Greetings. And welcome to Motorsport Games, Inc. Fourth Quarter and Full Year 2021, Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ashley DeSimone from ICR. Please go ahead.

Thank you. And welcome to Motorsport Games Fourth Quarter and Full Year 2021 Earnings Conference Call and Webcast. On today's call are Dmitry Kozko, Motorsport Games Executive Chairman and CEO, and Jon New, Chief Financial Officer. By now, everyone should have access to the company's fourth-quarter and full-year 2021 earnings press release, filed today after the market close. This is available on the Investor Relations website section of Motorsport Games website at www. Motorsport Games.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, including its most recent annual report on Form 10-K for the year ended December 31, 2021, for a detailed discussion of certain of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements needs today. In today's conference call, we will refer to certain non - GAAP financial measures, such as adjusted EBITDA, as we discuss the Fourth-Quarter and full-year 2021, 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 today. And now, I'd like to turn the call over to Dmitry Kozko, Chief Executive Officer of Motorsport Games. Dmitry?

Thank you. And hello, everyone. I'd like to start today by recognizing our development team, some of whom are in Moscow in the midst of this on excusable and challenging situation. Our hearts are with the people in Ukraine and all of those impacted by the war. Specifically, personal issue for me as I'm half Ukrainian myself. I have been in constant communication with our Moscow team and they share a concern and profound desire for peace and security. While it is challenging working through the complexity of the work, here's what we have done over the past months, we're assured that we continue to build out our product road-map with minimal disruption. First, we have always been able to switch the remote work if need be. During the pandemic, especially during the peak COVID outbreaks where we saw lock-downs and other hurdles, we managed to scale our development capabilities and temporary transition to remote work. We do not foresee any issues within the transition, and some of our team members to remote work again because we have the infrastructure and process in place to be able to remain flexible. Second, we have a great partnership with various outsourced developers and studios. Especially over the last year, we have built great relationships with several outsource studio we are assisting us with a new product development. These development studios consist of professional and highly experienced teams that worked with many different leading gaming companies. We're currently having conversations with additional development studios, and will be ready to engage them if necessary to assure our development pipeline does not experienced significant delays. Third, we have offered our Moscow staff a possibility to relocate if they choose, and able to do so. As I mentioned earlier, we have the advantage of being flexible.…

Thank you, Dmitry. I'd like to share summary financial highlights for the fourth quarter in year ended December 31st, 2021. Revenues were $8.2 million for the fourth quarter ended December 31st 2021, compared to $2.9 million in the prior-year period. The gap between quarterly comparisons is largely attributable to the launch of NASCAR 21: Ignition in the fourth quarter of 2021 versus the launch of NASCAR Heat 5, which occurred in the third quarter of 2020. Our net loss was $7 million and $3.1 million respectively for the three months ended December 31st 2021 and 2020. The quarterly comparisons are significantly affected by the upfront development and marketing costs associated with creating new products for our recently acquired game licenses. Our adjusted EBITDA loss was $5.4 million for the three months ended December 31, 2021, compared to an adjusted EBITDA loss of $2.4 million for the three months ended December 31, 2020. The $3 million increase in adjusted EBITDA loss was primarily due to $5.7 million increase in 4Q 2021 operating expenses that the Company invested to build out our portfolio of games. This was partially offset by $1.7 million increase in gross profit from higher game sales in Q4 2021, and operating expenses -- adjustments for expenses recorded 4Q 2021, including $0.3 million for 2021, impairment of intangible assets, $0.3 million in depreciation and amortization, $0.2 million in 2021, acquisition-related expenses, and $0.2 million in 2021, stock-based compensation. For the year ended December 31, 2021, revenues from our gaming segment decreased by $4.5 million or 24% to $14.3 million from $18.8 million for the year ended December 31, 2020. The decrease in revenues compared to 2020 period, was primarily due to a $4.4 million reduction in revenues from our NASCAR Series game titles. This was primarily driven by a…

Thanks, John. Overall, 2021 was a significant year for us. We would build upon our crown work for the future game releases by attracting development, talent, and people that share our passion for racing games. Acquiring necessary technology components which will help our games stand out at scale and allowing us to further develop our platform and processes, as we look to build out multiple franchises with our long-term life and partnerships. As you will note in our Form 10-K for 2021 audited financial statements received the going concern qualification. However, rest assured that we are working diligently to analyze all aspects of our business to achieve cost reductions and free up funds to both certain near-term liquidity. Additionally, we are currently discussing funding options, including debt and equity financing. So we could continue our product road map with no significant changes or disruption and ultimately generate returns for our shareholders. Thank you for joining us today and now let's go to questions. Operator?

