16 May Motorsport Games Reports First Quarter 2022 Financial Results

MIAMI, May 16, 2022 — Motorsport Games Inc. (NASDAQ: MSGM) (“Motorsport Games” or the “Company”) today reported financial results for its first quarter ended March 31, 2022 (“Q1 2022”). The Company has also posted to the Company’s investor relations website a Q1 2022 Quarter End Review video and a Q1 2022 earnings slide deck, which highlight certain key milestones that occurred in the period, as well as an updated Investor Presentation.

Dmitry Kozko, Chief Executive Officer of Motorsport Games, commented, “In Q1 2022, we continued our product and content releases. We brought the full release of our KartKraft karting simulation to PC, as well as a user experience update to our rFactor 2 racing simulation game that was positively received by our audience. In January 2022, our esports team delivered the sequel to the 24 Hours of Le Mans Virtual as a world-class event, and in February 2022 we held the inaugural 2022 INDYCAR Pro-Challenge. Games and esports initiatives were also bolstered by expanding our relationship with Formula E, and we were selected by Kindred Concepts to power their next generation racing simulation experience for Formula 1 using our rFactor 2 platform.”

Kozko added, “While we continue to explore multiple funding options to resolve our going concern qualifications, we remain confident in our ability to deliver against our product roadmap.”

First Quarter 2022 Business Update

Financial Results for the Three Months Ended March 31, 2022

Revenues for Q1 2022 were $3.3 million, as compared to $2.5 million for Q1 2021. The $0.8 million, or 34%, quarter-over-quarter increase reflects higher gaming sales of $0.5 million in Q1 2022, primarily from rFactor 2. Q1 2022 esports revenues increased by $0.3 million, primarily from the 24 Hours of Le Mans esports event held in January 2022.

Jon New, Chief Financial Officer of Motorsport Games, commented, “It is great to see both the growth of revenues in each of our Gaming and esports segments and the increased diversity of our revenue stream, with rFactor 2 and esports contributing 27% of total revenues for the quarter. Our business plan to increase and diversify our revenue stream is beginning to drive improved top-line financial performance.”

Q1 2022 net loss was $16.0 million, as compared to Q1 2021 net loss of $14.1 million. The $1.9 million increase in net loss was primarily due to a non-cash $9.3 million write-down of goodwill and intangible assets. This was primarily driven by revisions to the product roadmap during Q1 2022, resulting in changes to the scope and timing of new product releases, as well as changes in the value of the Company’s market capitalization during the first quarter of 2022. A $1.2 million increase in Q1 2022 development expenditures, and a $0.7 million increase in sales and marketing spend further contributed to the Q1 2022 increased net loss. The increases in expenses described above were partially offset by a $11.3 million reduction in general and administrative expenses and a $1.4 million reduction in gains from equity method investments.

The Q1 2022 decrease of $11.3 million in general and administrative expenses was primarily due to an $11.9 million reduction in non-recurring IPO expenses that were incurred in Q1 2021, including IPO bonuses and stock-based compensation.

Q1 2022 Adjusted EBITDA loss⁽¹⁾ was $5.6 million, as compared to Q1 2021 Adjusted EBITDA loss of $2.8 million. The $2.7 million increase in Q1 2022 Adjusted EBITDA loss⁽¹⁾ was primarily driven by the same factors as the increased Q1 2022 net loss, higher Q1 2022 interest and amortization and Q1 2021 had more non-operational add-backs with Q1 2021 IPO related expenses (including stock-based compensation).

The following table provides a reconciliation from net loss to Adjusted EBITDA⁽¹⁾ for Q1 2022 and Q1 2021, respectively:

Cash Flow and Liquidity

For Q1 2022, the Company had negative cash flows from operations of approximately $5.6 million. The Company expects to continue to have negative operating cash flows for the foreseeable future, as it continues to incur expenses to develop new game franchises. The Company’s existing cash on hand will be insufficient to fund its minimum liquidity requirements for at least the next 12 months and will need to be supplemented with additional debt and/or equity financing, cash generated by cost control initiatives, and/or additional changes to its product roadmap to reduce working capital requirements.

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 game titles and certain capital expenditures. The adequacy of the Company’s available funds generally depends on many factors, including its ability to successfully develop consumer-preferred new products or enhancements to its existing products, continued development and expansion of the Company’s esports platform and its ability to collaborate with and/or acquire other companies or technologies to enhance or complement the Company’s product and service offerings.

The Company is currently seeking additional funds through a variety of arrangements discussed above, and through maintaining and enhancing strong cost controls. There can be no assurances that the sources of liquidity referred to above will provide the Company with sufficient liquidity to meet its ongoing cash requirements as, among other things, the Company’s liquidity can be impacted by a number of factors, including the Company’s level of sales and expenditures, as well as accounts receivable, sales allowances, prepaid manufacturing expenses and accrued expenses.

⁽¹⁾Use of Non-GAAP Financial Measures

Adjusted EBITDA (the “Non-GAAP Measure”) is not a financial measure defined by U.S. generally accepted accounting principles (“U.S. GAAP”). See the reconciliations of the Non-GAAP Measure to its most directly comparable U.S. GAAP measure in the financial table above.

Adjusted EBITDA, a measure used by management to assess the Company’s operating performance, is defined as EBITDA, which is net loss plus interest (income) expense, depreciation and amortization, less income tax benefit (if any), adjusted to exclude: (i) IPO-related expenses; (ii) acquisition related expenses; (iii) gain attributable to equity method investment resulting from the acquisition of additional equity interest in Le Mans Esports Series Ltd.; (iv) stock-based compensation expenses; (v) impairment of goodwill and intangible assets, and (vi) other charges or gains resulting from non-recurring events.

The Company uses the Non-GAAP Measure to manage its business and evaluate its financial performance, as Adjusted EBITDA eliminates items that affect comparability between periods that the Company believes are not representative of its core ongoing operating business. Additionally, management believes that using the Non-GAAP Measure is useful to its investors because it enhances investors’ understanding and assessment of the Company’s normalized operating performance and facilitates comparisons to prior periods and its competitors’ results (who may define Adjusted EBITDA differently).

The Non-GAAP Measure is not a recognized term under U.S. GAAP and does not purport to be an alternative to revenue, income/loss from operations, net (loss) income, or cash flows from operations or as a measure of liquidity or any other performance measure derived in accordance with U.S. GAAP. Additionally, the Non-GAAP Measure is not intended to be a measure of free cash flows available for management’s discretionary use, as it does not consider certain cash requirements, such as interest payments, tax payments, working capital requirements and debt service requirements. The Non-GAAP Measure has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for the Company’s results as reported under U.S. GAAP. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business than would be presented by using only measures in accordance with U.S. GAAP. Because not all companies use identical calculations, the Company’s measures may not be comparable to other similarly titled measures of other companies. Reconciliations of the Non-GAAP Measure to net loss, its most directly comparable financial measure, calculated and presented in accordance with U.S. GAAP, are presented in the table above.

Conference Call and Webcast Details

The Company will host a conference call and webcast at 5:00 p.m. ET today, May 16, 2022, to discuss its financial results. The live conference call can be accessed by dialing 1-800-786-6104 from the U.S. or 1-416-981-9029. Alternatively, participants may access the live webcast on the Motorsport Games Investor Relations website at https://ir.motorsportgames.com under “Events.”