NOTE

DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

PlayAGS, Inc. (the "Company," "PlayAGS," "we," "us," or "our") is a leading designer and supplier of gaming products and services for the gaming industry. We operate in legalized gaming markets across the globe and provide state-of-the-art, value-add products in

three

distinct segments: Electronic Gaming Machines (“EGM”), which includes server-based systems and back-office systems that are used by Class II Native American, Mexico and the Philippines gaming jurisdictions and Class III Native American, commercial and charitable jurisdictions; Table Products (“Table Products”), which includes live felt table games, side-bets and progressives as well as our newly introduced card shuffler,

Dex S

; and Interactive Games (“Interactive”), which provides social casino games on desktop and mobile devices (our "Interactive Social" reporting unit) as well as a platform for content aggregation used by real-money gaming (“RMG”) and sports-betting partners (our "RMG Interactive" reporting unit). Each segment’s activities include the design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of a distinct product line.

The Company filed a Registration Statement on Form

December 19, 2013,

which went effective under the Securities Exchange Act of

1934,

as amended (the “Exchange Act”), on

December 19, 2013.

January 30, 2018,

we completed the initial public offering of

10,250,000

shares of our common stock, at a public offering price of

$16.00

per share (the “IPO”).

February 27, 2018,

we sold an additional

1,537,500

shares of common stock, pursuant to the underwriters’ exercise in full of the over-allotment option.

Electronic Gaming Machines

Our EGM segment offers a selection of video slot titles developed for the global marketplace, and EGM cabinets which include the

Alora

Orion Portrait, Orion Rise, Orion Upright, ICON, Big Red (“Colossal Diamonds”)

and our

Orion Slant

. In addition to providing complete EGM units, we offer conversion kits that allow existing game titles to be converted to other game titles offered within that operating platform.

Table Products

Our Table Products include both internally developed and acquired proprietary table products, side-bets, progressives, and table technology related to blackjack, poker, baccarat, craps and roulette. We have acquired a number of popular proprietary brands, including In Bet Gaming (“In Bet”),

Buster Blackjack, Double Draw

Poker

and

Criss Cross Poker

that are based on traditional well-known public domain games such as blackjack and poker; however, these proprietary games provide intriguing betting options that offer more excitement and greater volatility to the player, ultimately enhancing our casino customers’ profitability. In addition, we offer a single deck card shuffler for poker tables,

Dex S

and recently introduced our

second

shuffler, the

Pax S

single-deck pack shuffler, which we plan to launch in

2020.

Interactive

We operate a

B2B

online gaming platform for content aggregation that we offer to our real-money gaming (“RMG”) online casino customers. This platform aggregates content from several game suppliers and offers online casino operators the convenience to reduce the number of integrations that are needed to supply the online casino. We also operate Business-to-Consumer (

“B2C”

) social casino games that include online versions of our EGM titles and are accessible to players on multiple mobile platforms. Our

B2C

social casino games are available on our mobile app, Lucky Play Casino. The app contains numerous AGS game titles available for consumers to play for free or with virtual currency they purchase in the app.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures required by generally accepted accounting principles (“GAAP”) are omitted or condensed in these condensed consolidated financial statements. In the opinion of Management, all adjustments (consisting of only normal recurring adjustments) that are necessary for a fair statement of the Company's financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these condensed consolidated financial statements are

not

necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form

-K for the year ended

December 31, 2019

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances

may

affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.

Revenue Recognition

Leasing of equipment in both our EGM and Table Products segments is accounted for under lease accounting guidance in ASC

842,

"Leases" (ASC

842

) and is recorded in gaming operations revenue. Our remaining revenue streams are accounted for under ASC

606

"Revenue from contracts with customers" (ASC

606

) including equipment sales in our EGM and, to a lesser extent, in our Table Products segments. Revenue earned in our Interactive segment is recorded in gaming operations revenue.

