~~Table~~ Laws, regulations, and ordinances governing our gaming related activities and the obligations of ~~Contents~~gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change that could impose additional operating, financial, or other burdens on the our business.

Federal Registration

The Gambling Devices Act of 1962 makes it unlawful for a person to manufacture, transport, or receive gaming devices, or components across interstate lines unless that person has first registered with the Attorney General of the U.S. Department of Justice. This act also imposes gambling device identification and record keeping requirements. Violation of this act may result in seizure and forfeiture of the equipment, as well as other penalties. As an entity involved in the manufacture and transportation of gaming devices, we are required to register annually.

Native American Gaming

The rules for Native American gaming were established in 1988 under the IGRA. Under the IGRA, gaming activities conducted by federally recognized Native American tribes are segmented into three classes of gaming activities:

Class I.I. Class I gaming represents traditional forms of Native American gaming as part of, or in connection with, tribal ceremonies or celebrations (e.g., contests and games of skill) and social gaming for minimal prizes. Class I gaming is regulated only by individual Native American tribes. We do not participate in any Class I gaming activities.

Class ~~II.~~II. Class II gaming involves the game of chance commonly known as bingo (whether or not electronic, computer, or other technological aids are used in connection therewith to facilitate play) and if played in the same location as the bingo, also includes pull tabs, punch board, tip jars, instant bingo, and other games similar to bingo. Class II gaming also includes non-banked card games, that is, games that are played exclusively against other players rather than against the house or a player acting as a bank. However, the definition of Class II gaming specifically excludes slot machines or electronic facsimiles of Class III games. Class II gaming is regulated by the National Indian Gaming Commission (the “~~NIGC~~”“NIGC”) and the laws of the Native American tribe conducting such gaming. Subject to the detailed requirements of the IGRA, including NIGC approval of such Native American tribe’s gaming ordinance, federally recognized Native American tribes are typically permitted to conduct Class II gaming on Indian lands pursuant to tribal ordinances approved by the NIGC.

Class ~~III.~~III. Class III gaming includes all other forms of gaming that are neither Class I nor Class II and includes a broad range of traditional casino games such as slot machines, blackjack, craps and roulette, as well as wagering games and electronic facsimiles of any game of chance. The IGRA generally permits a Native American tribe to conduct Class III gaming activities on reservation lands subject to the detailed requirements of the IGRA ~~including NIGC approval of such Native American tribe’s gaming ordinance~~ and the entering into of a compact between such Native American tribe and the state in which the Native American tribe intends to conduct Class III gaming activities on its trust lands.

The IGRA is administered by the NIGC and the Secretary of the U.S. Department of the Interior. The NIGC has authority to issue regulations related to tribal gaming activities, approve tribal ordinances for regulating gaming, approve management agreements for gaming facilities, conduct investigations and monitor tribal gaming generally. The IGRA is subject to interpretation by the NIGC and may be subject to judicial and legislative clarification or amendment. The gaming ordinance of each Native American tribe conducting gaming under the IGRA and the terms of any applicable tribal/state compact establish the regulatory requirements under which we must conduct business on Native American tribal lands.

Under the IGRA, the NIGC’s authority to approve gaming-related contracts is limited to management contracts and collateral agreements related to management contracts. A “management contract” includes any agreement between a Native American tribe and a contractor if such contract or agreement provides for the management of all or part of a gaming operation. To the extent that any of our agreements with Native American tribes are deemed to be management contracts, such agreements would require the approval of the NIGC in order to be valid. To our knowledge, none of our current agreements with Native American tribes qualify as management contracts under the IGRA.

In addition, ~~as discussed above under “—Customers—Customer Contracts,”~~ to the extent that any of our agreements with Native American tribes are deemed by the NIGC to create an impermissible proprietary interest, such agreements ~~would need to be amended in order to be valid.~~are void and unenforceable. To our knowledge, none of our current agreements with Native American tribes create an impermissible proprietary interest in Indian gaming.

International Regulation

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Certain foreign countries permit the importation, sale, and operation of gaming equipment in casino and non-casino environments. Some countries prohibit or restrict the payout feature of the traditional slot machine or limit the operation and the number of slot machines to a controlled number of casinos or casino-like locations. Each gaming machine must comply with the individual country’s regulations. Certain jurisdictions do not require the licensing of gaming machine operators and manufacturers.

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ITEM 1A. RISK FACTORS.

The following risk factors should be considered carefully in addition to the other information contained in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, those discussed below as well as those discussed elsewhere in this Annual Report on Form 10-K. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.

Our success in the competitive gaming industry depends in large part on our ability to develop and manage frequent introductions of innovative products. If we are unable to successfully and frequently introduce innovative products, we may be at a competitive disadvantage to our competitors, which could negatively impact our business.

The gaming industry is characterized by dynamic customer demand and technological advances. As a result, we must continually introduce and successfully market new themes and technologies in order to remain competitive and effectively stimulate customer demand.

There is no assurance that our investments in research and development will lead to successful new technologies or timely new products. We invest heavily in product development in various disciplines from hardware, software and firmware engineering to game design, video, multimedia, graphics and sound. Because our newer products are generally more technologically sophisticated than those we have produced in the past, we must continually refine our production capabilities to meet the needs of our product innovation. If we cannot efficiently adapt our manufacturing infrastructure to meet the needs of our product innovations, or if we are unable to make upgrades in our production capacity in a timely manner, our business could be negatively impacted.

Our customers will generally accept a new product if it is likely to increase operator profits. The amount of operator profits primarily depends on consumer play levels, which are influenced by player demand for our products. There is no assurance that our new products will attain this market acceptance or that our competitors will not more effectively anticipate or respond to changing customer preferences. In addition, any delays by us in introducing new products on schedule could negatively impact our operating results by providing an opportunity for our competitors to introduce new products and gain market share ahead of us.

Our business is vulnerable to changing economic conditions and to other factors that adversely affect the casino industry, which have negatively impacted and could continue to negatively impact the play levels of our participation games, our product sales and our ability to collect outstanding receivables from our customers.

Demand for our products and services depends largely upon favorable conditions in the casino industry, which is highly sensitive to casino patrons’ disposable incomes and gaming activities. Discretionary spending on entertainment activities could further decline for reasons beyond our control, such as continued negative economic conditions, natural disasters, acts of war, or terrorism, or transportation disruptions ~~including as a result~~or the results of adverse weather conditions. Any prolonged or significant decrease in consumer spending on entertainment activities could result in reduced play levels on our participation games, causing our cash flows and revenues from a large share of our recurring revenue products to decline. Unfavorable economic conditions have also resulted in a tightening in the credit markets, decreased liquidity in many financial markets, and significant volatility in the credit and equity markets.

Furthermore, the extended economic downturn has impacted and could continue to impact the ability of our customers to purchase new gaming equipment or make timely payments to us. We have incurred, and may continue to incur, additional provisions for bad debt related to credit concerns on certain receivables.

We may not achieve the intended benefits of our recent acquisitions, or such acquisitions may disrupt our current plans and operations and we may no be able to realize the anticipated benefits and synergies of such acquisitions within the intended time frame, if at all.

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We have devoted and will continue to devote significant management attention and resources to integrating the business practices and operations of Cadillac Jack and RocketPlay with AP Gaming. This integration may prove to be more difficult, costly and time-consuming than expected, which could cause us not to realize some or all of the anticipated benefits from these acquisitions. Potential difficulties we may encounter as part of the integration process include the following:

any delay in the integration of strategies, operations, products and services;

diversion of the attention of management of the Company as a result of the acquisitions;

differences in business backgrounds, corporate cultures and management philosophies that may delay successful integration;

the ability to retain key employees;

the challenge of integrating complex systems, technology, networks and other assets of Cadillac Jack into those of the Company in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies of the acquired companies;

potential unknown liabilities and unforeseen increased expenses or delays associated with the acquisitions, including costs to integrate beyond current estimates; and

the disruption of, or the loss of momentum in, either the Company’s ongoing operations or inconsistencies in standards, controls, procedures and policies.

Any of these factors could adversely affect our ability to maintain relationships with our customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits and synergies of the acquisition or could reduce our earnings or otherwise adversely affect our business and financial results and realizing their anticipated benefits after the acquisitions.

Our inability to complete future acquisitions and integrate those businesses successfully could limit our future growth.

From time to time, we pursue strategic acquisitions in support of our strategic goals. In connection with any such acquisitions, we could face significant challenges in managing and integrating our expanded or combined operations, including acquired assets, operations and personnel. There can be no assurance that acquisition opportunities will be available on acceptable terms or at all or that we will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. Our ability to succeed in implementing our strategy will depend to some degree upon the ability of our management to identify, complete and successfully integrate commercially viable acquisitions. Acquisition transactions may disrupt our ongoing business and distract management from other responsibilities.

