Neon Machine Inc., the Seattle-based gaming studio, is facing internal turmoil as six of its founders file a derivative lawsuit against the company's CEO, Cort Javarone. The legal action, recently lodged in Delaware's Court of Chancery, revolves around allegations of a breach of contract and raises concerns about the studio's financial stability.

At the heart of the dispute lies the founders' claim that Javarone, along with appointed directors, has refused to issue preferred shares, as contractually promised to investors during a $20 million Series A funding round in September 2021. Key investors involved include Griffin Gaming Partners II LP and Polychain Ventures II LP. These preferred shares are crucial for Neon Machine's operations and the forthcoming launch of its flagship web3 game, Shrapnel.

Despite Neon Machine's recent success in fundraising, with a valuation reaching $70 million and a token market cap exceeding $500 million, the founders assert that Javarone's reluctance to issue preferred shares could pose a risk to the studio's future. The legal complaint suggests that these actions may impede the company's smooth operation and its ability to secure additional funding.

The founders also expressed concern over the internal dynamics of the company, pointing to the removal of founder Mark Long as director and his subsequent replacement as CEO by Javarone. These changes, coupled with the appointment of directors aligned with Javarone's interests, are perceived as an attempt to consolidate control.

Additionally, the founders claim that Javarone is seeking control of Neon Machine's bank accounts to address a $4.5 million debt arising from other business failures. These businesses are reportedly undergoing Chapter 5 bankruptcy proceedings in the Southern District of New York.

Plaintiffs in the lawsuit, including Neon's chief creative officer Colin Foran, head of business development Naomi Lackaff, chief operating officer Aaron Nonis, chief technical officer Don Norbury, and chief marketing officer Mark Yeend, collectively underscore their concerns about the trajectory of the studio.

As the legal proceedings unfold, the gaming industry closely monitors the fate of Neon Machine Inc. and the eagerly anticipated release of Shrapnel. The dispute not only affects the company's internal dynamics but also casts uncertainty over the future of the $70 million valued gaming studio.