Motorsport Games (NASDAQ: MSGM) lifts Q2 2026 revenue and stays profitable
Motorsport Games Inc. reported improved top-line results for the three and six months ended June 30, 2026. Q2 2026 revenue was $3.54 million, up from $2.59 million a year earlier, and six‑month revenue rose to $7.57 million from $4.35 million, driven primarily by its gaming segment and initial esports revenues.
Gross profit increased to $2.90 million for Q2 and $6.41 million year‑to‑date. Income from operations was $0.64 million for Q2 and $1.69 million for six months, while net income attributable to the company was $0.40 million for Q2 and $0.72 million year‑to‑date, lower than 2025 due to reduced other income. Operating cash flow strengthened to $2.77 million for the six months, with cash and cash equivalents at $3.95 million and working capital of $2.9 million; management expects available cash, operations, and a new $3.0 million Citibank credit line (of which $1.2 million is drawn) to fund operations for at least one year.
During Q2, the company repurchased 904,395 Class A shares for $3.72 million, cancelling all Class B shares and leaving 4,174,055 Class A shares outstanding at June 30, 2026. Intangible assets totaled $4.27 million following new software investment and a small impairment. The filing highlights significant customer concentration, with three customers providing over 80% of revenue, and notes a July 2026 preferred stock rights plan designed to deter unsolicited acquisitions above 12.5% ownership.
Positive
- Revenue grew sharply, with Q2 2026 sales of $3.54 million vs. $2.59 million and six‑month revenue of $7.57 million vs. $4.35 million, reflecting strong adoption of Le Mans Ultimate and related content.
- Operating cash flow improved to $2.77 million for the six months ended June 30, 2026, compared with $0.61 million in the prior‑year period, providing better internal funding for operations.
- Balance sheet liquidity stabilized, with $3.95 million in cash, $2.9 million of working capital, and access to a $3.0 million Citibank revolving credit facility, of which $1.8 million remained available at June 30, 2026.
Negative
- Earnings declined year over year, with net income attributable to the company at $0.40 million in Q2 2026 and $0.72 million for six months, down from $4.26 million and $5.30 million, respectively, in 2025.
- Customer concentration is high, as three customers accounted for 83.3% of revenue in both Q2 and the first half of 2026, and 87.8% of trade receivables at June 30, 2026.
- Leverage and obligations increased, including a $1.2 million draw on the new Citibank credit line and a $1.20 million liability for non‑employee director equity compensation, adding fixed commitments and covenant‑compliance risk.
Key Figures
Key Terms
Deferred revenue financial
Fixed Charge Coverage Ratio financial
Cash Flow Leverage Ratio financial
Preferred Stock Rights Agreement regulatory
Le Mans Gaming License technical
treasury stock financial
Earnings Snapshot
FAQ
How did MSGM perform financially in Q2 2026 compared with Q2 2025?
What were MSGM’s results for the six months ended June 30, 2026?
What is MSGM’s liquidity position and cash flow as of June 30, 2026?
What share repurchase did MSGM execute with Driven Lifestyle in 2026?
What are the key terms of MSGM’s Citibank line of credit?
How concentrated is MSGM’s customer base according to the Q2 2026 10-Q?
What is the preferred stock rights agreement MSGM adopted in July 2026?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For
the quarterly period ended | ||
| or | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ___________ to ___________ |
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
State or other jurisdiction of incorporation or organization |
I.R.S.
Employer Identification No. | |
| Address of principal executive offices | Zip Code |
Registrant’s
telephone number, including area code:
Former Name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
(The Nasdaq Capital Market) | ||||
(The Nasdaq Capital Market) |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of August 14, 2026, the registrant had
Motorsport Games Inc.
Form 10-Q
For the Quarter Ended June 30, 2026
TABLE OF CONTENTS
| Page | ||
| Part I. | FINANCIAL INFORMATION | 1 |
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025 (Unaudited) | 1 | |
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2026 and 2025 (Unaudited) | 2 | |
| Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2026 and 2025 (Unaudited) | 3 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2026 and 2025 (Unaudited) | 4 | |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2026 and 2025 (Unaudited) | 5 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 30 |
| Item 4. | Controls and Procedures | 31 |
| Part II. | OTHER INFORMATION | 32 |
| Item 1. | Legal Proceedings | 32 |
| Item 1A. | Risk Factors | 32 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
| Item 3. | Defaults upon Senior Securities | 34 |
| Item 4 | Mine Safety Disclosures | 34 |
| Item 5. | Other Information | 34 |
| Item 6. | Exhibits | 35 |
| Signatures | 36 | |
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) of Motorsport Games Inc. (the “Company,” “Motorsport Games,” “we,” “us” or “our”) contains certain statements, which are not historical facts and are “forward-looking statements” within the meaning of federal securities laws. These forward-looking statements are subject to certain risks, trends and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. We use words, such as “could,” “would,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify some forward-looking statements, but not all forward-looking statements include these words. For example, forward-looking statements include, but are not limited to, statements we make relating to:
| ● | our intended corporate purpose to make the thrill of motorsports accessible to everyone by creating the highest quality, most sophisticated and most innovative experiences for racers, gamers and fans of all ages; | |
| ● | new or planned products or offerings, including the anticipated timing of any new product or offering launches, such as our current plans to organize the 2026/27 Le Mans Virtual Series to commence this year, as well as the possibility of further adjustments to our product roadmap due to the continuing impact of our liquidity position; | |
| ● | our plans to strive 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; | |
| ● | our intention to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans; | |
| ● | our belief that connecting virtual racing gamers and esports fans on a digital entertainment and social platform represents the greatest opportunity to enhance the way that people learn, watch, play, and experience racing video games and racing esports; | |
| ● | our beliefs regarding the growing importance and business viability of esports, especially within the racing and motorsport genres; | |
| ● | our belief that our esports business has the potential to generate incremental revenues through the further sale of media rights to our esports events and competitions, as well as, among other things, merchandising, if the esports audience pattern continues to grow; | |
| ● | our plans to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content; | |
| ● | our expectation that we will continue to derive significant revenues from sales of our products to a very limited number of distribution partners; |
| ● | our intention to continue to look for opportunities to expand the recurring portion of our business, including through the planned introduction of new annualized sports franchise games, such as with Le Mans; | |
| ● | our intended use of proceeds from the sales of our equity securities; | |
| ● | our statements and assumptions relating to the impairment of assets; | |
| ● | our plans and intentions with respect to our remediation efforts to address the material weaknesses in our internal control over financial reporting; | |
| ● | our belief that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows, except as otherwise disclosed in this Report, and that in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period; our beliefs regarding the merit of any plaintiff’s allegations and the impact of any claims and litigation that we are subject to; and our plans and intentions with respect to defending our position in any legal proceeding; | |
| ● | our intention to not declare dividends in the foreseeable future; | |
| ● | our ability to utilize net operating loss carryforwards; | |
| ● | our expectations regarding the future impact of implementing management strategies, adopting new accounting standards, potential acquisitions and industry trends; | |
| ● | our plans and intentions to maintain compliance with the listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including our plan to implement equity financing transactions; and | |
| ● | our expectations that our current development operations will not have significant exposure to changes in circumstances arising from the Ukraine-Russia and Middle East conflicts. |
| ii |
The forward-looking statements contained in this Report are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read and consider this Report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions that are difficult to predict. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. Important factors that could cause our actual results to differ materially from those projected in any forward-looking statements are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”) and in “Risk Factors” in Part II, Item 1A of this Report, as updated in our subsequent filings with the Securities and Exchange Commission (the “SEC”). In addition to factors that may be described in our filings with the SEC, including this Report, the following factors, among others, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us:
| (i) | difficulties and/or delays in accessing available liquidity, and other unanticipated difficulties in obtaining additional capital to meet our financial obligations, including, without limitation, difficulties in securing funding that is on commercially acceptable terms to us or at all, such as our inability to complete in whole or in part any potential debt and/or equity financing transactions or similar transactions, any inability to achieve cost reductions, including, without limitation, those which we expect to achieve through any cost reduction and restructuring initiatives, as well as any inability to consummate additional strategic alternatives for our business, including, but not limited to, the sale or licensing of our assets, and/or less than expected benefits resulting from any such strategic alternative; difficulties, delays or our inability to efficiently manage our cash and working capital; higher than expected operating expenses; adverse impacts to our liquidity position resulting from the higher interest rate and higher inflationary environment; lower than expected operating revenues, cash on hand and/or funds available from anticipated borrowings or funds expected to be generated from cost reductions resulting from the implementation of cost control initiatives, such as through any cost reduction and restructuring initiatives; and/or less than anticipated cash generated by our operations; and/or adverse effects on our liquidity resulting from changes in economic conditions (such as continued volatility in the financial markets, whether attributable to a pandemic, the ongoing wars between Russia and Ukraine and between Israel and Hamas or otherwise; significantly higher rates of inflation, significantly higher interest rates and higher labor costs; the impact of higher energy prices on consumer purchasing behavior, monetary conditions and foreign currency fluctuations, tariffs, foreign currency controls and/or government-mandated pricing controls, as well as in trade, monetary, fiscal and tax policies), tariffs, export controls, political conditions (such as military actions and terrorist activities) and pandemics and natural disasters; and/or the unavailability of funds from (A) delaying the implementation of or revising certain aspects of our business strategy; (B) reducing or delaying the development and launch of new products and events; (C) reducing or delaying capital spending, product development spending and marketing and promotional spending; (D) selling assets or operations; and/or (E) reducing other discretionary spending; | |
| (ii) | difficulties, delays or less than expected results in achieving our growth plans, objectives and expectations, such as due to a slower than anticipated economic recovery and/or our inability, in whole or in part, to continue to execute our business strategies and plans, due to less than anticipated customer acceptance of our new game titles, us experiencing difficulties or the inability to launch our games as planned, less than anticipated performance of the games impacting customer acceptance and sales and/or greater than anticipated costs and expenses to develop and launch our games, including, without limitation, higher than expected labor costs; |
| iii |
| (iii) | difficulties, delays in or unanticipated events that may impact the timing and scope of new product launches, due to difficulties and/or delays related to our transition from using development staff in Russia to using development staff in other countries and/or difficulties and/or delays arising out of any pandemic; | |
| (iv) | less than expected benefits from implementing our management strategies and/or adverse economic, market and geopolitical conditions that negatively impact industry trends, such as significant changes in the labor markets, an extended or higher than expected inflationary environment (such as the impact on consumer discretionary spending as a result of increases in energy and gas prices, a higher interest rate environment, tax increases impacting consumer discretionary spending and or quantitative easing that results in higher interest rates that negatively impact consumers’ discretionary spending, or adverse developments relating to the ongoing war between Russia and Ukraine and conflicts in the Middle East; | |
| (v) | difficulties and/or delays adversely impacting our ability (or inability) to maintain existing, and to secure additional, licenses and other agreements with various racing series; | |
| (vi) | difficulties and/or delays adversely impacting our ability to successfully manage and integrate any joint ventures, acquisitions of businesses, solutions or technologies; | |
| (vii) | unanticipated operating costs, transaction costs and actual or contingent liabilities; | |
| (viii) | difficulties and/or delays adversely impacting our ability to attract and retain qualified employees and key personnel; | |
| (ix) | adverse effects of increased competition; | |
| (x) | changes in consumer behavior, including as a result of general economic factors, such as increased inflation, recessionary factors, higher energy prices and higher interest rates; | |
| (xi) | difficulties and/or delays adversely impacting our ability to protect our intellectual property; | |
| (xii) | local, industry and general business and economic conditions; | |
| (xiii) | unanticipated adverse effects on our business, prospects, results of operations, financial condition, cash flows and/or liquidity as a result of unexpected developments with respect to our legal proceedings; | |
| (xiv) | difficulties, delays or our inability to successfully complete any cost reduction and restructuring initiatives, which could reduce the benefits realized from such activities; | |
| (xv) | higher than anticipated restructuring charges and/or payments and/or changes in the expected timing of such charges and/or payments as a result of, among other things, legal requirements in applicable foreign jurisdictions; and/or less than anticipated annualized cost reductions from our plans and/or changes in the timing of realizing such cost reductions, such as due to less than anticipated liquidity to fund such activities and/or more than expected costs to achieve the expected cost reductions; | |
| (xvi) | difficulties, delays, less than expected results or our inability to successfully implement any strategic alternative or potential option for our business, including, but not limited to, the sale or licensing of certain of our assets, which could result in, among other things, less than expected financial benefits from such actions; and | |
| (xvii) | difficulties and/or unanticipated developments adversely impacting our ability to maintain compliance with the Nasdaq’s listing requirements, such as our inability to implement equity financing transactions. |
Additionally, there are other risks and uncertainties described from time to time in the reports that we file with the SEC. Should one or more of these risks or uncertainties materialize or should any of these assumptions prove to be incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Report to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances, except as otherwise required by law. New factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them. Further, we cannot assess the impact of each currently known or new factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
