What changed in Motorsport Games Inc.'s 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of Motorsport Games Inc.'s 2023 and 2024 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 2024 report.
+300 added−261 removedSource: 10-K (2025-03-20) vs 10-K (2024-04-01)
Top changes in Motorsport Games Inc.'s 2024 10-K
300 paragraphs added · 261 removed · 200 edited across 6 sections
- Item 7. Management's Discussion & Analysis+172 / −139 · 104 edited
- Item 1A. Risk Factors+84 / −90 · 72 edited
- Item 1. Business+37 / −27 · 19 edited
- Item 5. Market for Registrant's Common Equity+4 / −2 · 2 edited
- Item 1C. Cybersecurity+2 / −2 · 2 edited
Item 1. Business
Business — how the company describes what it does
19 edited+18 added−8 removed68 unchanged
Item 1. Business
Business — how the company describes what it does
19 edited+18 added−8 removed68 unchanged
2023 filing
2024 filing
Biggest changeXbox, PlayStation, and Microsoft Windows via Steam October 28, 2021 NASCAR Heat Ultimate Edition+* NASCAR Heat Ultimate Edition+ is a racing video game simulating the 2020 NASCAR season. Nintendo Switch November 19, 2021 KartKraft KartKraft is a kart racing simulator, which was released in January 2022.
Biggest changeMicrosoft Windows via Steam March 28, 2013 KartKraft KartKraft is a kart racing simulator, which was released in January 2022. Microsoft Windows via Steam January 26, 2022 (full release) Le Mans Ultimate Le Mans Ultimate is the official game of the FIA World Endurance Championship and 24 Hours of Le Mans.
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 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. 12 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.
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.
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. 14 We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions.
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.
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 controlling 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.
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.
A reduction in sales from or loss of these distribution channels would have a material adverse effect on the Company’s results of operations and financial condition. 11 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.
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”).
Concurrently with the sale of our NASCAR License, we entered into an agreement with NTP pursuant to which we had a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that were in our product portfolio through December 31, 2024 (the “NASCAR New Limited License”).
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.
Although we did not organize the Le Mans Virtual Series for the 2023/24 or 2024/25 seasons, we currently plan on organizing the 2025/26 Le Mans Virtual Series to commence this year. We also intend to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans.
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.
Additionally, we had a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that were in our product portfolio through December 31, 2024. For fiscal years 2024 and 2023, 52% and 72% of our total revenue, respectively, was generated from sales of our NASCAR racing video games.
(“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.
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.
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 exchange for such license, we agreed to fund up to €8,000,000 (approximately $8,330,000 as of December 31, 2024) as needed for development of the video game products, to be contributed on an as-needed basis during the term of the license. As of December 31, 2024, we have funded approximately $6.1 million to such development.
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.
Item 1. Business Company Overview Motorsport Games is a racing game developer, publisher and esports ecosystem provider of official motorsport racing series, including games based on the iconic 24 Hours of Le Mans endurance race (“Le Mans”) and the associated FIA World Endurance Championship (the “WEC”).
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.
The latest figures reported from 2024 show Le Mans, which includes the WEC, having a cumulative global audience of 255 million, while the global fanbase for Formula 1 was estimated to be 750 million in 2024.
Overall, our sales volumes are strongest around the time we launch our new products and also tend to be stronger at the start of the NASCAR racing season. We expect similar patterns for new racing series we are or may be in the process of developing and publishing in the future.
Overall, our sales volumes are strongest around the time we launch our new products. We expect similar patterns for new racing series we are or may be in the process of developing and publishing in the future. We have also historically experienced a higher demand for our games during our fourth calendar quarter due to seasonal holiday demand.
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.
No other distributor accounted for 10% or more of our revenues in those periods. For the years ended December 31, 2024 and 2023, sales through these three distribution channels accounted for approximately 77% and 89% of our accounts receivable, respectively. No other distributor accounted for 10% or more of our accounts receivable in those periods.
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.
Human Capital 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.
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.
Our headcount as of December 31, 2024 was 39, made up of 22 full-time employees and 17 contractors, with 30 people in total dedicated to game development, located primarily in the United States of America and Europe. None of our employees were covered by collective bargaining agreements, and we believe that relations with our employees are generally good.
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.
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. 13 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.
Many of these laws and regulations are continuously evolving and developing, and the application to, and ultimate impact on, us is uncertain.
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. Many of these laws and regulations are continuously evolving and developing, and the application to, and ultimate impact on, us is uncertain.
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.
Due to our modified pro duct release schedule, we recognized minimal revenue from sales of physical gaming products for the years ended December 31, 2024 and 2023. Customer Concentration For the years ended December 31, 2024 and 2023, sales through our three main distribution channels accounted for approximately 86% and 83% of our consolidated revenues, respectively.
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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.
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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. rFactor 2 also powers F1® Arcade through a partnership with Kindred Concepts.
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Xbox One, PlayStation 4, and Microsoft Windows via Steam September 7, 2018 NASCAR Heat 4* NASCAR Heat 4 is a racing video game simulating the 2019 NASCAR season. To date, NASCAR Heat 4 is the most successful sequel of the NASCAR Heat franchise based on quantity of units sold.
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Prior to the sale of our NASCAR License, we had been the official video game developer and publisher for the NASCAR video game racing franchise and had the exclusive right to create and organize esports leagues and events for NASCAR using our NASCAR racing video games, in each case, subject to certain limited exceptions.
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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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Due to the uncertainty surrounding our ability to raise funding, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets and/or a merger in addition to the past sales of our NASCAR License and Traxion, which was our motorsport and racing games community content platform.
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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.
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If any such additional strategic alternative is executed, it is expected it would help to improve our working capital position and reduce overhead expenditures, thereby lowering our expected future cash-burn, and provide some short-term liquidity relief.
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Microsoft 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.
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Nonetheless, even if we are successful in implementing one or more additional strategic alternatives, we will continue to require additional funding and/or further cost reduction measures in order to continue operations, which includes further restructuring of our business and operations.
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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.
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There are no assurances that we will be successful in implementing any additional strategic plans for the sale or licensing of our assets, or any other strategic alternative, which may be subject to the satisfaction of conditions beyond our control.
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No other customer accounted for 10% or more of our accounts receivable in those periods.
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DLC updates were released in July 2024, September 2024, December 2024 and February 2025. Microsoft Windows via Steam February 20, 2024 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.
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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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The sale of our NASCAR License and the termination of our BTCC License and INDYCAR License has impacted our long-term product release schedule as we will no longer be producing NASCAR, BTCC and INDYCAR titles moving forward.
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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. 10 Esports Partnerships and Franchises We recognize the growing importance and business viability of esports, especially within the racing and motorsport genres.
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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.
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Furthermore, as there are relatively low barriers to entry to developing mobile or online free-to-play or other casual games, we expect new competitors to enter the market and existing competitors to allocate more resources to developing and marketing competing games and applications.
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We compete, or may compete, with a vast number of small companies and individuals who are able to create and launch casual games and other content using relatively limited resources and with relatively limited start-up time or expertise.
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Competition for the attention of consumers on mobile devices is intense, as the number of applications on mobile devices has been increasing dramatically, which, in turn, has required increased marketing to garner consumer awareness and attention. This increased competition could negatively impact our business.
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In addition, laws and regulations relating to user privacy, electronic contracts and communications, mobile communications, data collection, retention, consumer protection, and publishing activities, including production and delivery of content, advertising, localization, and information security have been adopted or are being considered for adoption by many jurisdictions and countries throughout the world.
