Publicly-traded virtual racing game maker Motorsport Games (NASDAQ: MSGM) has fell out of compliance with the NASDAQ stock exchange recently after its entire board of directors resigned over a disagreement with a majority shareholder about raising future capital.
First reported by Insider Gaming, the news came to light via a Form 8K filing with the U.S. Securities & Exchange Commission (SEC) earlier this month, in which the company detailed the resignation of its board on Nov. 9.
While details are a little murky, the disagreement revolves around majority shareholder Motorsport Network LLC (MSN) putting forth “proposals by such directors to raise additional capital for the company in one or more transactions that could require stockholder approval and that would be dilutive to MSN,” according to the SEC filing. Following this disagreement by a majority of board members, MSN sent a letter on Nov. 7, stating that “such individuals resign from the board because of such disagreement.” Board members decided to comply and resigned on Nov. 9. The company noted in its filing that it had no disagreement with any of the departing board members.
Those resignations included independent member and Unity SVP and General Manager of Sports and Live Entertainment Peter Moore, long-time independent director Neil Anderson; independent director and Arco Capital Corporation and Arco Global Management Director Neil Anderson, and Director and former President of Motorsport Network James Allen.
John Delta, who was serving as interim chief financial officer, resigned his position but was appointed to the board as an independent director, joining the last remaining board member, Motorsport Games Chief Executive Officer and Executive Chairman Dmitry Kozko. Kozko took on the role of interim chief financial officer in addition to his other roles, but will not receive additional compensation. Delta’s $450 an hour contract as CFO was terminated following his resignation.
Following these resignations, Motorsport Games was forced to notify NASDAQ on Nov. 11 about the dramatic changes to the board, with the NASDAQ Listing Qualifications Department confirming (what the company already knew) that it was not in compliance with rules requiring that “a majority of the company’s board of directors be comprised of “independent directors” and that the audit committee of the board “consist of at least three members” who are also “independent directors.”
In addition to being out of compliance with board member resignations, Motorsport Games also fell out of compliance for not having a “minimum of 500,000 publicly held shares as defined in the Nasdaq Listing Rules.”
The company also noted in its filing that it will provide a plan to regain compliance on or before the deadline of Dec. 29, 2022. Motorsports Games CEO Dmitry Kozko echoed this sentiment in an internal email to employees earlier this month. The email, obtained by Insider Gaming, reveals that Kozko told employees that the company was likely out of compliance with NASDAQ rules but that it had a 45-day grace period under the exchange’s rules to present a plan to regain compliance.
All of this has had a ripple effect on the company; on Nov. 9 it delayed its earnings release and conference call for the third quarter (that ended on Sept. 30), subsequently announcing its move to Nov. 18. In addition, the company revealed the completion of an earlier proposed 1-for-10 reverse stock split of its Class A and Class B common stock which officially went into effect on Nov. 10.
Motorsport Games may not be the biggest player in competitive esports overall but it is the de facto leader when it comes to racing-related competitions. It also develops multiple racing simulation game franchises for PC, consoles, and mobile platforms, including NASCAR Heat, British Touring Car, and the rFactor 2 simulation platform.
During the height of the COVID-19 pandemic, Motorsport Games found great success in its virtual racing esports, with major TV networks picking up coverage of some competitions to serve as a replacement for many real-world sports that were shut down due to local, state, and federal restrictions on large gatherings and precautionary measures implemented by leagues.