Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 its 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. As of October 31, 2026, we have sold more than two million combined units of our Le Mans Ultimate base game and individual pieces of DLC. Additionally, we achieved an all-time peak of 11,941 concurrent players for Le Mans Ultimate during a 24 Hours of Le Mans Special Event, run entirely on our proprietary RaceControl platform in October 2026.

Our revenue for the three months ended September 30, 2026, was approximately $3.8 million, an increase of 21.8% compared to the three months ended September 30, 2025, and an increase of 6.7% compared to the three months ended June 30, 2026. Our revenue for the nine months ended September 30, 2026, was approximately $11.3 million, an increase of 52.3% compared to the nine months ended September 30, 2025. Our gross profit margin for the three months ended September 30, 2026, was 88.0%, compared with 80.7% for the three months ended September 30, 2025, and 85.8% for the nine months ended September 30, 2026, compared with 79.6% for the nine months ended September 30, 2025. Our income from operations for the three months ended September 30, 2026, was approximately $1.2 million, an increase of 52.4% compared to the three months ended September 30, 2025. The most recent quarter represents the sixth consecutive quarter in which we reported positive operating income. For the nine months ended September 30, 2026, our operating income was approximately $2.9 million, compared with approximately $2.7 million for the nine months ended September 30, 2025.

We have pursued recurring revenues through the development of our RaceControl platform. RaceControl subscription revenue for the nine months ended September 30, 2026, was approximately $2.0 million, compared with approximately $0.7 million for the nine months ended September 30, 2025, an increase of 186.2%. RaceControl subscription revenue represented 17.3% of our total revenue for the nine months ended September 30, 2026, compared with 9.2% for the nine months ended September 30, 2025. Based on monthly recurring revenue for October 2026 of approximately $282,000, RaceControl is on track to generate approximately $3.4 million in annual recurring revenue, compared with approximately $2.9 million based on monthly recurring revenue of approximately $245,000 for July 2026. As of September 30, 2026, RaceControl had more than 45,000 paid subscribers, an increase of approximately 157% compared with September 30, 2025.

Recent Events

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 Participating Preferred Stock, par value $0.0001 per share. 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 the Company's Form 8-K filed on July 23, 2026, 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' meeting.
	●	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 or recess any meeting of stockholders, and that our Board of Directors may, for any or no reason, postpone or cancel any meeting of stockholders upon public notice given prior to the time previously scheduled for such meeting.
	●	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 the Company's Form 8-K filed on July 23, 2026.

Equity Awards

On July 30, 2026, the Board of Directors granted an aggregate of 273,934 restricted stock units ("RSUs") to members of the Board in satisfaction of the equity compensation previously owed to each non-employee director for the fiscal years 2024 and 2025 and through July 2026 under our non-employee director compensation policy. Each RSU represents a contingent right to receive one share of Class A Common Stock and vests on January 1, 2027 (or for one director, 50% on January 1, 2027 and 50% on July 1, 2027), or earlier upon the occurrence of a change of control, subject to each director's continued service through the applicable vesting date.

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 - U.S. Track Pack 1 and Version 1.4		July 28, 2026, available on PC
Le Mans Ultimate - U.S. Track Pack 2 and Version 1.4.2		September 22, 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 75.1% and 75.4% of our total revenue for the three months ended September 30, 2026 and 2025, respectively, and for approximately 75.4% and 77.2% of our total revenue for the nine months ended September 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 nine months ended September 30, 2026 and 2025, substantially all of our revenue from sales of video games for 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.

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 have not organized Le Mans Virtual Series during the past few seasons, we have facilitated Esports events for others during this year. We also intend to continue exploring opportunities to expand our Esports segment outside of Le Mans. During the three and nine months ended September 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 September 30, 2026, we had more than 45,000 paid RaceControl subscribers. RaceControl revenues were approximately $2.0 million and $0.7 million for the nine months ended September 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.

