.6 million and $0.2 million in rFactor 2 and KartKraft title sales, respectively.
Off-Balance Sheet Arrangements 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. 64 Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented.
Off-Balance Sheet Arrangements 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.
Cost of revenues for our esports segment consists primarily of the cost of event staffing and event production .
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 segment consists primarily of the cost of event staffing and event production.
We received net proceeds of approximately $63.1 million from the IPO, after deducting underwriting discounts and offering expenses paid by us in 2020 and 2021.
We received net proceeds of approximately $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 Driven Lifestyle pursuant to the $12 million Line of Credit and through sales of our equity securities.
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. 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.
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.
Cost of Revenues For the Year Ended December 31, Change 2022 2021 $ % Cost of Revenues: Gaming $ 4,080,724 $ 7,041,579 $ (2,960,855 ) (42.0 ) % Esports 879,593 487,576 392,017 80.4 % Total Segment and Consolidated Cost of Revenues $ 4,960,317 $ 7,529,155 $ (2,568,838 ) (34.1 ) % Consolidated cost of revenues were $5.0 million and $7.5 million for 2022 and 2021, respectively, a decrease of $2.6 million, or 34.1%, when compared to the prior year.
Cost of Revenues For the Year Ended December 31, Change 2023 2022 $ % Cost of Revenues: Gaming $ 3,245,740 $ 4,080,724 $ (834,984 ) (20.5 )% Esports 374,755 879,593 (504,838 ) (57.4 )% Total Segment and Consolidated Cost of Revenues $ 3,620,495 $ 4,960,317 $ (1,339,822 ) (27.0 )% Consolidated cost of revenues were $3.6 million and $5.0 million for 2023 and 2022, respectively, a decrease of $1.3 million, or 27.0%, when compared to the prior year.
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.
If the Company is unable to satisfy its capital requirements, it could be required to adopt one or more of the following alternatives: ● delaying the implementation of or revising certain aspects of the Company’s business strategy; ● further reducing or delaying the development and launch of new products and events; ● further reducing or delaying capital spending, product development spending and marketing and promotional spending; ● selling additional assets or operations; ● seeking additional capital contributions and/or loans from Driven Lifestyle, the Company’s other affiliates and/or third parties; ● further reducing other discretionary spending; ● entering into financing agreements on unattractive terms; and/or ● significantly curtailing or discontinuing operations. 59 There can be no assurance that the 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 Driven Lifestyle or affiliates and/or third parties, or that the transactions may not be permitted under the terms of 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.
Gross Profit For the Year Ended December 31, Change 2022 2021 $ % Gross Profit: Gaming $ 5,063,915 $ 7,226,156 $ (2,162,241 ) (29.9 )% Esports 300,327 320,219 (19,892 ) (6.2 )% Total Segment and Consolidated Gross Profit $ 5,364,242 $ 7,546,375 $ (2,182,133 ) (28.9 )% Gaming - Gross Profit Margin 55.4 % 50.6 % Esports - Gross Profit Margin 25.5 % 39.6 % Total Groff Profit Margin 52.0 % 50.1 % Consolidated gross profit was $5.4 million and $7.5 million for 2022 and 2021, respectively, a decrease of $2.2 million, or 28.9%, when compared to the prior year.
Gross Profit For the Year Ended December 31, Change 2023 2022 $ % Gross Profit (Loss): Gaming $ 3,373,762 $ 5,063,915 $ (1,690,153 ) (33.4 )% Esports (84,583 ) 300,327 (384,910 ) (128.2 )% Total Segment and Consolidated Gross Profit $ 3,289,179 $ 5,364,242 $ (2,075,063 ) (38.7 )% Gaming – Gross Profit Margin 51.0 % 55.4 % Esports – Gross (Loss) Profit Margin (29.1 )% 25.5 % Total Gross Profit Margin 47.6 % 52.0 % 55 Consolidated gross profit was $3.3 million and $5.4 million for 2023 and 2022, respectively, a decrease of $2.1 million, or 38.7%, when compared to the prior year.