The following table disaggregates our revenues by type within each of our segments (amounts in thousands):

	Three Months Ended March 31,
	2020		2019

EGM
Gaming operations	$	38,885	$	49,500
Equipment sales		11,470		20,155
Total	$	50,355	$	69,655

Table Products
Gaming operations	$	2,324	$	2,130
Equipment sales		158		26
Total	$	2,482	$	2,156

Interactive (gaming operations)
Social gaming revenue	$	822	$	958
Real-money gaming revenue		654		273
Total	$	1,476	$	1,231

Gaming Operations

Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, table products, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e., gaming machines and related integral software) for a stated period of time, which typically ranges from

one

three

years upon which the contract continues on a month-to-month basis thereafter. In some instances, the Company will enter arrangements for longer periods of time; however, many of these arrangements include the ability of the customer to cancel the contract and return the games to the Company, a provision which renders their contracts effectively month-to-month contracts.The Company will also enter into lease contracts with a revenue sharing arrangement whereby the lease payments due from the customer are variable. Our participation arrangements are accounted for as operating leases primarily due to these factors. In some instances, we will offer a free trial period during which

revenue is recognized. If during or at the conclusion of the trial period the customer chooses to enter into a lease for the gaming equipment, we commence revenue recognition according to the terms of the agreement.

Under participation arrangements, the Company retains ownership of the gaming equipment installed at the customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a fixed daily fee. Thus, in our consolidated financial statements the Company records revenue monthly related to these arrangements and the gaming equipment is recorded in property and equipment, net on our balance sheet and depreciated over the expected life of the gaming equipment.

The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if

not

met, provides the customer with the right to return the gaming machines to the Company. This performance guarantee is considered a cancellation clause, a provision which renders their contracts effectively month-to-month contracts. Accordingly, the Company accounts for these contracts in a similar manner with its other operating leases as described above.

Gaming operations revenue is also earned from the licensing of table product content and is earned and recognized primarily on a fixed monthly rate. Our

B2C

social casino products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer.

B2C

social casino revenue is presented gross of the platform fees.

B2B

social casino products earn revenue primarily based on a percentage of the monthly revenue generated by the white label casino apps that we build and operate for our customers. RMG revenue is earned primarily based on a percentage of the revenue produced by the games on our platform as well as monthly platform fees and initial integration fees. RMG revenue is presented net of payments to game and content suppliers.

Equipment Sales

Revenues from contracts with customers are recognized and recorded when the following criteria are met:

	•	We have a contract that has been approved by both the customer and the Company. Our contracts specify the products being sold and payment terms and are recognized when it is probable that we will collect substantially all of the contracted amount; and
	•	Control has been transferred and services have been rendered in accordance with the contract terms.

Equipment sales are generated from the sale of gaming machines, table products and licensing rights to the integral game content software that is installed in the related equipment, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Equipment sales do

not

include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as the customer obtains control of the product and all other revenue recognition criteria have been satisfied. Our contracts include a fixed transaction price. Amounts are due from customers within

days of the invoice date and to a lesser extent we offer extended payment terms of

months with payments due monthly during the extended payment period.

The Company enters into revenue arrangements that

may

consist of multiple performance obligations, which are typically multiple distinct products that

may

be shipped to the customer at different times. For example, sales arrangements

may

include the sale of gaming machines and table products to be delivered upon the consummation of the contract and additional game content conversion kits that will be delivered at a later date when requested by the customer to replace the game content on the customer’s existing gaming machines. Products are identified as separate performance obligations if they are distinct, which occurs if the customer can benefit from the product on its own and is separately identifiable from other promises in the contract.

Revenue is allocated to the separate performance obligations based on relative standalone selling prices determined at contract inception. Standalone selling prices are primarily determined by prices that we charge for the products when they are sold separately. When a product is

not

sold separately, we determine the standalone selling price with reference to our standard pricing policies and practices. We elected to exclude from the measurement of the transaction price, sales taxes and all other items of a similar nature, and also elected to account for shipping and handling activities as a fulfillment of our promise to transfer the goods. Accordingly, shipping and handling costs are included in cost of sales.