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 September 30, 2026 compared to Three Months Ended September 30, 2025

Revenues

		For the Three Months Ended September 30,								Change
		2026				2025				$				%
Revenues:
Gaming		$	3,649,818			$	3,100,018			$	549,800				17.7	%
Esports			125,611				-				125,611				-	%
Total Revenues		$	3,775,429			$	3,100,018			$	675,411				21.8	%

Consolidated revenues were $3.8 million and $3.1 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $0.7 million, or 21.8%, when compared to the prior period. The increase in Gaming segment revenues was primarily due to a $0.5 million increase in sales of Le Mans Ultimate, as well as a $0.2 million increase in RaceControl subscriptions, offset by a $0.1 million decrease in sales of our rFactor 2 title compared to the three months ended September 30, 2025.

Esports revenues during the three months ended September 30, 2026 were approximately $126,000 and are the result of facilitating esports events for partners using our Le Mans Ultimate title.

Cost of Revenues

		For the Three Months Ended September 30,								Change
		2026				2025				$				%
Cost of revenues:
Gaming		$	426,769			$	597,817			$	(171,048	)			(28.6	)%
Esports			24,660				-				24,660				-	%
Total Cost of Revenues		$	451,429			$	597,817			$	(146,388	)			(24.5	)%

Consolidated cost of revenues was $0.5 million and $0.6 million for the three months ended September 30, 2026 and 2025, respectively, a decrease of $0.1 million, or 24.5%, when compared to the same period in the prior year.

The decrease in Gaming segment cost of revenues was mainly driven by decreases in developed technology amortization 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 September 30, 2026 of approximately $25,000 was related to expenses incurred facilitating esports events for partners using our Le Mans Ultimate title.

Gross Profit

		For the Three Months Ended September 30,								Change
		2026				2025				$				%
Gross Profit:
Gaming		$	3,223,049			$	2,502,201			$	720,848				28.8	%
Esports			100,951				-				100,951				-	%
Total Gross Profit		$	3,324,000			$	2,502,201			$	821,799				32.8	%

		For the Three Months Ended September 30,
		2026				2025
Gaming - Gross Profit Margin			88.3	%			80.7	%
Esports - Gross Profit Margin			80.4	%			NM
Total Gross Profit Margin			88.0	%			80.7	%

NM = not meaningful

Consolidated gross profit was $3.3 million and $2.5 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $0.8 million, or 32.8%, when compared to the prior period. Gross profit margin was 88.0% in the three months ended September 30, 2026, compared to 80.7% in the three months ended September 30, 2025. The increase in our Gaming segment gross profit of $0.7 million, and increase in gross profit margin, was primarily due to higher revenues and decreases in developed technology amortization, compared to the same period in the prior year.

Gross profit for the Esports segment during the three months ended September 30, 2026 of approximately $101,000 was related to revenues earned facilitating esports events for partners using our Le Mans Ultimate title.

Operating Expenses

		For the Three Months Ended September 30,								Change
		2026				2025				$				%
Operating Expenses:
Sales and marketing		$	237,005			$	136,024			$	100,981				74.2	%
Development			112,589				418,912				(306,323	)			(73.1	)%
General and administrative			1,749,092				1,142,867				606,225				53.0	%
Depreciation and amortization			7,520				9,450				(1,930	)			(20.4	)%
Total Operating Expenses		$	2,106,206			$	1,707,253			$	398,953				23.4	%

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 September 30, 2026 and 2025, respectively, representing a $0.1 million, or 74.2%, 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 $0.1 million and $0.4 million for the three months ended September 30, 2026 and 2025, respectively, representing a $0.3 million, or 73.1%, decrease when compared to the prior period. The decrease in development expenses was primarily due to a $0.7 million payment received under the United Kingdom's video games tax credit program, partially offset by a $0.2 million increase in payroll costs, and a $0.2 million increase in web hosting costs and employee-related expenses, when compared to the prior period.

General and Administrative

General and administrative ("G&A") expenses were approximately $1.7 million and $1.1 million for the three months ended September 30, 2026 and 2025, respectively, an increase of $0.6 million, or 53.0%, when compared to the prior period. The increase in G&A expenses was primarily driven by a $0.4 million increase in professional fees and a $0.1 million increase in stock compensation relating to the amortization of RSUs and PSUs during the period, net of a reversal of compensation expense as a result of the replacement of the directors equity compensation obligations, as well as a $0.1 million increase in filing and tax expenses when compared to the prior period.

