MSGM 10-K & 10-Q changes, risk factors and insider trading

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

We willmay require additional capital to meet our financial obligations, and this capital might not be available on acceptable terms or at all.

We expect to continue to incur losses for the foreseeable future as we continue to incur significant expenses. Accordingly, as a result of our financial condition, we willmay need to engage in equity and/or debt financing arrangements or similar transactions (collectively, “Capital Financing”) to secure additional funds to continue our existing business operations and to fund our obligations. Other than the line of credit that Therewe entered into with Citibank, N.A. (the “Citibank Line of Credit”), there are currently no commitments in place for future financing and there can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all. In addition, there can be no assurance that we will be able to comply with the covenants that we are required to comply with in order to access the Citibank Line of Credit.

Even if we do secure additional Capital Financing, our liquidity position may continue to be insufficient to satisfy our future capital requirements requirements if our anticipated level of revenues is not achieved because of, for example, decreased sales of our products due to the disposition of key assets, such as the sale of our NASCAR License, further changes in our product roadmap and/or our inability to deliver new products for our various other licenses; less than anticipated consumer acceptance of our offering of products and events; less than effective marketing and promotion campaigns, decreased consumer spending in response to weak economic conditions or weakness in the overall electronic games category; adverse changes in foreign currency exchange rates; decreased sales of our products and events as a result of increased competitive activities by our competitors; changes in consumer purchasing habits, such as the impact of higher energy prices on consumer purchasing behavior; retailer inventory management or reductions in retailer display space; less than anticipated results from our existing or new products or from its advertising and/or marketing plans; or if our expenses, including, without limitation, for marketing, advertising and promotions, or product returns or price protection expenditures,returns, exceed the anticipated level of expenses.

LimitsRestrictions on our borrowing capacity under the $12Credit millionAgreement Linewith of CreditCitibank may affect our ability to finance our operations.

In order to remain competitive, we must continuously develop new products or enhancements to our existing products. Consumer preferences for games are usually cyclical and difficult to predict, and even the most successful content remains popular for only a limited period of time unless refreshed or otherwise enhanced. These products or enhancements may not be well-received by consumers, even if well-reviewed and of high quality. Further, competitors may develop content that imitates or competes with our best-selling games, potentially taking sales away from us or reducing our ability to charge the same prices we have historically charged for our products. These competing products may take a larger share of consumer spending than anticipated, which could cause product sales to fall below expectations. If we do not continue to develop consistently high-quality and well-received games, if our marketing fails to resonate with our consumers, if consumers lose interest in a genre of games we produce, if the use of cross-promotion within our mobile games to retain consumers becomes less effective, or if our competitors develop more successful products or offer competitive products at lower prices, our revenues and profit margins could decline. For example, our NASCAR 21: Ignition game released in October 2021 was generally not well-received and, as a result, our revenues for the years ended December 31, 2024 and 2023 were adversely affected due to lower game sales. Further, a failure by us to develop a high-quality product, or our development of a product that is otherwise not well-received, could potentially result in additional expenditures to respond to consumer demands, harm our reputation, and increase the likelihood that our future products will not be well- received. The increased importance of downloadable content to our business amplifies these risks, as downloadable content for poorly-received games typically generates lower-than-expected sales. In addition, our own best-selling products could compete with our other games, reducing sales for those other games.

Consumer expectations regarding the quality, performance and integrity of our products and services are high. Consumers may be critical of our brands, games, services and/or business practices for a wide variety of reasons, and such negative reactions may not be foreseeable or within our control to manage effectively. For example, if our games or services, such as our creation and organization of esports leagues and events, do not function as consumers expect, whether because they fail to function as advertised or otherwise, our sales may suffer,suffer. as was the case with our NASCAR 21: Ignition game as discussed above. If any of these issues occur, consumers may stop playing the game and may be less likely to return to the game as often in the future, which may negatively impact our business.

Additionally, delays in product releases or disruptions following the commercial release of one or more new products could negatively impact our business, our revenues and reputation and could cause our results of operations to be materially different from expectations. This is particularly the case where we seek to release certain products in conjunction with key events, such as the beginning of a racing season or a major racing event. If we fail to release our products in a timely manner, or if we are unable to continue to improve our existing games by adding features and functionality that will encourage continued engagement with these games, our business may be negatively impacted. Moreover, if we or our third-party developers experience unanticipated development delays, financial difficulties, or additional costs, for example as a result of the COVID-19a pandemic or the current labor supply constraints affecting many industries, we may not be able to release titles according to our schedule and at budgeted costs. There can be no assurance that our products will be sufficiently successful so so that we can recoup these costs or make a profit on these products.