| iv |
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right of use assets | ||||||||
| Deferred tax asset | ||||||||
| Other non-current assets | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Due to related parties | ||||||||
| Note payable | - | |||||||
| Operating lease liabilities | - | |||||||
| Total Current Liabilities | ||||||||
| Deferred tax liability | ||||||||
| Line of credit | - | |||||||
| Noncurrent liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 9) | - | - | ||||||
| Stockholders’ Equity | ||||||||
| Preferred
stock, $ | - | - | ||||||
| Class
A common stock, $ | ||||||||
| Class
B common stock, $ | - | |||||||
| Common stock | - | |||||||
| Additional paid-in capital | ||||||||
| Treasury
stock, at cost; | ( | ) | - | |||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity Attributable to Motorsport Games Inc. | ||||||||
| Non-controlling interest | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1 |
MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues [1] | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Development | ||||||||||||||||
| General and administrative [2] | ||||||||||||||||
| Impairment of intangible assets | - | - | - | |||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other operating income | - | - | ||||||||||||||
| Income from operations | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Net income | ||||||||||||||||
| Less: Net (loss) income attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income attributable to Motorsport Games Inc. | $ | $ | $ | $ | ||||||||||||
| Net income attributable to Class A common stock per share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted-average shares of Class A common stock outstanding: | ||||||||||||||||
| Basic [3] | ||||||||||||||||
| Diluted | ||||||||||||||||
| [1] | |
| [2] | |
| [3] |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | ||||||||||||||||
| Comprehensive (loss) income attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Comprehensive income attributable to Motorsport Games Inc. | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Shares | Amount | Shares | Amount | Stock | Capital | Deficit | Loss | Games Inc. | Interest | Equity | ||||||||||||||||||||||||||||||||||||||
| Total - Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Treasury Stock |
Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Equity Attributable to Motorsport | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Games Inc. | Interest | Equity | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2026 | $ | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | | ||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2026 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Class A shares | - | - | - | - | ( |
) | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||
| Cancellation of Class B shares upon repurchase of Class A shares | - | - | ( | ) | ( | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2026 | $ | - | $ | - | $ | ( |
) | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Games Inc. | Interest | Equity | |||||||||||||||||||||||||||||||
| For the Three and Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||
| Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Equity Attributable to Motorsport | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Games Inc. | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance – January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Balance – March 31, 2025 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Balance – June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| 4 |
MOTORSPORT GAMES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| 2026 | 2025 | |||||||
For the Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Gain from settlement of purchase commitment liabilities | - | ( | ) | |||||
| Loss (gain) on foreign currency exchange rates | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Purchase commitment and license liability interest accretion | - | |||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | - | |||||||
| Impairment of intangible assets | - | |||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Due to related parties | - | ( | ) | |||||
| Deferred revenue | ( | ) | ||||||
| Accrued expenses and other liabilities | ||||||||
| Net cash provided by operating activities | $ | $ | ||||||
| Cash flows from investing activities: | ||||||||
| Investment in internally-developed software | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | - | |||||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | ||
| Cash flows from financing activities: | ||||||||
| Proceeds from line of credit | - | |||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Repurchase of stock | ( | ) | - | |||||
| Repayments of purchase commitment liabilities | - | ( | ) | |||||
| Equity issuance costs | - | ( | ) | |||||
| Proceeds from issuance of common stock and pre-funded warrant, net | - | |||||||
| Net cash (used in) provided by financing activities | $ | ( | ) | $ | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Total cash and cash equivalents at beginning of the period | $ | $ | ||||||
| Total cash and cash equivalents at the end of the period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | - | |||||
| Non-cash Investing and Financing Activities: | ||||||||
| Issuance of note payable for payment of prepaid expenses | $ | $ | ||||||
| Cancellation of Class B shares | $ | $ | - | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - BUSINESS ORGANIZATION, NATURE OF OPERATIONS, AND RISKS AND UNCERTAINTIES
Organization and Operations
Motorsport Gaming US LLC (“Motorsport Gaming”) was established as a limited liability company on August 2, 2018 under the laws of the State of Florida. On January 8, 2021, Motorsport Gaming converted into a Delaware corporation pursuant to a statutory conversion and changed its name to Motorsport Games Inc. (“Motorsport Games” or the “Company”). Upon effecting the corporate conversion on January 8, 2021, Motorsport Games now holds all the property and assets of Motorsport Gaming, and all of the debts and obligations of Motorsport Gaming were assumed by Motorsport Games by operation of law upon such corporate conversion.
Liquidity
The
Company had net income of $
The Company expects that its cash on hand, cash to be generated from operations and availability on its line of credit will fund its operations for at least one year from the date the condensed consolidated financial statements are issued.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In management’s opinion, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair statement of the Company’s unaudited condensed consolidated financial statements as of June 30, 2026 and for the three and six months ended June 30, 2026. The Company’s results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the operating results for the full year ending December 31, 2026 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related disclosures as of December 31, 2025 and 2024 and for the years then ended which are included in the 2025 Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
| 6 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
The Company’s significant estimates used in these condensed consolidated financial statements include, but are not limited to, revenue recognition criteria, offering periods for deferred net revenue, valuation allowance of deferred income taxes, and stock-based compensation valuation. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and may cause actual results to differ from those estimates.
Revisions and Reclassifications
Certain
reclassifications of prior period amounts have been made to conform to the presentation of these condensed consolidated financial
statements. Deferred revenue is now separately presented from accrued expenses and other current liabilities on the accompanying
condensed consolidated statements of cash flows. In addition, the Company has revised the statement of cash flow for the six months
ended June 30, 2025 to revise the presentation of net cash used in financing activities to include payment on notes payable that was
previously included in cash flows from operating activities. As a result, net cash provided by operating activities increased by
$
Warrant Classification and Correction of Immaterial Error
During the quarter ended June 30, 2026, the Company completed and documented its evaluation of the settlement provisions contained in its outstanding warrants, including the provisions applicable upon a fundamental transaction, and concluded that all of the Company’s outstanding warrants are equity-classified instruments under ASC 815-40.
In
connection with that evaluation, the Company determined that the February 2023 warrants, which had been presented as liabilities and
remeasured at fair value through earnings since issuance, should have been classified within equity from issuance, and that their
prior presentation was an error. The Company evaluated the error under SEC Staff Accounting Bulletin Nos. 99 and 108 and concluded
that it was not material to any previously issued annual or interim financial statements. The Company corrected the error through an adjustment to increase the additional paid-in capital
by $
The Series A, Series B and Placement Agent warrants issued in July 2024 are equity-classified instruments recorded within additional paid-in capital and are not remeasured. The description of these warrants as liability-classified in the Company’s Form 10-Q for the quarter ended March 31, 2026 was an error in disclosure that had no effect on any recognized amount in any period and is corrected by this report. On April 23, 2026, stockholders approved the exercisability of these warrants; the warrants became exercisable on that date, and the shares issuable upon exercise are included in the computation of diluted earnings per share from that date to the extent dilutive.
Fair Value Measurements / Stock Options and Warrants
The Company has recorded certain board of director compensation arrangements, which may be paid in the future in cash or equity instruments, within noncurrent liabilities. Such liabilities are measured at estimated fair value on a recurring basis, with subsequent changes in fair value recognized in earnings.
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 – Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815 – Derivatives and Hedging (“ASC 815”). The Company’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding. The Company has evaluated the settlement provisions contained in its outstanding warrants, including the provisions applicable upon a fundamental transaction, and concluded that all of the Company’s outstanding warrants are equity-classified. See Note 7 – Stockholders’ Equity for additional information.
Recently Issued Accounting Standards
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.
On January 1, 2026, the Company prospectively adopted ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”), which introduced a practical expedient to simplify how entities estimate credit losses on short-term receivables and contract assets under the Current Expected Credit Losses model. The adoption of ASU 2025-05 did not have a material impact on the condensed consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). The guidance requires disaggregated information about certain income statement expense line items on an annual and interim basis. This guidance will be effective for annual periods beginning with the year ending December 31, 2027 and for interim periods thereafter. The new standard permits early adoption and can be applied prospectively or retrospectively. The Company is currently evaluating the timing, method and impact of its adoption of ASU 2024-03.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which modernizes the accounting for internal-use software. ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. ASU 2025-06 will be effective for the Company’s interim and annual 2028 reporting periods, with early adoption permitted. The Company is currently evaluating the timing, method and impact of its adoption of ASU 2025-06.
In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”), which clarifies interim disclosure requirements and the applicability of Topic 270. The guidance will be effective for interim periods beginning January 1, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2025-11 to have a material impact on its condensed consolidated financial statements.
Significant Accounting Policies
There have been no material changes to the significant accounting policies disclosed in the audited consolidated financial statements for the year ended December 31, 2025, as included in the 2025 Form 10-K, other than as described above.
| 7 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 3 – INTANGIBLE ASSETS
Licensing Agreements
In
March 2019, the Company entered into an agreement to facilitate the Le Mans Esports Series as part of a joint venture with
Automobile Club de l’Ouest (“ACO”), the organizer of the 24 Hours of Le Mans endurance race. Through the
Company’s ownership interest in this joint venture, which was increased to
Intangible Assets
The following is a summary of intangible assets as of June 30, 2026:
SUMMARY OF INTANGIBLE ASSETS
Licensing Agreements (Finite) | Software (Finite) | Trade Names (Indefinite) | Accumulated Amortization | Total | ||||||||||||||||
| Balance as of January 1, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Amortization expense | - | - | - | ( | ) | ( | ) | |||||||||||||
| Additions | - | - | - | |||||||||||||||||
| Impairment (1) | - | - | ( | ) | - | ( | ) | |||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Weighted average remaining amortization period at June 30, 2026 | ||||||||||||||||||||
| (1) |
Accumulated amortization of intangible assets consists of the following:
SCHEDULE OF ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS
Licensing Agreements (Finite) | Software (Finite) | Accumulated Amortization | ||||||||||
| Balance as of January 1, 2026 | $ | $ | $ | |||||||||
| Amortization expense | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of June 30, 2026 | $ | $ | $ | |||||||||
Estimated aggregate amortization expense of intangible assets for the next five years and thereafter is as follows:
SCHEDULE OF ESTIMATED AGGREGATE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS
| For the Years Ending December 31, | Total | |||
| 2026 (remaining period) | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Estimated aggregate amortization expense | $ | |||
The
Company has updated the useful life estimate for its software technology prospectively effective January 1, 2026, which will be
amortized over a period of five years to account for its continued use. The effect of this change was a reduction in amortization
expense of approximately $
Amortization
expense related to intangible assets was approximately $
| 8 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
SCHEDULE OF ACCRUED EXPENSES
| June 30, 2026 | December 31, 2025 | |||||||
| Accrued royalties | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Accrued development costs | ||||||||
| Accrued taxes | ||||||||
| Accrued payroll | ||||||||
| Accrued other | ||||||||
| Total | $ | $ | ||||||
Deferred Revenue
Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Development, coding and subscription revenues are also recorded as deferred revenue until the Company’s performance obligation is performed. Furthermore, deferred revenue includes payment advances from the Company’s channel partners and sales transactions including future update rights and online hosting performance obligations, which are subject to deferral and recognized over the estimated offering period.
Revenue
recognized in the period from amounts included in contract liability at the beginning of the period was approximately $
NOTE 5 – LINE OF CREDIT
On
February 20, 2026, the Company entered into a business loan agreement (the “Credit Agreement”) with Citibank, N.A. (“Citibank”),
pursuant to which Citibank provided the Company with a revolving line of credit of up to $
As
of June 30, 2026, the balance due to Citibank under the Credit Agreement was $
NOTE 6 – RELATED PARTY TRANSACTIONS
Related Party Revenue and Receivable - Pimax Innovation Co. Limited
In
February 2026, the Company recorded approximately $
Other Related Party Transactions – Driven Lifestyle Group LLC
The
Company had other related party payables outstanding as of June 30, 2026 and December 31, 2025. Specifically, the Company owed approximately
$
| 9 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Backoffice Services Agreement
The Company previously entered into a Backoffice Services Agreement with Driven Lifestyle for rent, development and other services to support the Company’s business functions, which was amended periodically to reduce scope, and ultimately terminated on December 31, 2025.