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we poll for questions. Our first question comes from Mike Hickey with The Benchmark, please proceed with your question.

Hi Dmitry and Jon. Good afternoon, guys. Thanks for taking my questions. Dmitry, just curious on your upcoming NASCAR 22, what you're thinking here in terms of timing of the game. I know you've experimented with different release days but where you -- where you think you can hit and so your view on -- but I'm guessing will be a step up in quality with the backdrop that you've had some disruption on the development side?

Thanks, Mike. So you're absolute right. Definitely a step up. As you release one gain and you build upon that one gain, it only gets better from there, right? As you have more and more time to fine-tune things and improve upon. As far as timing, we do have now a significant amount of data of what it's like to launch a game, all the way from beginning of July, which we've done with our Heat 5, all the way to the end of October, which were done last year with Ignition. So essentially, covering almost the second half of the NASCAR season all the way to its finale. One thing we'd like to do, is continue to walk our NASCAR releases closer to the beginning of the season, which normally happens around February. But of course, we cannot make those drastic changes right away, as that takes a significant amount of time available for a certain annual product to have it available for sale before the new one comes out. So you can expect us to continue to walk it closer to beginning of the season, but not take major steps, like six month jumps or so on. And last year being released at end of October, I think fair to assume that we would be somewhere between that July, August, September, those type of windows on time for the NASCAR playoffs.

I guess NASCAR 23 would be our next release. We can counter 22, is if some,, should we first think about [Indiscernible] not giving guidance. But should we think about what you did in calendar year '20 of the success of Heat five, I think you're around $19 million. That's what you're positive EBITDA, obviously your Opex profile has changed. Is that on the revenue side, Dmitry, do you think that's an achievable goal on revenues and you do step-up in quality here, which I'm sure you will.

It's a milestone, Mike. So to us I wouldn't say it's a goal. One of the goals on the NASCAR franchise alone, is to get to the levels where EA was, in early 2000s where they held the NASCAR license that we hold now. And they were averaging always in 7 digits during the data that's available to us, with some years peaking around 2.5 million units. That is what I would say is the goal for the NASCAR console products. Not to mention, there's more platforms available today, like Nintendo Switch that was not available back then. A Nintendo switch install base is very competitive to those installed basis of the Xbox and Playstation. So we could actually, see that that real goal of the NASCAR console game, could be past those numbers that they have. But as you also alluded, our milestone is really just to get to the levels, to have the most successful title, more successful than previous year, every year, as we continue on our journey with this license, all the way until 2030, when that particular NASCAR one is up for renewal.

Thanks, Dmitry. Last question. Obviously, Stephen Hood is departed here, your head of development. Just curious, and you have resources in Moscow, obviously, that's been extremely challenging for you. I can hear that in you that your voice. And I just, guess overall, how do you think about your development teams? What are you doing to retain and grow the talent that you have? And I guess that said, and if you're looking to -- you alluded to bringing in third-party for some help, but just curious if you can double-click on the development side, given everything that's happening? Thanks, guys.