Our business is subject to economic, market and geopolitical conditions, which are beyond our control. In particular, our product purchases are predominately driven by discretionary spending by consumers. We believe that consumer spending is influenced by general economic conditions and the availability of discretionary income. This makes our products particularly sensitive to general economic conditions and economic cycles as consumers are generally more willing to make discretionary purchases, including purchases of products like ours, during periods in which favorable economic conditions prevail. Adverse economic, market and geopolitical conditions, such as a prolonged U.S. or international general economic downturn, whether or not caused by the COVID-19a pandemic or geopolitical issues, including the ongoing wars between Russia and Ukraine and between Israel and Hamas, could result in further periods of increased inflation, unemployment levels, tax rates, interest rates, energy prices, or declining consumer confidence, which would also reduce consumer spending. Reduced consumer spending may in the future result in reduced demand for our products and may also require increased selling and promotional expenses, which has had and may continue to have an adverse effect on our business, financial condition and operating results. In addition, during periods of relative economic weakness, our consolidated credit risk, reflecting our counterparty dealings with distributors, customers, capital providers and others may increase, perhaps materially so. Furthermore, uncertainty and adverse changes in the economy could also increase the risk of material losses on our investments, costs associated with developing and publishing our products, the cost and availability of sources of financing, and our exposure to material losses from bad debts, any of which could have a material adverse effect on our business, financial condition and operating results. If economic conditions worsen, our business, financial condition and operating results could be adversely affected.

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 NASCARLe products,Mans Ultimate franchise, which havenow historically accountedaccounts for the majority of our revenue. revenue. For the years ended December 31, 20242025 and 2023,2024, revenues associated with our NASCARLe Mans Ultimate franchise accounted for approximately 52%78% and 72%34% of our total revenue, respectively. For the years ended December 31, 20242025 and 2023,2024, sales through our threetwo main distribution channels accounted for approximately 86% and 46% of our consolidated revenues, respectively. Two other distribution channels accounted for 40% of our revenues for the year ended December 31, 2024. For the years ended December 31, 2025 and 2024, sales through our two main distribution channels accounted for approximately 86%76% and 83% of our consolidated revenues, respectively. No other distribution channel accounted for 10% or more of our revenues in those periods. For the years ended December 31, 2024 and 2023, sales through our three main distribution channels accounted for approximately 77% and 89%45% of our accounts receivable, respectively. NoOne other distribution channel accounted accounted for 10% or more12% of our accounts receivable inas thoseof periods.December 31, 2025 and two other distribution channels accounted for 32% of our accounts receivable for the year ended December 31, 2024. A reduction in sales from or loss of these distribution channels would have a material material adverse effect on the Company’s 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 two main distributors, 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.

Most of our products and services are based on or incorporate intellectual property owned by others. For example, we have obtained exclusive exclusive licenses to develop multi-platform games, as well as to create and organize esports leagues and events, for the 24 Hours of Le Mans race and the WEC. Competition for these licenses and rights is intense and could result in increased minimum guarantees and royalty rates payable to licensors and developers, which would significantly increase our costs and reduce our profitability. Furthermore, if we are unable to maintain these licenses and rights or obtain additional licenses or rights with significant commercial value, our ability to develop successful and engaging games and services may be adversely affected and our revenue, profitability and cash flows may decline significantly. For example, as discussed elsewhere in this Report, we sold our NASCAR License to iRacing on October 3, 2023 and our cash flows and results of operations will likely be materially adversely impacted as we anticipate no more revenues to be generated by our existing NASCAR products subsequent to December 31, 2024. Additionally, our BTCC license agreement and INDYCAR license agreements were terminated by the respective licensors, effective November 2023.

We plan to derive significant revenues from the distribution of certain of our future products on third-party mobile and web platforms, such as the Apple App Store, Steam, and the Google Play Store, and Facebook.Store. These platforms may also serve as significant online distribution platforms platforms for, and/or provide other services critical for the operation of, a number of our games. If these platforms modify their current or future discovery mechanisms, communication channels available to developers, operating systems, terms of service or other policies (including fees), or they develop their own competitive offerings, our business could be negatively impacted. Additionally, if these platform providers are required to change how they label free-to-play games or take payment for in-app purchases or change how the personal information information of consumers is made available to developers, our business could be negatively impacted.