Depreciation and Amortization

Depreciation and amortization expenses for the three months ended September 30, 2026 and 2025 reflect no significant changes to the depreciation of capital assets.

Other Operating Income

Other operating income for the three months ended September 30, 2026 and 2025 presented no significant changes.

Interest Expense

Interest expense was approximately $24,000 and $1,000 for the three months ended September 30, 2026 and 2025, respectively. Interest expense in the three months ended September 30, 2026 primarily relates to charges incurred as part of the business loan agreement with Citibank, N.A.

Other Expense, net

Other expense, net was $64,000 for the three months ended September 30, 2026, compared to other expense, net of $29,000 for the three months ended September 30, 2025, an increase of $35,000 compared to the prior period. Other expense, net was primarily comprised of foreign currency losses arising from remeasuring transactions denominated in a currency other than U.S. Dollars.

Provision for Income Taxes

Provision for income taxes of $0.5 million for the three months ended September 30, 2026 primarily relates to corporate tax expenses incurred by Studio397, our Dutch subsidiary, which mainly generated profit from foreign currency gains.

Other Comprehensive Income (Loss)

Other comprehensive income was approximately $33,000 for the three months ended September 30, 2026, compared to other comprehensive income of approximately $456,000 for the three months ended September 30, 2025. The decrease of approximately $423,000 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 $0.3 million and ($21,000) for the three months ended September 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 $9,087,000 as of September 30, 2026) as needed for development of video game products, which was fully funded as of September 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.

Nine Months Ended September 30, 2026 compared to Nine Months Ended September 30, 2025

Revenues

		For the Nine Months Ended September 30,								Change
		2026				2025				$				%
Revenues:
Gaming		$	11,184,792			$	7,450,311			$	3,734,481				50.1	%
Esports			161,888				-				161,888				-	%
Total Revenues		$	11,346,680			$	7,450,311			$	3,896,369				52.3	%

Consolidated revenues were $11.3 million and $7.4 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $3.9 million, or 52.3%, when compared to the prior period. The increase in Gaming segment revenues was primarily due to a $2.8 million increase in sales of Le Mans Ultimate, particularly from downloadable content revenues, as well as a $1.3 million increase in RaceControl subscriptions, offset by a $0.2 million decrease in sales of our rFactor 2 and KartKraft game titles, compared to 2025.

Esports revenues during the nine months ended September 30, 2026 were approximately $162,000 and are the result of facilitating esports events for partners using our Le Mans Ultimate title.

Cost of Revenues

		For the Nine Months Ended September 30,								Change
		2026				2025				$				%
Cost of revenues:
Gaming		$	1,523,183			$	1,518,090			$	5,093				0.3	%
Esports			89,811				-				89,811				-	%
Total Cost of Revenues		$	1,612,994			$	1,518,090			$	94,904				6.3	%

Consolidated cost of revenues was $1.6 million and $1.5 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $0.1 million, or 6.3%, when compared to the same period in the prior year.

Gaming segment cost of revenues for the nine months ended September 30, 2026 and 2025 presented no significant changes.

Esports cost of revenues during the nine months ended September 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 Nine Months Ended September 30,								Change
		2026				2025				$				%
Gross Profit:
Gaming		$	9,661,609			$	5,932,221			$	3,729,388				62.9	%
Esports			72,077				-				72,077				-	%
Total Gross Profit		$	9,733,686			$	5,932,221			$	3,801,465				64.1	%

		For the Nine Months Ended September 30,
		2026				2025
Gaming - Gross Profit Margin			86.4	%			79.6	%
Esports - Gross Profit Margin			44.5	%			NM
Total Gross Profit Margin			85.8	%			79.6	%

NM = not meaningful

Consolidated gross profit was $9.7 million and $5.9 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $3.8 million, or 64.1%, when compared to the prior period. Gross profit margin was 85.8% in the nine months ended September 30, 2026, compared to 79.6% in the nine months ended September 30, 2025. The increase in our Gaming segment gross profit of $3.7 million, and increase in gross profit margin, was primarily due to higher revenues and decreases in amortization, partially offset by increases in web hosting and license fees, compared to the prior period.