On January 6, 2023, pursuant to the Alumni Purchase Agreement, the Company issued 90,415 shares of the Company’s Class A common stock to Alumni Capital, with an approximate fair market value of $0.4 million.
During the year ended December 31, 2023, the Company issued an aggregate of 175,167 shares of the Company’s Class A common stock to Alumni Capital under the Alumni Purchase Agreement with an aggregate fair market value of approximately $0.65 million.
Operating Expenses For the Year Ended December 31, Change 2022 2021 $ % Operating Expenses: Sales and marketing $ 6,172,324 $ 6,475,867 $ (303,543 ) (4.7 )% Development 10,417,260 9,621,712 795,548 8.3 % General and administrative 13,764,177 25,378,149 (11,613,972 ) (45.8 )% Impairment of goodwill 4,788,270 - 4,788,270 100.0 % Impairment of intangible assets 4,828,478 317,113 4,511,365 1,422.6 % Depreciation and amortization 420,137 280,192 139,945 49.9 % Total Operating Expenses 40,390,646 42,073,033 $ (1,682,387 ) (4.0 )% Changes in operating expenses are explained in more detail below: Sales and Marketing Sales and marketing expenses were $6.2 million and $6.5 million for 2022 and 2021, respectively, representing a $0.3 million, or 4.7%, decrease when compared to the prior year.
Operating Expenses For the Year Ended December 31, Change 2023 2022 $ % Operating Expenses: Sales and marketing $ 1,690,772 $ 6,172,324 $ (4,481,552 ) (72.6 )% Development 7,237,154 10,417,260 (3,180,106 ) (30.5 )% General and administrative 9,367,030 13,764,177 (4,397,147 ) (31.9 )% Impairment of goodwill - 4,788,270 (4,788,270 ) (100.0 )% Impairment of intangible assets 4,004,627 4,828,478 (823,851 ) (17.1 )% Depreciation and amortization 398,701 420,137 (21,436 ) (5.1 )% Total Operating Expenses $ 22,698,284 $ 40,390,646 $ (17,692,362 ) (43.8 )% Changes in operating expenses are explained in more detail below: Sales and Marketing Sales and marketing expenses were $1.7 million and $6.2 million for 2023 and 2022, respectively, representing a $ 4.5 million, or 72.6 %, decrease when compared to the prior year.
The increase in Esports segment revenue was primarily due to higher sponsorship revenue of $0.3 million from our Le Mans Virtual Series, which started its 2022-23 season in September 2022, and an increase of $0.1 million in event entrance fees.
The decrease in esports segment revenue was primarily due to lower sponsorship revenue of $0.8 million and a $0.1 million decrease in event entry fees, resulting from the Le Mans Virtual Series not being launched for the 2023/24 season in 2023 compared to the 2022/23 season having launched in 2022 .
Gaming segment revenues represented 89% and 95% of our total 2022 and 2021 revenues, respectively, decreasing by $5.1 million, or 35.9%, when compared to the prior year. The decrease in Gaming segment revenues was primarily due to $2.4 million in lower digital game sales, including downloadable content, and $3.4 million in lower retail game sales.
Gaming segment cost of revenues represented 89.6% and 82.3% of our total 2023 and 2022 cost of revenues, respectively, decreasing by $0.8 million, or 20.5%, when compared to the prior year. The decrease in Gaming segment cost of revenues was primarily driven by a $0.8 million reduction in game production costs.
Subsequently, in the first quarter of 2023, we announced our viewership figures for the 2022-23 Le Mans Virtual Series, including the 24 Hours of Le Mans Virtual, which had a global audience of 8.5 million across television (TV)/over-the-top (OTT) channels, 36 million social media impressions and over 10 million video views across the full 5-race season.
In 2023, we organized the grand finale of the Le Mans Virtual Series 2022/23, the 24 Hours of Le Mans Virtual event, which had a cumulative total of approximately 8.8 million video views with approximately 27 million minutes watched. The 24 Hours of Le Mans Virtual event had a global audience of 5 million across television (TV)/over-the-top (OTT) channels.
We expect to continue to derive significant revenues from sales of our physical gaming products to a very limited number of distribution partners.
However, w e expect to continue to use a limited number of distribution partners in the future for sales of our physical gaming products.
