Motorsport Games (MSGM) risk factors, FY2024 10-K

Risks Related to Our Financial Condition and Liquidity

1. 01We have incurred significant losses since our inception, and we expect to continue to incur losses for the foreseeable future. Accordingly, our financial condition raises substantial doubt regarding our ability to continue as a going concern
2. 02We will require additional capital to meet our financial obligations, and this capital might not be available on acceptable terms or at all
3. 03Limits on our borrowing capacity under the $12 million Line of Credit may affect our ability to finance our operations

Risks Related to Our Business and Industry

1. 04If we do not consistently deliver popular products or if consumers prefer competing products, our business may be negatively impacted
2. 05Our business and products are highly concentrated in the racing game genre, and our operating results may suffer if consumer preferences shift away from this genre
3. 06If we do not provide high-quality products in a timely manner, our business operations, financial performance, financial condition, liquidity, cash flows and/or results of operations may be negatively impacted
4. 07We may not be successful in identifying and implementing one or more strategic alternatives for our business, and any strategic alternative that we may consummate could have material adverse consequences for us
5. 08Declines in consumer spending and other adverse changes in economic, market and geopolitical conditions could have a material adverse effect on our business, financial condition and operating results
6. 09We depend on a relatively small number of franchises for a significant portion of our revenues and profits
7. 10Our ability to acquire and maintain licenses to intellectual property, especially for racing series, affects our revenue and profitability. Competition for these licenses may make them more expensive and increase our costs
8. 11We could be subject to unanticipated adverse effects arising from our inability to fully repay Luminis International B.V. and Technology In Business B.V., the sellers of Studio397, relating to our acquisition of 100% of the share capital of Studio397 in April 2021
9. 12Our business is partly dependent on our ability to enter into successful software development arrangements with third parties
10. 13Our business depends in part on the success and availability of platforms and mass media channels developed by third parties and our ability to develop commercially successful content, products, and services for those platforms
11. 14Third-party platform providers may be able to influence our products and costs
12. 15The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game
13. 16We are subject to risks associated with operating in a rapidly developing industry and a relatively new market
14. 17We 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
15. 18We are reliant on the retention of certain key personnel and the hiring of strategically valuable personnel, and we may lose or be unable to hire one or more of such personnel
16. 19Competition in the interactive entertainment industry is intense, and our existing and potential users may be attracted to competing products or other forms of entertainment
17. 20Our revenue may be harmed by the proliferation of “cheating” programs and scam offers that seek to exploit our games and players, which may negatively affect players’ game-playing experiences and our ability to reliably validate our audience metric reporting and may lead players to stop playing our games
18. 21Some of our players may make sales or purchases of virtual items used in our games through unauthorized or fraudulent third-party websites, which may reduce our revenue
19. 22The success of our business relies on our marketing and branding efforts, and these efforts may not be accepted by consumers to the extent we planned
20. 23Our games are subject to scrutiny regarding the appropriateness of their content. If we fail to receive our target ratings for certain titles, or if our retailers refuse to sell such titles due to what they perceive to be objectionable content, it could have a negative impact on our business
21. 24Government regulations applicable to us may negatively impact our business
22. 25We are exposed to seasonality in the sale of our retail products
23. 26Our retail products, online gaming platform and games offered through our gaming platform may contain defects
24. 27We may be held liable for information or content displayed on, retrieved from or linked to our gaming platform, or distributed to our users
25. 28We may experience security breaches and cyber threats
26. 29Our business could be adversely affected if our data privacy and security practices are inadequate, or are perceived as being inadequate, to prevent data breaches, or under the applicable data privacy and security laws generally
27. 30We depend on servers and Internet bandwidth to operate our games and digital services with online features. If we were to lose server capacity or lack sufficient Internet bandwidth for any reason, our business could suffer
28. 31A 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
29. 32Our business partners may be unable to honor their obligations to us, or their actions may put us at risk
30. 33Our efforts to expand into new products and services may subject us to additional risks
31. 34Failure to adequately protect our intellectual property, technology and confidential information could harm our business and operating results
32. 35The costs involved in enforcement of our intellectual property rights could harm our business, financial condition and results of operations
33. 36We may be subject to claims of infringement of third-party intellectual property rights
34. 37Our technology, content, and brands are subject to the threat of piracy, unauthorized copying and other forms of intellectual property infringement
35. 38We use open source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business
36. 39We rely on third-party technology to complete critical business functions. If that technology becomes unavailable or fails to adequately serve our needs and we cannot find alternatives, it may negatively impact our operating results
37. 40Our international operations are subject to increased challenges and risks
38. 41Catastrophic events may disrupt our business

Risks Related to Our Relationship with Driven Lifestyle

1. 42Because Driven Lifestyle’s interests may differ from ours or from those of our other stockholders, actions that Driven Lifestyle takes with respect to us, as our controlling stockholder, may not be favorable to us or our other stockholders, including holders of our Class A common stock
2. 43If we are no longer controlled by or affiliated with Driven Lifestyle, we may be unable to continue to benefit from that relationship, which may adversely affect our operations and have a material adverse effect on us and our business, results of operations and financial condition
3. 44We are a “controlled company” within the meaning of the NASDAQ rules and, as a result, qualify for and may rely on exemptions from certain corporate governance requirements of NASDAQ. Our stockholders will not have the same protections afforded to stockholders of other companies that are subject to such requirements
4. 45Driven Lifestyle’s competitive position in certain markets may constrain our ability to build and maintain certain partnerships or relationships in the motorsport industry
5. 46Our inability to resolve in a manner favorable to us any potential conflicts or disputes that arise between us and Driven Lifestyle or its subsidiaries with respect to our past and ongoing relationships may adversely affect our business and prospects

Risks Related to Our Company

1. 47Our limited operating history makes it difficult to evaluate our current business and future prospects, and we may not be able to effectively grow our business or implement our business strategies
2. 48Impairment of our intangible assets has had, and in the future could have, a material adverse impact on our results of operations
3. 49We are an emerging growth company and a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to us will make our Class A common stock less attractive to investors
4. 50We may acquire other companies, technologies, or assets, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results
5. 51We may be subject to various legal proceedings, claims, litigation, governmental investigations or inquiries and other disputes from time to time. If the outcomes of any of these actions are adverse to us, it could have a material adverse effect on our business, results of operations and financial condition
6. 52Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition
7. 53We may not successfully manage the transitions associated with certain of our executive officers, which could have an adverse impact on us

Risks Related to Ownership of Our Class A Common Stock

1. 54Our Class A common stock may be delisted from NASDAQ, which could affect the market price and liquidity of our Class A common stock
2. 55Substantial future sales of our Class A common stock, or the perception that such sales may occur, could depress the price of our Class A common stock
3. 56Our certificate of incorporation has limitations on the liability of our directors, and we may have to indemnify our officers and directors in certain instances
4. 57Certain provisions in our charter documents 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
5. 58We expect that the price of our Class A common stock will fluctuate substantially
6. 59If securities industry analysts cease to publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Class A common stock could be negatively affected
7. 60The dual class structure of our common stock may adversely affect the trading market for our Class A common stock
8. 61We do not intend to pay dividends for the foreseeable future
9. 62Our results of operations and financial condition are subject to management’s accounting judgments and estimates, as well as changes in accounting policies
10. 63The requirements of being a public company may require significant resources and divert management’s attention
11. 64If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired
12. 65We are subject to risks related to corporate and social responsibility and reputation