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~~We may not achieve the intended benefits of our recent acquisitions, or such acquisitions may disrupt our current plans and operations.~~

~~There~~In addition, there can be no assurance ~~that~~regarding when or the extent to which we will be able to ~~successfully integrate the businesses we have acquired, including our recent acquisitions of C2 Gaming and War Blackjack,~~realize any anticipated financial or ~~do so within the intended timeframes or otherwise realize the expected~~operational benefits, ~~of such acquisitions. The expected cost~~ synergies ~~associated with such acquisitions may not be fully realized in the anticipated amounts or within the contemplated timeframes~~ or cost ~~expectations, which could result in increased~~savings from these acquisitions. We may also incur greater costs than estimated to achieve all of the synergies and ~~have~~other benefits from an ~~adverse effect~~acquisition. Integration may also be difficult, unpredictable and subject to delay because of possible company culture conflicts and different opinions on ~~our prospects, results of operations, cash flows~~technical decisions and ~~financial condition. Our business~~product roadmaps. We may be ~~negatively impacted if we are unable~~required to ~~effectively manage our expanded operations. The integration of these acquisitions will require significant time~~integrate or, in some cases, replace, numerous systems, such as those involving management information, purchasing, accounting and ~~focus from management~~finance, sales, billing, employee benefits, payroll, data privacy and ~~may divert attention from the day‑to‑day operations of the combined business or delay the achievement of our strategic objectives. We expect to incur incremental costs~~security and ~~capital expenditures related to our contemplated integration activities.~~regulatory compliance.

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.

We have a significant amount of outstanding indebtedness. ~~As of December 31, 2014, we had $171.7 million of outstanding indebtedness.~~

Our substantial indebtedness could have significant effects on our business. For example, it could:

make it more difficult for us to satisfy our financial obligations, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness;

increase our vulnerability to general adverse economic, industry and competitive conditions;

reduce the availability of our cash flow to fund working capital and capital expenditures, because we will be required to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness;

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

place us at a competitive disadvantage compared to our competitors that are less highly leveraged and that, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting; and

limit, along with the financial and other restrictive covenants in the agreements governing our indebtedness, among other things, our ability to borrow additional funds or dispose of assets.

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Demand for our products and the level of play of our products could be adversely affected by changes in player and operator preferences.

As a supplier of gaming machines, we must offer themes and products that appeal to gaming operators and players. Our revenues are dependent on the earning power and life span of our games. We therefore face continuous pressure to design and deploy new and successful game themes and technologically innovative products to maintain our revenue and remain competitive. If we are unable to anticipate or react timely to any significant changes in player preferences, the demand for our gaming products and the level of play of our gaming products could decline. Further, our products could suffer a loss of floor space to table games or other more technologically advanced games, we could fail to meet certain minimum performance levels, or operators may reduce revenue sharing arrangements with us, each of which could negatively impact our sales and financial results. In addition, general changes in consumer behavior, such as reduced travel activity or redirection of entertainment dollars to other venues, could result in reduced demand and reduced play levels for our gaming products.

The gaming industry is intensely competitive. If we are unable to compete effectively, our business could be negatively impacted.

Competition among manufacturers of electronic gaming equipment and systems is intense. Competition in our industry is primarily based on the amount of profit our products generate for our customers, together with cost savings, convenience and other benefits. We compete through the appeal of game content and features to the end player, the features and functionality of our hardware and software products, and the service and support we provide. Our competitors range from small, localized companies to large, multi-national corporations. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources and have been engaged in the design, manufacture and operation of electronic gaming equipment business for many years. Some of these companies own significant intellectual

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property, including patents in gaming technology and hardware design, systems and game play and trademarks. In addition, our larger competitors may have significantly larger content portfolios and content development capability and resources, are licensed in markets throughout the United States, and have international distribution.

Obtaining space and favorable placement on casino gaming floors is also a competitive factor in our industry. In addition, the level of competition among equipment providers has increased significantly due to, among other factors, cutbacks in capital spending by casino operators resulting from the economic downturn and decreased player spend. In select instances, we may pay for the right to place gaming machines on a casino’s floor and increased fee requirements from such casino operators may greatly reduce our profitability.

In addition, we face competition from other segments of the gaming industry, including internet gambling, and state lotteries. There can be no assurance that new technologies or markets, such as legalized internet gambling, will not emerge that will increase these competitive pressures.

Our ability to operate in our existing markets or expand into new jurisdictions could be adversely affected by changing regulations, new interpretations of existing laws, and difficulties or delays in obtaining or maintaining required licenses or approvals.

We operate only in jurisdictions where gaming is legal. The gaming industry is subject to extensive governmental regulation by U.S. federal, state and local governments, as well as Native American tribal governments, and foreign governments. While the regulatory requirements vary by jurisdiction, most require:

licenses and/or permits;

documentation of qualifications, including evidence of financial stability;

other required approvals for companies who design, assemble, supply or distribute gaming equipment and services; and

individual suitability of officers, directors, major stockholders, key employees and business partners.

Any license, permit, approval or finding of suitability may be revoked, suspended or conditioned at any time. We may not be able to obtain or maintain all necessary registrations, licenses, permits or approvals, or could experience delays related to the licensing process which could adversely affect our operations and our ability to retain key employees.

To expand into new jurisdictions, in most cases, we will need to be licensed, obtain approvals of our products and/or seek licensure of our officers, directors, major equity holders, key employees or business partners and potentially lenders. If we fail to obtain a license required in a particular jurisdiction for our games and gaming machines, hardware or software or have such

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license revoked, we will not be able to expand into, or continue doing business in, such jurisdiction. Any delays in obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets or into new jurisdictions can negatively affect our opportunities for growth. In addition, the failure of our officers, directors, key employees or business partners or lenders to obtain or receive licenses in one or more jurisdictions may require us to modify or terminate our relationship with such officers, directors, key employees or business partners or forego doing business in such jurisdiction.

Although we plan to maintain our compliance with applicable laws as they evolve, there can be no assurance that we will do so and that law enforcement or gaming regulatory authorities will not seek to restrict our business in their jurisdictions or institute enforcement proceedings if we are not compliant. Moreover, in addition to the risk of enforcement action, we are also at risk of loss of business reputation in the event of any potential legal or regulatory investigation whether or not we are ultimately accused of or found to have committed any violation. A negative regulatory finding or ruling in one jurisdiction could have adverse consequences in other jurisdictions, including with gaming regulators. Furthermore, the failure to become licensed, or the loss or conditioning of a license, in one market may have the adverse effect of preventing licensing in other markets or the revocation of licenses we already maintain.

Further, changes in existing gaming regulations or new interpretations of existing gaming laws may hinder or prevent us from continuing to operate in those jurisdictions where we currently do business, which would harm our operating results. In particular, the enactment of unfavorable legislation or government efforts affecting or directed at manufacturers or gaming operators, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on our operations. Gaming regulations in Mexico have not been formalized and although we believe that we are compliant with the current informal regulations, if there are changes or new interpretations of the regulations in that jurisdiction we may be prevented or hindered from operating our business in Mexico.

Many jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage (typically 5% or more) of our equity securities and may require the same from our lenders. The failure of these beneficial owners or lenders to submit to such background checks and provide required disclosure could jeopardize our ability to obtain or maintain licensure in such jurisdictions.

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Our revenues are vulnerable to the impact of changes to the Class II regulatory scheme.

Our Native American tribal customers that operate Class II games under the IGRA are subject to regulation by the NIGC. The NIGC is currently conducting consultations with industry participants regarding Native American gaming activities, including the clarification of regulations regarding Class II gaming machines. It is possible that any such changes in regulations, when finally enacted, could cause us to modify our Class II games to comply with the new regulations, which may result in our products becoming less competitive. Any required conversion of games pursuant to changing regulatory schemes could cause a disruption to our business. In addition, we could lose market share to competitors who offer games that do not appear to comply with published regulatory restrictions on Class II games and therefore offer features not available in our products.

Our ability to effectively compete in Native American gaming markets is vulnerable to legal and regulatory uncertainties, including the ability to enforce contractual rights on Native American land.