Revenue allocated to any undelivered performance obligations is recorded as a contract liability. The balance of our contract liabilities was

not

material as of

March 31, 2020

and

December 31, 2019

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of

days or less.

Restricted Cash

Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities.

Allowance for Doubtful Accounts

Accounts receivable are stated at face value less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts related to accounts receivable and notes receivable, which are non-interest bearing, deemed to have a high risk of collectability. The Company reviews the accounts receivable and notes receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for both accounts and notes receivable.

Allowance for Expected Credit Losses

Management

estimates the allowance for expected credit losses balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current environmental economic conditions and reasonable and supportable forecast. The allowance for expected credit losses on financial instruments is measured on a collective (pool) basis when similar risk characteristics exist. The financial instruments that do

not

share risk characteristics, such as receivables related to development agreements, are evaluated on an individual basis. Expected credit losses are estimated over the contractual term of the related financial instruments, adjusted for expected prepayments when appropriate, based on a historical model that includes periodic write-offs, recoveries, and adjustments to the reserve. Historically, the identified portfolio segments have shared low collectability risk with immaterial write-off amounts. The Company made an accounting policy election to present the accrued interest receivable balance within another statement of financial position line item. Accrued interest receivable is reported within respective receivables line items on the consolidated balance sheet.

The following table excludes receivables related to operating leases and presents all other receivables' gross amortized cost, allowance for credit losses and amortized cost, net of allowance for credit losses by portfolio segment as of

March 31, 2020

and

December 31, 2019 (

in thousands):


		March 31, 2020							December 31, 2019
	Classification	Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses		Gross amortized cost		Allowance for credit losses			Amortized cost, net of allowance for credit losses

Trade receivables:	Accounts Receivable	$	10,756	$	-		$	10,756	$	22,741	$	-		$	22,741

Receivables with extended payment terms:
Originated in 2020	Accounts Receivable	$	3,009	$	-		$	3,009		N/A		N/A			N/A
Originated in 2019	Accounts Receivable		4,073		-			4,073		5,461		-			5,461
Total receivables with extended payment term		$	7,082	$	-		$	7,082	$	5,461	$	-		$	5,461

Sales-type leases receivables:
Originated in 2019	Accounts Receivable	$	1,772	$	(89	)	$	1,683	$	2,206	$	(111	)	$	2,095
Originated in 2017	Accounts Receivable		42		(2	)		40		52		(3	)		49
Total Sales-type leases receivables		$	1,814	$	(91	)	$	1,723	$	2,258	$	(114	)	$	2,144

Development Agreements:
Originated in 2020	Deposits and other	$	2,390	$	-		$	2,390		N/A		N/A			N/A
Originated in 2019	Deposits and other		2,431		-			2,431		2,359		-			2,359
Total Development Agreements		$	4,821	$	-		$	4,821	$	2,359	$	-		$	2,359

Inventories

Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment as well as EGMs in production and finished goods held for sale. Inventories are stated at net realizable value. Cost of inventories is determined using the

first

-in,

first

-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value. As of

March 31, 2020

and

December 31, 2019

, the value of raw material inventory was

$32.7

million and

$29.1

million, respectively. As of

March 31, 2020

and

December 31, 2019

, the value of finished goods inventory was

$6.3

million and

$3.8

million, respectively. There was

work in process material as of

March 31, 2020

and

December 31, 2019

Property and Equipment

The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. The Company capitalizes costs incurred for the refurbishment of used gaming equipment that is typically incurred to refurbish a machine in order to return it to its customer location. The refurbishments extend the life of the gaming equipment beyond the original useful life. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:

Gaming equipment (in years)			2 to 6
Other property and equipment (in years)			3 to 6

The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group

may

not

be recoverable. The Company groups long-lived assets for impairment analysis at the lowest level for which identifiable cash flows can be measured independently of the cash flows of other assets and liabilities. This is typically at the individual gaming machine level or at the cabinet product line level. Impairment testing is performed and losses are estimated when indicators of impairment are present and the estimated undiscounted cash flows are

not

sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are

not

sufficient to recover the asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does

not

expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.

