Greetings, and welcome to Motorsport Games Inc. Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce to Ken Godskind. Thank you, Ken. You may begin. Thank you, and welcome to Motorsport Games third quarter 2022 earnings conference call and webcast. On today’s call is Dmitry Kozko, Motorsport Games’ Executive Chairman, CEO and interim CFO. By now, everyone should have access to the Company’s third quarter 2022 earnings press release filed today after market close. This is available on the Investor Relations section of Motorsport Games website at www.motorsportgames.com. During the course of this call, management may make forward-looking statements within the meaning of the U.S. federal securities laws. These statements are based on management’s current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Except as required by law, the Company undertakes no obligation to update any forward-looking statements made on this call or to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to today’s press release and the Company’s filings with the SEC for the quarter ended September 30, 2022 for a detailed discussion of certain risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. In today’s conference call, we will refer to certain non-GAAP financial measures such as adjusted EBITDA as we discuss the third quarter 2022 financial results. You will find a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures as well as other related disclosures in the press release issued earlier today. And now, I’d like to turn the call over to Dmitry. Dmitry?

Thank you, everyone, for joining us on our Q3 2022 earnings call. Times around the world are definitely unprecedented. And to start the call, I’d like to say that I’m proud of the team that we have gathered here at Motorsport Games, which has demonstrated to be resilient and passionate in spreading the joy of racing to the masses. We continue to stay focused and to invest in our product development. The Company’s priorities are launching games and esports experiences that fans enjoy and want to bring their friends into. This past quarter, we were busy finalizing products that we’ve been working on for months prior to it. For example, in Q3, we announced that we would launch NASCAR Rivals, a new NASCAR game for Nintendo Switch platform on October 14th, and I’m happy to report that we were able to release this exciting game on time and on budget. Adding to the momentum from previous year’s NASCAR game on Switch, we were able to add over 450 target stores to our distribution channels when compared to the previous year’s title. Additionally, throughout Q3, we continued to work diligently on improving our NASCAR 21: Ignition game, to patch bugs, increase content availability, and enhance the gaming experience for our players. In an effort to increase our fans engagement with NASCAR 21: Ignition game for Xbox, PlayStation and PC, we released the 2022 Season Update DLC free of charge to the existing owners of the game. We believe this was a necessary investment for the long run, as our NASCAR license is not due to renew until 2030. Additionally, we shifted gears and started to work on our NASCAR 2023 title, while at the same time we have been hard at work developing our INDYCAR and 24 Hours Le Mans gaming experiences. Motorsport Games is committed to being good stewards of these iconic racing brands. And our commitment extends to our fans that have been patient with us to deliver them the gaming experience they deserve. Thank you for those who support us and believe in us. It means a lot to the team here. On an esports front, we’ve been making big strides. In Q3, we launched our 2022 into 2023 Le Mans Virtual Series, which boasts another star packed grid and increased viewership from the year before. We thank our sponsors who came along for the ride and who allowed us to continue to increase the production and entertainment value of this exciting racing series. We also thank all participants and supporters of those participants for making this an exhilarating experience. In Q3, we ramped up our activities where the fans are at the tracks. We made sure to bring the latest BTCC content on rFactor 2 for the fans to try at the four recent BTCC events. Now, BTCC content is available for all on rFactor 2. Motorsport Games also showcased interactive INDYCAR game content at two recent INDYCAR events in Indianapolis and St. Louis. Eager to showcase our 2022 NASCAR content to our NASCAR fans, we recently attended five NASCAR races, running a nail-biting competition on our NASCAR Rivals game. We’re also pleased to announce that we have just completed our 1-for-10 reverse stock split on November 10th, with the goal to regain compliance with NASDAQ’s minimum closing price requirement for continuing listing. In September 2022, we announced the 2022 restructuring program to reduce our operating costs, which is expected to generate annualized cost reduction of approximately $4 million by the end of 2023. To date, we made good progress by achieving annualized savings of approximately $2.5 million and are continuing efforts to achieve further cost reductions. I’d like to now take the opportunity to discuss our financial results for Q3 2022 and our current liquidity position. Revenue for Q3 2022 was $1.2 million compared to $2.1 million for Q3 2021. The $0.9 million or 43% decrease in revenues was primarily due to $0.6 million of lower digital game sales, driven by lower sales volume and lower pricing, and an out-of-the-period adjustment of $0.3 million, correcting an immaterial overstatement of revenues in the three months ended June 30, 2022. Q3 2022 net loss was $8.5 million compared to Q3 2021 net loss of $6.7 million. The $1.8 million increase in net loss was primarily due to a $0.1 million increase in sales and marketing spend, a $0.8 million increase in foreign currency losses, a $0.6 million decrease in gross profit, a $0.1 million increase in interest expense, and a $1 million increase in loss contingency reserves. The increases in Q3 2022 expenses were partially offset by a $0.4 million decrease in development expenses, a $0.2 million decrease in other expenses, and a $0.1 million decrease in general and administrative expenses. Q3 2022 adjusted EBITDA loss was $6.5 million, which is a $1 million increase in loss when compared to Q3 2021 adjusted EBITDA loss of $5.5 million. The increase in adjusted EBITDA loss was primarily driven by the same factors causing the increase in Q3 2022 net loss. Revenues were $6.6 million and $6.9 million for the nine months ended September 30, 2022, and 2021, respectively, a decrease of $0.3 million or 4% when compared to the prior period. Gaming segment revenues decreased by $0.8 million or 12% to $5.9 million for the nine months ended September 2022, compared to $6.7 million for the nine months ended September 30, 2021. The decrease in our Gaming segment revenue is primarily due to lower retail revenues of $0.6 million, driven by higher retail pricing concessions, as well as a decrease in digital and mobile game sales of $0.8 million that was caused by lower volumes and pricing. These decreases were partially offset by $0.6 million in additional revenue earned through the development of simulation platforms for third parties. Our Esports segment revenues increased by $0.5 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase in our Esports segment revenue is due to $0.5 million of higher sponsorship revenues from our Le Mans virtual racing series events, which concluded its 2021 into 2022 season in January 2022 and commenced its 2022 into 2023 season in September 2022. Net loss for the nine months ended September 30, 2022, was $32 million compared to $26.7 million for the nine months ended September 30, 2021. The increase in net loss was driven by a $9.4 million increase in goodwill and intangible asset impairment, a $1.6 million increase in development expenditures, a $1.6 million increase in sales and marketing spend, a $1.4 million decrease in gains from equity method investment, a $1.7 million increase in foreign currency losses, a $1.1 million decrease in gross profit, a $0.3 million increase in interest expense, and a $1 million increase in loss contingency reserves. These increases were offset by $12.8 million of lower general and administrative expense. For Q3 year-to-date 2022, adjusted EBITDA loss was $18 million, a $6 million increase when compared to the $12 million adjusted EBITDA loss for Q3 year-to-date 2021. The increase in adjusted EBITDA loss was primarily driven by the same factors as the increase in net loss for Q3 year-to-date 2022, when compared to Q3 year-to-date 2021. We expect to continue to incur significant operating losses. As a result, we will need to grow our revenues to reach profitability and positive cash flows. We expect to continue to incur losses for the foreseeable future as we continue to develop our product portfolio and invest in the development of new game titles. As of October 31, 2022, the Company had approximately $1.8 million of cash and cash equivalents, which we believe is insufficient to fund our current operations for the remainder of 2022. We will need to supplement our available liquidity with additional debt and equity financing, cash generated by cost control initiatives, and additional changes to our product roadmap to reduce the working capital requirement. Thank you for joining us today. And now, let’s go to questions.