For the fiscal year ended December 31, ~~2014,~~2015, we derived a significant amount of our revenue from participation agreements with Native American gaming operators. Because federally recognized Native American tribes are independent governments with sovereign powers, subject to the IGRA, Native American tribes can enact their own laws and regulate gaming operations and contracts. Native American tribes maintain their own governmental systems and often their own judicial systems and have the right to tax persons and enterprises conducting business on Native American lands. Native American tribes also often have the right to require licenses and to impose other forms of regulation and regulatory fees on persons and businesses operating on their lands. In the absence of a specific grant of authority by Congress, U.S. states may regulate activities taking place on Native American lands only if the Native American tribe has a specific agreement or compact with the state. Our contracts with Native American tribal customers normally provide that only certain provisions, if any, will be subject to the governing law of the state in which a Native American tribe is located. However, these choice-of-law clauses may not always be enforceable.

Further, Native American tribes generally enjoy sovereign immunity from lawsuits similar to that of the individual U.S. states and the United States. Before we can sue or enforce contract rights with a Native American tribe, or an agency or instrumentality of a Native American tribe (for example, to collect revenue pursuant to our participation agreements or foreclose on financed gaming machines), the Native American tribe must effectively waive its sovereign immunity with respect to the matter in dispute, which we are not always able to obtain. Without a limited waiver of sovereign immunity, or if such

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waiver is held to be ineffective, we could be precluded from judicially enforcing any rights or remedies against a Native American tribe, including the right to enter Native American lands to retrieve our property in the event of a breach of contract by the tribe that is party to the disputed contract. Even if the waiver of sovereign immunity by a Native American tribe is deemed effective, there could be an issue as to the forum in which a lawsuit can be brought against the Native American tribe. Federal courts are courts of limited jurisdiction and generally do not have jurisdiction to hear civil cases relating to Native American tribes and we may be unable to enforce any arbitration decision effectively. In addition, courts have held that certain laws of general application, such as the United States patent, trademark and trade secret laws, are not binding on Native American tribes absent a binding waiver of sovereign immunity. While we have not had any experience with contract enforceability vis-à-vis our Native American customers, we are cognizant of recent cases involving other parties dealing with waivers of sovereign immunity. Those cases put into question how sovereign immunity may be viewed by courts in the future.

Our agreements with Native American tribes are often subject to review by regulatory authorities. For example, our development agreements may be subject to review by the NIGC and any such review could require substantial modifications to our agreements or result in the determination that we have a proprietary interest in a Native American tribe’s gaming activity, which could materially and adversely affect the terms on which we conduct our business. The NIGC may also reinterpret applicable laws and regulations, which could affect our agreements with Native American tribes.

Government enforcement, regulatory action, judicial decisions and proposed legislative action have in the past affected, and will likely continue to affect, our business, operating results and prospects. Regulatory action against our customers or equipment on Native American tribal lands or in other markets could result in machine seizures and significant revenue disruptions, among other adverse consequences. Moreover, Native American tribal policies and procedures, as well as tribal selection of gaming vendors, are subject to the political and governance environment within the Native American tribe. Changes in tribal leadership or tribal political pressure can affect our business relationships within Native American markets.

State compacts with our existing Native American tribal customers to allow Class III gaming could reduce demand for our Class II games and our entry into the Class III market may be difficult as we compete against larger companies in the tribal Class III market.

Certain of our Class II Native American tribal customers have entered into compacts with the states in which they operate to permit the operation of Class III games. While we seek to also provide Class III alternatives in these markets, we believe the

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number of our Class II game machine placements in those customers’ facilities could decline, and our operating results could be materially and adversely affected. As our Native American tribal customers continue to transition to gaming under compacts with the state, we continue to face significant uncertainty in the market that makes our business in these states difficult to manage and predict and we may be forced to compete with larger companies that specialize in Class III gaming. We believe the establishment of state compacts depends on a number of political, social, and economic factors that are inherently difficult to ascertain. Accordingly, although we attempt to closely monitor state legislative developments that could affect our business, we may not be able to timely predict if or when a compact could be entered into by one or more of our Native American tribal customers. For example, in Oklahoma, the continued introduction of Class III games since the passage of the tribal gaming compact in 2004 may put pressure our revenue and unit market share and our revenue share percentages and may result in a shift in the market from revenue share arrangements to a “for sale” model.

The percentage of gaming revenue we receive pursuant to our participation agreements with our Native American tribal customers has, on average, decreased in recent years and may continue to decrease in the future.

The percentage of gaming revenue we receive pursuant to our participation agreements, or our participation rates, with our Native American tribal customers has, on average, decreased in recent years, negatively affecting our profit margins. There can be no assurance that participation rates will not decrease further in the future. In addition, our Native American tribal customers may adopt policies or insist upon additional business terms during the renewal of our existing participation agreements that negatively affect the profitability of those relationships. In addition, any participation agreements we may enter into in the future with new customers or in new jurisdictions may not have terms as favorable as our existing participation agreements.

Slow growth in the development of new gaming jurisdictions or the number of new casinos, declines in the rate of replacement of existing gaming machines and ownership changes and consolidation in the casino industry could limit or reduce our future prospects.

Demand for our new participation gaming machine placements and game sales is partially driven by the development of new gaming jurisdictions, the addition of new casinos or expansion of existing casinos within existing gaming jurisdictions and the replacement of existing gaming machines. The establishment or expansion of gaming in any jurisdiction typically requires a

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public referendum or other legislative action. As a result, gaming continues to be the subject of public debate, and there are numerous active organizations that oppose gaming. There can be no assurances that new gaming jurisdictions will be established in the future or that existing jurisdictions will expand gaming and, to the extent states such as Illinois delay, reverse or alter planned expansions in gaming, our growth strategy could be negatively impacted.

To the extent new gaming jurisdictions are established or expanded, we cannot guarantee we will be successful penetrating such new jurisdictions or expanding our business in line with the growth of existing jurisdictions. As we enter into new markets, we may encounter legal and regulatory challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. If we are unable to effectively develop and operate within these new markets, then our business, operating results and financial condition would be impaired. Furthermore, as we attempt to generate new streams of revenue by placing our participation gaming machines with new customers we may have difficulty implementing an effective placement strategy for jurisdictional specific games. Our failure to successfully implement an effective placement strategy could cause our future operating results to vary materially from what management has forecast.

We entered the emerging Illinois VGT market in 2012. The Illinois VGT market is still developing and operates pursuant to a unique regulatory structure. For example, while the state legislature in Illinois has passed laws permitting VGT’s, municipalities and counties have the power to opt out of the VGT legislation and ban VGT’s in their respective municipality or unincorporated areas within their respective county or repeal bans if they already exist to allow VGT’s. As of the date of this Annual Report on Form 10-K, we believe approximately 151 municipalities and six counties have chosen to opt out of the VGT legislation and ban VGT’s in their respective municipality or unincorporated areas within their respective county. Furthermore, the City of Chicago is required to affirmatively allow VGT’s in order for establishments within Chicago to operate VGT’s on their premises since its ordinances currently prohibit VGT’s. As of the date of this Annual Report on Form 10-K, Chicago has not affirmatively allowed VGT’s and establishments within Chicago are not permitted to operate VGT’s on their premises. While we believe Chicago will allow VGT’s in the future, we cannot guarantee this will happen or that other municipalities or counties will not choose to opt out of the VGT legislation and ban VGT’s in their respective municipality or unincorporated areas within their respective county. We cannot guarantee that the Illinois VGT market will develop into a viable gaming market or that our business model will be as effective in the Illinois VGT market as we currently project or as effective as in other jurisdictions in which we operate. If the Illinois VGT market does not develop or our business model is not as effective as projected, we may not be able to capitalize on our investments in Illinois and our Illinois business may not be profitable.

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In addition, the construction of new casinos or expansion of existing casinos fluctuates with demand, general economic conditions and the availability of financing. The rate of gaming growth in North America has decelerated and machine replacements are at historically low levels. Slow growth in the establishment of new gaming jurisdictions or delays in the opening of new or expanded casinos and continued declines in, or low levels of demand for, machine replacements could reduce the demand for our products and our future profits. Our business could be negatively affected if one or more of our customers is sold to or merges with another entity that utilizes more of the products and services of one of our competitors or that reduces spending on our products or causes downward pricing pressures. Such consolidations could lead to order cancellations, a slowing in the rate of gaming machine replacements, or require our current customers to switch to our competitors’ products, any of which could negatively impact our results of operations.

We may not realize satisfactory returns on money lent to new and existing customers to develop or expand gaming facilities or to acquire gaming routes.

We enter into agreements to provide financing for construction, expansion, or remodeling of gaming facilities, primarily in the ~~State~~state of Oklahoma, and also have agreements in other jurisdictions, such as Illinois, where we provide loans and advances to route operators to acquire location contracts and fund working capital. Under these agreements, we secure long-term contracts for game placements under either a revenue share or daily fee basis in exchange for the loans and advances. We may not, however, realize the anticipated benefits of any of these strategic relationships or financings as our success in these ventures is dependent upon the timely completion of the gaming facility, the placement of our gaming machines, and a favorable regulatory environment.