Many elements of our business are unique, evolving and relatively unproven. In particular, our esports business and prospects will depend on the continuing development of live streaming of competitive esports gaming. During 2025 and 2024, we did not generate any revenue from esports and there can be no assurance that we will be able to generate revenue from esports in the future. The market for esports and amateur online gaming competitions is relatively new and rapidly developing and is subject to significant challenges. Our Ouresport business relieswill rely upon our ability to cultivate and grow an active gamer community, and our ability to successfully monetize such community, including, for example, through tournament fees, subscriptions for our esports gaming services, and advertising and sponsorship opportunities. In addition, our continued growth of our esports business depends, in part, on our ability to respond to constant changes in the esports gaming industry, including rapid technological evolution, continued shifts in gamer trends and demands, frequent introductions of new games and titles and the constant emergence of new industry standards and practices. Developing and integrating new games, titles, content, products, services or infrastructure could be expensive and and time-consuming, and these efforts may not yield the benefits we expect to achieve. We cannot assure you that we will succeed in any of these aspects or that the esports gaming industry will continuegenerate to grow as rapidly as it hasrevenue in the past.future or grow.

We plan to continue to generate a portion of our revenues from advertising and sponsorship during our esports events. If we fail to attract more advertisers and sponsors to our gaming platform, tournaments or competitions, our revenues may be adversely affected.

We plan to continue to generate a portion of our revenues from advertising and sponsorship during our esports events as online viewership viewership of our esports gaming offerings expand. Our revenues from advertising and sponsorship will partly depend on the continual development of the online advertising industry and advertisers’ willingness to allocate budgets to online advertising in the esports gaming industry. In addition, companies that decide to advertise or promote online may utilize more established methods or channels, such as more established internet portals or search engines, over advertising on our gaming platform. If the online advertising and sponsorship market does not continue to grow, or if we are unable to capture and retain a sufficient share of that market, our ability to increase our current level of advertising and sponsorship revenue and our profitability and prospects may be materially and adversely affected.

Because we are a consumer brand, we rely on marketing and advertising to increase brand visibility with potential customers. We currently advertise through a blend of direct and indirect advertising channels, including through activities on Facebook, Twitter,X (formerly Twitter), Twitch, YouTube and other online social networks, online advertising, public relations activity, print and broadcast advertising, coordinated in-store and industry promotions (including merchandising and point of purchase displays), participation in cooperative advertising programs, direct response vehicles, and product sampling through demonstration software distributed through the Internet or the digital online services provided by our partners. If we are unable to recover our marketing costs, or if our broad marketing campaigns are not successful or are terminated, it could have a material adverse effect on our growth, results of operations and financial condition.

We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. In addition, addition, laws and regulations relating to user privacy, electronic contracts and communications, mobile communications, data collection, retention, consumer protection, and publishing activities, including production and delivery of content, advertising, localization, and information security have been adopted or are being considered for adoption by many jurisdictions and countries throughout the world. These laws, including the General Data Protection Regulation and the California Consumer Privacy Act, which have restrictedmay restrict our ability to gather and use data about our users, and could harm our business by limiting the products and services we can offer consumers or the manner in which we advertise and offer them. Data privacy, data protection, localization, security and consumer-protection laws are evolving, and the interpretation and application of these laws in the United States (including compliance with the California Consumer Privacy Act), Europe (including compliance with the General Data Protection Regulation), and elsewhere often are uncertain, contradictory and changing. It is possible that these laws may be interpreted or applied in a manner that is adverse to us or otherwise inconsistent with our practices, which could result in litigation, regulatory investigations and potential legal liability or require us to change our practices in a manner adverse to our business. As a result, our reputation and brand may be harmed, we could incur substantial costs, and we could lose both gamers and revenue. Furthermore, the costs of compliance with these laws may increase in the future as a result of changes in interpretation. As our business expands to include new uses or collection of data that are subject to privacy or security regulations, our compliance requirements and costs will increase, and we may be subject to increased regulatory scrutiny. The online gaming industry in particular has attracted regulatory attention regarding issues such as in-game purchases, age verification, and the protection of younger players, and additional regulation in these areas could impact our business practices or product offerings. Any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant legal liability.

In the course of our business, we may collect, process, store and use gamer and other information, including personally identifiable information, passwords and credit card information. Our security controls, policies and practices may not be able to prevent the improper or unauthorized access, acquisition or disclosure of such information. The unauthorized access, acquisition or disclosure of this information, or a perception that we do not adequately secure this information, could result in legal liability, costly remedial measures, governmental and regulatory investigations, harm our profitability and reputation and cause our financial results to be materially affected. In addition, third-party vendors and business partners receive access to information that we collect. These vendors and business partners may not prevent data security breaches with respect to the information we provide them or fully enforce our policies, contractual obligations and disclosures regarding the collection, use, storage, transfer and retention of personal data. A data security breach of one of our vendors or business partners could cause reputational harm to them and/or negatively impact our credibility to our gamer community.community as well as subject us to significant legal and financial exposure.