During the year ended December 31, 2021, net cash provided by financing activities was primarily attributable to approximately $63.1 million of net cash provided by the sale of Class A Common stock in our IPO, $2.2 million in advances from affiliates, partially offset by $13.0 million of net repayments to Motorsport Network under the $12 million Line of Credit, and $3.0 million of payments for the acquisition of additional ownership interests from non-controlling shareholders. 61 Promissory Note Line of Credit 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 million (which was subsequently increased to $12 million pursuant to an amendment executed in November 2020), at an interest rate of 10% per annum, the availability of which is dependent on Motorsport Network’s available liquidity.
Promissory Note Line of Credit On April 1, 2020, the Company entered into a promissory note (the “$12 million Line of Credit”) with the Company’s majority stockholder, Driven Lifestyle, that provided the Company with a line of credit of up to $10 million (which was subsequently increased to $12 million pursuant to an amendment executed in November 2020) at an interest rate of 10% per annum, the availability of which is dependent on Driven Lifestyle’s available liquidity.
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 entire outstanding amount due under the $12 million Line of Credit was cancelled in exchange for an aggregate of 780,385 shares of the Company’s Class A common stock issued to Motorsport Network.
All principal and accrued interest owed on the $12 million Line of Credit were exchanged for equity following the completion of two debt-for-equity exchange agreements with Driven Lifestyle on January 30, 2023 and February 1, 2023, relieving the Company of approximately $3.9 million in owed principal and unpaid interest in exchange for an aggregate of 780,385 shares of the Company’s Class A common stock.
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.
Recurring Revenue Sources Our business model includes revenue that we deem recurring in nature, which historically consisted primarily of revenue from our annualized NASCAR video game racing franchise for game consoles, PC, and mobile platforms.
The reduction in G&A expense was primarily driven by a $8.8 million reduction in stock based compensation expense, a $2.5 million reduction in bonus expense due to IPO related bonus expense incurred in 2021 that did not repeat in 2022, a $1.3 million reduction in legal, consultant and other professional expenses that were incurred in connection with the 2021 IPO that did not repeat in 2022, a $0.7 million reduction in payroll and employee related expenses, following certain headcount reductions in 2022, and a $0.2 million reduction in software expenditures.
The reduction in G&A expense was primarily driven by a $2.2 million reduction in legal and professional costs, primarily due to the settlement of litigation in 2022 that did not repeat in 2023, a $1.4 million reduction in payroll and employee related expenses, including travel expenses, due to lower headcount period over period, a $1.1 million reduction in insurance costs and $0.2 million reductions in both software & subscription costs and rent expense.
Results of Operations Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Revenue For the Year Ended December 31, Change 2022 2021 $ % Revenues: Gaming $ 9,144,639 $ 14,267,735 (5,123,096 ) (35.9 )% Esports 1,179,920 807,795 372,125 46.1 % Total Segment and Consolidated Revenues $ 10,324,559 $ 15,075,530 (4,750,971 ) (31.5 )% Consolidated revenues were $10.3 million and $15.1 million for 2022 and 2021, respectively, a decrease of $4.8 million, or 31.5%, when compared to the prior year.
Revenue For the Year Ended December 31, Change 2023 2022 $ % Revenues: Gaming $ 6,619,502 $ 9,144,639 $ (2,525,137 ) (27.6 )% Esports 290,172 1,179,920 (889,748 ) (75.4 )% Total Segment and Consolidated Revenues $ 6,909,674 $ 10,324,559 $ (3,414,885 ) (33.1 )% Consolidated revenues were $6.9 million and $10.3 million for 2023 and 2022, respectively, a decrease of $3.4 million, or 33.1%, when compared to the prior year. 54 Gaming segment revenues represented 95.8% and 88.6% of our total 2023 and 2022 revenues, respectively, decreasing by $2.5 million, or 27.6%, when compared to the prior year.
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. 59 We measure our liquidity in a number of ways, including the following: December 31, December 31, 2022 2021 Cash and Cash Equivalents $ 979,306 $ 17,819,640 Working Capital (Deficiency) $ (9,278,268 ) $ 16,024,590 For the year ended December 31, 2022, the Company incurred a net loss of $36.8 million, negative cash flows from operations of approximately $19.5 million and an accumulated deficit of $74.0 million.