For
the six months ended June 30, 2026 and 2025, the Company incurred $
On
April 22, 2026, the Company entered into a Share Repurchase Agreement (the “Agreement”) with Driven Lifestyle, pursuant
to which the Company purchased
NOTE 7 – STOCKHOLDERS’ EQUITY
Class A and B Common Stock
As
of June 30, 2026, the Company had
Warrants
The Company had the following warrants outstanding as of June 30, 2026, all of which are equity-classified:
SCHEDULE OF WARRANTS OUTSTANDING
| Offering Date | Warrants Issued | Warrant Strike Price | Warrant Term (in years) | |||||||||||
| Registered direct offering 1 | $ | (a) | ||||||||||||
| Registered direct offering 2 | $ | (a) | ||||||||||||
| Registered direct offering 3 | $ | (a) | ||||||||||||
| Series A | $ | (b) | ||||||||||||
| Series B | $ | (b) | ||||||||||||
| Placement Agent | $ | (b) | ||||||||||||
| (a) | ||
| (b) |
| 10 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Common Stock and Pre Funded Warrant
On
April 11, 2025, the Company entered into a securities purchase agreement with several institutional and accredited investors for the
issuance and sale in a private placement of the following securities for aggregate gross proceeds of approximately $
NOTE 8 – SHARE-BASED COMPENSATION
On January 12, 2021, in
connection with its initial public offering, Motorsport Games established the Motorsport Games Inc. 2021 Equity Incentive Plan (the
“MSGM 2021 Stock Plan”). The MSGM 2021 Stock Plan provides for the grant of options, stock appreciation rights,
restricted stock awards, performance share awards and restricted stock unit awards, and initially authorized
The
Company did not issue stock options under its MSGM 2021 Stock Plan during the six months ended June 30, 2026. As of June 30, 2026, there
were
Non-Employee Director Compensation Awards
Pursuant
to the non-employee director compensation policy adopted by the Board of Directors at the time of the Company’s initial public
offering,
On August 29, 2025, the Board of Directors unanimously acknowledged and approved that the Company shall remain legally obligated to issue any prior equity compensation owed to each non-employee director under the policy and not granted, or to settle such obligations in cash or other consideration acceptable to the director, in each case upon a change of control of the Company (as defined in the MSGM 2021 Stock Plan) or if a director ceases to serve on the Board of Directors for any reason other than for cause (as defined in the MSGM 2021 Stock Plan). Because the obligations may be settled in cash, the Company has classified these obligations as liabilities. The fair value of each award is remeasured at each reporting date through settlement using a Black-Scholes option-pricing model with assumptions as of the applicable reporting date, and the cumulative compensation cost recognized at each reporting date equals the proportion of the requisite service period rendered through that date multiplied by the remeasured fair value of the award. The cumulative liability is presented within noncurrent liabilities on the condensed consolidated balance sheets, and changes in the cumulative liability between reporting dates are recognized in general and administrative expense in the condensed consolidated statements of operations.
Through March 31, 2026, the Company had not granted
the annual non-employee director stock option awards contemplated by the above policy because there were not enough authorized shares
in the MSGM 2021 Stock Plan. On April 23, 2026, the Company’s stockholders approved an amendment to the MSGM 2021 Stock Plan to
increase the number of shares of Class A common stock available for issuance from
On July 30, 2026, the Company granted an
aggregate of
| 11 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Fair Value Valuation Assumptions
The fair value of the stock options and stock appreciation rights are estimated using the Black-Scholes option pricing model. The estimation of fair value for these awards is affected by subjective and complex variables, which are typically based on historical information. Judgment is required to determine if historical trends are indicators of future outcomes.
Key assumptions of the Black-Scholes option pricing model are the risk-free interest rate, expected volatility, expected term and expected dividends. The Company determined the risk-free interest rate using U.S. Treasury yields in effect at the time of the grant that matched the expected term of the options. Expected volatility is based on a combination of historical stock price volatility, as well as implied volatilities, of comparable publicly traded companies with operations similar to Motorsport Games over a 10-year period, consistent with the contractual term of the options. The Company calculated the expected term using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. The dividend yield was zero, as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future.
Share-based compensation expense recognized is based on awards ultimately expected to vest and therefore has been reduced for actual forfeitures occurring within the period.
The following table presents the weighted-average assumptions, weighted average grant date fair value, and the range of expected price volatility used in determining the fair value of the non-employee director liability-classified awards as of June 30, 2026 and December 31, 2025:
SCHEDULE OF FAIR VALUE ASSUMPTION
As of June 30, 2026 | As of December 31, 2025 |
|||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Weighted-average volatility | % | % | ||||||
| Expected term | ||||||||
| Expected dividends | None | None | ||||||
| Weighted-average grant date fair value per share | $ | $ | ||||||
Fair Value Hierarchy
The following table presents the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025:
SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING BASIS
Quoted prices in active markets for identical liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total Fair Value | |||||||||||||
| Fair value measurements at reporting date using: | ||||||||||||||||
Quoted prices in active markets for identical liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total Fair Value | |||||||||||||
| As of June 30, 2026: | ||||||||||||||||
| Non-employee director compensation awards | $ | - | $ | - | $ | $ | ||||||||||
| As of December 31, 2025: | ||||||||||||||||
| Non-employee director compensation awards | $ | - | $ | - | $ | $ | ||||||||||
A reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:
SCHEULE OF RECONCILIATION OF LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
| Balance at January 1, 2026 | $ | |||
| Balance | $ | |||
| Non-cash director compensation (see Stock-Based Compensation below) | ||||
| Balance at June 30, 2026 | $ | |||
| Balance | $ |
Stock-Based Compensation
The following table summarizes stock-based compensation expense resulting from awards included in the Company’s condensed consolidated statements of operations:
SCHEDULE OF STOCK BASED COMPENSATION EXPENSE
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| General and Administrative | $ | $ | - | $ | $ | - | ||||||||||
| Sales and Marketing | - | - | - | - | ||||||||||||
| Development | - | - | - | - | ||||||||||||
| Stock-based compensation expense | $ | $ | - | $ | $ | - | ||||||||||
Stock-based
compensation expense for the three and six months ended June 30, 2026 of $
| 12 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
As
of June 30, 2026, total unrecognized share-based compensation expense related to the non-employee director compensation obligations described
above was $
Net Income Per Common Share
Shares of Class B common stock have no economic rights under the Company’s Certificate of Incorporation and are excluded from the calculation of basic and diluted net income per share. All Class B shares were cancelled during the three months ended June 30, 2026. Basic net income per Class A common share is computed by dividing net income attributable to Motorsport Games Inc. by the weighted average number of shares of Class A common stock outstanding during each period. Diluted net income per Class A common share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of Class A common stock. The Company analyses the potential dilutive impact of options and warrants under the treasury stock method.
For the three and six months ended June 30, 2026 and 2025, respectively, the Company calculated basic and diluted net income per Class A common share as follows:
SCHEDULE OF CALCULATED BASIC AND DILUTED NET INCOME PER COMMON SHARE
| 2026 | 2025 | |||||||
| For the Three Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Numerator: | ||||||||
| Net income attributable to Motorsport Games Inc. | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average Class A common shares outstanding – basic (1) | ||||||||
| Effects of dilutive securities: | ||||||||
| Assumed exercise of stock options, treasury stock method | - | |||||||
| Assumed exercise of warrants, treasury stock method | - | |||||||
| Weighted average dilutive potential common shares | - | |||||||
| Weighted average Class A common shares outstanding - diluted | ||||||||
| Net income per Class A common share - basic | $ | $ | ||||||
| Net income per Class A common share - diluted | $ | $ | ||||||
| 2026 | 2025 | |||||||
| For the Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Numerator: | ||||||||
| Net income attributable to Motorsport Games Inc. | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average Class A common shares outstanding – basic (1) | ||||||||
| Effects of dilutive securities: | ||||||||
| Assumed exercise of stock options, treasury stock method | - | |||||||
| Assumed exercise of warrants, treasury stock method | - | |||||||
| Weighted average dilutive potential common shares | - | |||||||
| Weighted average Class A common shares outstanding - diluted | ||||||||
| Net income per Class A common share - basic | $ | $ | ||||||
| Net income per Class A common share - diluted | $ | $ | ||||||
| (1) |
The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive.
SCHEDULE OF CALCULATION WEIGHTED AVERAGE DILUTIVE COMMON SHARES
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Stock options (1) | ||||||||||||||||
| Warrants (2) | ||||||||||||||||
| Dilutive securities | ||||||||||||||||
| (1) | |
| (2) |
In
connection with a securities purchase agreement entered into on July 26, 2024, the Company issued warrants to investors and H.C.
Wainwright & Co., LLC to purchase up to an aggregate of
| 13 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. In light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period. Litigation or other legal proceedings, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in the Company’s favor, is likely to divert significant resources from the Company’s core business, including distracting its management personnel from their normal responsibilities.
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. The Company recognizes legal costs associated with loss contingencies in the period incurred.
Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
| 14 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Commitments
On
January 25, 2021, the Company entered into an amendment (the “Le Mans Amendment”) to the Le Mans Esports Series Ltd joint
venture agreement, which resulted in an increase of the Company’s ownership interest in the Le Mans Esports Series Ltd joint venture
from
Epic License Agreement
On August 11, 2020, the Company entered into a licensing agreement with Epic Games International (“Epic”) for worldwide licensing rights to Epic’s proprietary computer program known as the Unreal Engine 4. Pursuant to the agreement, upon payment of the initial license fee described below, the Company was granted a nonexclusive, non-transferable and terminable license to develop, market and sublicense (under limited circumstances and subject to conditions of the agreement) certain products using the Unreal Engine 4 for its games.
The
Company is required to pay Epic a license fee royalty payment equal to
NOTE 10 – CONCENTRATIONS
Customer Concentrations
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the following periods:
SCHEDULE OF CONCENTRATIONS
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Customer | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Customer D | % | % | % | % | ||||||||||||
| Customer H | % | % | % | % | ||||||||||||
| Customer I | % | -* | % | % | -* | % | ||||||||||
| Total | % | % | % | % | ||||||||||||
| 15 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s trade accounts receivable as of:
| Customer | June 30, 2026 | December 31, 2025 | ||||||
| Customer D | % | % | ||||||
| Customer H | % | % | ||||||
| Customer I | -* | % | % | |||||
| Customer J | % | % | ||||||
| Total | % | % | ||||||
Supplier Concentrations
The following table sets forth information as to the supplier that accounted for 10% or more of the Company’s cost of revenues for the following periods:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Supplier | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Supplier G | % | -* | % | -* | % | -* | % | |||||||||
| * |
A reduction in sales from or loss of these customers or this supplier, in a significant amount, would have a material adverse effect on the Company’s results of operations and financial condition.
NOTE 11 – SEGMENT REPORTING
The
Company’s principal operating segments coincide with the types of products and services sold by the Company. The products and
services from which revenues are derived are consistent with the reporting structure of the Company’s internal organization.
The Company’s
Segment operating profit is determined based upon internal performance measures used by the CODM. The Company derives the segment results from its internal management reporting system. The accounting policies the Company uses to derive reportable segment results are the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including revenues, gross profit, Adjusted EBITDA, and operating income/loss. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Segment income from operations excludes interest income/expense and other income or expenses and income taxes according to how a particular reportable segment’s management is measured.
| 16 |
Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Segment information available with respect to these reportable business segments was as follows:
SCHEDULE OF SEGMENT REPORTING INFORMATION
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Revenues: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | - | - | ||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | - | - | ||||||||||||||
| Total Cost of Revenues | $ | $ | $ | $ | ||||||||||||
| Gross Profit (Loss): | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | ( | ) | - | ( | ) | - | ||||||||||
| Total Gross Profit | $ | $ | $ | $ | ||||||||||||
| Sales and Marketing Expenses: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | - | - | ||||||||||||||
| Total Sales and Marketing Expenses | $ | $ | $ | $ | ||||||||||||
| Development Expenses: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | - | - | ||||||||||||||
| Total Development Expenses | $ | $ | $ | $ | ||||||||||||
| General and Administrative Expenses: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | ||||||||||||||||
| Total General and Administrative Expenses | $ | $ | $ | $ | ||||||||||||
| Impairment of Intangible Assets: | ||||||||||||||||
| Gaming | $ | - | $ | - | $ | $ | - | |||||||||
| Esports | - | - | - | - | ||||||||||||
| Total Impairment of Intangible Assets | $ | - | $ | - | $ | $ | - | |||||||||
| Depreciation and Amortization: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | ||||||||||||||||
| Total Depreciation and Amortization | $ | $ | $ | $ | ||||||||||||
| Other Operating Income (Expense): | ||||||||||||||||
| Gaming | $ | - | $ | $ | - | $ | ||||||||||
| Esports | - | ( | ) | - | ( | ) | ||||||||||
| Total Other Operating Income | $ | - | $ | $ | - | $ | ||||||||||
| Income (Loss) From Operations: | ||||||||||||||||
| Gaming | $ | $ | $ | $ | ||||||||||||
| Esports | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Income From Operations | $ | $ | $ | $ | ||||||||||||
| June 30, 2026 | December 31, 2025 | |||||||
| Total Assets: | ||||||||
| Gaming | $ | $ | ||||||
| Esports | ||||||||
| Total Assets | $ | $ | ||||||
NOTE 12 - SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the unaudited condensed consolidated financial statements were issued.
