Motorsport Games Inc. current report, 30 January 2023

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Motorsport Games Inc. — Form 8-K Summary

Reporting date: January 30, 2023. The filing reports a material debt-for-equity transaction with Motorsport Network, LLC, the company’s controlling stockholder. It is not a periodic financial report and does not provide current-period operating results.

Transaction and Key Financial Effects

  • The company issued 338,983 shares of Class A common stock to Motorsport Network in exchange for cancellation of $1.0 million of outstanding debt, including principal and unpaid interest, under the company’s line of credit.
  • The transaction reduced the company’s outstanding debt by $1.0 million but increased shares outstanding and diluted other stockholders.
  • The shares were valued using the lower of the Nasdaq Official Closing Price immediately before signing or the average Nasdaq Official Closing Price for the preceding five trading days.
  • No revenue, profit, cash flow, margin, liquidity, total debt, or other operating metrics are provided in the filing.

Material Changes and Ownership

  • Before closing, Motorsport Network owned 700,000 Class A shares, representing approximately 51.51% of outstanding Class A shares as of January 24, 2023.
  • Following the transaction, Motorsport Network was expected to own approximately 61.19% of outstanding Class A shares.
  • Motorsport Network also owns all 700,000 outstanding Class B shares, further supporting its controlling position.
  • The transaction was approved by a special committee of independent and disinterested directors and subsequently by the full Board.

Registration, Outlook, and Risks

  • The shares were issued without registration under the Securities Act pursuant to claimed private-placement exemptions, including Section 4(a)(2) and/or Rule 506 of Regulation D.
  • Motorsport Network may demand that the company file a resale registration statement within 60 days after completion of the transaction. It also received piggyback registration rights.
  • The filing provides no operating guidance, financial outlook, or management forecast.
  • Key considerations include increased control by the related-party stockholder, potential future resale of the newly issued shares, dilution to other investors, and the terms and remaining balance of the line of credit.

Investor Verification Items

  • Verify the final closing date and the company’s debt balance remaining under the line of credit.
  • Review the Exchange Agreement for conditions, representations, additional rights, and any termination provisions.
  • Confirm the precise share-price calculation and resulting post-transaction share count.
  • Review any subsequent resale registration statement and related selling-stockholder disclosures.
  • Assess the company’s updated liquidity, capitalization, and related-party debt disclosures in its subsequent periodic filings.