These activities may result in unforeseen operating difficulties, financial risks, or required expenditures that could adversely affect our liquidity. In connection with one or more of these transactions, and to obtain the necessary funds to enter these agreements, we may need to extend secured and unsecured credit to potential or existing customers that may not be repaid, incur debt on terms unfavorable to us or that we are unable to repay, or incur other contingent liabilities.

The failure to maintain controls and processes related to billing and collecting accounts receivable or the deterioration of the financial condition of our customers could negatively impact our business. As a result of these agreements, the collection of notes receivable has become a matter of greater significance. While we believe the increased level of these specific receivables has allowed us to grow our business, it has also required direct, additional focus of and involvement by management. Further, and especially due to the current downturn in the economy, some of our customers may not pay the notes receivable when due.

For the year ended December 31, ~~2014, 33%~~2015, approximately 20% of our gaming revenue was derived from one customer and ~~65%~~approximately 40% of our revenue was generated from gaming operations in the state of Oklahoma.

For the year ended December 31, ~~2014, 65%~~2015, approximately 40% of our total revenue was derived from gaming operations in Oklahoma, and ~~33%~~approximately 20% of our total gaming revenue was from one Native American gaming tribe in that state. The significant concentration of our revenue in Oklahoma means that local economic, regulatory and licensing changes in Oklahoma may adversely affect our business disproportionately to changes in national economic conditions, including adverse economic declines or slower economic recovery from prior declines. While we continue to seek to diversify the markets in which we operate, changes to our business, operations, game performance and customer relationships in Oklahoma, due to changing gaming regulations or licensing requirements, higher taxes, increased competition, declines in market revenue share percentages or otherwise, could have a material and adverse effect on or financial condition and results of operations. In addition, changes in our relationship with our largest customer, including a decrease in revenue share, removal of gaming

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machines or non-renewal of contracts, could have a material and adverse effect on our financial condition and results of operations.

Moreover, neighboring states such as Kansas, Texas and Arkansas have passed or could pass gaming legislation, which could take market share from Oklahoma gaming facilities or otherwise negatively impact the Oklahoma gaming market and, as a result, negatively impact our business.

We may be unable to protect or enforce our intellectual property.

Protection of our proprietary processes, methods and other technology is important to our business. We generally rely on the patent, trademark and trade secret laws of the United States and certain other countries in which our products are produced or sold, as well as licenses and nondisclosure and confidentiality agreements, to protect our intellectual property rights. The patent, trademark and trade secret laws of some countries may not protect our intellectual property rights to the same extent as the laws of the United States. At least one federal court has held that United States patent, trademark and trade secret laws of general application are not binding on Native American tribes absent a binding waiver of sovereign immunity.

A significant portion of our revenue is generated from products that use or incorporate certain intellectual property, and our operating results could be negatively impacted if we are unsuccessful in protecting these rights from infringement. In

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addition, some of our games and features are based on trademarks, patents and other intellectual property licensed from third parties. Our future success may depend upon our ability to develop, obtain, retain and/or expand licenses for popular products and underlying intellectual property rights on reasonable terms in a competitive market, which may not be available on terms acceptable to us, or may not be available at all. In the event that we cannot renew and/or expand existing licenses, we may be required to discontinue or limit our use of the games or gaming machines that use the licensed technology or bear the licensed marks.

Our success depends in part on our ability to obtain trademark protection for the names or symbols under which we market our products and to obtain patent protection for our proprietary content and technologies. We may not be able to build and maintain goodwill in our trademarks or obtain trademark or patent protection, and there can be no assurance that any trademark, copyright or issued patent will provide competitive advantages for us, or that our intellectual property will not be successfully challenged or circumvented by competitors. Additionally, any issued patents that cover our proprietary technology may not provide us with sufficient protection or be commercially beneficial to us. The issuance of a patent is not conclusive as to its validity or its enforceability. The U.S. federal courts or equivalent national courts or patent offices elsewhere may invalidate our patents or find them unenforceable. Competitors may also be able to design around our patents. If we are unable to protect our patented technologies, we may not be able to commercialize our technologies, products or services and our competitors could commercialize our technologies.

We also rely on trade secrets and proprietary know-how to protect certain proprietary knowledge and we generally enter into confidentiality agreements with certain of our employees and independent contractors regarding our trade secrets and proprietary information. However, there can be no guarantees that every employee and consultant will execute these agreements or that our employees and consultants will not breach these agreements. If these agreements are breached, it is unlikely that the remedies available to us will be sufficient to compensate us for the damages suffered. Additionally, despite various confidentiality agreements and other trade secret protections, our trade secrets and proprietary know-how could become known to, or independently developed by, competitors. Moreover, if our competitors independently develop equivalent knowledge, methods or know-how, it will be more difficult for us to enforce our rights and our business could be harmed.

We have a limited ability to prevent others from creating materially similar products. Despite our efforts to protect these proprietary rights, unauthorized parties may try to copy our gaming products, business models or systems, use certain of our confidential information to develop competing products, or develop independently or otherwise obtain and use our gaming products or technology, any of which could have a material adverse effect on our business.

We may be subject to claims of intellectual property infringement or invalidity and adverse outcomes of litigation could adversely affect our operating results.

Competitors and others may infringe on our intellectual property rights, or may allege that we have infringed on their intellectual property rights. Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights. We may also incur significant litigation expenses protecting our intellectual property or defending third-party intellectual property claims. These expenses could have an adverse effect on our future cash flows and results of operations. Although we carry general liability insurance, our insurance does not cover potential claims of this type. If we are found to infringe on the rights of others we could

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be required to re-design or discontinue offering certain products or systems, to pay damages or to purchase a license to use the intellectual property in question from its owner, which may not be available on reasonable terms, or at all. Litigation can also distract management from the day-to-day operations of our business. There can be no assurances that certain of our products will not be determined to have infringed upon a third-party patent.

In addition, any of our current or future patents or patent applications, or those of our licensors, could face other challenges, such as interference proceedings, opposition proceedings and re-examination proceedings. Any such challenge, if successful, could result in the invalidation of, or in a narrowing of the scope of, any such current or future patents or patent applications. Any such challenges, regardless of their success, would likely be time-consuming and expensive to defend and resolve, and would divert management time and attention.

Failure to attract, retain and motivate key employees may adversely affect our ability to compete.

Our success depends largely on recruiting and retaining talented employees. The market for qualified, licensable executives and highly skilled, technical workers, such as content developers, is intensely competitive. The loss of key employees or an inability to hire a sufficient number of technical workers could limit our ability to develop successful products, cause delays in getting new products to market, cause disruptions to our customer relationships or otherwise adversely affect our business.

States and other jurisdictions may amend or repeal gaming enabling legislation which could materially impact our business.

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States and other jurisdictions may amend or repeal gaming enabling legislation which could materially impact our business. Changes to gaming enabling legislation could increase our operating expenses and compliance costs or decrease the profitability of our operations. Repeal of gaming enabling legislation could result in losses of capital investments and revenue and limit future growth opportunities. For example, recently, charity gaming facilities in Alabama were forced to close due to regulatory uncertainties in the market pertaining to the legality of electronic bingo games which negatively impact our revenue and ability to collect on receivables. If any jurisdiction in which we operate were to repeal gaming enabling legislation, there could be no assurance that we could sufficiently increase our revenue in other markets to maintain operations or service our existing indebtedness.

Our business competes on the basis of the security and integrity of our systems and products.

We believe that our success depends, in part, on providing secure products and systems to our vendors and customers. Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, employees and others. Our ability to monitor and ensure the quality of our products is periodically reviewed and enhanced. Similarly, we assess the adequacy of our security systems to protect against any material loss to any of our customers and the integrity of the product to end-users. There can be no assurance that our business will not be affected by a security breach or lapse, which could have a material adverse impact on our results of operations, business or prospects.

Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security.

We rely on information technology and other systems to maintain and transmit customer financial ~~information, credit card settlements, credit card funds transmissions, mailing lists and reservations~~ information. Our information and processes are exposed to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact, operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results.

Our gaming machines may experience losses due to technical problems or fraudulent activities.

Our success depends on our ability to avoid, detect, replicate and correct software and hardware anomalies and fraudulent manipulation of our gaming machines. We incorporate security features into the design of our gaming machines and other systems, which are designed to prevent us, our customers and patrons of our gaming machines from being defrauded. We also monitor our software and hardware to avoid, detect and correct any technical errors. However, there can be no guarantee that our security features or technical efforts will continue to be effective in the future. If our security systems fail to prevent fraud or if we experience any significant technical difficulties, our operating results could be adversely affected. Additionally, if third parties breach our security systems and defraud patrons of our gaming machines, or if our hardware or software experiences

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any technical anomalies, our customers and the public may lose confidence in our gaming machines and operations, or we could become subject to legal claims by our customers or to investigation by gaming authorities.

