Schedule I [Schedule]

12 Months Ended

Dec. 31, 2018

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Schedule I

CONDENSED BALANCE SHEETS

(in thousands, except share data)

	December 31,
	2018			2017
Assets
Current assets
Cash and cash equivalents	$	13,549		$	2,201
Prepaid expenses	49			54
Total current assets	13,598			2,255
Deferred tax asset	—			—
Investment in subsidiaries	122,972			121,118
Total assets	$	136,570		$	123,373
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued liabilities	$	—		$	—
Intercompany payables	766			399
Total current liabilities	766			399
Long-term debt	—			149,588
Other long-term liabilities	—			1,321
Total liabilities	766			151,308
Stockholders’ equity:
Common stock	353			149
Additional paid-in capital	361,628			177,276
Retained earnings	(222,403		)	(201,557		)
Accumulated other comprehensive loss	(3,774		)	(3,803		)
Total stockholders’ equity	135,804			(27,935		)
Total liabilities and stockholders’ equity	$	136,570		$	123,373

, INC.

(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF OPERATIONS

(in thousands)

	Year ended December 31,
	2018			2017			2016
Operating expenses
Selling, general and administrative	$	30		$	286		$	231
Total operating expenses	30			286			231
Loss from operations	(30		)	(286		)	(231		)
Other expense (income)
Equity in net loss of subsidiaries	16,396			28,302			62,450
Interest expense	1,383			16,518			15,165
Loss on extinguishment and modification of debt	3,037			—			—
Loss before income taxes	(20,846		)	(45,106		)	(77,846		)
Income tax (expense) benefit	—			—			(3,528		)
Net loss	(20,846		)	(45,106		)	(81,374		)
Foreign currency translation adjustment	29			743			(2,735		)
Total comprehensive loss	$	(20,817	)	$	(44,363	)	$	(84,109	)

INC.

(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

	Year ended December 31,
	2018			2017			2016
Cash flows from operating activities
Net loss	$	(20,846	)	$	(45,106	)	$	(81,374	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of deferred loan costs and discount	—			479			340
Payment-in-kind interest payments	(37,624		)	(1,108		)	—
Payment-in-kind interest capitalized	—			15,933			14,819
Write-off of deferred loan costs and discount	3,037			—			—
Equity in net loss of subsidiaries	16,396			28,302			62,450
(Benefit) provision of deferred income tax	—			—			3,528
Changes in assets and liabilities that relate to operations:	—
Prepaid expenses	5			(14		)	23
Intercompany payable/receivable	365			306			148
Accounts payable and accrued liabilities	—			(36		)	35
Net cash (used in) provided by operating activities	(38,667		)	(1,244		)	(31		)
Cash flows from investing activities
Investment in subsidiaries	(12,100		)	(7,965		)	(15,720		)
Distributions received from subsidiaries	—			8,084			—
Net cash (used in) provided by investing activities	(12,100		)	119			(15,720		)
Cash flows from financing activities
Repayment of seller notes	—			(6,870		)	—
Repayment of senior secured credit facilities	(115,000		)	—			—
Proceeds from employees in advance of common stock issuance	—			25			—
Repurchase of shares issued to management	—			—			(50		)
Proceeds from issuance of common stock	176,341			—			—
Proceeds from stock option exercise	774			—			—
Net cash provided by (used in) financing activities	62,115			(6,845		)	(50		)
Increase (decrease) in cash and cash equivalents	11,348			(7,970		)	(15,801		)
Cash and cash equivalents, beginning of period	2,201			10,171			25,972
Cash and cash equivalents, end of period	$	13,549		$	2,201		$	10,171

, INC.

(PARENT COMPANY ONLY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The stand-alone parent company financial statements of PlayAGS, Inc., formerly AP Gaming Holdco, Inc. (the “ Parent Company”) should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes thereto. For purposes of these condensed financial statements, the Parent Company’s wholly owned and majority owned subsidiaries are recorded based upon its proportionate share of the subsidiaries’ net assets (similar to presenting them on the equity method).

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted since this information is included in the Company’s consolidated financial statements included elsewhere in this Form 10-K.

NOTE 2 - COMMITMENTS AND CONTINGENCIES

The Parent Company is a holding company and, as a result, its ability to pay dividends is dependent on its subsidiaries’ ability to obtain funds and its subsidiaries' ability to provide funds to it. Restrictions are imposed by its subsidiaries' debt instruments, which significantly restrict certain key subsidiaries holding a majority of its assets from making dividends or distributions to the Parent Company. These restrictions are subject to certain exceptions for affiliated overhead expenses as defined in the agreements governing the debt instruments, unless certain financial and non-financial criteria have been satisfied.

Long-term debt of the Parent Company consisted of the senior secured PIK notes and the Amaya Seller Note as described below.

Senior Secured PIK Notes

On January 30, 2018, the Company used the net proceeds of the IPO and cash on hand to redeem in full its 11.25% senior secured PIK notes due 2024 (the “PIK Notes”). On the redemption date, the aggregate principal amount of the PIK Notes outstanding was $152.6 million (comprised of the original principal amount of $115 million and the remaining principal amount comprised of capitalized interest) and the amount of accrued and unpaid interest was $1.4 million. In connection with the redemption, the Company repaid all of the outstanding obligations in respect of principal, interest and fees under the PIK Notes and net deferred loan costs and discounts totaling $3.0 million were written off and included in the loss on extinguishment and modification of debt.

Concurrently with the redemption of the PIK notes, the Company terminated its amended and restated note purchase agreement (the “A&R Note Purchase Agreement”), dated May 30, 2017, among the Company, AP Gaming Holdings, LLC, as subsidiary guarantor, Deutsche Bank AG, London Branch, as holder, and Deutsche Bank Trust Company Americas, as collateral agent, which governed the PIK Notes.

NOTE 3 - CASH FLOW STATEMENT SUPPLEMENTAL DISCLOSURES

The Parent Company charged $10.9 million of stock-based compensation to additional paid-in capital during the year ended December 31, 2018, the expense for which was contributed to the Parent Company’s subsidiaries that employ the employee recipients of the share-based awards.  The Parent Company’s subsidiaries also paid for Parent Company expenses incurred in connection with the initial public offering of approximately $4.8 million that was recorded as a non-cash distribution to the Parent Company.   

Prior to the consummation of the initial public offering, 170,712 shares of common stock were held by management. Pursuant to the Securityholders Agreement dated April 28, 2014 (the “Securityholders Agreement”), these shares were outstanding, but were not considered issued for accounting purposes as they contained a substantive performance condition, a “Qualified Public Offering”, as defined in the Securityholders Agreement, which had to be probable for the holders of these shares to benefit from their ownership. The initial public offering satisfied the substantive performance condition and as a result the shares and related proceeds of $1.3 million were reclassified from other long-term liabilities to additional paid-in capital and considered issued for accounting purposes, a non-cash investing activity.

During the year ended December 31, 2017, the Parent Company recorded a non-cash financing activity that reduced the seller provided financing on a previous acquisition by $5.1 million. The seller provided financing was in the form of a promissory note to the seller, Amaya Inc., for $12.0 million, and the acquisition also included a contingent receivable that was recorded at its estimated fair value on the date of the acquisition. The contingent receivable was related to a clause in the stock purchase agreement allowing for a refund of up to $25.0 million if certain deactivated gaming machines in Mexico are not in operation by November 29, 2016. During the year ended December 31, 2017, the Company reached an agreement with Amaya, Inc. to receive $5.1 million for this contingent receivable in the form of a reduction of the promissory note.