INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

NOTE 5 – INTANGIBLE ASSETS

Licensing Agreements

BTCC

On May 29, 2020, the Company secured a licensing agreement with the BARC (TOCA) Limited (“BARC”), the exclusive promoter of the BTCC. Pursuant to the agreement, the Company was granted an exclusive license to use certain licensed intellectual property for motorsports and/or racing video gaming products related to, themed as, or containing the BTCC, on consoles, PC and mobile applications, esports series and esports events (including the Company’s esports platform). In exchange for this license, the agreement requires the Company to pay BARC an initial fee in two installments of $100,000 each, the first of which was due on June 5, 2020 and the second installment paid on May 29, 2022. Following the initial fee, the agreement also requires the Company to pay royalties, including certain minimum annual guarantees, on an ongoing basis to BARC and to meet certain product distribution, marketing and related milestones, subject to termination penalties.

The Company capitalized the initial license fee and present value of committed future minimum royalty payments as a license intangible asset in the amount of approximately $892,000. The Company considers this to be a non-amortizing intangible asset until such point the Company begins to generate revenues under the BTCC license, at which amortization will be recorded, and as such the asset has been monitored for impairment triggers throughout the year. As such, no amortization expense has been recognized in respect of this asset during the years ended December 31, 2022 and 2021. As of December 31, 2022 and 2021, the Company had a remaining liability in connection with the licensing agreement of approximately $798,000 and $854,000, respectively, which is included in other non-current liabilities on the consolidated balance sheets.

INDYCAR

On July 13, 2021, the Company entered into a license agreement (the “INDYCAR Gaming License”) with INDYCAR LLC (“INDYCAR”). Pursuant to the INDYCAR Gaming License, INDYCAR granted the Company with a license to use certain licensed intellectual property (described in the INDYCAR Gaming License) for motorsports and/or racing video gaming products related to, themed as, or containing the INDYCAR SERIES. The INDYCAR Gaming License is a long-term agreement, in connection with which the parties intend to form an exclusive relationship for the development of video games to be the official video games of the INDYCAR SERIES.

In exchange for the INDYCAR Gaming License, the Company will pay to INDYCAR an annual development fee through the date of launch, after which INDYCAR will receive a royalty equal to a certain percentage of sales of physical and digital video gaming products, subject to certain minimum guarantees. The Company has agreed under the INDYCAR Gaming License to provide advertising and publicity to bring the INDYCAR SERIES racing video gaming products to the attention of as many purchasers and potential purchasers as possible.

Additionally, the Company and INDYCAR entered into a license agreement pursuant to which, the Company was granted a license to use certain licensed intellectual property described in such license (“Licensed IP”) for motorsports and/or racing esports events related to, themed as, or containing the INDYCAR SERIES (including the rFactor 2 platform) (the “INDYCAR Esports License”). The INDYCAR Esports License is a long-term agreement, in connection with which the parties intend to form an exclusive relationship for the development of events to be the official esports events of the INDYCAR SERIES, which include the esports events related to and/or themed as or containing the Licensed IP and related features which, prior to launch, are hosted on the Company’s rFactor 2 and, after launch of the products, are hosted using the products. In exchange for the INDYCAR Esports License, INDYCAR will receive, on an annual basis, a royalty equal to a certain percentage of the net revenue (as defined in the INDYCAR Esports License) derived from or in connection with the events during the previous calendar year.

The Company capitalized the initial license fee and present value of committed future minimum royalty payments as a license intangible asset in the amount of approximately $2,714,000. The Company considers this to be a non-amortizing intangible asset until such point the Company begins to generate revenues under the INDYCAR Esports License, at which amortization will be recorded, and as such the asset has been monitored for impairment triggers throughout the year. As such, no amortization expense has been recognized in respect of this asset during the years ended December 31, 2022 and 2021. As of December 31, 2022 and 2021, the Company had a remaining liability in connection with the licensing agreement of approximately $3,206,000 and $2,787,000, respectively, which is included as current and other non-current liabilities on the consolidated balance sheets.

Acquisitions

In connection with the acquisition of Le Mans Esports Series Ltd, the Company acquired the following intangible assets (See Note 3 – Acquisitions for additional details):

Intangible Asset	Useful Life	Cost
Gaming license	Indefinite	$	1,150,000
Esports licenses	Indefinite		1,660,000
Total		$	2,810,000

In connection with the acquisition of KartKraft, the Company acquired the following intangible assets (See Note 3 – Acquisitions for additional details):

Intangible Asset	Useful Life	Cost
KartKraft Trade Name	Indefinite	$	108,000
Software	6 Years		833,000
Employment & Non-Compete	3 Years		59,000
Total		$	1,000,000

In connection with the acquisition of Studio397, the Company acquired the following intangible assets (See Note 3 – Acquisitions for additional details):

Intangible Asset	Useful Life	Cost
Software	6-10 years	$	7,688,000
rFactor 2 Trade Name	Indefinite		3,040,000
Employment & Non-Compete Agreements	3 years		214,000
Total		$	10,942,000

Impairment

The Company completed interim impairment assessments for its indefinite- and finite-lived intangible assets for the interim periods ended March 31, 2022 and June 30, 2022, following the identification of triggering events, in addition to its annual impairment assessment performed as of December 31, 2022.