Sure. And I would say the challenging part is just the situation that's happening in Ukraine. That's the one that takes my heart away, and as I mentioned, I'm half Ukrainian myself, so it's an emotional topic to say the least. As far as our development is concerned, we do not see any interruptions at this point to our processes, to connections to the teams, to funding the teams. We're not experiencing any disruptions. Now, should the geopolitical situation changes, which is what you would like me to double-click on, we do have other five studios around the world, which are constantly ramping up the technical capabilities, the hard capabilities, and so on. And when I mentioned up about outsourced partners, there are partners that we have been using to help us enable multiple products being developed at the same time. Look, shortly put, we have these licenses for a long time. The sooner we can get the products out, and as many products as it makes commercial sense to do for each one of this licenses, the longer our monetization window for each one of those products is. So right now we'd like to enable as mainly outsourced partners as we can as we continue to scale our teams organically in all of these different global destinations. And should geopolitical situation changes with those that are in those affected regions, then we will start shifting some of those outsourced partners more towards our [Indiscernible] [Indiscernible] products, not more the auxiliary ones like maybe you could say, some of the hyper-casual mobile products. For us, it's still currently an auxiliary one instead of the core ones, like our Playstation, Xbox, PC, and on Nintendo Switch.

Thanks, Dmitry.

Our next question comes from Michael Graham with Canaccord. Please proceed with your question.

Yes, thanks. Hi, Dmitry and Jon. On the next NASCAR game that you said is going to come out sort of in the late summer, fall timeframe. When you -- in the first ignition game, there were sort of like a roadmap of features around things like DLC and player versus player. A whole roadmap of things that you were planning on putting in future game releases. And I'm just wondering, you sort of have kind of a reset here. Maybe some changes in the development staff, maybe some learnings from the process with the first Ignition game. So I'm just wondering if you can give us any thoughts on what we should expect to see in the next Ignition game that may be an improvement upon what we saw in the first edition.

Thanks Michael. Look, one thing for sure that the focus started from is to the quality of the products. And the stability of it. So that is one thing that the initial foundation of our focus went to immediately. So you could foresee that we're constantly going to step up the internal standard that will put ourselves. The key way department and our compliance team is the first one we went to to make sure that we bolstered those capabilities. We restructure our processes there to make sure that we better identify and track and fixed bugs and those types of things before products come out. But to your question as to what can we foresee from feature set in '22 and going forward, one thing that we're taking a close look at is our community being extremely local as to what they really want to see. You could track videos online now that are actually making, for example, top ten suggestions of what the 2022 feature set should be. And that is great. So you could foresee that we will be more paying attention to this community taking their suggestions into what they would like to see in priority order of features. And as much as we're able to include in these annual releases, we would. So Number 1, step up the quality. Number 2, continue to listen to the community and take their priority and desires and integrate them into the products.

Thank you. And then, the other one I wanted to ask is, as it relates to the liquidity profile, you mentioned wanting to bring in new sources of funding, and also the ability to reduce expenses if necessary. And I just wanted to ask, does that really equate to delaying franchises and game launches, or are there other things in your cost structure that you can lean on in order to reduce your cash burn?

The biggest buckets for us is development and marketing, right? And marketing has touched the development of those products. They're in-market already with slight investments before the product releases to market. So the very first thing, it's not necessarily to flip switches on franchises. It's the amount of products, or the amount of platforms, each one of those franchises could expand and on there with speed. So like I previously mentioned, maybe not a correct label of saying some of the hyper-casual mobile product could be an exhilarating one for us. And again, that might not be the right label. But you could foresee that we could stop, or pause, some of those developments until better liquidity position. But as far as our main franchises that we hold licenses for, we want to make sure that the path to those products for core platforms like Xbox, Playstation, DC, and Nintendo Switch, and some of those franchises [Indiscernible] are hitting on full cylinders. It's the mobile, it's the other things that we could put pause on, or talk to our external partners on, and maybe reduce their speed to market, on amount of resources they're attaching to some of those products for us. That's where we would tap in first. Our infrastructure overall, we do run, what we believe is a lean infrastructure. and our investment areas, our in-depth capabilities. So that's the one that we continue to bolster, whether it's internal, with organic talent that we've retained, or it's leveraging externals and contractors in some regards.

All right. Thanks very much.

Our next question comes from Michael Kupinski with Noble Capital Markets, please proceed with your question.