Our gaming machines have experienced anomalies and fraudulent manipulation in the past. Games and gaming machines may be replaced by casinos and other gaming machine operators if they do not perform according to expectations, or may be shut down by regulators. The occurrence of anomalies in, or fraudulent manipulation of, our gaming machines may give rise to claims for lost revenues and related litigation by our customers and may subject us to investigation or other action by gaming regulatory authorities, including suspension or revocation of our gaming licenses or other disciplinary action.

Although our network is private, it is susceptible to outages due to fire, floods, power loss, break-ins, cyberattacks and similar events. We have multiple site back-up for our services in the event of any such occurrence. Despite our implementation of network security measures, our servers are vulnerable to computer viruses and break-ins. Similar disruptions from unauthorized tampering with our computer systems in any such event could have a material adverse effect on our business, operating results and financial condition. Adverse weather conditions, particularly flooding, tornadoes, heavy snowfall and other extreme weather conditions often deter our customer’s end users from traveling, or make it difficult for them to frequent the sites where our games are installed. If any of those sites experienced prolonged adverse weather conditions, or if the sites in Oklahoma, where a significant number of our games are installed, simultaneously experienced adverse weather conditions, our results of operations and financial condition would be materially and adversely affected.

We could face risks associated with, or arising out of, environmental, health and safety laws and regulations.

We are subject to various federal, state and local laws and regulations that (i) regulate certain activities and operations that may have environmental or health and safety effects, such as the use of regulated materials in the manufacture of our

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products by third parties or our disposal of materials, substances or wastes, (ii) impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site, or other releases of hazardous materials or regulated substances, and (iii) regulate workplace safety. Compliance with these laws and regulations could increase our and our third-party manufacturers’ costs and impact the availability of components required to manufacture our products. Violation of these laws may subject us to significant fines, penalties or disposal costs, which could negatively impact our results of operations, financial position or cash flows. We could be responsible for the investigation and remediation of environmental conditions at currently or formerly operated or leased sites, as well as for associated liabilities, including liabilities for natural resource damages, third party property damage or personal injury resulting from lawsuits that could be brought by the government or private litigants, relating to our operations, the operations of facilities or the land on which our facilities are located. We may be subject to these liabilities regardless of whether we lease or own the facility, and regardless of whether such environmental conditions were created by us or by a prior owner or tenant, or by a third party or a neighboring facility whose operations may have affected such facility or land. That is because liability for contamination under certain environmental laws can be imposed on current or past owners or operators of a site without regard to fault. We cannot assure you that environmental conditions relating to our prior, existing or future sites or those of predecessor companies whose liabilities we may have assumed or acquired will not have a material adverse effect on our business.

If our products contain defects, our reputation could be harmed and our results of operations adversely affected.

Some of our products are complex and may contain undetected defects. The occurrence of defects or malfunctions in one or more of our products could result in financial losses for our customers and in turn termination of leases, cancellation of orders, product returns and diversion of our resources. Any of these occurrences could also result in the loss of or delay in market acceptance of our products and loss of revenue.

Our business is subject to quarterly fluctuation.

Historically, our operating results have been highest during the first quarter and lowest in our third and fourth quarters, primarily due to the seasonality of player demand. Our quarterly operating results may vary based on the timing of the opening of new gaming jurisdictions, the opening or closing of casinos, the expansion or contraction of existing casinos, approval or denial of our products and corporate licenses under gaming regulations, the introduction of new products, the seasonality of customer capital budgets, the mix of domestic versus international sales and the mix of lease and royalty revenue versus sales and service revenue. As a result, our operating results could be volatile, particularly on a quarterly basis.

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Some of our products contain open source software which may be subject to restrictive open source licenses, requiring us to make our source code available to third parties and potentially granting third parties certain rights to the software.

Some of our products contain open source software which may be subject to restrictive open source licenses. Some of these licenses may require that we make our source code governed by the open source software licenses available to third parties and/or license such software under the terms of a particular open source license, potentially granting third parties certain rights to our software. We may incur legal expenses in defending against claims that we did not abide by such licenses. If our defenses are unsuccessful, we may be enjoined from distributing products containing such open source software, be required to make the relevant source code available to third parties, be required to grant third parties certain rights to the software, be subject to potential damages or be required to remove the open source software from our products. Any of these outcomes could disrupt our distribution and sale of related products and adversely affect our business.

Recently introduced or proposed smoking bans at customer facilities may adversely impact our revenues.

Some U.S. jurisdictions have recently introduced or proposed smoking bans in public venues, including casinos, which may reduce player traffic in the facilities of our current and prospective customers, which may reduce revenues on our participation gaming machines or impair our future growth prospects and therefore may adversely impact our revenues in those jurisdictions. Other participants in the gaming industry have reported declines in gaming revenues following the introduction of a smoking ban in jurisdictions in which they operate and we cannot predict the magnitude or timing of any decrease in revenues resulting from the introduction of a smoking ban in any jurisdiction in which we operate.

We are controlled by AP Gaming VoteCo, LLC, which may have conflicts of interest with us in the future and may have interests that differ from the interests of holders of our common stock.

Currently, all of our outstanding shares of common stock are owned by Apollo Gaming Holdings, L.P. Since our initial issuance of shares of our common stock to Apollo Gaming Holdings, L.P., we restructured our common stock into two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”). On April 28, 2014, upon receipt of all required governmental regulatory approvals, Apollo Gaming Holdings, L.P. exchanged its 10,000,000 Class A Shares for 10,000,000 Class B Shares, and the Company issued 100 Class A Shares to AP Gaming VoteCo, LLC. The 100

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Class A Shares issued to AP Gaming VoteCo, LLC, represent 100% of our voting interests. AP Gaming VoteCo, LLC is an entity owned and controlled by Marc Rowan and David Sambur. Messrs. Rowan and Sambur have the power to control our affairs and policies, the election of our board of directors, the appointment of management, the entering into of mergers, sales of substantially all of our assets and other material transactions.

So long as Messrs. Rowan and Sambur continue to control our Class A Shares and control the election of our board of directors, which currently consists of Mr. Sambur, they have the authority, subject to the terms of the agreements that govern our outstanding debt, to issue additional shares of stock, implement share repurchase programs, declare dividends, pay advisory fees and make other decisions, and they may have an interest in our doing so. Their interests could conflict with the interests of holders of our Class B Shares in material respects. Furthermore, Mr. Rowan is ~~an affiliate of~~affiliated with Apollo, which is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our businesses. Accordingly, so long as Mr. Rowan continues to control our outstanding Class A Shares, Apollo’s interests could also conflict with our interests or the interests of holders of our Class B Shares in material respects.

We are dependent on our suppliers and any failure of these parties to meet our performance and quality standards or requirements could cause us to incur additional costs or lose customers.

The manufacturing, assembling and designing of our electronic gaming machines depends upon a continuous supply of raw materials, such as source cabinets, which we currently source primarily from ~~one supplier.~~a limited number of suppliers. If our current ~~supplier is~~suppliers are unable to deliver these items in the quantity required or in accordance with our standards of quality and we are unable to find an alternative supplier in a timely fashion or on reasonable terms, we may not be able to meet the demands of our customers or our contractual obligations, which would adversely affect our results of operations and business.

Continued operation and our ability to service several of our installed gaming machines depends upon our relationships with service providers, and changes in those relationships could negatively impact our business.

We operate several gaming machines that utilize third party software for which we do not own or control the underlying software code. Further, we enter into arrangements with third party vendors, from time to time, for the provision of services related to development and operation of our products. Consequently, our operations, growth prospects and future revenues

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could be dependent on our continued relationships with third party vendors. While we have historically maintained good relationships with third party vendors, our business would suffer if we are unable to continue these relationships in the future. Our third party vendors may have economic or business interests or goals that are inconsistent with our interests and goals, take actions contrary to our objectives or policies, undergo a change of control, experience financial and other difficulties or be unable or unwilling to fulfill their obligations under our arrangements. The failure to avoid or mitigate the risks described above or other risks associated with such arrangements could have a material adverse effect on our results of operations, cash flows and financial condition.

Casino operations are conducted at the discretion of our customers.

