NOTE 3 – INTANGIBLE ASSETS

Licensing Agreements

The Company has license agreements with various entities related to the development of video games and the organization and facilitation of esports events, including BARC (TOCA) Limited (“BARC”) with respect to the BTCC, and INDYCAR LLC (“INDYCAR”) with respect to the INDYCAR SERIES. As of June 30, 2023, the Company had a remaining liability in connection with these licensing agreements of approximately $0.8 million and $3.3 million, which is included in purchase commitments and other non-current liabilities, respectively, on the unaudited condensed consolidated balance sheets.

Impairment

During the three months ended June 30, 2023, the Company identified triggering events that indicated certain finite-lived intangible assets were at risk of impairment and as such, performed a quantitative impairment assessment to determine the recoverability of those finite-lived intangible assets. The primary trigger for the impairment review was the Company’s decision to explore strategic alternatives, including, but not limited to, the sale or licensing of the Company’s assets (the “Strategic Initiatives”), and that failure to consummate any such transaction would likely result in the Company being unable to comply with certain requirements of certain of its video game licenses.

As a result of the quantitative assessment, the Company determined the fair value of certain licensing agreements, software and non-compete agreements were lower than their respective carrying values and recorded an impairment loss for the three months ended June 30, 2023 of approximately $4.0 million. The Company determined the fair value of the finite-lived intangible assets subject to assessment using either a discounted cash flow valuation model or a cost to recreate valuation model, depending on the nature of the asset. The identified impairment losses were primarily driven by a reduction in expected future cash flows, driven by the triggering event factors discussed above. The principal assumptions used in the discounted cash flow valuation model were forecasted cash flows and the expected proceeds from the sale of certain assets should the Company be successful in its Strategic Initiatives, while the principal assumptions used in the cost to recreate valuation model were 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 unaudited condensed consolidated statements of operations and comprehensive loss.

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Intangible Assets

The following is a summary of intangible assets as of June 30, 2023:

Accumulated amortization of intangible assets consists of the following:

Estimated aggregate amortization expense of intangible assets for the next five years and thereafter is as follows:

Motorsport Games Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements

Amortization expense related to intangible assets was approximately $0.4 million for both the three months ended June 30, 2023 and 2022, and amortization expense related to intangible assets was approximately $0.8 million for both the six months ended June 30, 2023 and 2022. Within intangible assets is approximately $3.5 million of licensing agreements that are not presently subject to amortization. These non-amortizing licensing agreements will begin amortizing upon release of the first title under the respective license agreement.