On
July 22, 2026, the Board of Directors of the Company approved and adopted a preferred stock rights agreement and authorized and
declared a dividend distribution of one right (each, a “Right”) for each outstanding share of the Class A Common Stock,
par value $
On July 30, 2026, the Company granted
an aggregate of
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2026 and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Report. Unless the context requires otherwise, references to the “Company,” “Motorsport Games,” “we,” “us” and “our” refer to Motorsport Games Inc., a Delaware corporation.
About Motorsport Games
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. (“Studio397”) and their rFactor 2 realistic racing simulator technology and platform. rFactor 2 also powers F1® Arcade through a partnership with Kindred Concepts. 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.
We develop and publish racing video games including for personal computers (PCs) through various digital channels, including full-game and downloadable content (“DLC”). We have obtained the official licenses to develop multi-platform games for the 24 Hours of Le Mans race and the WEC. We are also striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games.
On February 20, 2024, we released Le Mans Ultimate on PC in early access. Le Mans Ultimate is the official game of the WEC and 24 Hours of Le Mans, and is the first officially licensed and dedicated 24 Hours of Le Mans video game release in over twenty years. On July 22, 2025, we released Le Mans Ultimate Version 1.0. This milestone marked the completion of the title’s Early Access phase and ushered in a new era of continued development and expansion for the official game of the FIA World Endurance Championship and the 24 Hours of Le Mans. We have sold more than half a million units of our Le Mans Ultimate base game alongside more than 1.2 million individual pieces of DLC. Additionally, we achieved an all-time peak of more than 8,800 concurrent players in March 2026 following the release of Le Mans Ultimate Version 1.3 and recorded our highest-ever month for average daily active users in April 2026.
Recent Events
Share Repurchase
On April 22, 2026, we entered into a Share Repurchase Agreement (the “Repurchase Agreement”) with Driven Lifestyle Group LLC, a Florida limited liability company (“Driven Lifestyle”), pursuant to which we repurchased 904,395 shares of our Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), held by Driven Lifestyle. The Repurchase Agreement provided for such shares to be purchased at a price of $4.11, which was equal to the average closing price of the Class A Common Stock as reported by the Nasdaq Capital Market for the five trading days immediately preceding the signing of the Repurchase Agreement. Pursuant to Section 1 of Article V of our Certificate of Incorporation, as amended (the “Certificate of Incorporation”), upon the repurchase of such shares of Class A Common Stock from Driven Lifestyle, all shares of our Class B common stock held by Driven Lifestyle were cancelled.
Pursuant to the Repurchase Agreement Driven Lifestyle executed an irrevocable written consent (the “Stockholder Consent”) in its capacity as the holder of at least two-thirds of the voting power of our Class A common stock and Class B common stock, voting together as a single class, approving a Certificate of Amendment (the “Charter Amendment”) to the Certificate of Incorporation and Amendment No. 2 (the “Bylaws Amendment”) to our Bylaws, as amended (the “Bylaws”). We subsequently filed with the Securities and Exchange Commission a Definitive Information Statement on Schedule 14C relating to the approval of the Charter Amendment and the Bylaws Amendment. On May 22, 2026, we filed the Charter Amendment, effective as of May 24, 2026, with the Delaware Secretary of State, and on May 24, 2026, the Bylaws Amendment was deemed effective. The Charter Amendment provided as follows:
| ● | Section A of Article IX of the Certificate of Incorporation was amended to provide that we reserve the right to amend, alter, change or repeal any provision contained in the Certificate of Incorporation in the manner then or thereafter prescribed in the Certificate of Incorporation, and by the laws of the State of Delaware, and all rights conferred upon stockholders in the Certificate of Incorporation, as so amended, are granted subject to this reservation; | |
| ● | Section B of Article IX of the Certificate of Incorporation was amended to provide that the Bylaws may be altered, amended or repealed, or new bylaws adopted, by the Board of Directors or a simple majority of all of the then outstanding shares of our capital stock entitled to vote generally in the election of directors; and | |
| ● | Section C of Article VII of the Certificate of Incorporation was amended to provide that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of our stockholders and may not be effected by any consent in writing by such stockholders. |
| 18 |
The Bylaws Amendment provided as follows:
| ● | Section 6.07 of the Bylaws was amended to provide that the Bylaws may be altered, amended or repealed, or new bylaws adopted, by the Board of Directors or a simple majority of all of the then outstanding shares of our capital stock entitled to vote generally in the election of directors; and | |
| ● | Section 2.07 of the Bylaws was amended to provide that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of our stockholders and may not be effected by any consent in writing by such stockholders. |
2026 Annual Meeting
At our 2026 Annual Meeting of Stockholders (the “Annual Meeting “), held on April 23, 2026, our stockholders approved an Amendment (the “Plan Amendment”) to our Amended and Restated 2021 Equity Incentive Plan (the “Plan”) to increase the number of shares of Class A common stock that we will have authority to grant under the Plan from 100,000 to 600,000. A description of the Plan is set forth in our definitive proxy statement for the 2026 Annual Meeting, as filed with the SEC on March 16, 2026 (the “Proxy Statement”), in the section entitled “Proposal No. 2—The Incentive Plan Increase Proposal,” which is incorporated herein by reference. The description is qualified in its entirety by reference to the full text of the Plan Amendment, a copy of which is included as an exhibit to this Report.
Also at the Annual Meeting our stockholders approved the exercise of the Series A Warrants, the Series B Warrants, and the Placement Agent Warrants issued on July 29, 2024 to purchase up to an aggregate of 949,310 shares of Class A common stock. As a result of such approval, the Series A Warrants will expire on October 23, 2031, the Series B Warrants will expire on October 25, 2027 and the Placement Agent Warrants will expire on July 26, 2029. In addition, the holders of the Series A Warrants and the Series B Warrants agreed that the repurchase of shares from Driven Lifestyle pursuant to the Repurchase Agreement would not constitute a “Fundamental Transaction” under the Warrants.
Rights Agreement
On July 22, 2026, our Board of Directors approved and adopted a preferred stock rights agreement and authorized and declared a dividend distribution of one right (each, a “Right”) for each outstanding share of the Class A Common Stock to stockholders of record as of the close of business on August 3, 2026 (the “Record Date”). The complete terms of the Rights are set forth in a Preferred Stock Rights Agreement (the “Rights Agreement”), dated as of July 22, 2026, with ClearTrust, LLC, a Florida limited liability company, as rights agent. In general terms, subject to certain exceptions, the Rights Agreement imposes significant dilution upon any person or group (other than us and certain other Exempt Persons (as defined in the Rights Agreement)), that becomes the beneficial owner of twelve and a half percent (12.5%) or more of the Class A Common Stock following our first public announcement of the adoption of the Rights Agreement. The term “beneficial ownership” is defined in the Rights Agreement and includes, among other things, certain derivative arrangements.
In connection with the adoption of the Rights Agreement, on July 22, 2026, our Board of Directors adopted a Certificate of Designations of Series A Participating Preferred Stock (the “Certificate of Designations”) setting forth the rights, powers, and preferences of the Series A Preferred Stock. The Certificate of Designations was filed with the Secretary of State of the State of Delaware on July 23, 2026. A copy of the Certificate of Designations is attached as an exhibit to this Report and is incorporated herein by reference.
Amended and Restated Bylaws
On July 22, 2026, our Board of Directors determined to amend our Bylaws by adopting certain Amended and Restated Bylaws (the “Amended and Restated Bylaws”), effective as of such date. The Amended and Restated Bylaws modified provisions of the Bylaws including, but not limited to:
| ● | Conduct of Meetings: The Amended and Restated Bylaws provide that our Board of Directors or the presiding officer of any stockholders meeting has broad authority, to the maximum extent permitted by applicable law, to establish the rules, regulations, and procedures necessary or desirable for the proper conduct of a stockholders’ meetings. | |
| ● | Adjournment, Postponements and Cancellations of Stockholders’ Meetings: The Amended and Restated Bylaws provide that if a quorum is not present or represented at any stockholders’ meeting, a majority of the voting power of our stockholders present in person or represented by proxy at the meeting or the individual acting as chairman of the meeting may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. The Amended and Restated Bylaws also provide that the individual acting as chairman of the meeting may also, from time to time, for any or no reason, adjourn, recess, postpone, or cancel any meeting of stockholders. | |
| ● | Business Conducted or Considered at Meetings of Stockholders: The Amended and Restated Bylaws provide that, for nominations and proposals of other business to have been properly brought before an annual meeting such nominations and proposals of other business must be: (i) specified in a notice of meeting given by or at the direction of our Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of our Board of Directors, or (iii) otherwise properly requested by an eligible stockholder who complies with the advance notice and procedural requirements set forth in the Amended and Restated Bylaws. To be properly brought before a special meeting, proposals of business must be specified in the notice of meeting given by or at the direction of our Board of Directors or brought before the meeting at the direction of our Board of Directors. | |
| ● | Advance Notice Requirements: The Amended and Restated Bylaws enhance the procedural mechanics and disclosure requirements in connection with stockholder nominations of directors and submissions of stockholder proposals (other than proposals to be included in our proxy statement pursuant to Rule 14a-8 under the Exchange Act at stockholders’ meetings). | |
| ● | Special Meetings of Stockholders: The Amended and Restated Bylaws provide that, to the extent that our Board of Directors calls a special meeting of stockholders for the purpose of electing directors, the advance notice disclosure and other requirements contained in the Amended and Restated Bylaws applicable to proposing nominees for election to our Board of Directors at annual meetings of stockholders shall also apply to stockholders seeking to propose director nominations at such a special meeting. | |
| ● | Special Meetings of Directors: The Amended and Restated Bylaws provide that notice of any special meeting of our Board of Directors shall be sent to each director either (a) by reputable overnight delivery service to his or her residence or usual place of business in circumstances to which such service guarantees next day delivery, not later than on the day that is the second business day immediately preceding the day of such meeting, or (b) by electronic mail or other electronic means, not later than twenty-four (24) hours before the time of such meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. | |
| ● | Miscellaneous: The Amended and Restated Bylaws also incorporate various other “clean-up” changes, including, but not limited to, grammatical and other typographical corrections, formatting changes, revisions to headings, titles, and captions, and providing capitalized definitions for certain terms. |
The foregoing summary is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws, a copy of which is filed as an exhibit to this Report and is incorporated herein by reference.
| 19 |
Trends and Factors Affecting Our Business
Product Release Schedule
Our financial results are impacted by the timing of our product releases and the commercial success of those titles. Our recent product releases include:
| Title | Release Date and Platform | |
| 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 | |
| Le Mans Ultimate – 2024 DLC Pack 5 | June 10, 2025, available on PC | |
| Le Mans Ultimate – Version 1.0 Release | July 22, 2025, available on PC | |
| Le Mans Ultimate – ELMS Pack 1 and Version 1.1 Release | September 23, 2025, available on PC | |
| Le Mans Ultimate – ELMS Pack 2 and Version 1.2 Release | December 9, 2025, available on PC | |
| Le Mans Ultimate – ELMS Pack 3 and Version 1.3 Release | March 31, 2026, available on PC | |
| Le Mans Ultimate – American Pack 1 and Version 1.4 | July 28, 2026, 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.
Concentration of Sales
Revenues associated with our Le Mans Ultimate franchise accounted for approximately 75% and 76% of our total revenue for the three months ended June 30, 2026 and 2025, respectively, and for approximately 76% and 78% of our total revenue for the six months ended June 30, 2026 and 2025, respectively. We aim to explore ways to capitalize on new trends and diversify our product mix.
Digital Business
Players increasingly purchase our games as digital downloads, as opposed to purchasing physical discs. All of our titles that are available through retailers as packaged goods products are also available through direct digital download. For the three and six months ended June 30, 2026 and 2025, substantially all of our revenue from sales of video games for PCs was through digital channels, respectively. We believe this trend of increasing direct digital downloads is primarily due to benefits relating to convenience and accessibility that digital downloads provide. 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.
Esports
We generate esports revenues from 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 2023, we organized the grand finale of the Le Mans Virtual Series 2022/23, the 24 Hours of Le Mans Virtual event, which had a cumulative total of approximately 8.8 million video views with approximately 27 million minutes watched. The 24 Hours of Le Mans Virtual event had a global audience of 5 million across television (TV)/over-the-top (OTT) channels. Although we did not organize the Le Mans Virtual Series for the 2023/24, 2024/25 or 2025/26 seasons, we currently plan on organizing the 2026/27 Le Mans Virtual Series to commence this year. We also intend to continue exploring opportunities to expand our esports segment outside of Le Mans. During the three months ended June 30, 2026, we generated esports revenues from facilitating esports events on behalf of others.