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These laws, including the General Data Protection Regulation and the California Consumer Privacy Act, which have restricted our ability to gather and use data about our users, could harm our business by limiting the products and services we can offer consumers or the manner in which we offer them.
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Data privacy, data protection, localization, security and consumer-protection laws are evolving, and the interpretation and application of these laws in the United States (including compliance with the California Consumer Privacy Act), Europe (including compliance with the General Data Protection Regulation), and elsewhere often are uncertain, contradictory and changing.
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It is possible that these laws may be interpreted or applied in a manner that is adverse to us or otherwise inconsistent with our practices, which could result in litigation, regulatory investigations and potential legal liability or require us to change our practices in a manner adverse to our business.
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As a result, our reputation and brand may be harmed, we could incur substantial costs, and we could lose both gamers and revenue. Furthermore, the costs of compliance with these laws may increase in the future as a result of changes in interpretation.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
72 edited+12 added−18 removed311 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
72 edited+12 added−18 removed311 unchanged
2023 filing
2024 filing
Biggest changeAt such time, we would be entitled to appeal the delisting determination to a NASDAQ Hearing Panel. 42 Any delisting of our Class A common stock from NASDAQ, including as a result of our inability to regain compliance with the Stockholders’ Equity Requirement, could adversely affect our ability to attract new investors, reduce the liquidity of our outstanding shares of Class A common stock, reduce our ability to raise additional capital, reduce the price at which our Class A common stock trades, result in negative publicity and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholders.
Biggest changeTo regain compliance with the Stockholders’ Equity Requirement, we plan to negotiate and implement equity financing transactions and negotiate a reduction or extinguishment of our purchase commitment liabilities; provided that there can be no assurances that such financing transactions and reductions of our purchase commitment liabilities will be consummated or that they will achieve their intended effects. 39 Any delisting of our Class A common stock from NASDAQ, including as a result of our inability to regain compliance with the Stockholders’ Equity Requirement, could adversely affect our ability to attract new investors, reduce the liquidity of our outstanding shares of Class A common stock, reduce our ability to raise additional capital, reduce the price at which our Class A common stock trades, result in negative publicity and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholders.
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.
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 in the future partner with companies that compete with Driven Lifestyle in certain markets relating to the motorsport industry.
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.
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; 31 ● work stoppages or other changes in labor conditions; ● higher costs associated with doing business internationally; and ● trade and tariff restrictions.
Even if we do secure additional Capital Financing, if the anticipated level of revenues are not achieved because of, for example, decreased sales of our products due to the disposition of key assets, such as the sale of our NASCAR License, further changes in our product roadmap and/or our inability to deliver new products for our various other licenses; 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 our existing or new products or from its advertising and/or marketing plans; or if our expenses, including, without limitation, for marketing, advertising and promotions, product returns or price protection expenditures, exceed the anticipated level of expenses, our liquidity position may continue to be insufficient to satisfy its future capital requirements.
Even if we do secure additional Capital Financing, our liquidity position may continue to be insufficient to satisfy our future capital requirements if our anticipated level of revenues is not achieved because of, for example, decreased sales of our products due to the disposition of key assets, such as the sale of our NASCAR License, further changes in our product roadmap and/or our inability to deliver new products for our various other licenses; 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 our existing or new products or from its advertising and/or marketing plans; or if our expenses, including, without limitation, for marketing, advertising and promotions, product returns or price protection expenditures, exceed the anticipated level of expenses.
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.
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; 37 ● 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.
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.
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. 36 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.
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.
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. 40 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.
It is possible that these laws may be interpreted or applied in a manner that is averse to us or otherwise inconsistent with our practices, which could result in litigation, regulatory investigations and potential legal liability or require us to change our practices in a manner adverse to our business.
It is possible that these laws may be interpreted or applied in a manner that is adverse to us or otherwise inconsistent with our practices, which could result in litigation, regulatory investigations and potential legal liability or require us to change our practices in a manner adverse to our business.
We rely on third-party technology for certain of our critical business functions, including game engines such as Unreal and Unity™, among others, as well as our back-office tools and technologies, such as enterprise resource planning, finance, development and analytics tracking systems.
We rely on third-party technology for certain of our critical business functions, including game engines such as Unreal, among others, as well as our back-office tools and technologies, such as enterprise resource planning, finance, development and analytics tracking systems.
There are currently no commitments in place for future financing and there can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. 17 If we raise additional funds through future issuances of equity (including preferred stock) or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock, including, without limitation, in respect of the payment of dividends and the payment of liquidating distributions.
There are currently no commitments in place for future financing and there can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. 16 If we raise additional funds through future issuances of equity (including preferred stock) or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock, including, without limitation, in respect of the payment of dividends and the payment of liquidating distributions.
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.
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. 17 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.
We also could be required to stop offering, distributing or supporting our products, our gaming platform or other features or services, including esports events, which incorporate the affected intellectual property rights, redesign products, features or services to avoid infringement, or obtain a license, all of which could be costly and harm our business. 32 In addition, many patents have been issued that may apply to potential new modes of delivering, playing or monetizing interactive entertainment software products and services, such as those offered on our gaming platform or that we would like to offer in the future.
We also could be required to stop offering, distributing or supporting our products, our gaming platform or other features or services, including esports events, which incorporate the affected intellectual property rights, redesign products, features or services to avoid infringement, or obtain a license, all of which could be costly and harm our business. 29 In addition, many patents have been issued that may apply to potential new modes of delivering, playing or monetizing interactive entertainment software products and services, such as those offered on our gaming platform or that we would like to offer in the future.
Additionally, on April 14, 2023, the Company’s board of directors determined to terminate Mr. Kozko’s employment with the Company as its Chief Executive Officer without “Cause” (as such term is defined in Mr. Kozko’s employment agreement) effective as of April 19, 2023. In connection with Mr.
Additionally, on April 14, 2023, the Company’s board of directors determined to terminate Dmitry Kozko’s employment with the Company as its Chief Executive Officer without “Cause” (as such term is defined in Mr. Kozko’s employment agreement) effective as of April 19, 2023. In connection with Mr.
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.
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 trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property, technology and confidential information.
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.
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. 21 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.
In the event that we are no longer controlled by or affiliated with Driven Lifestyle, our ability to secure future joint ventures, game development and/or esports related rights for other racing series may be adversely impacted. 36 If Driven Lifestyle sells a controlling interest in our Company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our Class A common stock.
In the event that we are no longer controlled by or affiliated with Driven Lifestyle, our ability to secure future joint ventures, game development and/or esports related rights for other racing series may be adversely impacted. 33 If Driven Lifestyle sells a controlling interest in our Company to a third party in a private transaction, you may not realize any change-of-control premium on shares of our Class A common stock.
Further, if: (1) we are unable to continue to offer free-to-play games that encourage consumers to purchase our virtual currency and subsequently use it to buy our virtual items; (2) we fail to offer monetization features that appeal to these consumers; (3) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (4) our platform providers make it more difficult or expensive for players to purchase our virtual currency; or (5) we cannot encourage significant additional consumers to purchase virtual items in our free-to-play games, our business may be negatively impacted.
Further, if: (1) we are unable to continue to offer free-to-play games that encourage consumers to purchase our virtual currency and subsequently use it to buy our virtual items; (2) we fail to offer monetization features that appeal to these consumers; (3) these consumers do not continue to play our free-to-play games or purchase virtual items at the same rate; (4) our platform providers make it more difficult or expensive for players to purchase our virtual currency; or (5) we cannot encourage significant additional consumers to purchase virtual items in our free-to-play games, our business will be negatively impacted.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. 44 There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. 41 There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings.