Our casino customers are responsible for the operations of their facilities and are not required to consult us or take our advice on their operations, marketing, facility layout, gaming floor configuration, or promotional initiatives. Further, our customers’ are solely responsible for safety and security at their facilities. Our customers have in the past, and will in the future, remodel and expand their facilities. Our operating and financial results could suffer if our machines are not a part of an optimized facility layout or gaming floor configuration, are not supported by effective marketing or promotional initiatives or are scheduled to be out of service during a facility remodeling, or our customers’ facilities are closed or not visited because of end-users concern for safety, a lack of amenities, or other factors.

The risks related to operations in foreign countries and outside of traditional U.S jurisdictions could negatively affect our results.

We operate in jurisdictions outside of the United States, principally in ~~Canada~~Mexico and on tribal lands of Native American tribes. The developments noted below, among others, could adversely affect our financial condition and results of operations:

social, political or economic instability;

additional costs of compliance with international laws or unexpected changes in regulatory requirements;

tariffs and other trade barriers;

fluctuations in foreign exchange rates outside the United States;

adverse changes in the creditworthiness of parties with whom we have significant receivables or forward currency exchange contracts;

expropriation, nationalization and restrictions on repatriation of funds or assets;

difficulty protecting our intellectual property;

recessions in foreign economies;

difficulties in maintaining foreign operations;

changes in consumer tastes and trends;

acts of war or terrorism; and

U.S. government requirements for export.

We are continuing to improve our internal controls over financial reporting.

Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

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We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the effectiveness of our registration statement on Form 10. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the effectiveness of our registration statement on Form 10, (ii) the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We intend to continue to improve our internal controls over financial reporting and ensure we are able to produce accurate and timely financial statements. However, no assurance can be given that our actions will be successful.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

~~Not applicable.~~

None.

ITEM 2. PROPERTIES.

We currently lease the following properties:



Location	~~Size~~
~~727 Overhead Drive, Oklahoma City, Oklahoma~~Purpose	~~60,000 sq. ft.~~Square footage
5475 S. Decatur Blvd., #100, Las Vegas, ~~Nevada~~NV.	~~34,482 sq. ft.~~Corporate headquarters, manufacturing and warehousing	42,964
~~6680 Amelia Earhart Court, Las Vegas, Nevada~~308 Anthony Ave., Oklahoma City, OK.	~~23,153 sq. ft.~~Administrative offices, manufacturing and warehousing	66,661
~~905 Irving Park Road, Itasca, Illinois~~1840 Industrial Dr., Suite 180, Libertyville, IL.	~~20,680 sq. ft.~~Administrative offices and warehousing	1,250
~~1945 Pama Lane, Las Vegas, Nevada~~1531 Imhoff Drive, Lake in the Hills, IL.	~~16,714 sq. ft.~~Administrative offices and warehousing	2,400
~~8810 Jane Street, Building B, Concord, Ontario, Canada~~2450 Satellite Boulevard, Duluth, GA.	~~3,600 sq. ft.~~Administrative offices, research and development manufacturing and warehousing	102,862
~~2555 Marshall Road, Suite E, Biloxi, Mississippi~~11401 Century Oaks Terrace, Austin, TX.	~~350 sq. ft.~~Administrative offices and warehousing	2,951
433 Airport Blvd. #323, Burlingame, CA.	Administrative offices	1,960
Kiryat Atidim Building 7 Tel Aviv, ISR	Administrative offices	1,884
Jaime Balmes No. 8, office no. 204, Colonia Los Morales Polanco, Mexico City, MEX	Administrative offices and warehousing	8,154

~~Our leases for our facilities in Itasca, Illinois and in Oklahoma City, Oklahoma are set~~

In addition to ~~expire in 2015. Our office~~those listed above, we lease ~~in Concord, Ontario is set to expire in 2016. Our facilities in Biloxi, Mississippi are currently operating under~~ a month-to-month lease. Our lease at Amelia Earhart Court, Las Vegas, which currently serves as our corporate offices, was terminated in January 2015, and we are currently in a month-to-month lease for this location until the build-out for the 5474 S. Decatur Blvd. property is complete. We plan to move into the S. Decatur Blvd., Las Vegas property when the building build-out is complete, which is expected to happen in April 2015. Our lease at the S. Decatur Blvd., Las Vegas property is set to expire in 2021. Our lease at the Pama Lane, Las Vegas property was assumed in connection with the acquisitionnumber of ~~C2 Gaming. This lease is set to expire at the earlier of 12 months after we vacate the premises or the date the lessor receives a qualified offer to purchase the property as defined~~additional properties in the ~~lease agreement for this location. We plan to vacate the Pama Lane property in 2015, when we consolidate~~U.S. and internationally that support our ~~operations in the S. Decatur property. We currently do not own any real property.~~operations.

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ITEM 3. LEGAL PROCEEDINGS.

We are party to various claims and legal actions that arise in the ordinary course of business. We do not believe the outcome of such disputes or legal actions will have a material adverse effect on our financial condition, results of operations, liquidity or capital resources.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

We have issued 10,000,000 shares of our common stock to Apollo Gaming Holdings, L.P. After such issuance, we restructured our common stock into two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”), with Apollo Gaming Holdings, L.P. holding 10,000,000 Class A Shares. On April 28, 2014, upon receipt of all required governmental regulatory approvals, Apollo Gaming Holdings, L.P. exchanged its 10,000,000 Class A Shares for 10,000,000 Class B Shares, and the Company issued 100 Class A Shares to AP Gaming VoteCo, LLC.

There is currently no established public trading market for our Common Stock or our non-voting common stock, and there are no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in our Common Stock or our non-voting common stock.

Holders

Please see Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for disclosure regarding the holders of our Common Stock and our non-voting common stock.

~~Distributions~~

On April 28, 2014, upon receipt of all required governmental regulatory approvals, we exchanged 10,000,000 Class A Shares held by Apollo Gaming Holdings, L.P. for 10,000,000 Class B Shares, and we issued all of our Class A Shares to AP Gaming VoteCo, LLC. We have not made, and do not anticipate making in the foreseeable future, any distributions on our Class A Shares or Class B Shares. The agreements that govern our outstanding indebtedness, including the Senior Secured Credit Facilities, restrict our ability to declare or make distributions on our Class A Shares or Class B Shares, and our third amended and restated certificate of incorporation specifically prohibits holders of our Class A Shares from receiving dividends or any other distributions.

Recent Sales of Unregistered Securities

On August 30, 2013, in anticipation of our acquisition of AGS Capital, we issued 100 shares of our initial common stock to Apollo Gaming Holdings, L.P. See Item ~~1. “Business-The Acquisition.~~7. “Acquisitions and Divestitures.” 10,000,000 Class A Shares were subsequently issued to Apollo Gaming Holdings L.P. These transactions were exempt from registration pursuant to Section 4(2) of the Securities Act, as they were transactions by an issuer that did not involve a public offering of securities. On April 28, 2014, upon receipt of all required governmental regulatory approvals, we exchanged the 10,000,000 Class A Shares held by Apollo Gaming Holdings, L.P. for 10,000,000 Class B Shares, and we issued all 100 of our Class A Shares to AP Gaming VoteCo, LLC. On May 29, 2015, we issued an additional 4,931,529 Class B Shares to our controlling stockholder for total proceeds of $77.4 million.

ITEM 6. SELECTED FINANCIAL DATA.

The Company, along with its subsidiaries shown in ~~Item 1. “Business-Corporate Structure,”~~Exhibit 21.1, were formed for the purpose of acquiring 100% of the equity interests of AGS Capital, LLC. ~~Accordingly, the~~The selected financial data presented below has been derived from the ~~data of~~audited financial statements for the ~~Company as of~~years ended December 31, ~~2014~~2015 and ~~2013 and for~~2014, the period from December 21, 2013 through December 31, 2013 (the “Successor Period”), and ~~the data of the Predecessor for~~ the period from January 1, 2013 ~~through~~to December ~~20,~~21, 2013 (the “Predecessor Period”) and as of and for the year ended December 31, 2012. The selected financial data of the Company presented below has been derived from the audited financial statements as of December 31, 2014 and 2013 and for the year ended December 31, 2014 and the Successor Period included elsewhere in this Annual Report.

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on Form 10-K. The selected financial data of the Predecessor presented below for the Predecessor Period and for the year ended December 31, 2012 has been derived from the audited financial statements of the Predecessor included elsewhere in this Annual Report on Form 10-K. The selected financial data as of December 31, 2012 has been derived from our Predecessor’s 2012 audited financial statements, which are not included in this Annual Report on Form 10-K.