Recurring Revenue Sources
Our business model includes revenue that we deem recurring in nature, which consists primarily of revenue from our annualized video game racing franchise for PC, as well as our RaceControl subscription service. We historically have been able to forecast the revenue from this area of our business with greater relative confidence than for new games, services, and business models. As we continue to incorporate new business models and modalities of play into our games, our goal is to continue to look for opportunities to expand the recurring portion of our business, including through subscriptions. We plan to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases, RaceControl subscription offerings and extra content. As of June 30, 2026, we had more than 40,500 paid RaceControl subscribers. RaceControl revenues were approximately $1.4 million and $0.3 million for the six months ended June 30, 2026 and 2025, respectively.
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. Our chief operating decision maker is our Chief Executive Officer (“CEO”), who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We classified our reportable operating segments into (i) the development and publishing of interactive racing video games, entertainment content and services (the “Gaming segment”) and (ii) the organization and facilitation of esports tournaments, competitions, and events for our licensed racing games as well as on behalf of third-party video game racing series and other video game publishers (the “esports segment”).
Components of Our Results of Operations
Revenues
We derive substantially all our revenue from sales of our games and related extra content that can be played by customers on a PC platform. We also generate sponsorship revenues from our production of live and virtual esports events. We also offer software development services for racing simulators and offer a subscription service via RaceControl, our matchmaking and online racing platform.
Our product and service offerings included within the Gaming segment primarily include PCs with both online and offline functionality, which generally include:
| ● | the initial game delivered digitally at the time of sale, which also typically provides access to offline core game content; | |
| ● | updates to previously released games on a when-and-if-available basis, such as software patches or updates, and/or additional content to be delivered in the future, both paid and free; and | |
| ● | outsourced code and content development services. |
Our product and service offerings included within the esports segment relate primarily to curating esports events.
| 20 |
Cost of Revenues
Cost of revenues for our Gaming segment is primarily comprised of royalty expenses, license fees, web hosting costs and amortization of certain acquired license agreements and other intangible assets acquired through our various acquisitions and internally-developed software. Furthermore, cost of revenues for our Gaming segment includes costs associated with our outsourced code and content development services. Cost of revenues for our esports segment consists primarily of the cost of event staffing and event production.
Sales and Marketing
Sales and marketing expenses are primarily composed of salaries, benefits and related taxes of our in-house marketing teams, advertising, marketing, and promotional expenses, including fees paid to social media platforms and other websites where we market our products.
Development
Development expenses consist of the cost to develop the games we produce, which includes salaries, benefits, and operating expenses of our in-house development teams, as well as consulting expenses for any contracted external development. Development expenses also include expenses relating to our software licenses, maintenance, and studio operating expenses. Costs incurred internally in developing a software product to be marketed or sold to external users are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products.
General and Administrative
General and administrative expenses consist primarily of salaries, benefits and other costs associated with our operations including finance, human resources, information technology, public relations, legal audit and compliance fees, facilities, and other external general and administrative services.
Depreciation and Amortization
Depreciation and amortization expenses include depreciation on fixed assets (primarily computers and office equipment), as well as amortization of certain definite lived intangible assets acquired through our various acquisitions.
Results of Operations
Three Months Ended June 30, 2026 compared to Three Months Ended June 30, 2025
In this section, references to 2026 refer to the three months ended June 30, 2026 and references to 2025 refer to the three months ended June 30, 2025.
Revenues
For the Three Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Revenues: | ||||||||||||||||
| Gaming | $ | 3,503,685 | $ | 2,591,840 | $ | 911,845 | 35.2 | % | ||||||||
| Esports | 36,277 | - | 36,277 | - | % | |||||||||||
| Total Revenues | $ | 3,539,962 | $ | 2,591,840 | $ | 948,122 | 36.6 | % | ||||||||
| 21 |
Consolidated revenues were $3.5 million and $2.6 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $0.9 million, or 36.6%, when compared to the prior period. The increase in Gaming segment revenues was primarily due to a $0.6 million increase in sales of Le Mans Ultimate, as well as a $0.4 million increase in RaceControl subscriptions, offset by a $0.1 million decrease in sales of our rFactor 2 title compared to 2025.
Esports revenues during the three months ended June 30, 2026 were approximately $36,000 and are the result of facilitating Esports events for partners using our Le Mans Ultimate title.
Cost of Revenues
For the Three Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Cost of revenues: | ||||||||||||||||
| Gaming | $ | 602,289 | $ | 454,887 | $ | 147,402 | 32.4 | % | ||||||||
| Esports | 42,139 | - | 42,139 | - | % | |||||||||||
| Total Cost of Revenues | $ | 644,428 | $ | 454,887 | $ | 189,541 | 41.7 | % | ||||||||
Consolidated cost of revenues was $0.6 million and $0.5 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $0.1 million, or 41.7%, when compared to the same period in the prior year.
The increase in Gaming segment cost of revenues was mainly driven by increases in web hosting costs of approximately $0.1 million, when compared to the same period in the prior year.
Cost of revenues for the Esports segment during the three months ended June 30, 2026 of approximately $42,000 was related to expenses incurred facilitating Esports events for partners using our Le Mans Ultimate title.
Gross Profit
For the Three Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Gross Profit (Loss): | ||||||||||||||||
| Gaming | $ | 2,901,396 | $ | 2,136,953 | $ | 764,443 | 35.8 | % | ||||||||
| Esports | (5,862 | ) | - | (5,862 | ) | - | % | |||||||||
| Total Gross Profit | $ | 2,895,534 | $ | 2,136,953 | $ | 758,581 | 35.5 | % | ||||||||
| 22 |
For the Three Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Gaming - Gross Profit Margin | 82.8 | % | 82.4 | % | ||||
| Esports - Gross Profit Margin | (16.2 | )% | NM | |||||
| Total Gross Profit Margin | 81.8 | % | 82.4 | % | ||||
NM = not meaningful
Consolidated gross profit was $2.9 million and $2.1 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $0.8 million, or 35.5%, when compared to the prior period. Gross profit margin was 81.8% in 2026, compared to 82.4% in 2025. The increase in our Gaming segment gross profit of $0.8 million, and increase in gross profit margin, was primarily due to higher revenues, offset by increases in web hosting, development and license fees, compared to the same period in the prior year.
Gross loss for the Esports segment during the three months ended June 30, 2026 of approximately $6,000 was related to revenues earned facilitating Esports events for partners using our Le Mans Ultimate title, and we will continue to pursue Esports partnerships in the second half of 2026.
Operating Expenses
For the Three Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and marketing | $ | 191,350 | $ | 126,307 | $ | 65,043 | 51.5 | % | ||||||||
| Development | 737,228 | 270,343 | 466,885 | 172.7 | % | |||||||||||
| General and administrative | 1,321,381 | 865,040 | 456,341 | 52.8 | % | |||||||||||
| Depreciation and amortization | 7,311 | 11,697 | (4,386 | ) | (37.5 | )% | ||||||||||
| Total Operating Expenses | $ | 2,257,270 | $ | 1,273,387 | $ | 983,883 | 77.3 | % | ||||||||
Changes in operating expenses are explained in more detail below:
Sales and Marketing
Sales and marketing expenses were $0.2 million and $0.1 million for the three months ended June 30, 2026 and 2025, respectively, representing a $0.1 million, or 51.5%, increase when compared to the prior period. The increase in sales and marketing expenses was primarily driven by a $0.1 million increase in payroll and employee-related expenses when compared to the prior period.
Development
Development expenses were $0.7 million and $0.3 million for the three months ended June 30, 2026 and 2025, respectively, representing a $0.4 million, or 172.7%, increase when compared to the prior period. The increase in development expenses was primarily driven by a $0.3 million increase in payroll and employee-related expenses and $0.1 million increase in web hosting costs, when compared to the prior period.
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General and Administrative
General and administrative (“G&A”) expenses were $1.3 million and $0.9 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $0.4 million, or 52.8%, when compared to the prior period. The increase in G&A expenses was primarily driven by a $0.3 million increase in payroll and employee-related expenses and $0.1 million increase in legal and professional fees, compared to the prior period.
Depreciation and Amortization
Depreciation and amortization expenses for the three months ended June 30, 2026 and 2025 reflect no significant changes to the depreciation of capital assets.
Other Operating Income
Other operating income of $1.1 million for the three months ended June 30, 2025, primarily includes $0.8 million from the Wesco Insurance Company settlement and $0.3 million related to discounts negotiated on a few outstanding vendor invoices.
Interest Expense
Interest expense was approximately $16,000 and $5,000 for the three months ended June 30, 2026 and 2025, respectively. Interest expense in 2026 primarily relates to charges incurred as part of the business loan agreement with Citibank, N.A.
Other (Expense) Income, net
Other expense, net was $0.4 million for the three months ended June 30, 2026, compared to other income, net of $2.3 million for the three months ended June 30, 2025, a decrease of $2.7 million compared to the prior period. Other (expense) income, net of $(0.4) million and $2.3 million for 2026 and 2025, respectively, were primarily comprised of foreign currency (losses) gains arising from remeasuring transactions denominated in a currency other than U.S. Dollars.
Other Comprehensive Income (Loss)
Other comprehensive income was $0.2 million for the three months ended June 30, 2026, compared to other comprehensive loss of $2.3 million for the three months ended June 30, 2025. The $2.5 million increase in other comprehensive income was primarily due to activity in our U.K. and Netherlands subsidiaries and represents foreign currency translation adjustments.
Net Loss Attributable to Non-Controlling Interest
Net loss attributable to non-controlling interest was approximately $0.2 million and $20,000 for the three months ended June 30, 2026 and 2025, respectively, and is attributed to the Le Mans Esports Series Ltd joint venture. Under the terms of this joint venture, we agreed to fund up to €8,000,000 (approximately $9,120,000 as of June 30, 2026) as needed for development of video game products, which was fully funded as of June 30, 2026.
Six Months Ended June 30, 2026 compared to Six Months Ended June 30, 2025
In this section, references to 2026 refer to the six months ended June 30, 2026 and references to 2025 refer to the six months ended June 30, 2025.
Revenues
For the Six Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Revenues: | ||||||||||||||||
| Gaming | $ | 7,534,974 | $ | 4,350,293 | $ | 3,184,681 | 73.2 | % | ||||||||
| Esports | 36,277 | - | 36,277 | - | % | |||||||||||
| Total Revenues | $ | 7,571,251 | $ | 4,350,293 | $ | 3,220,958 | 74.0 | % | ||||||||
Consolidated revenues were $7.6 million and $4.4 million for the six months ended June 30, 2026 and 2025, respectively, an increase of $3.2 million, or 74.0%, when compared to the prior period. The increase in Gaming segment revenues was primarily due to a $2.2 million increase in sales of Le Mans Ultimate, particularly from downloadable content revenues which increased by the same amount, as well as a $1.1 million increase in RaceControl subscriptions, offset by a $0.1 million decrease in sales of our rFactor 2 game title, compared to 2025.
Esports revenues during the six months ended June 30, 2026 were approximately $36,000 and are the result of facilitating Esports events for partners using our Le Mans Ultimate title.
Cost of Revenues
For the Six Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Cost of revenues: | ||||||||||||||||
| Gaming | $ | 1,096,414 | $ | 920,273 | $ | 176,141 | 19.1 | % | ||||||||
| Esports | 65,151 | - | 65,151 | - | % | |||||||||||
| Total Cost of Revenues | $ | 1,161,565 | $ | 920,273 | $ | 241,292 | 26.2 | % | ||||||||
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Consolidated cost of revenues was $1.2 million and $0.9 million for the six months ended June 30, 2026 and 2025, respectively, an increase of $0.3 million, or 26.2%, when compared to the same period in the prior year.
The increase in Gaming segment cost of revenues was mainly driven by a $0.1 million increase in direct development costs, web hosting costs and license fees, respectively, offset by a $0.1 million decrease in amortization, when compared to the same period in the prior year.
Esports cost of revenues during the six months ended June 30, 2026 of $0.1 million was related to expenses incurred facilitating Esports events for partners using our Le Mans Ultimate title.
Gross Profit
For the Six Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Gross Profit (Loss): | ||||||||||||||||
| Gaming | $ | 6,438,560 | $ | 3,430,020 | $ | 3,008,540 | 87.7 | % | ||||||||
| Esports | (28,874 | ) | - | (28,874 | ) | - | % | |||||||||
| Total Gross Profit | $ | 6,409,686 | $ | 3,430,020 | $ | 2,979,666 | 86.9 | % | ||||||||
For the Six Months Ended June 30, |
||||||||
| 2026 | 2025 | |||||||
| Gaming - Gross Profit Margin | 85.4 | % | 78.8 | % | ||||
| Esports - Gross Profit Margin | (79.6 | )% | NM | |||||
| Total Gross Profit Margin | 84.7 | % | 78.8 | % | ||||
NM = not meaningful
Consolidated gross profit was $6.4 million and $3.4 million for the six months ended June 30, 2026 and 2025, respectively, an increase of $3.0 million, or 86.9%, when compared to the prior period. Gross profit margin was 84.7% in 2026, compared to 78.8% in 2025. The increase in our Gaming segment gross profit of $3.0 million, and increase in gross profit margin, was primarily due to higher revenues and decreases in amortization, offset by increases in web hosting, development and license fees, compared to the prior period.