As a result of these assessments, the Company determined the carrying value of its rFactor 2 trade, Le Mans Gaming License and rFactor 2 software technology exceeded their respective fair values, recognizing impairment losses of $2.1 million, $1.1 million and $1.3 million, respectively, for the interim period ended March 31, 2022. For the interim period June 30, 2022, the Company recognized additional impairment losses of $0.1 million related to the rFactor 2 trade name. An additional $0.2 million of impairment losses with respect of the rFactor 2 trade name was recognized at the annual impairment assessment date of December 31, 2022.

For the three months ended March 31, 2022 interim impairment review, the primary triggers were changes made to the Company’s product roadmap in the first quarter of the fiscal year ending December 31, 2022, which resulted in changes to the scope and timing of certain product releases, as well as changes in the value of the Company’s market capitalization which had reduced significantly since December 31, 2021. These changes were made by the Company to better align the product roadmap with the Company’s ability to produce and release high quality games.

For the three months ended June 30, 2022 interim impairment review, the primary triggers were the ongoing reduction in the Company’s share price, the receipt of a deficiency letter notice from NASDAQ and the Company’s ongoing uncertain liquidity position. No indicators of impairment were identified as of September 30, 2022. The interim period impairment assessments indicated that the carrying value of the rFactor 2 trade name and Le Mans video gaming license indefinite-lived intangible assets, as well as its rFactor 2 finite-lived technology, were lower than their respective carrying values.

As of December 31, 2022, the Company performed its annual indefinite-lived and finite-lived intangible asset impairment reviews, electing to bypass the optional qualitative assessment and performed quantitative impairment assessments for all of its indefinite-lived and finite-lived intangible assets.

The Company determined the fair value of its indefinite-lived intangible assets using a relief-from-royalty method for the trade name, a discounted cash flow valuation model for the Le Mans Gaming License and a cost to recreate valuation model for the finite-lived technology intangible asset. For all impairment assessments performed, the impairment loss for indefinite- and finite-lived intangible assets was primarily driven by a reduction in expected future revenues, following changes to the Company’s product roadmap, as well as changes to the discount rates applied, royalty rates and technological obsolescence assumptions used in the valuation models. The principal assumptions used in each of the relief-from-royalty method assessments used to determine the fair value of the rFactor 2 trade name consisted of forecasted revenues, royalty rate and weighted average cost of capital (i.e., the discount rate), while the principal assumptions used in each of the discounted cash flow valuation models used to value the Le Mans Gaming License were forecasted revenues and weighted average cost of capital. The principal assumptions used determining the fair value of the finite-lived technology intangible asset were number of production hours, cost per hour and technological obsolescence. The Company considers these assumptions to be judgmental and subject to risk and uncertainty, which could result in further changes in subsequent periods.

The impairment loss is presented as impairment of intangible assets in the consolidated statements of operations.

The following is a summary of intangible assets as of December 31, 2022 and 2021:

	Licensing Agreements (Finite)			Licensing Agreements (Indefinite)			Software (Finite)			Distribution Contracts (Finite)		Trade Names (Indefinite)			Non-Compete Agreement (Finite)			Accumulated Amortization			Total
Balance as of January 1, 2021	$	891,999		$	2,810,000		$	2,340,000		$	560,000	$	-		$	-		$	(1,843,547	)	$	4,758,452
Additions		6,363,818			-			8,521,000			-		3,175,928			273,000			-			18,333,746
Impairment		-			-			-			-		(317,113	)		-			-			(317,113	)
Amortization		-			-			-			-		-			-			(1,568,652	)		(1,568,652	)
Foreign currency translation adjustment		(57,454	)		-			(496,459	)		-		(186,234	)		(15,470	)		34,993			(720,624	)
Balance as of December 31, 2021		7,198,363			2,810,000			10,364,541			560,000		2,672,581			257,530			(3,377,206	)		20,485,809
Additions		-			-			-			-		-			-			-			-
Impairment		-			(1,107,054	)		(1,320,993	)		-		(2,400,431	)		-			-			(4,828,478	)
Amortization		-			-			-			-		-			-			(1,728,955	)		(1,728,955	)
Foreign currency translation adjustment		-			(156,301	)		(386,706	)		-		(59,965	)		(14,287	)		49,113			(568,146	)
Balance as of December 31, 2022	$	7,198,363		$	1,546,645		$	8,656,842		$	560,000	$	212,185		$	243,243		$	(5,057,048	)	$	13,360,230
Weighted average remaining amortization period at December 31, 2022		-			-			4.3			-		-			1.2			-			-

Accumulated amortization of intangible assets consists of the following:

	Licensing Agreements			Software			Distribution Contracts		Non-Compete Agreement			Accumulated Amortization
Balance as of January 1, 2021	$	686,012		$	597,535		$	560,000	$	-		$	1,843,547
Amortization expense		226,873			1,278,633			-		63,146			1,568,652
Foreign currency translation adjustment		(625	)		(32,452	)		-		(1,916	)		(34,993	)
Balance as of December 31, 2021		912,260			1,843,716			560,000		61,230			3,377,206
Amortization expense		233,750			1,416,273			-		78,933			1,728,956
Foreign currency translation adjustment		-			(47,854	)		-		(1,260	)		(49,114	)
Balance as of December 31, 2022	$	1,146,010		$	3,212,135		$	560,000	$	138,903		$	5,057,048

Estimated aggregate amortization expense of intangible assets for the next five years and thereafter, excluding future amortization on non-amortizing finite-lived intangible assets of $3.5 million, is as follows:

For the Years Ending December 31,	Total
2023	$	1,646,819
2024		1,633,194
2025		1,451,629
2026		1,204,842
2027		388,890
Thereafter		1,818,823
	$	8,144,197