The selected financial data set forth below is qualified in its entirety by, and should be read in conjunction with, “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements, the notes thereto and other financial and statistical information included elsewhere in this Annual Report on Form 10-K. The historical results set forth below do not indicate results expected for any future periods. Our future results of operations will be subject to significant business, economic, regulatory and competitive uncertainties and contingencies, some of which are beyond our control (amounts in thousands, except per share data):

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	Successor						Predecessor						Successor									Predecessor
	Year ended December 31, 2014			Period December 21, 2013 through December 31, 2013			Period January 1, 2013 through December 20, 2013			Year ended December 31, 2012			Year ended December 31, 2015			Year ended December 31, 2014			Period December 21, 2013 through December 31, 2013			Period January 1, 2013 through December 20, 2013
	Year ended December 31, 2014						Period January 1, 2013 through December 20, 2013						Year ended December 31, 2015			Year ended December 31, 2014			Period December 21, 2013 through December 31, 2013			Period January 1, 2013 through December 20, 2013
Consolidated Statement of Operations Data:				Period December 21, 2013 through December 31, 2013						Year ended December 31, 2012
Revenues	$	72,140		$	1,953		$	56,461		$	58,555		$	123,292		$	72,140		$	1,953		$	56,461
Loss from operations	(8,421		)	(7,623		)	(11,804		)	(31,433		)	(29,439		)	(8,421		)	(7,623		)	(11,804		)
Net loss	(28,376		)	(8,156		)	(42,176		)	(41,198		)	(38,545		)	(28,376		)	(8,156		)	(42,176		)
Total comprehensive loss	(28,087		)	(8,157		)	(42,144		)	(41,142		)	(40,644		)	(28,087		)	(8,157		)	(42,144		)
Basic and Diluted Earnings Per Share:
Net loss attributable to AP Gaming Holdco Inc.	(2.84		)	(0.82		)
Basic and diluted loss per common share:
Basic													$	(2.98	)	$	(2.84	)	$	(0.82	)	—
Diluted													$	(2.98	)	$	(2.84	)	$	(0.82	)	—


	Successor				Predecessor			Successor
	As of December 31,				As of December 31,			As of December 31,
	2014		2013		2012			2015		2014		2013
Consolidated Balance Sheet Data:
Total assets	$	256,152	$	253,828	$	125,567		$	718,977	$	256,152	$	253,828
Total liabilities	192,396		161,985		128,495			618,440		192,396		161,985
Total stockholders’ equity/member’s deficit	63,756		91,843		(2,928		)	100,537		63,756		91,843

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We are a leading designer and ~~manufacturer~~supplier of gaming products and services for the ~~casino floor.~~gaming industry. The ~~Company’s roots are~~Company is a leader in the Class II Native American and Mexican gaming jurisdictions and has expanded its product lines to include Class III Native American, commercial and charity jurisdictions. We supply electronic gaming machines ~~for~~(“slot machines”), server-based systems and back-office systems that are used by casinos and various gaming locations. Over the ~~Native American gaming market with an emerging presence~~past 18 months, the Company has significantly broadened and diversified its product portfolio through both organic development and strategic acquisitions. We launched a new table products division in ~~a broad range~~mid-2014 to provide live felt table games to casino operators. Through the acquisition of ~~commercial markets~~Cadillac Jack (defined below in ~~the United States.~~ “Acquisitions and Divestitures”) in May 2015, we greatly expanded our games library and slot machine offerings. The Company also acquired online developer Gamingo Limited (defined below in “Acquisitions and Divestitures”) in June 2015, expanding its offerings to include interactive products such as social casino games, available to play on desktop and mobile devices.

As of December 31, ~~2014,~~2015, we had approximately ~~8,740 gaming machines in 20 U.S. states, with approximately 190 gaming facilities~~19,250 slot machine units installed under revenue sharing ~~agreements and approximately 50 facilities under~~or fee per day ~~agreements.~~agreements, approximately 10,500 of which are attributable to the inclusion of Cadillac Jack. The majority of our systems are used by Native American gaming operators in both Class II and Class III ~~environments and the Illinois VGT market. Our products include electronic gaming machines, server-based systems and back-office systems that are used by~~jurisdictions as well as commercial casinos ~~and other gaming locations.~~in Mexico. We currently derive ~~substantially all~~a substantial portion of our gaming revenues from lease agreements whereby we place ~~gaming~~slot machines and systems at a customer’s facility in return for either a share of the revenues that these machines and systems generate or a daily fee, which we collectively refer to as “participation agreements” and as our “participation model.” In addition, in the third quarter of 2014, we began manufacturing and developing table games products through the acquisitions of War Blackjack and other intellectual property related to table games products. We provide table games products, which include live table games and side bets to enhance our casino operators’ table games operations, to our licensed casino operators on a fixed monthly fee.

Business Outlook

During 2008 and 2009, and into 2010, the poor macro-economic environment had a negative impact on consumer discretionary spending. As a result, the U.S. gaming industry experienced its first ever year-over-year declines in gross gaming revenue in 2008 and 2009. While the recessionary pressures were felt in most markets, the core destination markets of the Las

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Vegas Strip and Atlantic City were among the hardest hit due to the negative effects of both the recession and increased regional competition, while other commercial markets and the Native American markets were not as adversely impacted. During 2010, we began to see improvements in regional commercial gaming jurisdictions, which have continued through ~~2014.~~2015.

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We believe the current economic environment presents multiple opportunities for our business. We believe the improving economy should lead to increases in consumer discretionary spending, which should in turn drive higher revenues in existing gaming locations. In addition, state budget deficits have ballooned and many states with fiscal difficulties are turning to gaming as a source of revenue enhancement, which we believe presents us with continued long-term growth opportunities.

We believe our participation model offers an attractive value proposition to casino and other facility operators; especially in the current economic environment. By leasing our gaming machines to customers, we enable our customers to introduce new games in their facilities with minimal cost and financial risk. In addition, our selective use of development agreements to secure incremental game placements under long-term contracts provides customers with additional capital to help expand their operations.

Key Drivers of Our Business

Our ~~total~~ revenues are impacted by the following key factors:

the amount of money spent by consumers on our domestic revenue share installed base;

the amount of the daily fee on our participation gaming machines;

the selling price of our machines;

our revenue share percentage with customers;

the capital budgets of our customers;

the level of replacement of existing electronic gaming machines in existing casinos;

expansion of existing casinos;

development of new casinos;

opening of new gaming jurisdictions both in the United States and internationally;

our ability to obtain and maintain gaming licenses in various jurisdictions;

the relative competitiveness and popularity of our electronic gaming machines compared to competitive products offered in the same facilities; and

general macro-economic factors, including levels of and changes to consumer disposable income and personal consumption spending.

Our expenses are impacted by the following key factors:

fluctuations in the cost of labor relating to productivity;

overtime and training;

fluctuations in the price of components for gaming equipment;

fluctuations in energy prices;

changes in the cost of obtaining and maintaining gaming licenses; and

fluctuations in the level of maintenance expense required on gaming equipment.

Variations in our selling, general and administrative expenses, or SG&A, and research and development, or R&D are primarily due to changes in employment and salaries and related fringe benefits.

Basis of Presentation

References to “Successor” refer to the Company on or after December 21, 2013. References to “Predecessor” refer to AGS Capital, LLC on or before December 20, 2013. The accompanying consolidated statements of operations and comprehensive loss, changes in stockholders’ equity/member’s deficit and cash flows for the year ended December 31, 2013 are presented for two periods: ~~January 1, 2013 through December 20, 2013 (the “Predecessor Period”) for~~ the Predecessor Period and ~~December 21, 2013 through December 31, 2013 (the “Successor Period”)~~the Successor Period for the Company. The Predecessor Period reflects the historical accounting basis in the Predecessor’s assets and liabilities, while the Successor Period reflects assets and liabilities at fair value by allocating the Company’s enterprise value to its assets and liabilities pursuant to accounting guidance related to business combinations.

~~Because we conducted no business prior to December 20, 2013, we have presented the results of the Predecessor for the year ended December 31, 2012 for comparison purposes.~~

We refer to the year ended December 31, 2013 results as the “2013 Combined Period,” derived from the summation of the results of AP Gaming for the Successor Period and AGS Capital for the

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Predecessor Period. The discussion of our results of operations contains a comparison of our results for the year ended December 31, 2015 and 2014, and the results of the 2013 Combined ~~Period and the results for the Predecessor for the year ended December 31, 2012.~~Period. The application of accounting guidance related to business combinations did not materially affect the Company’s continuing operations; however the ~~year~~years ended December 31, 2015, 2014 and the 2013 Combined Period ~~and year ended December 31, 2012~~ may yield results that are not fully comparable on a period-by-period basis, particularly with respect to depreciation, amortization, interest income and interest expense. The combined presentation does not comply with generally accepted accounting

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principles in the United States (“GAAP”) or with the rules of the SEC for pro forma presentation; however, it is presented because we believe it is the most meaningful comparison of our results between periods.

