NOTE

ACQUISITIONS

In Bet Gaming II

During the quarter ended

September 30, 2019,

the Company acquired certain intangible assets related to table game intellectual property from In Bet Gaming, Inc ("In Bet II"). The acquisition was accounted for as an acquisition of a business and the assets acquired were measured based on our estimates of their fair values at the acquisition date. We attribute the goodwill recognized to our ability to commercialize the products over our distribution and sales network, opportunities for synergies, and other strategic benefits. The consideration of

$4.0

million was allocated primarily to tax deductible goodwill for

$1.2

million and intangible assets of

$2.8

million, which will be amortized over a weighted average period of approximately

9.3

years.

Integrity

February 8, 2019,

we acquired all of the equity of Integrity Gaming Corp. ("Integrity"), a regional slot route operator with over

2,500

gaming machines in operation across over

casinos in Oklahoma and Texas. We attribute the goodwill recognized to our ability to utilize Integrity's installed base to maximize revenue of the combined product portfolio and the synergies we can obtain through the reduction in our combined service and overhead costs.

The total purchase price consideration for Integrity was as follows:

	February 8, 2019
	(in 000s)
Total purchase price for Integrity common stock (35,223,928 shares at CAD $0.46 per share)	$	12,335
Payments to holders of Integrity stock options and restricted share units		441
Repayments of Integrity debt and other obligations		39,806
Total purchase price consideration	$	52,582

The acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition date.

The acquisition of Integrity was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The property, plant and equipment which fair value was determined based on the cost and market approach (level

fair value measurement), consist primarily of electronic gaming machines ("EGM") assets.The intangible assets consist of customer relationships which will be amortized over a weighted average period of approximately

years. The intangible assets were valued using the excess earnings method (level

fair value measurement), which is a risk-adjusted discounted cash flow approach that determines the value of an intangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to other assets. The contribution to the cash flows that are made by other assets - such as net working capital, assembled workforce and property, plant and equipment - was estimated through contributory asset capital charges. The value of the customer relationships is the present value of the attributed post-tax cash flows, net of the post-tax return on fair value attributed to the other assets.

The allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed was as follows (in thousands):

	February 8, 2019
	(in 000s)
Assets
Current assets
Cash and cash equivalents	$	1,646
Accounts receivable		1,584
Inventories		159
Deposits and other		26
Prepaid expenses		141
Total Current Assets		3,556
Property and Equipment		12,708
Intangible Assets		30,600
Goodwill		11,380
Total Assets	$	58,244
Liabilities and Equity
Current liabilities
Accounts payable	$	1,366
Accrued liabilities		2,087
Current portion of long-term debt		151
Total current liabilities		3,604
Other long-term liabilities		1,787
Long-term debt		200
Total liabilities		1,987
Minority Interest		71
Net assets acquired	$	52,582

We recognized

$0.6

million related to property tax liability and

$1.4

million related to uncertain tax positions arising from contingencies which were valued at their fair value utilizing level

inputs.

The following unaudited pro forma statements of operations give effect to the Integrity acquisition as if it had been completed on

January 1, 2018.

The pro forma financial information is presented for illustrative purposes only and is

not

necessarily indicative of what the operating results actually would have been during the periods presented had the acquisition been completed on

January 1, 2018.

We did

not

summarize the amounts of revenue and earnings of Integrity since the acquisition date included in the consolidated income statement as it was immediately combined with our existing business and separating the results of operations would be impracticable. In addition, the unaudited pro forma financial information does

not

purport to project future operating results. This information is preliminary in nature and subject to change based on final purchase price adjustments. The pro forma statements of operations do

not

reflect: (

) any anticipated synergies (or costs to achieve synergies) or (

) the impact of non-recurring items directly related to the Integrity acquisition.

	Year Ended December 31, 2019			Year Ended December 31, 2018
Total revenues	$	306,452		$	303,293
Net loss attributable to PlayAGS, Inc.	$	(11,813	)	$	(20,381	)

AGS iGaming

During the quarter ended

June 30, 2018,

the Company acquired all of the equity of Gameiom Technologies Limited (formerly known as “Gameiom”, currently known as “AGS iGaming”). AGS iGaming was a licensed gaming aggregator and content provider for real-money gaming (“RMG”) and sports betting partners. The acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our estimates of their fair values at the acquisition date.

We attributed the goodwill recognized to our ability to utilize AGS iGaming’s existing RMG platform to distribute our existing EGM game content into many markets, diversification of our Interactive segment’s product portfolio that now includes a real-money gaming solution and other strategic benefits. The total consideration for this acquisition was

$5.0

million, which included cash paid of

$4.5

million and

$0.5

million of deferred consideration that was paid

months after the acquisition date. The consideration was allocated to goodwill that is

not

tax deductible for

$3.7

million and intangible assets of

$2.1

million, which will be amortized over a weighted average period of approximately

6.7

years. See Note

for a discussion and summary of impairments that we recorded subsequent to the acquisition related to these intangible assets and the related goodwill.

The intangible assets consisted primarily of customer relationships and a technology platform. The customer relationships were valued using the cost approaches (level

fair value measurement), in which we determined an estimated reproduction or replacement cost, as applicable. The technology platform was valued using the royalty savings method (level

fair value measurement), which is a risk-adjusted discounted cash flow approach. The royalty savings method values an intangible asset by estimating the royalties saved through ownership of the asset. The royalty savings method requires identifying the future revenue that would be impacted by the technology platform (or royalty-free rights to the assets), multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in such valuation was based on a consideration of market rates for similar categories of assets.