Moreover, as a result of the disclosure of information in the public filings we make, our business operations, operating results and financial condition will become more visible, including to competitors and other third parties. 46 In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming.
Moreover, as a result of the disclosure of information in the public filings we make, our business operations, operating results and financial condition will become more visible, including to competitors and other third parties. 43 In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming.
Additionally, even if we are successful in implementing one or more Strategic Transactions, we will continue to require additional funding and/or further cost reduction measures in order to continue operations, which includes further restructuring of our business and operations. 20 Declines in consumer spending and other adverse changes in economic, market and geopolitical conditions could have a material adverse effect on our business, financial condition and operating results.
Additionally, even if we are successful in implementing one or more Strategic Transactions, we will continue to require additional funding and/or further cost reduction measures in order to continue operations, which includes further restructuring of our business and operations. 19 Declines in consumer spending and other adverse changes in economic, market and geopolitical conditions could have a material adverse effect on our business, financial condition and operating results.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. 16 Risks Related to Our Financial Condition and Liquidity We have incurred significant losses since our inception, and we expect to continue to incur losses for the foreseeable future.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. 15 Risks Related to Our Financial Condition and Liquidity We have incurred significant losses since our inception, and we expect to continue to incur losses for the foreseeable future.
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.
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. 30 Our international operations are subject to increased challenges and risks. Attracting players in international markets is a critical element of our business strategy.
In the future, we expect this trend to continue with a relatively limited number of franchises producing a disproportionately high percentage of our revenues and profits. 21 Our ability to acquire and maintain licenses to intellectual property, especially for racing series, affects our revenue and profitability. Competition for these licenses may make them more expensive and increase our costs.
In the future, we expect this trend to continue with a relatively limited number of franchises producing a disproportionately high percentage of our revenues and profits. 20 Our ability to acquire and maintain licenses to intellectual property, especially for racing series, affects our revenue and profitability. Competition for these licenses may make them more expensive and increase our costs.
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.
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. 18 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.
If 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.
If 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. 42 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.
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.
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. 26 Additionally, we currently generate, and intend to generate in the future, revenue through offering advertising within certain of our franchises.
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.
For example, these companies may favor our competitors over us due to our relationship with Driven Lifestyle and to avoid indirectly supporting Driven Lifestyle. 34 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.
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.
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. 38 We may not successfully manage the transitions associated with certain of our executive officers, which could have an adverse impact on us.
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, a continuing industry shift to free-to-play games could result in a reprioritization of our other products by traditional retailers and distributors. 22 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. 26 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. 23 Further, the esports gaming industry generally is highly competitive.
We pursue the registration of our copyrights, trademarks, service marks, domain names, and patents in the U.S. and in certain locations outside the U.S.
We pursue the registration of our copyrights, trademarks, service marks, and domain names in the U.S. and in certain locations outside the U.S.
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.
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. 25 Certain of our business models could be subject to new laws or regulations or evolving interpretations of existing laws and regulations.
Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on our business, financial condition and operating results. 31 Failure to adequately protect our intellectual property, technology and confidential information could harm our business and operating results.
Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on our business, financial condition and operating results. 28 Failure to adequately protect our intellectual property, technology and confidential information could harm our business and operating results.
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.
Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs. 27 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.
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.
There can be no assurance that our efforts to prevent or minimize these unauthorized or fraudulent transactions will be successful. 24 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.
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.
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, 2024 and 2023 were adversely affected due to lower game sales.
If we cannot manage our growth effectively, our business could be harmed, and our results of operations and financial condition could be materially and adversely affected. 38 Impairment of our intangible assets has had, and in the future could have, a material adverse impact on our results of operations.
If we cannot manage our growth effectively, our business could be harmed, and our results of operations and financial condition could be materially and adversely affected. 35 Impairment of our intangible assets has had, and in the future could have, a material adverse impact on our results of operations.
Our ability to expand our business and to attract talented employees and players in an increasing number of international markets will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures.
Our ability to expand our business and to attract talented employees and players in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2023, we identified certain material weaknesses in our internal control over financial reporting that continue to exist.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2024, we identified certain material weaknesses in our internal control over financial reporting that continue to exist.
As described in a Current Report on Form 8-K filed with the SEC on November 22, 2023, we received a deficiency letter from NASDAQ’s Listing Qualifications Department (the “NASDAQ Staff”) on November 17, 2023 notifying us that we were not in compliance with the Stockholders’ Equity Requirement.
As described in a Current Report on Form 8-K filed with the SEC on November 22, 2024, we received a deficiency letter from NASDAQ’s Listing Qualifications Department (the “NASDAQ Staff”) on November 20, 2024 notifying us that we were not in compliance with the Stockholders’ Equity Requirement.
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.
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. 32 Risks Related to Our Relationship with Driven Lifestyle Driven Lifestyle controls a significant portion of our Class A common stock and all of our Class B common stock and therefore 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.
See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Going Concern” of this Report and Note 1 – Business Organization, Nature of Operations and Risks and Uncertainties in our consolidated financial statements for additional information.
See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” of this Report and Note 1 – Business Organization, Nature of Operations and Risks and Uncertainties in our consolidated financial statements for additional information.
Due to the uncertainty surrounding our ability to raise funding in the form of potential Capital Financing, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business (a “Strategic Transaction”), including, but not limited to, the sale or licensing of certain of our assets in addition to the sale of our NASCAR License to iRacing on October 3, 2023.
Due to the uncertainty surrounding our ability to raise funding in the form of potential Capital Financing, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business (a “Strategic Transaction”), including, but not limited to, the sale or licensing of certain of our assets in addition to the sale of our NASCAR License to iRacing on October 3, 2023 or the sale of Traxion in April 2024 or entering into collaborations or a merger.
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 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 of December 31, 2023, we had intangible assets, net of $5.8 million. We are required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) to review our intangible assets when events or changes in circumstances indicate the carrying value may not be recoverable.
As of December 31, 2024, we had intangible assets, net of $3.4 million. We are required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) to review our intangible assets when events or changes in circumstances indicate the carrying value may not be recoverable.
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.
The reports of our independent registered public accountants on our financial statements as of and for the years ended December 31, 2024 and 2023 also include 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.
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.
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; ● increases in the number of awards available for issuance under our equity incentive plans; and ● determinations with respect to tax matters.
For example, we may invest in the development of new free-to- play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs.
As such, we are increasingly exposed to the risks of the free-to-play business model. For example, we may invest in the development of new free-to- play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs.
Accordingly, our financial condition raises substantial doubt regarding our ability to continue as a going concern. We incurred a net loss of $14.3 million and negative cash flows from operations of $12.9 million for the year ended December 31, 2023.
Accordingly, our financial condition raises substantial doubt regarding our ability to continue as a going concern. We incurred a net loss of $3.0 million and negative cash flows from operations of $2.8 million for the year ended December 31, 2024.
In addition, our financial performance and ability to meet operational goals and strategic plans may be adversely impacted, particularly if we are unable to attract and retain a qualified candidate to become our permanent Chief Financial Officer in a timely manner. This may also impact our ability to retain and hire other key members of management.
In addition, our financial performance and ability to meet operational goals and strategic plans may be adversely impacted, particularly if we are unable to attract and retain a qualified candidate for any vacant executive office in a timely manner. This may also impact our ability to retain and hire other key members of management.
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.