Thank you for taking my question. Dmitry you've done an amazing job in a very chaotic situation and I just want to congratulate you for some very tough work. I know that the employees mostly in Russia were largely your engineers. And I was just wondering if you could just talk a little bit about the prospect of what they were working on directly that might be in correlation to whatever products that you had planned to release. And I know this has been addressed slightly, but I was wondering if there's any specific products that may push out a little bit, given that. And secondly, have things settled down? I know in some cases you were trying to get some of your employees out of Russia. And I was just wondering if the situation is improved to somewhat to where you can utilize some of those workers that you had in that market?

Thank you Michael for that comment. I think the management team has done a tremendous job being resilient through this situations that are unprecedented. It seems like when we start our business, we're faced with COVID periods and that was an interesting challenge to overcome. Now that there's this one, it seems like it's a new norm for us to just operate in some situations. So I pass on your comment to our management team for doing a great job on stepping up to the place and managing through these situations. But as far as our team and specifics on what the studio there does, we don't have particular dedicated product to a studio. We have a more of a flat approach and more department-type approach where there's art departments, there's a dev, an engineering, there's physics and so on. And they find their talent across different studios of ours. So it's not like one studio starts expanding, that means automatically more resources go to a specific franchise. That is not necessarily the case. So it's not like if we start bolstering our Netherlands studio, all of us on our physics, engine starts to get more resources. So to answer your question specifically, in Russia, we're working on implementing our Unreal Engine, carrying it with some of the physics. They do touch the NASCAR products to some extent. Sometimes from the heart perspective, sometimes from other perspectives. But that is true for all of our studios. Our NASCAR franchise, it's really spearheaded from our Orlando studio and you could look at our team in Moscow are leveraging to expand the capabilities of the Moscow studio -- of the Orlando studio. So it's really hard to say that one particular studio is responsible for just one specific franchise. They all do all, they do share the knowledge. And the tracking and capabilities of all this is really in a Cloud, and really not attach to a particular location. So somebody from any one of our studios could continue to pick up a task and resume regardless of where that task was initially started.

Well, thanks for that clarification. I know in some instances where companies have had these missteps and issues and things like that that happened in the stock price drops that, you know that there are companies out there that are tend to be opportunistic. At this point, there's no interest in selling the company, and it sounds like you had been very interested in seeing through and navigating through the issues, and seeing it through in terms of all these product launches. And I just wanted just to address that question because it's hanging out there.

Michael, your question is particularly around, would we sell the company? Just to make sure I understand your question.

Yes. We just sell the company and yes.

Look, we have a very clear growth trajectory, right? We have amazing portfolio of IP. I think to price something right now where we haven't had a chance to put out a product for this IP and really title together, which I personally believe has not been done previously to our existence, nobody had a portfolio of these kind of official licenses and were able to tie the games together in a unified player first experience. What is that worth? That's part to price right now. So I think we wouldn't necessarily do adjust as by our shareholders if we're going to try to put a mark on it before we able to showcase what this really means to the players. When they could take their experienced from one of our racing games into the next racing games into the next racing game, and continue to build their individual race profile license, whatever you want to actually call it, and carry that on into multi racing discipline. What does that looks like in terms of value later on as we cultivate this community, that's hard to pinpoint, but I definitely would like to see us deliver on that growth trajectory before we start to entertain price points.

Great, thanks for the color. Appreciate it. That's all I had.

Thank you.

Our next question comes from Franco Granda with D.A. Davidson. Please proceed with your question.

Hi. Good afternoon, everybody. Thanks for letting me ask a couple of questions here. Earlier Jon talked about a $4.5 million decline in NASCAR games year-over-year. Can you perhaps give some details around the other individual non NASCAR franchises?

Hey, Franco. Good to hear from you. So there other products that we have currently in markets are besides the NASCAR franchise is KartKraft, our simulation platform that we just recently put out there as a full release. We also have our eSports platform and games that we call the rFactor 2, which is what we use for our eSports products to facilitate those events. As well as a standalone product, you could find that on Steam itself. And that's the one that I was saying we just did a major UI UX update and now reorganized our content delivery to be more predictable in the quarterly release schedule. Those are our additional ones that we are currently monetizing if we're talking about just the game segment besides what we have inside the NASCAR franchise. And those are on the ramp up, both of those products. And we do have a pretty concrete plan which has now found in our investment presentation on our road-map of, for example, taking KartKraft into a console as well, because currently it's only available for PC. So each one of those, even though they're not stamped with an official license like NASCAR, INDY, Lamont, for example, but they are standalone products that are starting to contribute and we are expanding them as well into multiple platforms, which allow them to generate more meaningful, our revenue contributions for us.