We rely on data servers, including those owned or controlled by third parties, to enable our customers to download our games and other downloadable content, to access our online gaming platform, and to operate other products with online functionality. Events such as limited hardware failure, any broad-based catastrophic server malfunction, a significant intrusion by hackers that circumvents security measures, or a failure of disaster recovery services would likely interrupt the functionality of our games with online services and could result in a loss of sales for games and related services. An extended interruption of service could materially adversely affect our business, financial condition and operating results. See the risk factor titled “—Risks Related to Our Business and Industry—A significant disruption in service on our website or platforms could damage our reputation and result in a loss of traffic and visitors, which could harm our business, brand, operating results and financial condition” for additional information.

Natural disasters, cyber-incidents, weather events, wildfires, power disruptions, telecommunications failures, public health outbreaks, such as the COVID-19a pandemic, failed upgrades of existing systems or migrations to new systems, acts of terrorism, acts of war, including the ongoing wars between Russia and Ukraine and between Israel and Hamas, geopolitical and social turmoil or other events could cause outages, disruptions and/or degradations of our infrastructure, including our or our partners’ information technology and network systems, a failure in our ability to conduct normal business operations, or the closure of public spaces in which players engage with our games and services. The health and safety of our employees, suppliers, business partners and others could also be affected, which may prevent us from executing our business strategies or cause a decrease in consumer demand for our products and services. For example, several of our key locations experienced temporary closures as a result of the COVID-19 pandemic. Additionally, throughout the initial outbreak of the COVID-19 pandemic, several retailers experienced reduced operating hours and/or other restrictions as a result of the COVID-19 pandemic, which negatively impacted the sales of our products from such retailers primarily in 2020 and 2021. Further, system redundancy may be ineffective and our disaster recovery and business continuity planning may not be sufficient for all eventualities. Such failures, disruptions, closures, or an inability to conduct normal business operations could also prevent access to our products, services or online platforms selling our products and services, cause delays or interruptions in our product or live services offerings, allow breaches of data security or result in the loss of critical data. An event that results in the disruption or degradation of any of our critical business functions or information technology systems and harms our ability to conduct normal business operations or causes a decrease in consumer demand for our products and services could materially impact our reputation and brand, financial condition and operating results.

Driven Lifestyle currently owns all of the shares of our Class B common stock and 1,480,3851,214,699 shares of our Class A common stock, which together represents approximately 83.28%66.0% of the combined voting power of both classes of our common stock as of March 20,6, 2025.2026. Our Our Class B common stock has ten times the voting power per share of our Class A common stock. As long as Driven Lifestyle continues to to control a majority of the voting power of our outstanding common stock, it will generally be able to determine the outcome of all corporate actions requiring stockholder approval, including the election and removal of directors. Even if Driven Lifestyle were to control less than a majority of the voting power of our outstanding common stock, it may be able to influence the outcome of such corporate actions so long as it owns a significant portion of our common stock. In the event Driven Lifestyle or its affiliates relinquish beneficial ownership of any of the DL Initial Class A Shares at any time, one share of Class B common stock held by Driven Lifestyle will be cancelled for each such DL Initial Class A Share no longer beneficially owned by Driven Lifestyle or its affiliates. If, however, Driven Lifestyle does not dispose of its DL Initial Class A Shares, it could remain our controlling stockholder for an extended period of time or indefinitely. If Driven Lifestyle were to sell all of its shares of Class A common stock, and all shares of Class B common stock are cancelled, then any stockholder that acquires all of the shares of Class A common stock sold by Driven Lifestyle would have significant influence over our Company, including the election of directors and the approval of mergers, consolidations and the sale of all or substantially all of our assets, and if Driven Lifestyle’s Class A common stock were sold to anyone already holding a large number of shares of Class A common stock, the sale could result in a change of control.

As of December 31, 2024,2025, we had intangible assets, net of $3.4$3.8 million. We are required under accounting principles generally accepted in the United States of America (“U.S. GAAP”) to review our intangible assets when events or changes in circumstances indicate the carrying value may not be recoverable. Some factors that may be considered events or changes in circumstances that would require our intangible assets to be reviewed for impairment include, among other, general economic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific factors such as changes to our product road map and restructuring changes, and changes in our share price. We may be required to record non-cash impairment charges during any period in which we determine that our intangible assets are impaired, which has had, and in the future could have, a material adverse impact on our results of operations. For example, for the year ended December 31, 2023, we recorded impairment of intangible assets of $4.0 million.