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 loans from third parties; ● further reducing other discretionary spending; ● entering into financing agreements on unattractive terms; ● entering into other strategic alternatives such as collaborations or mergers; and/or ● significantly curtailing or discontinuing operations or dissolving and liquidating our assets under the bankruptcy laws or otherwise.
As of December 31, 2023, our stockholders’ equity was $2,089,704. In accordance with NASDAQ rules, we had until January 2, 2024 to submit a plan to the NASDAQ Staff to regain compliance with the Stockholders’ Equity Requirement, which we submitted by such date.
As of December 31, 2024, our stockholders’ equity was $1,226,002. In accordance with NASDAQ rules, we had until January 6, 2025 to submit a plan to the NASDAQ Staff to regain compliance with the Stockholders’ Equity Requirement, which plan we submitted by such date.
Accordingly, we no longer have the right to use the NASCAR brand for our products other than 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.
Accordingly, during the year ended December 31, 2024 we no longer had the right to use the NASCAR brand for our products other than a limited non-exclusive right and license to, among other things, sell NASCAR games and DLCs that were in our product portfolio through December 31, 2024, and since that date we have no further right to use the NASCAR brand for our products.
On November 3, 2023, Jason Potter resigned as our Chief Financial Officer, effective as of November 8, 2023. Effective November 8, 2023, Stanley Beckley was appointed as our Interim Chief Financial Officer. Prior to Mr.
On November 3, 2023, Jason Potter resigned as our Chief Financial Officer, effective as of November 8, 2023. Effective November 8, 2023, Stanley Beckley was appointed as our Interim Chief Financial Officer. Mr. Beckley was appointed as our permanent Chief Financial Officer on May 16, 2024.
As a result, we may encounter difficulties or challenges in continuing operations due to the sale of our NASCAR License and the termination of our BTCC license agreement and INDYCAR license agreements , and our cash flows and results of operations will likely be materially adversely impacted as we anticipate the amount of revenue to be generated by our existing NASCAR products to decline over time.
As a result, we may encounter difficulties or challenges in continuing operations due to the sale of our NASCAR License and the termination of our BTCC license agreement and INDYCAR license agreements , and our cash flows and results of operations will likely be materially adversely impacted as we anticipate no more revenues to be generated from our NASCAR products.
In our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, we reported stockholders’ equity of $498,897, which was below the Stockholders’ Equity Requirement.
In our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, we reported stockholders’ equity of $2,170,911, which was below the Stockholders’ Equity Requirement.
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.
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.
Broad market and industry factors, as well as general economic, political and market conditions, such as recessions, or interest rate changes and financial market instability or disruptions to the banking system due to bank failures, particularly in light of the recent events that have occurred with respect to Silicon Valley Bank and Signature Bank, may seriously affect the market price of our Class A common stock, regardless of our actual operating performance.
Broad market and industry factors, as well as general economic, political and market conditions, such as recessions, or interest rate changes and financial market instability or disruptions to the banking system due to bank failures may seriously affect the market price of our Class A common stock, regardless of our actual operating performance.
Driven Lifestyle currently owns all of the shares of our Class B common stock and 1,480,385 shares of our Class A common stock, which together represents approximately 54.37% of the combined voting power of both classes of our common stock as of April 1, 2024.
Driven Lifestyle currently owns all of the shares of our Class B common stock and 1,480,385 shares of our Class A common stock, which together represents approximately 83.28% of the combined voting power of both classes of our common stock as of March 20, 2025.
As of December 31, 2023, we had an accumulated deficit of $87.0 million and cash and cash equivalents of $1.7 million. For the year ended December 31, 2023, we experienced an average net cash burn from operations of approximately $1.1 million per month.
As of December 31, 2024, we had an accumulated deficit of $91.8 million and cash and cash equivalents of $0.9 million. For the year ended December 31, 2024, we experienced an average net cash burn from operations of approximately $0.2 million per month.
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.
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.
For example, as discussed elsewhere in this Report, we sold our NASCAR License to iRacing on October 3, 2023 and our cash flows and results of operations will likely be materially adversely impacted as we anticipate the amount of revenue to be generated by our existing NASCAR products to decline over time.
For example, as discussed elsewhere in this Report, we sold our NASCAR License to iRacing on October 3, 2023 and our cash flows and results of operations will likely be materially adversely impacted as we anticipate no more revenues to be generated by our existing NASCAR products subsequent to December 31, 2024.
We may be required to record non-cash impairment charges during any period in which we determine that our goodwill and/or other intangible assets are impaired, which has had, and in the future could have, a material adverse impact on our results of operations.
We may be required to record non-cash impairment charges during any period in which we determine that our intangible assets are impaired, which has had, and in the future could have, a material adverse impact on our results of operations. For example, for the year ended December 31, 2023, we recorded impairment of intangible assets of $4.0 million.
On February 5, 2024, Nasdaq notified us that, based on its review of the Company and the materials submitted by us to NASDAQ, NASDAQ Staff determined to grant us an extension to regain compliance with the Stockholders’ Equity Requirement until May 15, 2024, subject to the Company regaining and evidencing compliance with the Stockholders’ Equity Requirement by such date.
On March 3, 2025, NASDAQ notified us that based on NASDAQ’s review of the materials we submitted to NASDAQ, the NASDAQ Staff has determined to grant us an extension to regain compliance with the Stockholders’ Equity Requirement, until April 14, 2025, subject to us regaining and evidencing compliance with the Stockholders’ Equity Requirement by such date.
For the years ended December 31, 2023 and 2022, revenues associated with our NASCAR franchise accounted for approximately 72% and 63% of our total revenue, respectively.
For the years ended December 31, 2024 and 2023, revenues associated with our NASCAR franchise accounted for approximately 52% and 72% of our total revenue, respectively. For the years ended December 31, 2024 and 2023, sales through our three main distribution channels accounted for approximately 86% and 83% of our consolidated revenues, respectively.
They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
If the platform provider establishes terms that restrict our offerings on its platform, significantly changes the financial terms on which these products or services are offered, or does not approve the inclusion of online capabilities in our console products, our business could be negatively impacted. 24 The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game.
If the platform provider establishes terms that restrict our offerings on its platform, significantly changes the financial terms on which these products or services are offered, or does not approve the inclusion of online capabilities in our console products, our business could be negatively impacted.
Our corporate bylaws provide that we will indemnify our directors, officers and employees to the fullest extent permitted by law. Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding.
Our certificate of incorporation also provides that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We believe that these provisions are necessary to attract and retain qualified persons as directors and officers.
If we do not regain compliance with the Stockholders’ Equity Requirement by May 15, 2024, NASDAQ will provide written notice that our Class A common stock is subject to delisting.
In the event we do not regain and evidence compliance with the Stockholders’ Equity Requirement by April 14, 2025, Nasdaq’s staff will provide written notification to us that our securities may be subject to delisting.
We believe that these bylaw provisions are necessary to attract and retain qualified persons as directors and officers. The limitation of liability in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for a breach of their fiduciary duties.
The limitation of liability in our certificate of incorporation may discourage stockholders from bringing a lawsuit against directors for a breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders.
Currently, only our NASCAR Heat Mobile title is a free-to-play game, but the success of our business is partially dependent on our ability to develop, enhance and monetize additional free-to-play games. As such, we are increasingly exposed to the risks of the free-to-play business model.
The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game. The success of our business is partially dependent on our ability to develop, enhance and monetize additional free-to-play games.