Intangible Assets

The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are

not

sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are

not

sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, on

October 1,

or whenever events or changes in circumstances indicate that the carrying value

may

be impaired. We perform a qualitative assessment to determine if it is more likely than

not

that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than

not

that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.

Costs of Capitalized Computer Software

Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.

Goodwill

The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, on

October 1,

or when circumstances change that would more likely than

not

reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step

0”,

to determine whether it is more likely than

not

that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment

may

include, but is

not

limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than

not

that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill

may

be written down and charged to income from operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit.

Acquisition Accounting

The Company applies the provisions of ASC

805,

“

Business Combinations”

(ASC

805

), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which

may

be up to

one

year from the acquisition date, we

may

record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Fair Value of Financial Instruments

The Company applies the provisions of ASC

820,

“

Fair Value Measurements

” (ASC

820

) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC

820

also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:

	•	Level 1 - quoted prices in an active market for identical assets or liabilities;
	•	Level 2 - quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and
	•	Level 3 - valuation methodology with unobservable inputs that are significant to the fair value measurement.

The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level

inputs). The following table presents the estimated fair value of our long-term debt as of

March 31, 2020

and

December 31, 2019

(in thousands):

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term Debt	$	562,423	$	433,475	$	533,727	$	534,578

Accounting for Income Taxes

We conduct business globally and are subject to income taxes in U.S. federal, state, local, and foreign jurisdictions. Determination of the appropriate amount and classification of income taxes depends on several factors, including estimates of the timing and probability of realization of deferred income taxes, reserves for uncertain income tax positions and income tax payment timing.

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they are located. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than

not

and a valuation allowance is established for deferred tax assets which do

not

meet this threshold.

The recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets could result in a higher tax provision in future periods.

We apply the accounting guidance to our uncertain tax positions and under the guidance, we

may

recognize a tax benefit from an uncertain position only if it is more likely than

not

that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the financial statements is the largest benefit that we believe has greater than a

50%

likelihood of being realized upon settlement.

We are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is

guarantee that the final outcome of the related matters will

not

differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision

may

be impacted to the extent that the final outcome of these tax positions is different than the amounts recorded.

In response to the COVID-

outbreak, President Donald Trump signed H.R.

748,

the “Coronavirus Aid, Relief, and Economic Security ACT (the “CARES Act”). While we are still assessing the impact of the CARES Act, we do

not

expect this to have a material impact on our condensed consolidated financial statements.

Contingencies

The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from Management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in stockholders’ equity.

Liquidity and Financing

Due to the business disruption caused by the rapid nationwide spread of the novel coronavirus and the actions by state and tribal governments and businesses to contain the virus, the Company’s customers have closed their operations and their respective markets have been significantly and adversely impacted. As a result of the temporary closures of our casino customers, there has been a decrease in the amount of money spent by consumers on our revenue shared installed base and the amount of daily fees of our participation EGMs and

expansion of existing casinos or development of new casinos. Specifically, gaming operations revenue and equipment sales have decreased compared to the prior year period as a result of the temporary closures of our casino customers. Similarly, our EGM and Table Product segment operating results have been disrupted because each segment’s activities including design, development, acquisition, manufacturing, marketing, distribution, installation and servicing of its products lines have been temporarily halted or significantly reduced. In addition, each segment’s revenue from leasing, licensing and selling products has been adversely impacted due to the temporary closures of our casino customers. As a result, the Company has taken several actions to adapt to the severity of the crisis. Among other things, the Company implemented short-term furloughs with retained benefits, company-wide salary reductions, and an approximate

10%

reduction of the workforce. Our non-employee directors have also agreed to reduce their fees by

50%.

