Motorsport Games Inc. current report, 11 January 2023

Business Context and Reporting Period

Motorsport Games Inc. filed a Form 8-K reporting a material settlement agreement executed on January 11, 2023. The matter relates to litigation filed in February 2021 by HC2 Holdings 2 Inc. (now Innovate 2) and Continental General Insurance Company concerning 704Games. This filing does not present quarterly or annual operating results.

Material Financial and Legal Terms

  • The Company and other defendants agreed to pay Continental General Insurance Company $1.1 million to settle Continental’s claims and related counterclaims.
  • An initial payment of at least $91,667 is due within 12 business days after the later of execution of the settlement agreement and delivery of an IRS Form W-9 for Continental’s counsel’s IOLTA trust account.
  • After the initial payment, the Company must pay at least $42,013 every 30 days until the settlement amount is paid in full.
  • The filing does not provide updated revenue, profit, cash flow, margins, debt, liquidity, or other operating metrics.

Material Changes, Outlook, and Risks

  • Within three business days after receiving the initial payment, Continental has agreed to cause its claims to be dismissed with prejudice as to Continental.
  • Upon that dismissal, Continental and the defendants will release claims against one another.
  • The settlement creates a material cash-payment obligation and may affect the Company’s liquidity, although the filing does not state the source of funds or the impact on financial statements.
  • The litigation involving the other plaintiff, Innovate 2, is not described as resolved by this agreement; the filing text does not clearly state the remaining status of that plaintiff’s claims.
  • No management guidance, operating outlook, contingency estimate, or additional unusual item is provided.

Investor Verification Items

  • Review Exhibit 10.1 for the complete settlement terms, payment mechanics, releases, and any additional obligations.
  • Verify whether the initial payment and subsequent installments were made when due.
  • Assess the Company’s liquidity and ability to fund the installment schedule.
  • Check subsequent filings for the accounting treatment of the $1.1 million settlement obligation.
  • Determine the status and potential exposure associated with claims by Innovate 2 and any other remaining defendants or plaintiffs.