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 detected and corrected on a timely basis. In connection with the audit of our consolidated financial statements for the yearyears 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 and; (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; timely.and (iii) documentation of certain complex accounting analyses and significant accounting positions that were not contemporaneously reviewed independently of the preparer.

We may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our IPO,IPO (December 31, 2026), though we may cease to be an emerging growth company earlier under certain circumstances, including if (i) we have $1.235 billion billion or more in annual revenue in any fiscal year, (ii) we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act; or (iii) we issue more than $1.0 billion of non- convertible debt over a three-year period.

Any delisting of our Class A common stock from NASDAQ,Nasdaq, including as a result of our inability to regainmaintain compliance with the Stockholders’ Equity Requirement, could adversely affect our ability to attract new investors, reduce the liquidity of our outstanding shares of Class A common stock, reduce our ability to raise additional capital, reduce the price at which our Class A common stock trades, result in negative publicity and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholders. We cannot assure you that our Class A common stock, if delisted from NASDAQ,Nasdaq, will be listed on another national securities exchange or quoted on an over-the-counter quotation system. In addition, delisting of our Class A common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our Class A common stock and might deter certain institutions and persons from investing in our securities at all. For these reasons and others, delisting could adversely affect our business, financial condition and liquidity.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, the Citibank Credit Agreement imposes certain limits on our ability to pay dividends. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

We are subject to a requirement, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to conduct an annual review and evaluation of our internal control over financial reporting and furnish a report by management on, among other things, our assessment of the effectiveness of our internal control over financial reporting each fiscal year. However, for as long as we are an emerging growth company or a non-accelerated filer,smaller reporting company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b). Ensuring that we have adequate internal control over financial reporting in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that must be evaluated frequently. Establishing and maintaining these internal controls will be costly and may divert management’s attention.

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 multi-platform racing video games including for game consoles, personal computers (PCs) and mobile platforms through various retail and digital channels, including full-game and downloadable content (“DLC”). We have obtained the official licenses to develop multi-platform games for the 24 Hours of Le Mans race and the WEC. We are also striving to become a leader in organizing and facilitating esports tournaments, competitions, and events for our licensed racing games.

We continually evaluate our planned product release schedule and modify the timing of upcoming products based on developments in our business, or if we believe it will result in a better consumer experience. The sale of our NASCAR License and the termination of our BTCC License and INDYCAR License, as disclosed elsewhere in this Report, has impacted our long-term product release schedule as we will no longer be producing NASCAR, BTCC and INDYCAR titles moving forward.

WeIn derivethe past, we derived most of our revenue from the sale of products made for PCs and video game consoles manufactured by third parties, such as Sony Interactive Entertainment Inc.’s (“Sony”) PlayStation and Microsoft Corporation’s (“Microsoft”) Xbox Xbox consoles, which comprised approximately 45%2% and 62%45% of our total revenue for the years ended December 31, 20242025 and 2023,2024, respectively. For the years ended December 31, 20242025 and 2023,2024, the sale of products for Microsoft Windows via Steam comprised approximately 45%64% and 27%44% of our total revenue, respectively, and the sale of products forvia mobile platformsGenba comprised approximately 2%18% and 4%1% for the years ended December 31, 20242025 and 2023.2024. We expect to derive the vast majority of our revenues via Steam and Genba during the next twelve months. The success of our business is dependent upon consumer acceptance of video game console/PC platforms and continued growth in the installed base of these platforms. When new hardware platforms are introduced, such as those released by Sony and Microsoft in November 2020, demand for interactive entertainment used on older platforms typically declines, which may negatively affect our business during the market transition to the new consoles. The latest generation of Sony and Microsoft consoles provide “backwards compatibility” (i.e., the ability to play games for the previous generation of consoles), which could mitigate the risk of such a decline. However, we cannot be certain how backwards compatibility will affect demand for our products.

OurPrior to January 1, 2025, our NASCAR products have historically accounted for the majority of our revenue. However, we have worked to diversify our product offerings and revenue from other sources by introducing titles such as KartKraft, rFactor 2, Le Mans Ultimate andto the 24 Hours of Le Mans Virtual esports event to our portfolio of product offerings and thereby reducing our dependency on the NASCAR franchise as our substantially sole source of revenue. Revenues For example, revenues associated with our NASCARLe Mans Ultimate franchise accounted for approximately 52%78% and 72%34% of our total revenue for the years ended ended December 31, 20242025 and 2023,2024, respectively. FollowingWe theaim saleto ofexplore ourways NASCARto Licensecapitalize on new trends and the termination of the NASCAR New Limited License, which allowed us to sell our NASCAR games and DLCs that were indiversify our product portfolio through December 31, 2024, we do not anticipate any more revenues to be generated by NASCAR products.mix.