Gross loss for the Esports segment during the six months ended June 30, 2026 of approximately $29,000 was related to revenues earned facilitating Esports events for partners using our Le Mans Ultimate title.
Operating Expenses
For the Six Months Ended June 30, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and marketing | $ | 401,669 | $ | 224,008 | $ | 177,661 | 79.3 | % | ||||||||
| Development | 1,251,565 | 872,296 | 379,269 | 43.5 | % | |||||||||||
| General and administrative | 3,020,012 | 2,033,522 | 986,490 | 48.5 | % | |||||||||||
| Impairment of intangible assets | 27,928 | - | 27,928 | - | % | |||||||||||
| Depreciation and amortization | 13,827 | 29,823 | (15,996 | ) | (53.6 | )% | ||||||||||
| Total Operating Expenses | $ | 4,715,001 | $ | 3,159,649 | $ | 1,555,352 | 49.3 | % | ||||||||
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Changes in operating expenses are explained in more detail below:
Sales and Marketing
Sales and marketing expenses were $0.4 million and $0.2 million for the six months ended June 30, 2026 and 2025, respectively, representing a $0.2 million, or 79.3%, increase when compared to the prior period. The increase in sales and marketing expenses was primarily driven by a $0.2 million increase in payroll and employee-related expenses when compared to the prior period.
Development
Development expenses were $1.3 million and $0.9 million for the six months ended June 30, 2026 and 2025, respectively, representing a $0.4 million, or 43.5% increase when compared to the prior period. The increase in development expenses was primarily driven by a $0.2 million increase in payroll and employee-related expenses and web hosting costs, when compared to the prior period.
General and Administrative
General and administrative (“G&A”) expenses were $3.0 million and $2.0 million for the six months ended June 30, 2026 and 2025, respectively, an increase of $1.0 million, or 48.5%, when compared to the prior period. The increase in G&A expenses was primarily driven by a $0.4 million increase in stock-based compensation and payroll expenses, respectively, and a $0.2 million increase in legal and professional fees, compared to the prior period.
Impairment of Intangible Assets
Impairment of intangible assets of $28,000 during the six months ended June 30, 2026 relates to the impairment of a domain name no longer used.
Depreciation and Amortization
Depreciation and amortization expenses for the six months ended June 30, 2026 and 2025 reflect no significant changes to the depreciation of capital assets.
Other Operating Income
Other operating income of $1.6 million for the six months ended June 30, 2025 primarily includes $0.8 million from the Wesco Insurance Company settlement, $0.5 million from a settlement agreement with HC2 Holdings 2 Inc. (now known as Innovate 2) and $0.3 million related to discounts negotiated on a few outstanding vendor invoices.
Interest Expense
Interest expense was approximately $19,000 and $18,000 for the six months ended June 30, 2026 and 2025, respectively. Interest expense during the six months ended June 30, 2026 primarily relates to charges incurred as part of the business loan agreement with Citibank, N.A. Interest expense in 2025 is mainly from non-cash interest accretion of purchase commitment liabilities relating to the acquisition of Studio397 in April 2021.
Other (Expense) Income, net
Other expense, net was $0.5 million for the six months ended June 30, 2026, compared to other income, net of $3.4 million for 2025, a decrease of $3.9 million compared to the prior period. Other expense, net of $0.5 million in 2026 is primarily comprised of foreign currency losses arising from remeasuring transactions denominated in a currency other than U.S. Dollars. Other income, net of $3.4 million for the six months ended June 30, 2025 was primarily comprised of $3.2 million in foreign currency gains arising from remeasuring transactions denominated in a currency other than U.S. Dollars and a $0.2 million gain from the Settlement Agreement entered into with Luminis on February 20, 2025.
Other Comprehensive Income (Loss)
Other comprehensive income was $0.2 million for the six months ended June 30, 2026, compared to other comprehensive loss of $3.2 million for 2025. The $3.4 million increase in other comprehensive income was primarily due to activity in our U.K. and Netherlands subsidiaries, and represents foreign currency translation adjustments.
Net Income (Loss) Attributable to Non-Controlling Interest
Net income (loss) attributable to non-controlling interest was approximately $0.5 million and ($39,000) for the six months ended June 30, 2026 and 2025, respectively, and is attributed to the Le Mans Esports Series Ltd joint venture. Under the terms of this joint venture, we agreed to fund up to €8,000,000 (approximately $9,120,000 as of June 30, 2026) as needed for development of video game products, which was fully funded as of June 30, 2026. We have recouped our investment and are now allocating the distribution of profits and losses to the joint venture licensor, pursuant to the terms of the Le Mans Esports Series Ltd joint venture agreement.
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Liquidity and Capital Resources
Liquidity
Since our IPO in 2021, we have financed our operations primarily through cash generated from operations, advances from lines of credit, and sales of our equity securities. We have entered into a line of credit with Citibank N.A. that will provide us with up to $3 million provided we meet the requirements for use of the line of credit. As of June 30, 2026, we had $1.8 million available under the line of credit with Citibank N.A.
We measure our liquidity in a number of ways, including the following:
| June 30, 2026 | December 31, 2025 | |||||||
| Cash and cash equivalents | $ | 3,946,341 | $ | 4,993,390 | ||||
| Working capital | $ | 2,938,641 | $ | 4,221,682 | ||||
For the six months ended June 30, 2026, we generated net income of $1.2 million and positive cash flows from operations of approximately $2.8 million. As of June 30, 2026, we had an accumulated deficit of $84.6 million and cash and cash equivalents of $3.9 million. We expect that our cash on hand, cash to be generated from operations and availability on our line of credit will fund our operations for at least one year from the date the consolidated financial statements are issued. 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.
Historically, we have financed our operations primarily through revenue generated from operations, loans and sales of our securities, and we expect to continue to seek and obtain additional capital in a similar manner. There can be no assurance that we will be able to raise funds by selling additional securities, which sales, if successful, could dilute the ownership interest of our existing shareholders. The issuance of debt, such as our line of credit with Citibank, N.A. can result in restrictive covenants that limit operations. If funding is not available or not available at terms acceptable to us, we will seek to further reduce overhead costs and our cash obligations in the short term, as needed. In addition, we may look to divest or bring in equity partners for our various divisions and bring in near term capital.
Cash Flows from Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2026 and 2025 was $2.8 million and $0.6 million, respectively. Net cash provided by operating activities for the six months ended June 30, 2026 was primarily a result of cash from net income of $1.2 million, adjusted for net non-cash adjustments of $1.0 million and $0.6 million of cash from changes in the levels of operating assets and liabilities. Net cash provided by operating activities for the six months ended June 30, 2025 was primarily a result of cash used to generate net income of $5.3 million, adjusted for net non-cash adjustments of $2.9 million and $1.7 million of cash used by changes in the levels of operating assets and liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities for the six months ended June 30, 2026 and 2025 was approximately $1.0 million and $0.4 million, respectively, primarily related to capitalization of internally-developed software.
Cash Flows from Financing Activities
Net cash used in financing activities for the six months ended June 30, 2026 was $2.7 million, resulting from $3.7 million of cash used for the repurchase of stock, and $0.2 million of payments on notes payable, partially offset by $1.2 million in proceeds from a Citibank Line of Credit drawdown. Net cash flows provided by financing activities during the six months ended June 30, 2025 of $1.3 million were primarily attributable to $2.3 million raised in connection with shares sold in a private placement offering in April 2025, partially offset by a $0.6 million payment for purchase commitments, $0.1 million of equity issuance costs, and $0.3 million in payments on notes payable.
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Citibank Line of Credit
On February 20, 2026, we entered into a business loan agreement (the “Original Credit Agreement”) with Citibank, N.A. (“Citibank”), and on June 15, 2026 we entered into an Amendment to the Business Loan Agreement (as amended the “Credit Agreement”). Pursuant to the Credit Agreement, Citibank provided us with a revolving line of credit of up to $3.0 million at an interest rate equal to the Adjusted Term SOFR (as defined in the Credit Agreement) plus 2.250%, subject to increase upon an event of default. The Adjusted Term SOFR has a floor of 0.75%. The revolving line of credit is evidenced by a Promissory Note that we issued to Citibank on February 20, 2026, which we amended on June 15, 2026 (as amended, the “Citibank Promissory Note”), in the principal amount of up to $3.0 million. The Citibank Promissory Note has a stated maturity date of February 20, 2028. We also entered into a commercial security agreement pursuant to which we granted Citibank a lien on substantially all of our assets. The Credit Agreement includes certain affirmative covenants related to conducting our business and maintaining certain levels of cash flow and fixed charges, including a requirement to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) in excess of 1.200 to 1.000 and a Cash Flow Leverage Ratio (as such term is defined in the Credit Agreement) not in excess of 2.500 to 1.000. The Credit Agreement also contains negative covenants including prohibitions on the creation or existence of any liens or security interests on our assets. The Credit Agreement also contains events of default, including failure to make payments under the Note or any related documents, failure to comply with covenants, obligations or conditions contained in the Note or any related document, defaults under other loans, extension of credit or security agreement and any change in our ownership of twenty five percent (25%) or more of our common stock. The occurrence of an event of default can result in the exercise of remedies including an increase in the applicable rate of interest by 3.00% and declaration that all outstanding amounts owed under the Citibank Promissory Note immediately become due and payable. As of June 30, 2026, the balance due to Citibank under the Credit Agreement was $1.2 million and there was $1.8 million of available capacity. As of June 30, 2026, we were in compliance with all covenants related to the Credit Agreement.
Other Financing Activity
On July 29, 2024, we completed a registered direct offering and a concurrent private placement (the “July 2024 Offerings”) with certain investors, which raised approximately $1.0 million in gross proceeds (the “$1.0 million RDO”) before deducting $0.1 million in placement agent’s fees and other offering expenses. In connection with the $1.0 million RDO, we issued Series A warrants (the “Series A Warrants”) to purchase up to 460,830 shares of Class A common stock and Series B warrants (the “Series B Warrants,” and collectively with the Series A Warrants, the “Purchase Warrants”) to purchase up to 460,830 shares of Class A common stock. The Series A Warrants and the Series B Warrants both have an exercise price of $2.17 per share. The shares of Class A common stock issuable upon the exercise of the Purchase Warrants are collectively referred to as the “Warrant Shares.” The Purchase Warrants became exercisable on the effective date of the stockholder approval for the issuance of the shares of Class A common stock issuable upon exercise of the Purchase Warrants (the “Stockholder Approval Date”), which approval was obtained on April 23, 2026. The Series A Warrants will expire on October 23, 2031 and the Series B Warrants will expire on October 25, 2027.
H.C. Wainwright & Co., LLC (“HCW”) acted as the exclusive placement agent for the July 2024 Offerings, and we issued to its designees warrants to purchase up to 27,650 shares of Class A common stock (the “Placement Agent Warrants”) as compensation. The Placement Agent Warrants will expire on July 26, 2029.
On April 11, 2025, we entered into securities purchase agreements (the “April Purchase Agreements”) with several institutional and accredited investors for the issuance and sale in a private placement (the “April Private Placement”) of the following securities for gross proceeds of approximately $2.5 million: (i) 1,894,892 shares of our Class A common stock and (ii) a pre-funded warrant (the “April Pre-Funded Warrant”) to purchase up to 377,836 shares of our Class A common stock at an exercise price of $0.0001 per share. The purchase price for one share of Class A common stock was $1.10 and the purchase price for one pre-funded warrant was $1.0999 per share. We received net proceeds of approximately $2.35 million from the April Private Placement, after deducting offering expenses paid by us. The April Pre-Funded Warrant became exercisable commencing on May 29, 2025, and will not expire until exercised in full.
The April Purchase Agreements provided that our board of directors (the “Board”) would appoint an individual designated by the purchasers that purchased at least 50.1% in interest of the shares of Class A common stock and pre-funded warrants issued in the April Private Placement based on the initial subscription amounts under the April Purchase Agreement to serve as a Class II director on the Board for a term expiring at our 2026 annual meeting of stockholders. In accordance with the foregoing, Mr. Guoquan (Paul) Huang was appointed to the Board effective as of April 16, 2025. The April Purchase Agreement further provides that the purchasers holding a 50.1% interest in the securities issued upon closing of the April Private Placement shall have the right to appoint an individual to our management team, subject to Board approval.
Capital Expenditures
The nature of our operations does not require significant expenditures on capital assets, nor do we typically enter into significant commitments to acquire capital assets. We do not have material commitments to acquire capital assets as of June 30, 2026.
Material Cash Requirements
Except as described below, there have been no material changes in our reported material cash requirements as described under “Liquidity and Capital Resources – Material Cash Requirements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2025 Form 10-K.
