Another quarterly earnings call, another unsettling moment for Motorsport Games. The Miami-headquartered racing game developer and publisher held its third quarter 2022 financial earnings call today (18th November 2022).
“Based on the cash and cash equivalents available as of October 31, 2022, and the Company’s [Motorsport Games] average cash burn, we do not believe we have sufficient cash on hand to fund our operations for the remainder of 2022 and that additional funding will be required in order to continue operations,” read the supplementary statement.
CEO Dmitry Kozko explained that several funding options are being investigated.
“We continue to explore all options available,” said Kozko on the call.
“Those options still include different types of debt financing, there’s a couple of options in equity type of financing, there are options from the main shareholder with the existing credit line – however, of course, we’re not sure if there’s going to be the ability or not to fund, that is something that’s up to them.
“All those options are still on the table, they are being explored… We have to come up and announce something fairly quickly here to continue to support the growth of this business.”
In September, Motorsport Games received a $3 million cash advance from Motorsport Network – the parent company that owns seven million shares in the gaming offshoot.
This was from a “previously disclosed $12 million Line of Credit, the proceeds of which the Company [Motorsport Games] plans to use for general corporate purposes and working capital.”
In the three months, July to September 2022 (ending 30th September), the company’s net loss was $8.5 million and its adjusted Earnings before interest, taxes, depreciation, and amortization (EBITDA) loss was $6.5 million.
“The Company [Motorsport Games] has cash and cash equivalents available of approximately $1.8 million,” read the press release.
During the year – aside from rFactor 2 downloadable content, releasing KartKraft in January and the running of the Le Mans Virtual Series – the decision to skip a year for the main NASCAR game and push back its planned BTCC game to 2024 meant potential revenue drivers have not materialised
All the while, the company continues to invest in development. In fact, development expenditure has increased year-to-date up until Q3 compared to 2021 by $1.6 million.
“The Company expects to continue to incur losses for the foreseeable future as it continues to develop its product portfolio and invest in developing new video game titles,” read the associated financial statement.
Board exits
The multiple-real-world-licence holding publisher has come under scrutiny of late following a Form 8-K filed with the States Securities and Exchange Commission.
It explains that Neil Anderson, Peter Moore and Francesco Piovanetti resigned from its board of directors, after being asked to do so by majority shareholder and parent company Motorsport Network. This followed an as-yet undisclosed disagreement pertaining to future investment proposals.
“The main shareholder pretty much asked the independent board members to resign, as a result of a disagreement,” said Kozko on the Q3 2022 earnings call.
“Those members have accepted that and that’s what you’ve seen in the recent news.
“According to the Nasdaq letter, [we have] 45 days to provide a plan to the Nasdaq staff on how we would will fill at least two other seats to be in compliance with our audit committee composition of three of such members,”
“We are actively having conversations with those type of candidates.”
As per the filing, the company has until 29th December to submit a new plan of sustenance in order to comply with the Nasdaq Capital Market’s listing requirements. If the plan is approved, an extension of up to 180 days could be granted to find independent board members.
On the flip side, failing to comply could see the company listed on other markets or seek an alternative structure.
“The focus continues to remain, from my side of the office, to solve our liquidity and I’m exploring all of those available options.”
Figures don’t include recent releases
It’s worth noting that the Q3 2022 figures reported today (18th November) exclude the sales of Switch-exclusive NASCAR Rivals which launched on 14th October, the release of a second season of paint schemes for NASCAR 21: Ignition which started on 26th October and the Q4 content drop for rFactor 2 released 7th November.
The developer also plans to release a paid DLC 2022 Cup Series pack for NASCAR Heat 5, which was recently delayed. An official IndyCar game, 24 Hours of Le Mans experience plus a new NASCAR title are planned for a 2023 launch.
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