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 yearsyear ended December 31, 20242025, andsubstantially 2023,all of our revenue from sales of video games for PCs was through digital channels. For the year ended December 31, 2024, approximately 88% of our revenue from sales of video games for game consoles and PCs was through digital channels. We believe this trend of increasing direct digital downloads is primarily due to benefits relating to convenience and accessibility that digital downloads provide. 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.

We are strivingintend to becomegenerate afuture leaderrevenue infrom organizing and facilitating esports tournaments, competitions, and events for our licensed racing 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 or24, 2024/25 or 2025/26 seasons, we currently plan on organizing the 20252026/2627 Le Mans Virtual Series to commence this year. We also intend to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans.

Our business model includes revenue that we deem recurring in nature, which historically consisted primarily of revenue from our annualized NASCAR video game racing franchise for game consoles, PC, and mobile platforms.platforms, 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. Following the sale of our NASCAR License and 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. theWe plannedplan to introductiondrive ofongoing newengagement annualizedand incremental sportsrevenue franchisefrom games,recurrent suchconsumer asspending withon Leour Mans.titles through in-game purchases, RaceControl subscription offerings and extra content.

We have historically derived substantially all of our revenue from sales of our games and related extra content that can be played by customers on a variety of platforms, including game consoles, mobile phones, PCs and tablets. Starting in 2019, we began generating sponsorship revenues from our production of live and virtual esports events; however, during 2025 and 2024 we did not generate any revenue for esports events as we did not organize any such events. In early 2022, we also began offering software development services for racing simulators.simulators and in December 2024, we started offering a subscription service via RaceControl, our matchmaking and online racing platform.

Cost of revenues for our Gaming segment is primarily comprised of royalty expenses, whichlicense historicallyfees, hasweb beenhosting attributable to our NASCAR License prior to its salecosts and amortization of certain acquired license agreements and other thirdintangible partiesassets relatingacquired tothrough our NASCARvarious racingacquisitions seriesand games.internally-developed software. Cost of revenues for in 2024 from our Gaming segment is also comprised of merchant fees, disk manufacturing costs, packaging costs, web hosting costs, shipping costs, warehouse costs, distribution fees to distribute products to retail stores, and mobile platform fees fees associated with our mobile revenue (for transactions in which we are acting as the principal in the sale to the end customer) and. amortization of certain acquired license agreements and other intangible assets acquired through our various acquisitions. 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 expenses are primarily composed of salaries, benefits and related taxes of our in-house marketing teams, advertising, marketing, and promotional expenses, including fees paid to social media platforms, Driven Lifestyleplatforms and other websites where we market our products.

General and administrative expenses consist primarily of salaries, benefits and other costs associated with our operations including,including finance, human resources, information technology, public relations, legal audit and compliance fees, facilities, and other external general and administrative services.

Gaming segment revenues represented 100% and 95.8% of our total 20242025 and 20232024 revenues, respectively, increasing by $2.1$2.6 million, or 31.2%, 30.0%, when compared to the prior year. The increase in Gaming segment revenues was primarily due to $3.0a $5.8 million increase in digital2025 game and downloadable content sales relating tofrom sales of our Le Mans Ultimate racing title released on PC in February 2024, particularly DLC sales, which were higher compared to 2024, and $1.2 million from RaceControl, offset by $0.5a $4.4 million and $0.4 milliondecrease in lower revenues forin NASCAR2025 andrelated rFactorto 2NASCAR, titles,a respectively.gaming title we are no longer authorized to sell starting in 2025.

Gaming segment segment cost of revenues represented 100%96.0% and 89.6%90.9% of our total 20242025 and 20232024 cost of revenues, respectively, decreasing by less than $0.1$0.9 million, or 0.6%,31.4%, when compared to the prior year. The decrease in Gaming segment cost of revenues was primarily driven by a $0.7decrease millionin amortization and a reduction in royalty and licensing fees,payments, mainly related to our NASCAR titles as a direct result of lowerno significant game sales for the franchise in 2025 compared to the prior year, offset by an increase of $0.7 million in amortization.period.

Esports segment cost of revenues represented 0%4.0% and 10.4%9.1% of our total 20242025 and 20232024 cost of revenues, respectively, decreasing by $0.4$0.2 million, million, or 100%,71.8%, when compared to the prior year. The decrease in Esports segment cost of revenues was dueprimarily todriven usby nota organizing an LMVS eventdecrease in 2024.amortization of our Le Mans license.