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Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any relationships with any organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
There have been no material changes to the items disclosed as critical accounting policies and estimates under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2025 Form 10-K.
Recently Issued Accounting Standards
As an “emerging growth company”, the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. 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.
Our analysis of recently issued accounting standards is more fully described in our condensed consolidated financial statements included elsewhere in this Report.
Non-GAAP Financial Measures
Adjusted EBITDA and Non-GAAP Adjusted Diluted Net Income Per Share
Adjusted EBITDA, a measure used by management to assess the Company’s operating performance, is defined as EBITDA, which is net income plus interest expense, depreciation and amortization, less income tax benefit (if any), adjusted to exclude: (i) gain from settlement of license liabilities and other agreements; (ii) gain from sale of gaming licenses; (iii) impairment of intangible assets; (iv) loss contingency expenses; (v) loss (gain) on foreign exchange rates; and (vi) stock-based compensation expenses.
Non-GAAP Adjusted diluted net income per share, another measure used by management to assess the Company’s operating performance, is defined as diluted net income per share plus depreciation and amortization, adjusted to exclude: (i) gain from settlement of license liabilities and other agreements; (ii) gain from sale of gaming licenses; (iii) impairment of intangible assets; (iv) loss contingency expenses; (v) loss (gain) on foreign exchange rates; and (vi) stock-based compensation expenses.
Adjusted EBITDA and Non-GAAP Adjusted diluted net income per share (the “Non-GAAP Measures”) are not financial measures defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Reconciliations of these Non-GAAP Measures to net income and diluted net income per share, their most directly comparable financial measures, calculated and presented in accordance with U.S. GAAP, are presented in the tables below. We use the Non-GAAP Measures to manage our business and evaluate our financial performance, as Adjusted EBITDA and Non-GAAP Adjusted diluted net income per share eliminate items that affect comparability between periods that we believe are not representative of our core ongoing operating business. Additionally, we believe that using the Non-GAAP Measures is useful to our investors because it enhances investors’ understanding and assessment of our normalized operating performance and facilitates comparisons to prior periods and our competitors’ results (who may define Adjusted EBITDA and Non-GAAP Adjusted diluted net income per share differently).
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The Non-GAAP Measures are not recognized terms under U.S. GAAP and do not purport to be an alternative to revenue, income/loss from operations, net 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 Measures are not intended to be measures of free cash flows available for our discretionary use, as they do not consider certain cash requirements, such as interest payments, tax payments, working capital requirements and debt service requirements. The Non-GAAP Measure have limitations as an analytical tool, and investors should not consider them in isolation or as a substitute for our results as reported under U.S. GAAP. Management compensates for the limitations of using the Non-GAAP 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 Non-GAAP Measures may not be comparable to other similarly titled measures of other companies.
The tables below provide reconciliations between net income and adjusted EBITDA, and diluted net income per share and Non-GAAP Adjusted diluted net income per share:
Three Months Ended June 30, 2026 | Three Months Ended June 30, 2025 | |||||||
| Net income | $ | 243,199 | $ | 4,238,172 | ||||
| Interest expense, net | 15,891 | 4,740 | ||||||
| Depreciation and amortization (1) | 237,050 | 253,935 | ||||||
| EBITDA | 496,140 | 4,496,847 | ||||||
| Gain from Wesco Settlement Agreement | - | (800,000 | ) | |||||
| Loss (gain) on foreign exchange rates | 225,675 | (2,328,115 | ) | |||||
| Stock-based compensation | 37,644 | - | ||||||
| Adjusted EBITDA | $ | 759,459 | $ | 1,368,732 | ||||
| (1) | Includes $229,739 and $242,238 of amortization expenses included in cost of revenues for the three months ended June 30, 2026 and 2025, respectively. |
Reconciliation between GAAP and Non-GAAP Adjusted diluted net income per share:
Three Months Ended June 30, 2026 | Three Months Ended June 30, 2025 | |||||||
| Diluted net income per share | $ | 0.08 | $ | 0.82 | ||||
| Depreciation and amortization | 0.05 | 0.05 | ||||||
| Gain from Wesco Settlement Agreement | - | (0.17 | ) | |||||
| Loss (gain) on foreign exchange rates | 0.05 | (0.45 | ) | |||||
| Stock-based compensation | 0.01 | - | ||||||
| Non-GAAP Adjusted diluted net income per share | $ | 0.19 | $ | 0.25 | ||||
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| Net income | $ | 1,194,772 | $ | 5,260,785 | ||||
| Interest expense, net | 19,096 | 17,750 | ||||||
| Depreciation and amortization (1) | 413,099 | 505,992 | ||||||
| EBITDA | 1,626,967 | 5,784,527 | ||||||
| Gain from settlement of purchase commitment liabilities | - | (175,460 | ) | |||||
| Gain from HC2 Holdings 2 Inc. Settlement Agreement | - | (500,000 | ) | |||||
| Gain from Wesco Settlement Agreement | - | (800,000 | ) | |||||
| Impairment of intangible assets | 27,928 | - | ||||||
| Loss (gain) on foreign exchange rates | 173,666 | (3,302,878 | ) | |||||
| Stock-based compensation | 412,675 | - | ||||||
| Adjusted EBITDA | $ | 2,241,236 | $ | 1,006,189 | ||||
| (1) | Includes $399,271 and $476,169 of amortization expenses included in cost of revenues for the six months ended June 30, 2026 and 2025, respectively. |
Reconciliation between GAAP and Non-GAAP Adjusted diluted net income per share:
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| Diluted net income per share | $ | 0.13 | $ | 1.26 | ||||
| Depreciation and amortization | 0.08 | 0.12 | ||||||
| Gain from settlement of purchase commitment liabilities | - | (0.04 | ) | |||||
| Gain from HC2 Holdings 2 Inc. Settlement Agreement | - | (0.12 | ) | |||||
| Gain from Wesco Settlement Agreement | - | (0.19 | ) | |||||
| Impairment of intangible assets | 0.01 | - | ||||||
| Loss (gain) on foreign exchange rates | 0.03 | (0.79 | ) | |||||
| Stock-based compensation | 0.08 | - | ||||||
| Non-GAAP Adjusted diluted net income per share | $ | 0.33 | $ | 0.24 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer, Chief Financial Officer and Chief Accounting and Compliance Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2026. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting and Compliance Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2026 because of the material weaknesses in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as discussed in Part II, Item 9A, “Controls and Procedures” of the 2025 Form 10-K, and that continued to exist as of June 30, 2026.
Remediation of Material Weaknesses
We have not yet remediated the material weaknesses relating to (i) our failure to design and maintain effective monitoring procedures and controls to evaluate the effectiveness of our individual control activities; (ii) a lack of sufficient number of personnel with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely; and (iii) documentation of certain complex accounting analyses and significant accounting positions that were not contemporaneously reviewed independently of the preparer. We are actively engaged in the design and implementation of remedial measures to address the material weaknesses in our internal control over financial reporting. We are committed to improving our internal control processes and resolving our control deficiencies, including the material weaknesses identified above.
To date, we have taken and will continue to take the actions described below to remediate the identified material weaknesses. As the remediation efforts are ongoing, we will continue to evaluate and work to improve our internal control over financial reporting and may implement additional measures, or modify the remedial actions described below, as considered appropriate, to remediate the identified material weaknesses.
Steps taken to remediate the remaining material weaknesses include actions related to designing and maintaining effective monitoring procedures and controls to evaluate and monitor the effectiveness of our individual control activities, and minimum documentation requirements for significant accounting positions and management estimates, including consideration of underlying assumptions and judgments, where applicable, that are used in the financial statement preparation and reporting process. In addition, we have engaged qualified risk advisory consultants and technical accounting personnel, with experience in evaluating internal controls over financial reporting, along with hiring additional accounting staff, to further assist with our remediation efforts by independently assessing our monitoring procedures and controls, verifying segregation of duties are appropriately considered, and through performing tests of internal controls, verifying reviews over certain complex accounting analyses and significant accounting positions are performed by an independent reviewer, with an appropriate level of accounting knowledge, training, and experience.
We continue to evaluate the design and operating effectiveness of internal controls across various business processes and accordingly, our management plans to continue its efforts to remediate the identified material weaknesses and remains committed to improving our internal control processes, activities and resolving identified deficiencies.
If not remediated, or if we identify further material weaknesses in our internal controls, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our consolidated financial statements and a failure to meet our reporting and financial obligations. We plan to make continued progress in the coming months on the remediation plans described in our 2025 Form 10-K, under Part II, Item 9A, “Controls and Procedures.”
Limitations on the Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act during the quarter ended June 30, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows, except as otherwise disclosed in this Report. In light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period. See Note 9 – Commitments and Contingencies – Litigation in our condensed consolidated financial statements in this Report for additional information.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in “Risk Factors” in Part I, Item 1A of the 2025 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in the 2025 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and the trading price of our Class A common stock.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. In connection with the audit of our consolidated financial statements for the years ended December 31, 2025 and 2024, we identified certain material weaknesses in our internal control over financial reporting that continue to exist. The material weaknesses identified relate to (i) our failure to design and maintain effective monitoring procedures and controls to evaluate the effectiveness of our individual control activities; (ii) a lack of sufficient number of personnel with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely; and (iii) documentation of certain complex accounting analyses and significant accounting positions that were not contemporaneously reviewed independently of the preparer. Our Chief Executive Officer, Chief Financial Officer and Chief Accounting and Compliance Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2026 because of the material weaknesses in our internal control over financial reporting as discussed in Part II, Item 9A, “Controls and Procedures” of the 2025 Form 10-K, and that continue to exist as of June 30, 2026.
If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports and applicable listing requirements, investors may lose confidence in our financial reporting, and the share price of our Class A common stock may decline as a result. In addition, we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources. See Part II, Item 9A – “Controls and Procedures – Management’s Annual Report on Internal Control over Financial Reporting” of our Annual Report on Form 10-K for the year ended December 31, 2025 and Item 4 of this Quarterly Report on Form 10-Q for further information on material weaknesses and our remediation plans.
We depend on a relatively small number of franchises for a significant portion of our revenues and profits.
We follow a franchise model and a significant portion of our revenues has historically been derived from products based on a relatively small number of popular franchises, including our Le Mans Ultimate franchise, which now accounts for the majority of our revenue. For the three months ended June 30, 2026 and 2025, revenues associated with our Le Mans Ultimate franchise accounted for approximately 75% and 76% of our total revenue, respectively. For the three months ended June 30, 2026, our top three customers accounted for 83% of our revenues. For the three months ended June 30, 2025, our top two customers accounted for 81% of our revenues. For the six months ended June 30, 2026 and 2025, revenues associated with our Le Mans Ultimate franchise accounted for approximately 76% and 78% of our total revenue, respectively. For the six months ended June 30, 2026 our top three customers accounted for 83% of our revenues, and for the six months ended June 30, 2025 our top two customers accounted for 84% of our revenues. No other customer accounted for 10% or more of our revenues in those periods. Our top three customers accounted for approximately 88% of our accounts receivable as of June 30, 2026 and our top four customers accounted for approximately 98% of our accounts receivable as of December 31, 2025. No other customer accounted for 10% or more of our accounts receivable in those periods. A reduction in sales from or loss of these customers would have a material adverse effect on our results of operations and financial condition.
Due to this dependence on a limited number of franchises, the failure to achieve anticipated results by one or more products based on these franchises, or the loss of any franchise, especially our main customers, could negatively impact our business. Additionally, if the popularity of a franchise declines, we may have to write off the unrecovered portion of the underlying intellectual property assets, which could negatively impact our business. 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.
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Certain provisions in our Certificate of Incorporation, our Amended and Restated Bylaws and Delaware law could limit attempts by our stockholders to replace or remove our board of directors or current management and limit the market price of our Class A common stock.
Provisions in our Certificate of Incorporation and Amended and Restated Bylaws may have the effect of delaying or preventing changes in our board of directors or management including, but not limited to:
| ● | establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting (other than proposals to be included in our proxy statement pursuant to Rule 14a-8 under the Exchange Act at stockholders’ meetings), including proposed nominations of persons for election to our board of directors; | |
| ● | requiring that stockholders who wish to bring stockholder proposals, including proposed nominations, before an annual meeting comply with the advance notice and procedural requirements set forth in the Amended and Restated Bylaws; | |
| ● | authorizing an individual acting as chairman of a meeting of our stockholders to, for any or no reason, adjourn, recess, postpone, or cancel any such meeting; | |
| ● | creating a classified board of directors of two staggered classes; | |
| ● | prohibiting cumulative voting in the election of directors; | |
| ● | providing our board of directors with the exclusive ability to fill director vacancies; | |
| ● | prohibiting our stockholders from calling special meetings of stockholders; and | |
| ● | prohibiting our stockholders from acting by written consent. |
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.