It is

not

practicable to provide pro forma statements of operations giving effect to the AGS iGaming acquisition as if it had been completed at an earlier date. This is due to the lack of historical financial information sufficient to produce such pro forma statements given the start up nature of AGS iGaming.

Rocket Gaming Systems

December 6, 2017,

the Company acquired an installed base of approximately

1,500

Class II EGMs across the United States that were operated by Rocket Gaming Systems (“Rocket”) for total consideration of

$56.9

million that was paid at the acquisition date. This asset acquisition was accounted for as an acquisition of a business. The acquisition expanded the Company’s Class II footprint in primary markets such as California, Oklahoma, Montana, Washington and Texas and is expected to provide incremental revenue as the Company upgrades the EGMs with its game content and platforms over the next several years. In addition, the acquisition expanded the Company’s product library and included a wide-area progressive and standalone video and spinning-reel games and platforms, including

Gold Series

, a suite of games that feature a

million+ progressive prize that is the longest-standing million dollar wide-area progressive on tribal casino floors.

We have recorded the Rocket assets acquired and liabilities assumed based on our estimates of their fair values at the acquisition date. The determination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated lives of depreciable and amortizable tangible and identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates that reflect risk inherent in the future cash flows.

The allocation of the purchase price to the fair values of the assets acquired and the liabilities assumed was as follows (in thousands):

Inventories	$	354
Property and equipment		3,307
Goodwill		23,217
Intangible assets		30,290
Total Assets	$	57,168
Other long-term liabilities		318
Total purchase price	$	56,850

The total consideration exceeded the aggregate fair value of the acquired assets and assumed liabilities at the acquisition date and has been recorded as goodwill. We attribute this goodwill to our opportunities for synergies through our ability to leverage our existing service network to service the acquired assets, the opportunity to derive incremental revenue through upgrading the EGMs with the Company’s existing game content and platforms and other strategic benefits. The goodwill associated with the acquisition is deductible for income tax purposes.

The fair values of identifiable intangible assets include

$22.5

million customer relationships,

$6.9

million gaming software and technology platforms, and

$0.9

million trade names. The intangible assets have a weighted average useful life of

6.4

years.

The fair value of property and equipment assets as well as the fair value of gaming content software was primarily determined using cost approaches in which we determined an estimated reproduction or replacement cost, as applicable.

The fair value of customer relationships was determined using the excess earnings method, which is a risk-adjusted discounted cash flow approach that determines the value of an intangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to other assets. The contribution to the cash flows that are made by other assets - such as fixed assets, working capital, workforce and other intangible assets - was through contributory asset capital charges. The value of the acquired customer relationship asset is the present value of the attributed post-tax cash flows, net of the post-tax return on fair value attributed to the other assets.

The fair values of acquired trade names and gaming technology platforms were primarily determined using the royalty savings method, which is a risk-adjusted discounted cash flow approach. The royalty savings method values an intangible asset by estimating the royalties saved through ownership of the asset. The royalty savings method requires identifying the future revenue that would be impacted by the trade name or intellectual property (or royalty-free rights to the assets), multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in such valuation was based on a consideration of market rates for similar categories of assets.

The revenue and net loss of Rocket from the acquisition date through

December 31, 2017,

are presented below and are included in our consolidated statements of operations and comprehensive loss. These amounts are

not

necessarily indicative of the results of operations that Rocket would have realized if it had continued to operate as a stand-alone company during the period presented, primarily due to the inclusion of amortization on purchased intangible assets and short term transition services expenses that the Company incurred in

December 2017.

	From December 6, 2017 through December 31, 2017
	(in 000s)
Revenue	$	1,139
Net income	$	203

It is

not

practicable to provide pro forma statements of operations giving effect to the Rocket acquisition as if it had been completed at an earlier date. This is due to the lack of historical financial information sufficient to produce such pro forma statements given that the Company purchased specific assets from the sellers that were

not

segregated in the seller’s financial records and for which separate carve-out financial statements were

not

produced.

In Bet Gaming

During the quarter ended

September 30, 2017,

the Company acquired certain intangible assets related to table games and table game intellectual property from In Bet Gaming, Inc. The acquisition was accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our final estimates of their fair values at the acquisition date. We attribute the goodwill acquired to our ability to commercialize the products over our distribution and sales network, opportunities for synergies, and other strategic benefits. The total consideration for this acquisition was

$9.6

million, which included

$2.6

million of contingent consideration that is payable upon the achievement of certain targets and periodically based on a percentage of product revenue earned on the purchased table games.

The consideration was allocated primarily to tax deductible goodwill for

$3.2

million and intangible assets of

$5.5

million, which will be amortized over a weighted average period of approximately

years.

The contingent consideration was valued using scenario-based methods (the Company used level

of observable inputs in this valuation) that account for the expected timing of payments to be made and discounted using an estimated borrowing rate. The borrowing rate utilized for this purpose was developed with reference to the Company’s existing borrowing rates, adjusted for the facts and circumstances related to the contingent consideration.

The intangible assets consist of a primary asset that includes the intellectual property acquired, which asset represents the majority of the intangible asset value. This intellectual property was valued using the excess earnings method (the Company used level

of observable inputs in this valuation), which is a risk-adjusted discounted cash flow approach that determines the value of an intangible asset as the present value of the cash flows attributable to such asset after excluding the proportion of the cash flows that are attributable to other assets. The contribution to the cash flows that are made by other assets - such as working capital, workforce and other intangible assets - was estimated through contributory asset capital charges. The value of the acquired intellectual property is the present value of the attributed post-tax cash flows, net of the post-tax return on fair value attributed to the other assets.