Gross Profit (Loss)

Consolidated gross profit was $5.5$9.2 million and $3.3$5.5 million for 20242025 and 2023,2024, respectively, an increase of $2.2$3.8 million, or 66.1%,68.5%, when compared to to the prior year. GrossTotal gross profit margin was 62.9%81.5% in 2024,2025, compared to 47.6%62.9% in 2023.2024. The increase in our Gaming segment gross profit of $2.4 $3.5 million, and correspondingan increase in gross profit margin, was primarily due to higher gamingrevenues revenues,and particularlya reduction in amortization and royalty payments, mainly related to increased digitalour gameNASCAR revenuestitles as a direct result of theno releasesignificant of Le Mans Ultimate on PC in February 2024. The increase in gross profit for the Gaming segment was also attributable to lower cost of revenues due to decreased royalty payments resulting from the decrease in NASCAR game sales for the franchise in 2025 compared to the prior year.period.

Sales and marketing expenses were $0.7$0.6 million and $1.7$0.7 million for 20242025 and 2023,2024, respectively, representing a $1.0$0.1 million, or 56.3% 15.5% decrease when compared to the prior year. The reduction in sales and marketing expenses was primarily driven by a $0.9$0.1 million reduction in payroll and employee-related expense as a result of lower headcount, as well as a $0.1 million reduction in software expenses, when compared to the prior year.

Development expenses were $3.4$1.8 million and $7.2$3.4 million for 20242025 and 2023,2024, respectively, representing a decrease of $3.9$1.6 million, million, or 53.3%,47.9%, when compared to the prior year. The reduction in development expense was was primarily driven by a $2.8$1.1 million decreasecapitalization of development costs in payroll as a result of lower headcount,2025, as well as a $1.1$0.4 million decrease in external development services, when compared to the prior year. Development expenses in 2024 were charged to expense because technological feasibility was not reached. Once technological feasibility was reached in 2025, relevant development costs were capitalized and amortized to cost of revenue over the estimated lives of the products.

Other operating income was $1.6 million for 2025, compared to $0.8 million for 2024, comparedan to $3.0 million for 2023, a decreaseincrease of $2.2$0.8 million compared to the prior year.period. Other operating income of $1.6 million for 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. Other operating income of $0.8 million for 2024 is comprised of $0.5 million related to the sale of our NASCAR License to iRacing in October 2023 and a $0.3 million gain from the sale of Traxion, which was our motorsport and racing games community content platform, in April 2024. Other operating income of $3.0 million for 2023 is entirely comprised of the gain related to the sale of our NASCAR License to iRacing in October 2023.

Interest ExpenseExpense, Net

Other comprehensive incomeloss was $1.1$2.7 million for 2024,2025, compared to other comprehensive lossincome of $1.0$1.1 million for 2023.2024. The $2.1$3.8 million increase in other comprehensive incomeloss was primarily due to activity in our U.K. and Netherlands subsidiaries, and represents unrealized foreign foreign currency translation adjustments.

Net loss attributable to non-controlling interest was $0.3approximately million$83,000 and $295,000 for 20242025 and $02024, forrespectively, 2023.and The variance wasis attributed to an increase in net losses in the Le Mans Esports Series Ltd joint venture.

Following After our IPO,IPO in 2021, we have financed our operations primarily through cash generated from operations, advances from Driven Lifestyle pursuant to the the $12 million Line 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 an additional $3 million provided we meet the requirements for use of the line of credit.

For the year ended December 31, 2025, we generated net income of $6.8 million and positive cash flows from operations of approximately $4.1 million. As of December 31, 2025, we had an accumulated deficit of $84.9 million and cash and cash equivalents of $5.0 million, which increased to $6.0 million as of February 28, 2026. We expect that our cash on hand 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.

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 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 andOfficer, Chief Financial Officer and Chief Accounting and Compliance Officer have concluded that our disclosure controls and procedures were not effective as of MarchJune 31,30, 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 continued continue to exist as of MarchJune 31,30, 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.2026.

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. revenue. For the three months ended MarchJune 31,30, 2026 and 2025, revenues associated with our Le Mans Ultimate franchise accounted for approximately 76% 75% and 82%76% of our total revenue, respectively. For the three months ended MarchJune 31,30, 2026 and 2025,2026, 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 84%approximately 76% and 86%78% of our total revenue, respectively. For the six months ended June 30, 2026 our top three customers accounted for 83% of our revenues, respectively.and for the six months ended June 30, 2025 our top two customers accounted for 84% of our revenues. No other distribution channelcustomer accounted for 10% or more of our revenues in those periods. Our top three customers accounted for Ourapproximately 88% of our accounts receivable as of June 30, 2026 and our top four customers accounted for approximately 99% and 98% of our accounts receivable as of March 31, 2026 and December 31, 2025, respectively.2025. No other distribution channelcustomer accounted for 10% or more of our accounts receivable in those periods. A reduction in sales from or loss of these distribution channelscustomers 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 two main distributors,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.