For example, for the year ended December 31, 2023, we recorded impairment of intangible assets of $4.0 million and for the year ended December 31, 2022, we recorded impairment of intangible assets of $4.8 million and impairment of goodwill of $4.8 million. We have identified material weaknesses in our internal control over financial reporting.
We have identified material weaknesses in our internal control over financial reporting.
Removed
Additionally, our BTCC license agreement and INDYCAR license agreements were terminated by the respective licensors, effective November 2023. The importance of retail sales to our business exposes us to the risks of that business model. While our customer base is increasingly purchasing our games as digital downloads, retail sales will remain important to our business.
Added
No other distribution channel accounted for 10% or more of our revenues in those periods. For the years ended December 31, 2024 and 2023, sales through our three main distribution channels accounted for approximately 77% and 89% of our accounts receivable, respectively. No other distribution channel accounted for 10% or more of our accounts receivable in those periods.
Removed
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).
Added
A reduction in sales from or loss of these distribution channels would have a material adverse effect on the Company’s results of operations and financial condition.
Removed
The loss of, or a significant reduction in sales by, any of these retailers could have adverse consequences to our business and results of operations. Moreover, the importance of retail sales to our business exposes us to the risk of price protection with respect to our distribution partners and retailers.
Added
Additionally, our BTCC license agreement and INDYCAR license agreements were terminated by the respective licensors, effective November 2023. We could be subject to unanticipated adverse effects arising from our inability to fully repay Luminis International B.V. and Technology In Business B.V., the sellers of Studio397, relating to our acquisition of 100% of the share capital of Studio397 in April 2021.
Removed
Price protection, when granted, allows these distribution partners and retailers to receive a credit from us against amounts owed to us with respect to merchandise unsold by them.
Added
On April 20, 2021 we acquired 100% of the share capital of Studio397 from Luminis International B.V. and Technology In Business B.V. (collectively, the “Sellers”). The purchase price originally consisted of a cash payment at closing and payments due at a later date. To date, we have not paid all of the payments due subsequent to the closing.
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Item 1C. Cybersecurity
Cybersecurity — threats and controls disclosure
2 edited+0 added−0 removed6 unchanged
Item 1C. Cybersecurity
Cybersecurity — threats and controls disclosure
2 edited+0 added−0 removed6 unchanged
2023 filing
2024 filing
Biggest changeAs of the date of this Report, we are not aware of any risks from cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition. 47 Governance The Board of Directors, along with its Audit Committee, oversees the management of cybersecurity risks, and receives quarterly reports from management on the detection and remediation of cybersecurity incidents, as well as on material security risks and vulnerabilities.
Biggest changeAs of the date of this Report, we are not aware of any risks from cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition. 44 Governance The Board of Directors, along with its Audit Committee , oversees the management of cybersecurity risks and receives quarterly reports from management on the detection and remediation of cybersecurity incidents, as well as on material security risks and vulnerabilities.
The program was integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
The program is integrated into our overall enterprise risk management program and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed3 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed3 unchanged
2023 filing
2024 filing
Biggest changeSee Note 12 – Commitments and Contingencies – Litigation in our consolidated financial statements for additional information.
Biggest changeSee Note 11 – 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
2 edited+2 added−0 removed4 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
2 edited+2 added−0 removed4 unchanged
2023 filing
2024 filing
Biggest changeUnregistered 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.
Biggest changePurchases of Equity Securities We did not purchase any shares of our Class A common stock during the quarter ended December 31, 2024.
There 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.
There is no public trading market for our Class B common stock. Holders As of March 20, 2025, there were approximately 10 holders of record of our Class A common stock and one holder of record of our Class B common stock.
Added
Equity Compensation Plan Table The following table summarizes our equity compensation plan information as of December 31, 2024. Information is included for equity compensation plans approved by our stockholders and equity compensation plans not approved by our stockholders.
Added
Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price per share of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by stockholders 97,366 $ 61.83 2,634 Equity compensation plans not approved by stockholders 21,394 4.32 - Total 118,760 2,634 Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the year ended December 31, 2024 other than as reported in our Current Reports on Form 8-K filed with the SEC.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
104 edited+68 added−35 removed52 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
104 edited+68 added−35 removed52 unchanged
2023 filing
2024 filing
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.
Biggest changeOur recent product releases include: Title Release Date and Platform 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 Le Mans Ultimate – 2024 DLC Pack 1 July 23, 2024, available on PC Le Mans Ultimate – 2024 DLC Pack 2 September 24, 2024, available on PC Le Mans Ultimate – 2024 DLC Pack 3 December 10, 2024, available on PC Le Mans Ultimate – 2024 DLC Pack 4 February 25, 2025, available on PC * Pursuant to the NASCAR New Limited License, we had a limited non-exclusive right and license to, among other things, sell these NASCAR games and DLCs through December 31, 2024.
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.
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 sales of our equity securities.
We have elected to use this extended transition period under the JOBS Act. We have elected to use this extended transition period under the JOBS Act until such time as we are no longer considered to be an emerging growth company.
We have elected to use this extended transition period under the JOBS Act until such time as we are no longer considered to be an emerging growth company.
However, we have worked to diversify our product offerings and revenue from other sources by introducing titles such as KartKraft, rFactor 2 and the 24 Hours of Le Mans Virtual esports event to our portfolio of product offerings and thereby reducing our dependency on the NASCAR franchise as our substantially sole source of revenue.
However, we have worked to diversify our product offerings and revenue from other sources by introducing titles such as KartKraft, rFactor 2, Le Mans Ultimate and the 24 Hours of Le Mans Virtual esports event to our portfolio of product offerings and thereby reducing our dependency on the NASCAR franchise as our substantially sole source of revenue.
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”).
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. 46 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”).
Cost of revenues for our Gaming segment is also comprised of merchant fees, disk manufacturing costs, packaging costs, shipping costs, warehouse costs, distribution fees to distribute products to retail stores, mobile platform fees associated with our mobile revenue (for transactions in which we are acting as the principal in the sale to the end customer) and amortization of certain acquired license agreements and other intangible assets acquired through our various acquisitions.
Cost of revenues for our Gaming segment is also comprised of merchant fees, disk manufacturing costs, packaging costs, web hosting costs, shipping costs, warehouse costs, distribution fees to distribute products to retail stores, mobile platform fees associated with our mobile revenue (for transactions in which we are acting as the principal in the sale to the end customer) and amortization of certain acquired license agreements and other intangible assets acquired through our various acquisitions.
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.
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. 49 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.
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.
Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. 60 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.
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.
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 our 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 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 our cost to recreate model for the interim and annual impairment reviews completed during the year ended December 31, 2024 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.
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.
Our product and service offerings included within the esports segment relate primarily to curating esports events. 50 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.
Wainwright acted as the exclusive placement agent for the $3.4 million RDO. In connection with the $3.4 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950.
Wainwright acted as the exclusive placement agent for the $3.4 million RDO. In connection with the $3.4 million RDO, we paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950.
Wainwright acted as the exclusive placement agent for the $4.0 million RDO. In connection with the $4.0 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950.
Wainwright acted as the exclusive placement agent for the $4.0 million RDO. In connection with the $4.0 million RDO, we paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $25,000 and closing fees of $15,950.
The 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.
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 $3.6 million of cash used by changes in the levels of operating assets and liabilities.
In connection with the $3.9 million RDO, the Company paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $50,000 and closing fees of $15,950.
In connection with the $3.9 million RDO, we paid Wainwright a cash transaction fee equal to 7.0% of the aggregate gross proceeds from the registered direct offering, non-accountable expenses of $50,000 and closing fees of $15,950.