We measure our liquidity in a number of ways, including the following: December 31, December 31, 2023 2022 Cash and Cash Equivalents $ 1,675,210 $ 979,306 Working Capital (Deficiency) $ (4,074,346 ) $ (9,278,268 ) For the year ended December 31, 2023, the Company had a net loss of $14.3 million and negative cash flows from operations of approximately $12.9 million.
Impairment of finite-lived intangible assets was $1.3 million and $0 in 2022 and 2021, respectively. The triggers for the assessments were the changes to the Company’s product roadmap and the Company’s market capitalization, as referenced above.
Impairment of finite-lived intangible assets was $4.0 million and $1.3 million in 2023 and 2022, respectively.
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 official licenses to develop multi-platform games for the BTCC, the 24 Hours of Le Mans race and the WEC, as well as INDYCAR.
We have obtained the official licenses to develop multi-platform games for the 24 Hours of Le Mans race and the WEC. We are also striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games.
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. For fiscal years 2022 and 2021, a majority of our revenue was generated from sales of our NASCAR racing video games.
Our portfolio also includes the KartKraft karting simulation game, as well as Studio 397 B.V. (“Studio397”) and their rFactor 2 realistic racing simulator technology and platform. 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 (“DLC”).
Gross profit margin was 52.0% in 2022, compared to 50.1% in 2021, driven primarily by lower game production costs and royalty fees in the Gaming segment. 57 Gaming segment gross profit was $5.1 million for 2022, compared to $7.2 million for 2021, representing a gross profit margin of 55.4% for 2022 and 50.6% for 2021.
Gaming segment gross profit was $3.4 million for 2023, compared to $5.1 million for 2022, representing a gross profit margin of 51% for 2023 and 55.4% for 2022. The decrease in gross profit margin was primarily due to lower gaming revenues combined with certain fixed expenses as discussed above.
Esports segment cost of revenues represented 18% and 6% of our total 2022 and 2021 cost of revenues, respectively, increasing by $0.4 million, or 80.4%, when compared to the prior year. The increase in Esports segment cost of revenues was primarily driven an increase in production costs associated with the Le Mans Virtual Series.
The decrease in production cost was due to no new physical inventory production in 2023, compared to units of NASCAR Rivals being produced in 2022. Esports segment cost of revenues represented 10.4% and 17.7% of our total 2023 and 2022 cost of revenues, respectively, decreasing by $0.5 million, or 57.4%, when compared to the prior year.
The remaining change in gross profit margin was primarily due to lower production costs and royalty expense, as a result of releasing one NASCAR title in 2022 compared to two NASCAR titles in 2021. Esports segment gross profit was $0.3 million for both 2022 and 2021, representing a gross profit margin of 25.5% for 2022 and 39.6% for 2021.
Esports segment gross (loss) profit was $(0.1) million and $0.3 million for 2023 and 2022, respectively, representing a gross (loss) profit margin of (29.1)% for 2023 and 25.5% for 2022, respectively. This decrease in the Esports segment gross profit margin was primarily due to lower revenues from the Le Mans Virtual Series, as explained above.
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.
The Company achieved $2.5 million of this cost reduction target by the end of 2022, and as of December 31, 2023, the Company increased its savings under the 2022 Restructuring Program to $6.7 million, while having incurred restructuring costs of approximately $1.3 million.
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 and interest rates, recessionary factors (such as the impact that higher energy prices will have on consumer purchasing behavior), supply chain constraints, labor supply issues, credit quality of our receivables and foreign currency exchange rates. 53 Hardware Platforms We derive most of our revenue 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 40% and 44% of our total revenue for the years ended December 31, 2022 and 2021, respectively.
As we continue to evaluate the cost saving initiatives and explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets, further adjustments to our product roadmap may be required. 51 Hardware Platforms We derive most of our revenue 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 72% and 40% of our total revenue for the years ended December 31, 2023 and 2022, respectively.

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