Certain provisions in our charterCertificate documentsof 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 certificateCertificate of incorporationIncorporation and bylawsAmended and Restated Bylaws may have the effect of delaying or preventing changes in our board of directors or management including, but not limited to:

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.

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 purchasedrepurchased 904,395 shares of our Class A common common stockstock, heldpar byvalue Driven$0.0001 Lifestyleper share (the “Class A SharesCommon Stock”)., held by Driven Lifestyle. The Repurchase Agreement provided for thesuch Sharesshares 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 thesuch shares of Class A Shares,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 capacity as the holder of at least two thirdstwo-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:

Also at the Annual Meeting our stockholders approved the exercise of the Series A Warrants, the Series B Warrants, and the Placement Agent Agent Warrants (each as defined below) 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, and the Series B Warrants will expire on October 25, 2027.2027 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.

Revenues associated with our Le Mans Ultimate franchise accounted for approximately 76%75% and 82%76% of our total revenue for the three months ended June March30, 31,2026 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.

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 MarchJune 31, 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 digital downloads provide. In addition, as part of our digital business strategy, we aim to drive ongoing engagement and incremental revenue revenue from recurrent consumer spending on our titles through in-game purchases and extra content.

We intend to generate futureesports revenuerevenues 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.

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.

We derive substantially all of our revenue from sales of our games and related extra content that can be played by customers on a PC platform. StartingWe inalso 2019, we began generatinggenerate sponsorship revenues revenues from our production of live and virtual esports events; however, during 2025 and 2024 we did not generate any revenue for esports events as we did not organize any such events. In early 2022, weWe also began offeringoffer software development services for racing simulators and in December 2024, we started offeringoffer a subscription service via RaceControl, our matchmaking and online racing platform.

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.

Three Months Ended MarchJune 31,30, 2026 compared to Three Months Ended MarchJune 31,30, 2025

In this section, references to 2026 refer to the three months ended MarchJune 31,30, 2026 and references to 2025 refer to the three months ended MarchJune 31,30, 2025.

Consolidated revenues were $4.0$3.5 million and $1.8$2.6 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $2.3 $0.9 million, or 129.3%,36.6%, when compared to the prior period. The increase in Gaming segment revenues was primarily due to a $1.6$0.6 million increase in sales of Le Mans Ultimate, which was mainly driven by a $1.9 million increase in downloadable content revenues offset by a $0.3 million decrease in base game sales, as well as a $0.7$0.4 million increase in RaceControl subscriptions, offset by a $0.1 million decrease in sales of our rFactor 2 title compared to 2025.

Consolidated cost of revenues was $0.6 million and $0.5 million for the three months ended June 30, 2026 and 2025, respectively, whichan primarily consistsincrease of $0.1 amortizationmillion, andor royalty41.7%, expenseswhen compared to the same period in boththe periods.prior year.

Consolidated gross profit was $3.5$2.9 million and $1.3$2.1 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $2.2 $0.8 million, or 171.8%,35.5%, when compared to the prior period. Gross profit margin was 87.2%81.8% in 2026, compared to 73.5%82.4% in 2025. The increase in our Gaming segment gross profit of $2.2$0.8 million, and an increase in gross profit margin, was primarily due to higher revenuesrevenues, offset by increases in web hosting, development and alicense reduction in amortization,fees, compared to the same period in the prior period.year.

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 115.3%,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 expenses were $0.5$0.7 million and $0.6$0.3 million for the three months ended June 30, 2026 and 2025, respectively, representing a $0.1 $0.4 million, or 14.6%,172.7%, decreaseincrease when compared to the prior period. The reductionincrease in development expenses was primarily driven by a $0.3 million increase in payroll and employee-related expenses and $0.1 million decreaseincrease in externalweb developmenthosting costs costs, when compared to the prior period.

General and administrative (“G&A”) expenses were $1.7$1.3 million and $1.2$0.9 million for the three months ended June 30, 2026 and 2025, respectively, an increase of $0.5 $0.4 million, or 45.4%,52.8%, when compared to the prior period. The increase in G&A expenses was primarily driven by a $0.4$0.3 million increase in stock-based compensationpayroll and aemployee-related expenses and $0.1 million increase in payroll,legal and professional fees, compared to the prior period.