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.
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, 2024.
Subject to the terms and conditions of the ED Agreement, the Sales Agent may sell shares by any method deemed to be an “at-the-market” (“ATM”) offering as defined in Rule 415 under the Securities Act of 1933, as amended.
Subject to the terms and conditions of the ED Agreement, the Sales Agent may sell shares by any method deemed to be an “at-the-market” (“ATM”) offering as defined in Rule 415 under the Securities Act.
Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Accordingly, the consolidated financial statements have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Reportable Segments We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments.
Reportable Segments We use the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments.
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.
Even if we do secure additional Capital Financing, if the anticipated level of revenues are not achieved because of, for example, decreased sales of our products due to the disposition of key assets, such as the sale of our NASCAR License and Traxion, further changes our product roadmap and/or our inability to deliver new products for our various other licenses; 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 our existing or new products or from our advertising and/or marketing plans; or if our expenses, including, without limitation, for marketing, advertising and promotions, product returns or price protection expenditures, exceed the anticipated level of expenses, our liquidity position may continue to be insufficient to satisfy our future capital requirements.
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).
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, 2024 and 2023).
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.
Management believes that an understanding of these trends and drivers provides important context for our results for the fiscal years ended December 31, 2024 and 2023, as well as our future prospects.
The trigger for the impairment in 2023 was the Company’s decision to explore strategic alternatives and potential options for its business, resulting in a probable likelihood of the sale of certain licensing rights that would result in the Company’s inability to comply with the terms of a licensing agreement by the end of the year and the resulting reduction in expected future revenues.
The trigger for the impairment in 2023 was our decision to explore strategic alternatives and potential options for our business, resulting in a probable likelihood of the sale of certain licensing rights that would result in our inability to comply with the terms of a licensing agreement by the end of the year and the resulting reduction in expected future revenues.
Additionally, the Support Agreement modified the $12 million Line of Credit such that, among other things, until June 30, 2024, Driven Lifestyle would not demand repayment of the September 2022 Cash Advance or other advances under the $12 million Line of Credit, unless certain events occurred, as prescribed in the Support Agreement, such as the completion of a new financing arrangement or the Company generates positive cash flows from operations, among others.
Additionally, the Support Agreement modified the $12 million Line of Credit such that, among other things, until June 30, 2024, Driven Lifestyle would not demand repayment of the September 2022 Cash Advance or other advances under the $12 million Line of Credit, unless certain events occurred, as prescribed in the Support Agreement, such as the completion of a new financing arrangement or we generate positive cash flows from operations, among others.
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.
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 us of approximately $3.9 million in owed principal and unpaid interest in exchange for an aggregate of 780,385 shares of our Class A common stock.
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 Driven Lifestyle, and any principal and accrued interest owed will be accelerated and become immediately payable in the event the Company consummates certain corporate events, such as a capital reorganization.
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 Driven Lifestyle, and any principal and accrued interest owed will be accelerated and become immediately payable in the event we consummate certain corporate events, such as a capital reorganization.
The Company has also issued to Wainwright warrants to purchase up to 10,981 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $3.9 million RDO, at an exercise price of $26.75 per share and will expire five years from the closing of the $3.9 million RDO.
We have also issued to Wainwright warrants to purchase up to 10,981 shares of Class A common stock, which is equal to 6.0% of the aggregate number of shares of Class A common stock placed in the $3.9 million RDO, at an exercise price of $26.75 per share and will expire five years from the closing of the $3.9 million RDO.
The Company has also issued to Wainwright warrants to purchase up to 8,662 shares of Class A Common Stock, which is equal to 6.0% of the aggregate number of shares of Class A Common Stock placed in the $3.4 million RDO, at an exercise price of $29.375 per share and will expire five years from the closing of the $3.4 million RDO.
We have also issued to Wainwright warrants to purchase up to 8,662 shares of Class A common stock, which is equal to 6.0% of the aggregate number of shares of Class A common stock placed in the $3.4 million RDO, at an exercise price of $29.375 per share and will expire five years from the closing of the $3.4 million RDO.
If any such additional strategic alternative is executed, it is expected it would help to improve the Company’s working capital position and reduce overhead expenditures, thereby lowering the Company’s expected future cash-burn, and provide some short-term liquidity relief.
If any such additional strategic alternative is executed, it is expected it would help to improve our working capital position and reduce overhead expenditures, thereby lowering our expected future cash-burn, and provide some short-term liquidity relief.
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.
On September 8, 2022, we 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 us in accordance with the $12 million Line of Credit.
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.
We 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’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.
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 and maintain existing titles, and certain capital expenditures.
The announcement confirmed the closure of the Company’s Australian development studio and resulted in a reduction of the Company’s workforce by approximately 40 employees, the majority of whom were based in Australia and the United Kingdom, representing approximately 40% of the Company’s global workforce.
The announcement confirmed the closure of the Company’s Australian development studio and resulted in a reduction of the Company’s workforce by approximately 40 employees, the majority of whom were based in Australia and the United Kingdom, representing approximately 40% of the Company’s global workforce at that time.
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.
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. 48 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 45% and 62% of our total revenue for the years ended December 31, 2024 and 2023, respectively.
Results of Operations Year Ended December 31, 2023 compared to Year Ended December 31, 2022 In this section, references to 2023 refer to the fiscal year ended December 31, 2023 and references to 2022 refer to the fiscal year ended December 31, 2022.
Results of Operations Year Ended December 31, 2024 compared to Year Ended December 31, 2023 In this section, references to 2024 refer to the fiscal year ended December 31, 2024 and references to 2023 refer to the fiscal year ended December 31, 2023.
On February 2, 2023, the Company issued 144,366 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $3.4 million (the “$3.4 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company.
On February 2, 2023, we issued 144,366 shares of our Class A common stock in a registered direct offering priced at-the-market under NASDAQ rules, with a fair market value of approximately $3.4 million (the “$3.4 million RDO”), before deducting placement agent fees and other offering expenses payable by us.
On February 3, 2023, the Company issued 232,188 shares of the Company’s Class A common stock in a registered direct offering priced at-market under NASDAQ rules, with a fair market value of approximately $4.0 million (the “$4.0 million RDO”), before deducting placement agent fees and other offering expenses payable by the Company.
On February 3, 2023, we issued 232,188 shares of our Class A common stock in a registered direct offering priced at-the-market under NASDAQ rules, with a fair market value of approximately $4.0 million (the “$4.0 million RDO”), before deducting placement agent fees and other offering expenses payable by us.
See Note 8 – Related Party Loans in our consolidated financial statements in this Report for further information. As of December 31, 2023, the balance due to Driven Lifestyle under the $12 million Line of Credit was $0. As of December 31, 2023, the $12 million Line of Credit remains in place.
See Note 7 – Related Party Loans in our consolidated financial statements in this Report for further information. As of December 31, 2024, the balance due to Driven Lifestyle under the $12 million Line of Credit was $0. As of December 31, 2024, the $12 million Line of Credit remains in place.
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”).
Concurrently with the sale of our NASCAR License, we entered into an agreement with NTP pursuant to which we had a limited non-exclusive right and license to, among other things, sell our NASCAR games and DLCs that were in our product portfolio through December 31, 2024 (the “NASCAR New Limited License”).
In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements to this Report are issued.
In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern , we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the accompanying consolidated financial statements to this Report are issued.
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.
We have also issued to Wainwright and its designees warrants to purchase up to 13,931 shares of Class A common stock, which is equal to 6.0% of the aggregate number of shares of Class A common stock placed in the $4.0 million RDO, at an exercise price of $21.738 per share and will expire five years from the closing of the $4.0 million RDO.