Gross profit for the Esports segment during the nine months ended September 30, 2026 of approximately $72,000 was related to revenues earned facilitating esports events for partners using our Le Mans Ultimate title.

Operating Expenses

		For the Nine Months Ended September 30,								Change
		2026				2025				$				%
Operating Expenses:
Sales and marketing		$	638,674			$	360,032			$	278,642				77.4	%
Development			1,364,154				1,291,208				72,946				5.6	%
General and administrative			4,769,104				3,176,389				1,592,715				50.1	%
Impairment of intangible assets			27,928				-				27,928				-	%
Depreciation and amortization			21,347				39,273				(17,926	)			(45.6	)%
Total Operating Expenses		$	6,821,207			$	4,866,902			$	1,954,305				40.2	%

Changes in operating expenses are explained in more detail below:

Sales and Marketing

Sales and marketing expenses were $0.6 million and $0.4 million for the nine months ended September 30, 2026 and 2025, respectively, representing a $0.3 million, or 77.4%, 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 $1.4 million and $1.3 million for the nine months ended September 30, 2026 and 2025, respectively, representing a $0.1 million, or 5.6%, increase when compared to the prior period. The increase in development expenses was primarily driven by a $0.1 million increase in software-related costs, when compared to the prior period.

General and Administrative

General and administrative ("G&A") expenses were $4.8 million and $3.2 million for the nine months ended September 30, 2026 and 2025, respectively, an increase of $1.6 million, or 50.1%, when compared to the prior period. The increase in G&A expenses was primarily driven by a $0.6 million increase in professional fees, a $0.5 million increase in stock-based compensation relating to director and officer equity awards, as well as a $0.4 million increase in payroll-related expenses, and a $0.1 million increase in Board fees, compared to the prior period.

Impairment of Intangible Assets

Impairment of intangible assets of $28,000 during the nine months ended September 30, 2026 relates to the impairment of a domain name no longer used.

Depreciation and Amortization

Depreciation and amortization expenses for the nine months ended September 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 nine months ended September 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 $43,000 and $19,000 for the nine months ended September 30, 2026 and 2025, respectively. Interest expense during the nine months ended September 30, 2026 primarily relates to charges incurred as part of the business loan agreement with Citibank, N.A. Interest expense in the nine months ended September 30, 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 nine months ended September 30, 2026, compared to other income, net of $3.4 million for the nine months ended September 30, 2025, a decrease of $3.9 million compared to the prior period. Other expense, net of $0.5 million in the nine months ended September 30, 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 nine months ended September 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 approximately $0.2 million for the nine months ended September 30, 2026, compared to other comprehensive loss of $2.7 million for the nine months ended September 30, 2025. Other comprehensive loss in the nine months ended September 30, 2025 primarily relates 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 $0.8 million and ($59,000) for the nine months ended September 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 $9,087,000 as of September 30, 2026) as needed for development of video game products, which was fully funded as of September 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.

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. ("Citibank") that will provide us with up to $3.0 million subject to our meeting the requirements for its use. As of September 30, 2026, we had $1.8 million available under the line of credit with Citibank.

We measure our liquidity in a number of ways, including the following:

		September 30, 2026				December 31, 2025
Cash and cash equivalents		$	5,378,937			$	4,993,390
Working capital		$	4,191,709			$	4,221,682

For the nine months ended September 30, 2026, we generated net income of $1.9 million and positive cash flows from operations of approximately $4.1 million, or an average of approximately $0.5 million per month, primarily due to increased profitability and the capitalization of internally-developed software. As of September 30, 2026, we had an accumulated deficit of $84.3 million and cash and cash equivalents of $5.4 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 condensed 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 stockholders. The issuance of debt, such as our line of credit with Citibank, 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 nine months ended September 30, 2026 and 2025 was $4.1 million and $2.8 million, respectively. Net cash provided by operating activities for the nine months ended September 30, 2026 was primarily the result of net income of $1.9 million, adjusted for net non-cash adjustments of $1.6 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 nine months ended September 30, 2025 was primarily the result of net income of $6.0 million, offset by net non-cash adjustments of $2.7 million and $0.5 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 nine months ended September 30, 2026 and 2025 was approximately $1.7 million and $0.7 million, respectively, primarily related to capitalization of internally-developed software.