In addition to these actions, the Company is considering further reductions to payroll and related expenses through additional employee furloughs and

may

pursue

one

or more of these alternatives depending on the length of the casino closures in markets and jurisdictions where it earns its revenue in order to conserve liquidity.

As of

March 31, 2020,

the Company had

$43.6

million in cash and cash equivalents. Under the First Lien Credit Agreement (defined below in Note

), the Company was required to comply with certain financial covenants at the end of each calendar quarter, including to maintain a maximum net

first

lien leverage ratio of

6.0

1.0.

May 1, 2020,

the Company entered into an amendment to the First Lien Credit Agreement ("Amendment

No.

) that implemented a financial covenant relief period (the “Financial Covenant Relief Period”) through

December 31, 2020

and implemented a revised calculation of EBITDA commencing on the

first

day after the expiration of the Financial Covenant Relief Period and ending on the

first

day of the

fourth

fiscal quarter after the expiration of the Financial Covenant Relief Period. As a result of Amendment

No.

and based on the Company's projected operating results for the next

twelve

months, the Company expects that it will be in compliance with its debt covenants under the First Lien Credit Agreement for at least the next

twelve

months. Amendment

No.

also provided for additional financing of

$95.0

million of which the Company received

$83.5

million after original issue discount and related fees, which is described in Note

The incremental term loans are subject to an interest rate of LIBOR plus

13%

and the agreement also provides that any refinancing of the term loans through the issuance of certain debt or any repricing amendment resulting in a lower yield occurring at any time during the

first

two

years after

May 1, 2020

will be accompanied by a Make-Whole Premium as defined in the agreement that includes a premium or fee as well as the required payment of any unpaid interest that would have been paid through

May 1, 2022.

For

six

months following this

two

year period a prepayment of the loans will be accompanied by a

1.00%

payment premium or fee. Other than described above, the incremental term loans continue to have the same terms as provided under the existing credit agreement. As a result of the additional financing, coupled with existing cash balances, Management believes that the Company has sufficient liquidity to fund its operating requirements and meet its obligations as they become due for at least the next

twelve

months.

Recently Issued Accounting Pronouncements

June 2016,

the FASB issued ASU

No.

2016

13,

Financial Instruments - Credit Losses (Topic

326

which provides updated guidance on how an entity should measure credit losses on financial instruments. The new guidance replaced the current incurred loss measurement methodology with a lifetime expected loss measurement methodology. Subsequently, in

November 2018

the FASB issued ASU

No.

2018

19,

which clarified that receivables arising from operating leases are

not

within the scope of Subtopic

326

20,

but should rather be accounted for in accordance with ASC

842.

May 2019,

the FASB issued ASU

No.

2019

providing targeted transition relief to all reporting entities within the scope of Topic

326.

The new standard and related amendments are effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. This guidance is expected to be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the

first

reporting period in which the guidance is effective and using a prospective approach for debt securities for which any other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after

December 15, 2018.

The Company adopted ASC

326

using the modified retrospective approach for all applicable financial assets measured at amortized cost. The Company elected the practical expedient to exclude accrued interest from tabular disclosure and

not

to estimate an allowance for credit losses on accrued interest. Results for reporting beginning after

January 1, 2020

are presented under ASC

326

while prior amounts continue to be reported in accordance with previously applicable GAAP. The standard did

not

materially impact our consolidated net earnings and had

impact on cash flows.

August 2018,

the FASB issued ASU

No.

2018

15,

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic

350

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)

which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The new standard is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company adopted the standard prospectively to all implementation costs incurred after

January 1, 2020.

The standard did

not

materially impact our consolidated net earnings and had

impact on cash flows.

We do

not

expect that any other recently issued accounting guidance will have a significant effect on our financial statements.