There are no assurances that the Company will be successful in implementing any additional strategic plans for the sale or licensing of its assets, or any other strategic alternative, which may be subject to the satisfaction of conditions beyond the Company’s control.
There are no assurances that we will be successful in implementing any additional strategic plans for the sale or licensing of our assets, or any other strategic alternative, which may be subject to the satisfaction of conditions beyond our control.
Cash Flows From Investing Activities Net cash provided by investing activities for the year ended December 31, 2023 was $4.2 million, which was primarily attributable to the proceeds from the sale of the Company’s NASCAR License, offset by the purchase of a new limited License that allows the Company to sell NASCAR games and DLCs that are currently in its product portfolio through December 31, 2024.
Net cash provided by investing activities for the year ended December 31, 2023 was $4.2 million, which was primarily attributable to the proceeds from the sale of the Company’s NASCAR License, offset by the purchase of a new limited License that allows the Company to sell NASCAR games and DLCs that are currently in its product portfolio through December 31, 2024. 58 Cash Flows From Financing Activities Net cash provided by financing activities during the years ended December 31, 2024 and 2023 was $0.8 million and $9.9 million, respectively.
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.
Although we did not organize the Le Mans Virtual Series for the 2023/24 or 2024/25 seasons, we currently plan on organizing the 2025/26 Le Mans Virtual Series to commence this year. We also intend to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans.
The Company plans to continue evaluating the structure of its business for additional changes in order to improve both its near-term and long-term liquidity position, as well as create a healthy and sustainable Company from which to operate.
We plan to continue evaluating the structure of our business for additional changes in order to improve both our near-term and long-term liquidity position, as well as create a healthy and sustainable company from which to operate.
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.
Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the $3.9 million RDO, pursuant to the engagement letter with us, dated as of January 9, 2023.
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.
Promissory Note Line of Credit On April 1, 2020, we entered into a promissory note (the “$12 million Line of Credit”) with an affiliated entity, Driven Lifestyle, that provided us 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.
Further, there can be no assurance the Company will be able to obtain funds via its ATM program, should it choose to sell shares under the ED Agreement, nor can there be any other assurance that the Company can secure additional funding in the form of equity and/or debt financing on commercially acceptable terms, if at all, to satisfy its future needed liquidity and capital resources. 58 Due to the continuing uncertainty surrounding the Company’s ability to raise funding in the form of potential Capital Financing, and in light of its liquidity position and anticipated future funding requirements, the Company continues to explore other strategic alternatives and potential options for its business, including, but not limited to, the sale or licensing of certain of the Company’s assets in addition to the recent sale of its NASCAR License.
Further, there can be no assurance we will be able to obtain funds via our ATM program, should we choose to sell shares under the ED Agreement, nor can there be any other assurance that we can secure additional funding in the form of equity and/or debt financing on commercially acceptable terms, if at all, to satisfy our future needed liquidity and capital resources. 56 Due to the continuing uncertainty surrounding our ability to raise funding in the form of potential Capital Financing, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets in addition to the past sales of our NASCAR License and Traxion.
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.
For example, revenues associated with our NASCAR franchise accounted for approximately 52% and 72% of our total revenue for the years ended December 31, 2024 and 2023, respectively.
However, the Company believes that there is a substantial likelihood that Driven Lifestyle will not fulfill any future borrowing requests, and therefore does not view the $12 million Line of Credit as a viable source for future liquidity needs.
However, we believe that there is a substantial likelihood that Driven Lifestyle will not fulfill any future borrowing requests, and therefore we do not view the $12 million Line of Credit as a viable source for future liquidity needs.
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.
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 loans from third parties; ● further reducing other discretionary spending; ● entering into financing agreements, collaborations or mergers on unattractive terms; and/or ● significantly curtailing or discontinuing operations or dissolving and liquidating our assets under the bankruptcy laws or otherwise. 57 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 loans not being available from third parties, or that the transactions may not be permitted under the terms of our various debt instruments then in effect, such as due to restrictions on the incurrence of debt, incurrence of liens, asset dispositions and related party transactions.
In order to address its liquidity shortfall, the Company continues to explore several options, including, but not limited to: i) additional funding in the form of potential equity and/or debt financing arrangements or similar transactions (collectively, “Capital Financing”); ii) other strategic alternatives for its business, including, but not limited to, the sale or licensing of the Company’s assets in addition to the recent sale of its NASCAR License; and iii) cost reduction and restructuring initiatives, each of which is described more fully below.
In order to address our liquidity shortfall, we continue to explore several options, including, but not limited to: (i) additional funding in the form of potential equity and/or debt financing arrangements or similar transactions (collectively, “Capital Financing”); (ii) other strategic alternatives for our business, including, but not limited to, the sale or licensing of our assets in addition to the past sales of our NASCAR License and Traxion; and (iii) cost reduction and restructuring initiatives, each of which is described more fully below.
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.
Development Development expenses were $3 .4 million and $7.2 million for 2024 and 2023, respectively, representing a decrease of $ 3.9 million, or 5 3.3 %, when compared to the prior year.
For fiscal years 2023 and 2022, 72% and 63% of our total revenue, respectively, was generated from sales of our NASCAR racing video games.
For fiscal years 2024 and 2023, 52% and 72% of our total revenue, respectively, was generated from sales of our NASCAR racing video games.
As the Company continues to address its liquidity constraints, the Company may need to make further adjustments to its product roadmap in order to reduce operating cash burn. Additionally, the Company continues to seek to improve its liquidity through maintaining and enhancing cost control initiatives.
As we continue to address our liquidity constraints, we may need to make further adjustments to our product roadmap in order to reduce operating cash burn. Additionally, we continue to seek to improve our liquidity through maintaining and enhancing cost control initiatives.
In addition, such actions, if taken, may not enable the Company to satisfy its capital requirements if the actions that the Company is able to consummate do not generate a sufficient amount of additional capital.
In addition, such actions, if taken, may not enable us to satisfy our capital requirements if the actions that we are able to consummate do not generate a sufficient amount of additional capital.
Due to the uncertainty surrounding our ability to raise funding, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets in addition to the recent sale of our NASCAR License.
Due to the uncertainty surrounding our ability to raise funding, and in light of our liquidity position and anticipated future funding requirements, we continue to explore other strategic alternatives and potential options for our business, including, but not limited to, the sale or licensing of certain of our assets, collaborations and/or merger in addition to the sale of our NASCAR License and Traxion, which was our motorsport and racing games community content platform.
The Company continues to explore additional funding in the form of potential Capital Financing and has entered into an Equity Distribution Agreement (the “ED Agreement”) with Canaccord Genuity LLC, as sales agent (the “Sales Agent”), pursuant to which the Company may issue and sell shares of its Class A common stock having an aggregate offering price of up to $ 10 million (subject to compliance with the limitations set forth in the SEC’s “baby shelf” rules).
In March 2023, we entered into an Equity Distribution Agreement (the “ED Agreement”) with Canaccord Genuity LLC, as sales agent (the “Sales Agent”), pursuant to which we may issue and sell shares of our Class A common stock having an aggregate offering price of up to $10 million (subject to compliance with the limitations set forth in the SEC’s “baby shelf” rules).
For the year ended December 31, 2023, the Company experienced an average net cash burn from operations of approximately $1.1 million per month, and while it has taken measures to reduce its costs, the Company expects to continue to have a net cash outflow from operations for the foreseeable future as it continues to develop its product portfolio and invest in developing new video game titles.