Right. Okay, thanks. And so I acknowledge that, obviously, KartKraft is a new product, so comparing it to the early release, maybe not as fair. But when you look at rFactor 2, the game's been out for a while. Can you give some year-over-year numbers perhaps since you acquired the game? How it's done? And maybe if you've seen the recent uptick, given the recent news and the new partnerships they have?

We haven't broken out our particular games into each ones. Perhaps soon when they start to generate meaningful results, we could start doing that. It is a fair assumption that they are in a growth trajectory, especially since we started to reorganize. Our daily active users are up there. Reorganized our content delivery schedule. rFactor 2 is one that, even though, like you mentioned, it seems like it's been out for a while. And that is true. It's been launched for some time, which has also allowed us, over time, for that product to evolve quite heavily. That's not one of those annual sequel games that normally support titles demand. This is a very serious simulation product that's actually, a similar type of code basis still used in real driver training facilities, so you can just imagine the sophistication. And in order to get to that level of sophistication, that takes enormous amount of time. So if anything, the fact that it's been launched some time ago, and been evolved with real-world drivers, giving real feedback on how the [Indiscernible] supposed to feel, is a huge benefit to that problem. So now it's more on releasing the proper packs, like we just announced earlier this week, that that platform is now the official Steam platform of Formula E, another race series that we're now an official license holder for that particular category. And what we did with that, is we took that and launched a Formula E pack so allow somebody on rFactor to download the recent cars and recent tracks that are attached to their recent season. So even though the core product in the beginning was launched some years ago, the evolution of it has grown in value so much that now it's really a content, kind of like an almost a live ops opportunity.

Right. I appreciate all the color, Dmitry, thanks. And then, one more following up on an earlier question about the development team. Given what is happening on the outside, with the game relative [Indiscernible] performing, and perhaps some of the fan base not being as happy. Can you speak to the employee morale within Motorsport Games?

But the good part is, that we have folks that are truly passionate about delivering great racing games. So when they deliver some things that were short of their own individual expectations, there is a motive of proving themselves now, that exists, right? So that those that are on engineering, on the marketing, on the art side, those that are clearly seeing what the community is calling out, where's this, where's our rear view mirror, for example, or something to this extent, right? That the team is more stepping up in terms of their morale and saying, you know what, we're going to deliver something that we're extremely proud of. That is going to go beyond our own benchmark. And that's what we're noticing. It's not that -- of course it's tough to see your work being shouted as something is not good, but look, we released the game with bugs. There's deserving elements. Our community is right at that. So we're now focused to make sure that those type of issues don't repeat themselves, but more importantly, the individuals themselves are now, in their individual contribution levels, are after proving that we are a collection of folks that are super passionate about creating great racing games. And we are going to deliver that to the market. And that's what everybody have in their head, that we're here to prove something now.

Thanks, Dmitry. Good luck for the rest of the year.

Thank you.

Ladies and gentlemen. We have reached the end of the question-and-answer session, and I would like to turn the call back to Dmitry Kozko for closing remarks.

I would like to thank everybody again for your questions, for your comments and for you belief. We are still on our clear journey of what we set out to do from the very beginning. Yes, we faced some hurdles, yes, we faced some geopolitical things, COVID things, and all types of bumps on the road. But when the mission is clear, when the vision is clear, and when our purpose is clear, which has to us is to make the thrill of Motorsport accessible to everybody, that is in our veins internally here. So it doesn't matter what bumps we're pacing on the road, we continue to go towards our vision and making sure that we deliver and what we set out to do from the beginning. So I just want to thank everybody for participating on the call for tracking our progress and just continue to look out for more every quarter we will continue to release materials that showcase our progress towards our call. Thank you very much Again.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.