Thank you, sir. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Jason Tilchen with Canaccord. Please proceed with your question.

Thanks. Thanks for taking the question, Dmitry. I have a few. Just to start, maybe you could spend a minute talking about the reception and feedback you’ve gotten from consumers related to both the expansion pack in the first week of October and then the Switch title that you released in the week following that. How has the engagement trended so far, how sales of the Switch titles trended so far relative to your expectations?

Thanks, Jason. Thanks for the question. We are tracking as per our expectation. We’re monitoring the positive feedback from the community, mostly geared towards our Switch title. I had the pleasure to experience a very interesting competition at multiple events that we ran at the NASCAR track, where multiple of our products were showcased to the users. I got a chance to experience their actual live feedback, not just feedback behind Twitter walls or anything else, but realistically, I witnessed their eyes light up and other emotions that they expressed when they enjoyed the products. So, I could confidently say, Rivals is being received very well from the community and seems to be enjoyed. We do see an uptick in users playing the game, as well as the expansion pack. I think we are tracking that some users are actually appreciating what we’ve done with releasing 2022 content for the NASCAR Ignition game and not charging them for it. We do see that there is some appreciation for it.

Great. That’s very helpful. And the second one is just on the current financing situation. You mentioned in the press release the cash balance at the end of October sort of implies, given the burn rate that you’ll need to come up with a solution of the financing pretty soon here. So, maybe just give us an update on where that stands, the options you’re currently evaluating, and how that’s expected to play out?

You’re absolutely right with that. We’re continuing to explore all options available. Those options still include different types of debt financing. There are 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 an ability to fund. That is something that’s up to them. But all those options are still on the table and being explored. And you’re right in your assumption, we have to come up and announce something fairly quickly here to continue to support the growth of this business.

And you mentioned just in your prepared remarks about potential changes to the product roadmap. Could you maybe comment on how that fits in with the decision-making process here? Whether that would include a change to the 2023 NASCAR title, or is it more in relation to some of the other franchises you’re planning on launching next year? Thanks.

