Motorsport Games Inc. — Form 8-K Summary
Business Context and Reporting Period
Motorsport Games Inc. filed a Form 8-K under Item 8.01, Other Events. The report identifies February 11, 2021 as the date of the earliest reported event and was signed February 18, 2021. The filing concerns litigation related to the Company’s acquisition of shares of 704Games Company.
Financial Metrics and Capital Structure
The filing does not provide revenue, profit, cash flow, margins, debt, liquidity, or other operating-performance metrics. It states that Motorsport Network, LLC owned approximately 62.8% of the Company’s Class A common stock on a fully diluted basis as of the filing date.
Material Changes Versus the Prior Comparable Period
No period-over-period financial comparison or operating update is provided. The material development is the filing of a lawsuit by former minority stockholders of 704Games.
Litigation, Risks, and Management Commentary
- HC2 Holdings 2 Inc. and Continental General Insurance Company filed a complaint in the U.S. District Court for the District of Delaware against Motorsport Games, Chief Executive Officer and Executive Chairman Dmitry Kozko, Chief Financial Officer Jonathan New, and Mike Zoi, the sole manager of Motorsport Network, LLC.
- The plaintiffs formerly held shares in 704Games and sold an aggregate of 106,307 shares, representing 26.2% of 704Games’ outstanding common stock, to the Company on August 18, 2020.
- The complaint alleges securities-law misrepresentations and omissions concerning 704Games’ financial condition and prospects, Section 20A liability, breaches of stockholder-agreement obligations, fraudulent inducement, breach of fiduciary duty, diversion of corporate opportunities, and unjust enrichment.
- The plaintiffs seek damages based principally on the alleged difference between the fair market value of the 704Games shares on the sale date and the purchase price, as well as punitive damages and other relief. The filing does not state a dollar amount for the claims.
- The Company notes that the plaintiffs represented in the purchase agreement that they had sufficient knowledge and information, access to 704Games’ books and records, and an opportunity to question Company and 704Games representatives. The agreement also contains an indemnification obligation for losses arising from breaches of the plaintiffs’ representations and warranties.
- Management states that the allegations are without merit and that the Company intends to vigorously defend the action. The ultimate outcome and any potential financial impact are uncertain.
- Other disclosed risks include licensing and sports-series contracts, integration of acquisitions or joint ventures, unanticipated operating and contingent liabilities, personnel retention, competition, consumer behavior, intellectual property protection, and broader economic conditions.
Important Facts for Investors to Verify
- Current status, scope, and potential monetary exposure of the Delaware litigation.
- Whether the Company has recorded or expects to record litigation reserves, indemnification assets, or other contingent liabilities.
- The terms, valuation, and accounting treatment of the August 18, 2020 purchase of the 704Games shares.
- The Company’s latest financial statements for cash, liquidity, debt, operating losses, and contingent obligations, none of which are provided in this 8-K.
- Any subsequent filings describing developments in the lawsuit or changes in management’s assessment of the allegations.