Our stockholder rights plan, along with certain provisions of our Certificate of Incorporation and Amended and Restated Bylaws and Delaware law could discourage, delay, or prevent a change in control that stockholders may consider favorable, which could adversely affect the trading price of our Class A Common Stock.
On July 22, 2026, our Board of Directors approved and adopted the Rights Agreement and authorized and declared a dividend distribution of one Right for each outstanding share of the Class A Common Stock to stockholders of record as of the close of business on August 3, 2026. The complete terms of the Rights are set forth in the Rights Agreement, dated as of July 22, 2026, with ClearTrust, LLC, a Florida limited liability company, as rights agent. In general terms, subject to certain exceptions, the Rights Agreement imposes significant dilution upon any person or group (other than us and certain other Exempt Persons (as defined in the Rights Agreement)), that becomes the beneficial owner of twelve and a half percent (12.5%) or more of the Class A Common Stock following our first public announcement of the adoption of the Rights Agreement. The term “beneficial ownership” is defined in the Rights Agreement and includes, among other things, certain derivative arrangements. The significant dilution caused by the exercise of the rights makes an unsolicited acquisition of the company prohibitively expensive without approval from our Board of Directors. In connection with the Rights Agreement, on July 22, 2026 our Board also designated a new series of participating preferred stock. In addition, the Amended and Restated Bylaws adopted on July 22, 2026, among other things, enhance our advance notice procedures and disclosure requirements for stockholder nominations and proposals. We are also subject to provisions of Delaware law that may have anti-takeover effects.
These provisions, alone or in combination, could make it more difficult, or discourage, a merger, tender offer, or assumption of control by a substantial holder of our securities, or for our stockholders to change the composition of our Board, even in a transaction that some or all of our stockholders might consider to be in their best interests or in which our stockholders might receive a premium over the then-current market price of our Class A Common Stock. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our Class A Common Stock and could adversely affect the market price of our common stock and the ability of our stockholders to realize a premium for their shares.
As a result, third parties may be deterred from pursuing a merger, tender offer, or takeover attempt that stockholders might otherwise deem to be in their best financial interest.
Our Board of Directors has the authority to issue “blank check” preferred stock, which could dilute the voting power and economic rights of holders of our Class A Common Stock and delay or prevent a change in control.
Our Certificate of Incorporation authorizes our Board of Directors to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions thereof—including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, and sinking fund terms—without any further vote or action by the holders of our Class A Common Stock.
The issuance of shares of preferred stock could adversely affect the holders of our Class A Common Stock in several ways, including:
| ● | Dilution of Voting Power and Ownership: If preferred shares are issued with super-voting rights or are convertible into a large block of Class A common stock, the voting power of existing holders of our Class A Common Stock will be diluted. | |
| ● | Economic Subordination: Shares of preferred stock typically carry dividend preferences and liquidation preferences over common stock. In the event of a liquidation, dissolution, or winding up of the Company, preferred stockholders would be entitled to receive their contractual distributions before any distribution is made to holders of our Class A Common Stock. | |
| ● | Anti-Takeover Effect: The authority to issue preferred stock without stockholder approval can be used as an anti-takeover defense (such as issuing a new series of preferred stock to a friendly investor or issuing preferred stock pursuant to the Rights Agreement). This could delay, deter, or prevent a merger, tender offer, or change in control that stockholders might otherwise consider to be in their best interests, including transactions that might offer a premium over the prevailing market price of our Class A Common Stock. |
As of the date of this filing, our Board of Directors has no immediate plans or commitments to issue any shares of preferred stock other than pursuant to the Rights Agreement. However, we cannot assure you that our Board of Directors will not issue preferred stock in the future.
Actions of activist stockholders could be disruptive and costly and could adversely affect our results of operations, financial condition, and/or share price
While we strive to maintain constructive communications with our stockholders, we may, from time to time, be subject to demands from activist stockholders. Any activist campaign against the Company that contests, conflicts with, or seeks to change, our board composition, leadership, strategic direction, or business mix could have an adverse effect on us because: (i) responding to actions by activist stockholders could disrupt our operations, be costly or time-consuming, or divert the attention of our board of directors and senior management from their regular duties, including diverting their attention from the operation of our business and the execution of our strategic plans, which could adversely affect our results of operations or financial condition; (ii) perceived uncertainties as to our future direction, including as a result of possible changes to the composition of our board, may lead to the perception of a change in the direction of the business or lack of continuity, any of which may be exploited by our competitors, cause concern to our customers, employees, and/or business partners and result in the loss of potential business opportunities, or make it more difficult to attract and retain qualified personnel and business partners, and may adversely affect our relationships with vendors, customers, business partners, and other third parties; (iii) these types of actions could cause significant fluctuations in our share price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business; and (iv) if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively implement our business strategy and create additional value for our stockholders.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the quarter ended June 30, 2026, other than as reported in our Current Reports on Form 8-K filed with the SEC.
Purchases of Equity Securities
The following table sets forth information regarding repurchases of the Company’s Class A Common Stock during the quarter ended June 30, 2026:
ISSUER PURCHASES OF EQUITY SECURITIES
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
| April 1–30, 2026 | 904,395 | (1) | $ | 4.11 | - | - | ||||||||||
| May 1–31, 2026 | - | - | - | - | ||||||||||||
| June 1–30, 2026 | - | - | - | - | ||||||||||||
| Total | 904,395 | $ | 4.11 | - | - | |||||||||||
| (1) | On April 22, 2026, we repurchased 904,395 shares of Class A common stock at a price of $4.11 per share. Such repurchase was not part of a publicly announced repurchase plan or program. For further information, see the section titled “Recent Events” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations above. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Indemnification Agreements
On August 12, 2026, the Board approved a form of indemnification agreement (the “Indemnification Agreement”) to be entered into between the Company and our directors and executive officers for the purpose of providing our directors and executive officers with, among other things, contractual rights to indemnification and expense advancement and reimbursement, to the fullest extent permitted by applicable law.
The Indemnification Agreement clarifies and supplements the indemnification coverage provided in our Certificate of Incorporation and Amended and Restated Bylaws. Among other things, the Indemnification Agreement requires us to indemnify our directors and executive officers to the fullest extent permitted by applicable law against all direct and indirect losses, liabilities, damages, expenses, judgments, awards, penalties (whether civil, criminal, or other), fines, reasonable fees and expenses of attorneys, and amounts paid in settlement actually and reasonably incurred by any such person in connection with any threatened, asserted, pending, or completed action, suit, claim, counterclaim, cross-claim, investigation (including any internal investigation), inquiry, hearing, mediation, arbitration, other alternative dispute mechanism, or other proceeding, whether civil, criminal, administrative, regulatory, arbitrative, legislative, investigative, or otherwise, and whether formal or informal, and any appeal of any kind therefrom, arising out of their service to us or to any other entity to which they provide services at our request.
Subject to certain limited exceptions, the Indemnification Agreement also provides for the mandatory advancement of expenses (including attorneys’ fees) incurred by a director or executive officer in defending any such proceeding in advance of its final disposition, upon receipt of an undertaking by or on behalf of the indemnified party to repay such advanced amounts if it is ultimately determined by a final judicial decision from which there is no further right of appeal that such person is not entitled to indemnification by us for such amounts pursuant to the Indemnification Agreement or under applicable law.
The Indemnification Agreement also establishes procedures for applying for indemnification, determines the allocation of the burden of proof, sets forth presumption standards in favor of the indemnified party, and clarifies that our obligations under the Indemnification Agreement are primary to any rights of recovery an indemnified party may have from secondary sources.
The Indemnification Agreement provides that the indemnification rights provided thereunder are not exclusive of any other rights that an indemnified person may have under any statute, provision of our Certificate of Incorporation or Amended and Restated Bylaws, any agreement, or vote of stockholders or disinterested directors, or otherwise.
The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Indemnification Agreement, a copy of which is filed as Exhibit 10.7 to this Report and is incorporated herein by reference.
RSU Award Agreement
Also on August 12, 2026, the Board approved a new form of award agreements (the “RSU Agreement”) to be used for the grant of restricted stock units (“RSUs”) to directors and executive officers under our Amended and Restated 2021 Equity Incentive Plan (the “Plan”). The RSU Agreement was adopted in order to facilitate our grant of RSU awards with a variety of terms and vesting criteria as permitted by the Plan. The RSU Agreement provides that, notwithstanding any contrary provision of the RSU Agreement or the Plan, an employment agreement, a change of control agreement, or other written document, upon a termination of employment or service, all RSUs which have not vested prior to or in connection with such termination shall thereupon automatically be forfeited, terminated and cancelled as of the applicable termination date without payment of any consideration by us. The RSU Agreement additionally provides that any RSUs or Shares delivered in settlement thereof are subject to potential forfeiture or recovery to the fullest extent called for by applicable law, any applicable listing standard, or any current or future clawback policy that may be adopted by us. The foregoing description of the RSU Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of RSU Agreement, a copy of which is filed as Exhibit 10.8 to this Report and is incorporated herein by reference.
Rule 10b5-1 Trading Plans
During
the three months ended June 30, 2026, none of our directors or officers (as defined in Exchange Act Rule 16a-1(f))
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Item 6. Exhibits
| Incorporated by Reference | ||||||||||||
| Exhibit Number | Description | Form | File No. | Exhibit Number | Filing Date | Filed/Furnished Herewith | ||||||
| 3.1.1 | Certificate of Incorporation of Motorsport Games Inc. | S-1/A | 333-251501 | 3.3 | 1/11/21 | |||||||
| 3.1.2 | Certificate of Amendment to the Certificate of Incorporation of Motorsport Games Inc. | 8-K | 001-39868 | 3.1 | 11/10/22 | |||||||
| 3.1.3 | Certificate of Amendment to the Certificate of Incorporation, as amended, of Motorsport Games Inc. | 8-K | 001-39868 | 3.1 | 5/26/26 | |||||||
| 3.1.4 | Certificate of Designations of Series A Participating Preferred Stock of Motorsport Games Inc. dated July 22, 2026. | 8-K | 001-39868 | 3.1 | 7/23/26 | |||||||
| 3.2.1 | Bylaws of Motorsport Games Inc. | S-1/A | 333-251501 | 3.4 | 1/11/21 | |||||||
| 3.2.2 | Amendment No. 1 to the Bylaws of Motorsport Games Inc. | 8-K | 001-39868 | 3.2 | 11/10/22 | |||||||
| 3.2.3 | Amendment No. 2 to the Bylaws of Motorsport Games Inc. | 8-K | 001-39868 | 3.2 | 5/26/26 | |||||||
| 3.2.4 | Amended and Restated Bylaws of Motorsport Games Inc., as adopted on July 22, 2026 | 8-K | 001-39868 | 3.1 | 7/23/26 | |||||||
| 4.1 | Preferred Stock Rights Agreement, dated as of July 22, 2026, by and between Motorsport Games Inc. and ClearTrust, LLC, as Rights Agent | 8-K | 001-39868 | 4.1 | 7/23/26 | |||||||
| 10.1 | Share Repurchase Agreement, dated April 22, 2026, by and between Motorsport Games Inc. and Driven Lifestyle Group LLC | 8-K | 001-39868 | 10.1 | 4/23/26 | |||||||
| 10.2 | Amendment to the Amended and Restated Motorsport Games Inc. 2021 Equity Incentive Plan | 8-K | 001-39868 | 10.2 | 4/23/26 | |||||||
| 10.3 | Amendment to Business Loan Agreement, dated June 15, 2026, by and between Motorsport Games Inc. and Citibank, N.A. | 8-K | 001-39868 | 10.2 | 6/18/26 | |||||||
| 10.4 | Amendment to Promissory Note, dated June 15, 2026, in favor of Citibank, N.A. | 8-K | 001-39868 | 10.4 | 6/18/26 | |||||||
| 10.5 | Statement of Terms and Conditions of Employment, dated June 17, 2026, by and between Motorsport Games Ltd and Peter Hansen-Chambers | 8-K | 001-39868 | 10.1 | 6/18/26 | |||||||
| 10.6 | First Amendment to Executive Employment Agreement, dated June 18, 2026, by and between Motorsport Games Inc. and Stanley Beckley | 8-K | 001-39868 | 10.2 | 6/18/26 | |||||||
| 10.7 | Form of Director and Officer Indemnification Agreement | X | ||||||||||
| 10.8 | Form of Restricted Stock Unit Award Agreement | X | ||||||||||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act | X | ||||||||||
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | X | ||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | X | ||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 14, 2026 | MOTORSPORT GAMES INC. | |
| By: | /s/ Stephen Hood | |
| Stephen Hood | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Peter Hansen-Chambers | |
| Peter Hansen-Chambers | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| By: | /s/ Stanley Beckley | |
Stanley Beckley | ||
| Chief Accounting and Compliance Officer | ||
(Principal Accounting Officer) | ||
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