Cash Flows from Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2026 was $1.9 million, resulting from $3.7 million of cash used for the repurchase of stock, and $0.3 million of payments on notes payable, partially offset by $1.2 million in proceeds from a Citibank line of credit drawdown and $0.9 million in proceeds from the exercise of warrants. Net cash flows provided by financing activities during the nine months ended September 30, 2025 of $1.0 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 $0.8 million payment for purchase commitments, $0.5 million of payments on notes payable and $0.1 million of equity issuance costs.

Citibank Line of Credit

On February 20, 2026, we entered into a business loan agreement with 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 2.25%, 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 Citibank Promissory Note or any related documents, failure to comply with covenants, obligations or conditions contained in the Citibank Promissory 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 September 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 September 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 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 Agreements 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, and was elected to the Board at our 2026 annual meeting of stockholders on April 23, 2026. The April Purchase Agreements further provide 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 September 30, 2026.

Material Cash Requirements

Except as described above under "Citibank Line of Credit," 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.

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", we may, under the JOBS Act, delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. We will no longer be considered an EGC as of December 31, 2026. 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, provision for income taxes, 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; (vi) expenses related to the implementation of a Share Rights Plan; and (vii) 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; (vi) expenses related to the implementation of a Share Rights Plan; and (vii) 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).

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 Measures 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 September 30, 2026				Three Months Ended September 30, 2025
Net income		$	678,127			$	768,537
Interest expense, net			23,922				1,434
Provision for taxes			451,870				-
Depreciation and amortization (1)			192,629				289,396
EBITDA			1,346,548				1,059,367
Loss (gain) on foreign exchange rates			190,998				(31,655	)
Expenses related to the implementation of a Share Rights Plan			158,653				-
Stock-based compensation			109,877				-
Adjusted EBITDA		$	1,806,076			$	1,027,712

(1)

Includes $185,109 and $279,945 of amortization expenses included in cost of revenues for the three months ended September 30, 2026 and 2025, respectively.

Reconciliation between GAAP and Non-GAAP Adjusted diluted net income per share:

		Three Months Ended September 30, 2026				Three Months Ended September 30, 2025
Diluted net income per share		$	0.06			$	0.14
Depreciation and amortization			0.04				0.05
Loss (gain) on foreign exchange rates			0.04				(0.01	)
Expenses related to the implementation of a Share Rights Plan			0.03				-
Stock-based compensation			0.02				-
Non-GAAP Adjusted diluted net income per share		$	0.19			$	0.18

		Nine Months Ended September 30, 2026				Nine Months Ended September 30, 2025
Net income		$	1,872,899			$	6,029,322
Interest expense, net			43,018				19,184
Provision for taxes			451,870				-
Depreciation and amortization (1)			605,727				795,387
EBITDA			2,973,514				6,843,893
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			364,664				(3,334,533)
Expenses related to the implementation of a Share Rights Plan			158,653				-
Stock-based compensation			522,552				-
Adjusted EBITDA		$	4,047,311			$	2,033,900

(1)

Includes $584,380 and $756,114 of amortization expenses included in cost of revenues for the nine months ended September 30, 2026 and 2025, respectively.

Reconciliation between GAAP and Non-GAAP Adjusted diluted net income per share:

		Nine Months Ended September 30, 2026				Nine Months Ended September 30, 2025
Diluted net income per share		$	0.19			$	1.32
Depreciation and amortization			0.11				0.17
Gain from settlement of purchase commitment liabilities			-				(0.04	)
Gain from HC2 Holdings 2 Inc. Settlement Agreement			-				(0.11	)
Gain from Wesco Settlement Agreement			-				(0.17	)
Impairment of intangible assets			0.01				-
Loss (gain) on foreign exchange rates			0.07				(0.72	)
Expenses related to the implementation of a Share Rights Plan			0.03				-
Stock-based compensation			0.10				-
Non-GAAP Adjusted diluted net income per share		$	0.51			$	0.45