For the year ended December 31, 2024, we experienced an average net cash burn from operations of approximately $0.2 million per month, and while we have taken measures to reduce our costs, we expect to continue to have a net cash outflow from operations for the foreseeable future as we continue to develop our product portfolio and invest in developing new video game titles.
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.
For the years ended December 31, 2024 and 2023, the sale of products for Microsoft Windows via Steam comprised approximately 45% and 27% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 2% and 4% for the years ended December 31, 2024 and 2023.
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.
Capital Expenditures The nature of our operations do not require significant expenditures on capital assets, nor do we typically enter into significant commitments to acquire capital assets.
If the Company is ultimately unable to satisfy its capital requirements, it would likely need to dissolve and liquidate its assets under the bankruptcy laws or otherwise.
If we are ultimately unable to satisfy our capital requirements, we would likely need to dissolve and liquidate our assets under the bankruptcy laws or otherwise.
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.
The reduction in sales and marketing expenses was primarily driven by a $0.9 million reduction in payroll and employee-related expense as a result of lower headcount, as well as a $0.1 million reduction in software expenses, when compared to the prior year.
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.
Based on our cash and cash equivalents position and our average cash burn, we believe that we do not have sufficient cash on hand to fund our operations over the next year and that additional funding will be required in order to continue operations.
Nonetheless, even if the Company is successful in implementing one or more additional strategic alternatives, the Company will continue to require additional funding and/or further cost reduction measures in order to continue operations, which includes further restructuring of its business and operations.
Nonetheless, even if we are successful in implementing one or more additional strategic alternatives, we will continue to require additional funding and/or further cost reduction measures in order to continue operations, which may include further restructuring of our business and operations.
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.
General and Administrative General and administrative (“G&A”) expenses were $6.9 million and $9.4 million for 2024 and 2023, respectively, a decrease of $2.5 million, or 26.5%, when compared to the prior year.
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.
We are also striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games. 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.
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.
The net cash used in operating activities for the year ended December 31, 2024 was primarily a result of cash used to fund a net loss of $3.0 million, adjusted for net non-cash adjustments in the amount of $0.3 million and $0.1 million of cash used by changes in the levels of operating assets and liabilities.
The improvement in other income (expense), net was primarily driven by a $3.0 million gain related to the sale of the Company’s NASCAR License in October 2023, a $1.4 million gain related to reduction in liabilities for litigation settlement and the termination of the Company’s INDYCAR License in November 2023, $0.8 million in foreign currency gains arising from remeasuring transactions denominated in a currency other than U.S. dollars, a $0.5 million gain in the fair value of the liability settled stock warrants and a $0.3 million increase in other income.
Other income, net of $2.8 million for 2023 was comprised of $0.8 million in foreign currency gains arising from remeasuring transactions denominated in a currency other than U.S. dollars, $0.7 in insurance reimbursement for litigation, $0.6 million gain due to reduction of license liabilities arising from the termination of the Company’s INDYCAR license in November 2023, $0.5 million gain from the reduction in the fair value of liability settled stock warrants, and $0.2 million in rental income.
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.
On February 1, 2023, we issued 183,020 shares of our Class A common stock in a registered direct offering priced at-the-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 us. H.C.
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.
Cash Flows From Operating Activities Net cash used in operating activities for the years ended December 31, 2024 and 2023 was $2.8 million and $13.7 million, respectively.
The success of our business is dependent upon consumer acceptance of video game console/PC platforms and continued growth in the installed base of these platforms.
We expect to derive the vast majority of our revenues via Steam during the next twelve months. The success of our business is dependent upon consumer acceptance of video game console/PC platforms and continued growth in the installed base of these platforms.
Following the sale of our NASCAR License and the execution of the NASCAR New Limited License, which allows us to sell our NASCAR games and DLCs that are currently in our product portfolio through December 31, 2024, we anticipate the amount of revenue to be generated by our existing NASCAR products to decline over time.
Following the sale of our NASCAR License and the termination of the NASCAR New Limited License, which allowed us to sell our NASCAR games and DLCs that were in our product portfolio through December 31, 2024, we do not anticipate any more revenues to be generated by NASCAR products.
Our headcount numbers as of December 31, 2023 reflect that we have closed our Australian development studio effective November 2023, which resulted in a reduction of our workforce by approximately 40 employees, the majority of whom were based in Australia and the United Kingdom. 50 Restructuring Initiatives As previously disclosed, the Company announced an organizational restructuring program on September 8, 2022 (the “2022 Restructuring Program”) designed to reduce the Company’s marketing, general and administrative expenses, improve the Company’s profitability and maximize efficiency, cash flow and liquidity, with a goal of achieving annualized savings of $4 million by the end of fiscal year 2023.
As of December 31, 2024, we have a total headcount of 39 people, made up of 22 full-time employees and 17 contractors, with 30 people in total dedicated to game development. 47 Restructuring Initiatives As previously disclosed, the Company announced an organizational restructuring program on September 8, 2022 (the “2022 Restructuring Program”) designed to reduce the Company’s marketing, general and administrative expenses, improve the Company’s profitability and maximize efficiency, cash flow and liquidity, with a goal of achieving annualized savings of $4 million by the end of fiscal year 2023.
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.
We intend to use the net proceeds from this offering for working capital and general corporate purposes. 55 We measure our liquidity in a number of ways, including the following: December 31, December 31, 2024 2023 Cash and Cash Equivalents $ 859,271 $ 1,675,210 Working Capital (Deficiency) $ (2,225,300 ) $ (4,074,346 ) For the year ended December 31, 2024, we incurred a net loss of $3.0 million and negative cash flows from operations of approximately $2.8 million.
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.
The variance was attributed to an increase in net losses in the Le Mans Esports Series Ltd joint venture. 54 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.
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.
Gaming segment cost of revenues represented 100% and 89.6% of our total 2024 and 2023 cost of revenues, respectively, decreasing by less than $0.1 million, or 0.6%, when compared to the prior year.
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.
Esports segment cost of revenues represented 0% and 10.4% of our total 2024 and 2023 cost of revenues, respectively, decreasing by $0.4 million, or 100%, when compared to the prior year. The decrease in Esports segment cost of revenues was due to us not organizing an LMVS event in 2024.
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.
Cost of Revenues For the Year Ended December 31, Change 2024 2023 $ % Cost of Revenues: Gaming $ 3,225,750 $ 3,245,740 $ (19,990 ) (0.6 )% Esports - 374,755 (374,755 ) (100.0 )% Total Cost of Revenues $ 3,225,750 $ 3,620,495 $ (394,745 ) (10.9 )% Consolidated cost of revenues were $3.2 million and $3.6 million for 2024 and 2023, respectively, a decrease of $0.4 million, or 10.9%, 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.
Gross Profit For the Year Ended December 31, Change 2024 2023 $ % Gross Profit (Loss): Gaming $ 5,461,712 $ 3,373,762 $ 2,087,950 61 .9 % Esports - (84,583 ) 84,583 (100.0 )% Total Gross Profit $ 5,461,712 $ 3,289,179 $ 2,172,533 66 .1 % Gaming – Gross Profit Margin 62.9 % 51.0 % Esports – Gross (Loss) Profit Margin - % (29.1 )% Total Gross Profit Margin 62.9 % 47.6 % 52 Consolidated gross profit was $5.5 million and $3.3 million for 2024 and 2023, respectively, an increase of $2.2 million, or 66.1%, when compared to the prior year.
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