That’s another good question. We actually haven’t made any changes to the anticipated delivery dates of those products. What we have done is optimize the amount of tools that we invest in. So, basically, focusing on making our development processes more efficient, so they do not require as much time to develop the product as were previously anticipated. We have implemented more automation in testing processes and certain tools for our tracks, vegetation, and other elements that are necessary inside our racing games that are being created and populated as content within the game. Those are the type of efficiencies that we’re focused on, which basically allows us to get to the end result quicker. However, that speed is still on making sure that the products are well polished before we bring them to market. But we currently do not anticipate delays from what we have previously stated will be our 2023 releases.

Thank you. And the next question comes from the line of Michael Kupinski with Noble Capital Markets. Please proceed with your question.

Thank you. Most of my questions were already addressed, but I have a couple. In terms of the fact that you have such iconic titles, are you seeing any interest from other larger gaming companies in terms of the business? Are they reaching out to you at this point? Just wondering if there are other options outside of the ones that you just identified in terms of debt, changes in the product roadmaps, in terms of equity offerings, and others, if that’s also an option?

Thanks, Michael, for the question. One thing I could say is that all the usual suspects or the larger players in the industry are aware of us. We have had some form of communication with quite a few of them. We are exploring different types of options. I cannot particularly say which options they are, but I wouldn’t say there’s anything definitive. If some proposals come from their side, we would definitely explore.

And would those also include partnership agreements?

Sure. We have explored, not just with gaming companies, potential partnership agreements that could help provide additional liquidity, but we also explored conversations with distributors and other partners who would value having us as a partner because of the iconic brands, like you mentioned, that we carry and are stewards of.

Dmitry, when would you decide to delay product releases to reduce cash burn? At this point, I would assume you're limited in terms of that strategy to address the issues for this year. I would think you're mainly discussing 2023 and beyond. Am I incorrect?

We are concentrating on 2023 and ensuring the delivery of our products. All our resources are directed towards anything that will help us launch quality gaming experiences on schedule. Other priorities are secondary at this moment. We have already implemented what we wanted to achieve this year as part of our restructuring plan. Any future benefits will come from the efficiencies we are currently pursuing. We will keep exploring those options, but I do not foresee any actions that would lead to delays in our product releases.

Have you taken any further aggressive action to reduce costs in the last month or so? You mentioned trying to reduce cash burn, but have there been any other actions taken more recently regarding that?

No, not in particular. Everything that we anticipated with our 2022 restructuring plan has already been executed. Of course, we’ll continue to explore additional areas of savings to potentially further reduce our cash burn. However, the Company is currently in its lean position and focused on the development resources. In those areas, we are expanding and investing. Anything towards the better good of our product and future product roadmap is where the focus and resources are all going. We would not look to make any reduction in those areas because those are quite honestly our livelihood. We are a product-based company, and we have to bring those good products to market. Until we do so, we will continue to invest, so we’re incentivized to bring them as soon as possible without sacrificing quality or the gaming experience that our fans would enjoy.

And Dmitry, can you remind me, do you have in your product roadmap any additional products for this year, or are most of that being concentrated in 2023 at this point?

We have one more product release. We have seen our NASCAR franchise fans are still playing our 2020 title, the NASCAR Heat 5 title. Quite a few players are still enjoying themselves in there. So, we thought, why not give them a 2022 content update? We’re currently working on a couple of final polishes to deliver that content pack to them. This will be an interesting one, because our company in its history has not provided this type of update to a product that’s essentially two years old. But we recognize that’s what our players are enjoying. So, we’d like to give them some additional content that would further increase enjoyment.

Is there any marketing budget allocated for this specific product, or are you planning to offer it solely to the existing fan base and see how much promotional effort you would apply to an update like this?

We continue to spend our budgeted marketing cost until the end of the year. We have made some optimizations to such, taking some of those spends more towards the track experiences. This way, we get a chance to promote our products and gather feedback from actual users. Just like I mentioned before, these are events I enjoy participating in and seeing first-hand. That’s how we optimized it. But we are entering holiday sales very soon, so we do not want to reduce any of our marketing capabilities or efforts that we have already planned, to avoid decreasing the opportunity size we could seize from the holiday season. We are focusing as an entire company on product development, but we are not ignoring the upcoming holiday season, and our budgeted marketing spend towards that season will remain intact.

And Dmitry, you may not be able to answer this question, but I thought I’d ask it anyway. In terms of the cash burn then, can you give us your thoughts in terms of the cash burn for the upcoming quarter and what the shortfall might be?

So, as you know, Michael, we don’t give guidance numbers at this moment. But I think it’s fair to assume, as we go into Q4 and we just published our Rivals game, which does have costs attached to it regarding the physical game cards that we had to manufacture, produce, and distribute, our normal monthly burn rate is still around that $1.5 million range, like we previously stated. I think it’s fair to assume that, plus what we would potentially lay out or actually have for the creation of those game cards could move that needle somewhere between $1.5 million to $2 million on the monthly burn rate.

Got you. Thanks for the color, Dmitry, and good luck.

Thank you, Michael.

At this time, there are no further questions. And that concludes the question-and-answer session. This also concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.