Our financial presentation also includes a number of other operating subsidiaries AGS Capital owns or has owned in the past. AGS Partners LLC, or Partners, was formed on June 22, 2006, and on June 29, 2006, Partners acquired certain assets of Aurora Gaming, Inc., Integrity Gaming, Inc. and Integrity Gaming Nevada, LLC, collectively referred to as Integrity. BOL Finance, LLC, or BOL, was formed by AGS Capital on August 8, 2008, to finance distributors operating in Louisiana. It was capitalized through a note payable to AGS Capital. American Gaming Systems Toronto, Ltd., or AGST, was formed on July 11, 2008, and capitalized through debt and equity contributions from AGS Capital. AGST acquired certain assets of Gametronics, Inc. and Phone-Sweeps, Inc., collectively referred to as Gametronics on November 10, 2008. AGS Illinois, LLLP, or AGSIL, was formed in April 2010 to be our operating subsidiary for operation in Illinois. AGS Financing Corp., or AGS Finance, was formed on March 17, 2011 for the purpose of acting as a co-obligor in certain financing transactions. Promotional Marketing LLC, or Promotional, was formed on August 22, 2008. As of January 19, 2011, BOL and Promotional were merged into AGS, LLC. Additional information on our acquisitions and divestitures is included below in “—Acquisitions and Divestitures.”

Acquisitions and Divestitures

Acquisition by AP Gaming Acquisition, LLC (Successor)

On September 16, 2013, we entered into an Equity Purchase Agreement (as subsequently amended and restated on December 3, 2013, the “~~Acquisition Agreement~~”“Acquisition Agreement”) with AP Gaming Acquisition, LLC (“AP Gaming ~~Acquisition~~”Acquisition”), an affiliate of Apollo, for approximately $220.5 million. The Acquisition Agreement provided for the acquisition of 100% of the equity of AGS Capital, LLC from AGS Holdings, LLC by funds affiliated with Apollo. The ~~Acquisition~~acquisition was consummated on December 20, 2013. ~~See Item 1. “Business—The Acquisition.”~~

C2 Gaming, LLC acquisition

On May 6, 2014, a wholly owned subsidiary of the Company entered into an agreement to purchase 100% of the equity ofC2 Gaming, LLC (“C2 Gaming”) for $23.3 million in cash, subject to terms outlined in the Equity Purchase Agreement dated May 6, 2014 (“C2 Acquisition Agreement”). The acquisition was ~~initially~~ funded by ~~a $10.0~~an initial cash payment and an agreement to pay the sellers $9.0 million draw on our Revolving Facility and available cash on hand. The remaining purchase price of $11.5 million, which will be paid upon the satisfaction of certain milestones, which we expect to meet in 2015, is expected to be funded with either existing cash or existing availability on the ~~Revolving Facility. $9.0 million~~one-year anniversary of the ~~remaining purchase price is related to~~closing of the ~~one-year payout~~acquisition, which ~~is due in May~~was paid during the quarter ended June 30, 2015. The ~~remaining $2.5 million is related to~~acquisition also included an amount of contingent consideration ~~subject to~~of $3.0 million that was payable upon the satisfaction of certain milestones, including the ~~submittal~~submission and approval of video slot platforms to various jurisdictions ~~which milestones we expect~~as outlined in the C2 Acquisition Agreement. During the year ended December 31, 2014, the Company paid $0.5 million of the contingent consideration. In May 2015, the C2 Acquisition Agreement was amended to ~~meet in 2015. C2 Gaming is an innovative manufacturer~~reduce the remaining contingent consideration liability of $2.5 million to $2.1 million and ~~developer of slot machines based in Las Vegas, Nevada. We expect~~to acknowledge that the ~~purchase will provide for~~milestones of the ~~distribution~~C2 Acquisition Agreement were satisfied. In July 2015, the Company paid $1.0 million of ~~C2 Gaming’s platform and content~~the contingent consideration, reducing the balance to ~~an increased number of markets~~$1.1 million, which was paid in ~~the United States.~~January 2016.

Casino War Blackjack, Inc. acquisition

On July 1, 2014, a wholly owned subsidiary of the Company entered into an agreement to purchase 100% of the equity ofWar Blackjack for approximately $1.3 million in cash, subject to terms outlined in the Stock Purchase Agreement, dated July 1, 2014 (“War Blackjack Acquisition Agreement”). The acquisition closed on July 18, 2014 and was funded by available cash on hand. War Blackjack is an innovative manufacturer and developer of table and electronic games based in Las Vegas, Nevada.

~~Bluberi Transaction (Predecessor)~~

Cadillac Jack

On ~~January 9, 2012, we entered into~~May 29, 2015, the Company acquired 100% of the equity of Amaya Americas Corporation (“Cadillac Jack”), a ~~definitive agreement (the “Definitive Agreement~~”)leading provider of Class II gaming machines for the North American tribal gaming market, with ~~Bluberi Gaming Technologies, Inc., pursuant~~key regions of operation within Alabama, Mexico, and Wisconsin. This acquisition is expected to ~~which~~create growth opportunities in Class II and Class III jurisdictions and expands the ~~we agreed~~Company’s geographic footprint. The combined management teams are complementary and possess years of combined experience that is expected to ~~terminate~~allow us to effectively grow and improve our business.

The acquisition was funded primarily from cash proceeds of incremental borrowings on our existing ~~distribution~~term loans, the issuance of senior secured PIK notes, as described in Note 6, and the issuance of additional common stock, as described in Note 7. The consideration also included a promissory note to the seller, Amaya Inc., for $12.0 million, as described in Note 6, as well as a contingent receivable that was recorded at its estimated fair value on the date of the acquisition. The contingent receivable is 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.

Gamingo Limited

On June 15, 2015, the Company purchased 100% of the equity of Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”), a leading gaming company developing social casino titles for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with ~~Bluberi (the “Existing Distribution Agreement~~”)slots, table games, tournaments, and ~~to purchase all~~live events. The total consideration of ~~Bluberi’s right, title and interest in certain game titles covered by~~$8.8 million includes an estimated $5.0 million of contingent consideration that is payable based on the ~~Existing Distribution Agreement (the “Bluberi Transaction”). In connection therewith, we agreed to pay $22.8 million to Bluberi and to enter into~~operating results of AGSi during a ~~five-year service agreement with Bluberi for which we~~twelve-month measurement period that will ~~pay Bluberi a $2.0 million servicing fee paid ratably~~end no later than December 2016. The amount of the contingent consideration recorded was

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~~over~~estimated at the ~~term~~purchase date and is subject to change based on changes in the estimated operating results of AGSi and has been recorded in other long-term liabilities in the consolidated balance sheet.

Intellectual Property Acquisitions

During the quarter ended September 30, 2015, the Company acquired certain intangible assets related to the purchase of table games and table game related intellectual property. Some of the ~~service agreement~~acquisitions were accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our preliminary estimates of their fair values at the acquisition dates. The estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. The total consideration of $10.0 million includes an estimated $1.5 million of contingent consideration that is payable periodically based on a ~~one-time $1.0 million performance-based bonus. According to~~percentage of product revenue earned on the ~~Definitive Agreement, $3.5 million was due to Bluberi upon execution~~related table games. The amount of the ~~Definitive Agreement~~contingent consideration recorded was estimated at the purchase date and ~~$19.3 million was due no later than February 28, 2012~~is subject to ~~certain restrictions as defined. At our option, payment~~change based on changes in the estimated product revenue and has been recorded in other long-term liabilities in the consolidated balance sheet.

Table of the $19.3 million could be extended one month by paying $2.5 million no later than February 28, 2012 and could be extended an additional month by paying $2.5 million no later than March 31, 2012, with both payments applying to the $19.3 million balance. On March 27, 2012, an addendum to the Definitive Agreement was executed which eliminated the payment due on March 31, 2012 and replaced it with payments of $500,000 due March 30, 2012, April 6, 2012, April 13, 2012, April 20, 2012, and April 27, 2012. On May 11, 2012, we made our final payment in accordance with the Definitive Agreement and its addendum.Contents

Results of Operations

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

The following tables set forth certain selected audited consolidated financial data for the periods indicated (in ~~thousands)~~thousands, except key performance indicators):

Successor Predecessor
Year ended December 31, 2014
Period from
December 21, 2013
through December
31, 2013

Period from
January 1, 2013
through December
20, 2013
Year ended December 31, 2012
Consolidated Statements of Operations:
Gaming revenue $ 68,981
$ 1,953
$ 54,108
$ 54,029
Gaming revenue—other —
—
795
3,763
Equipment sales 3,159
—
1,558
763
Total revenues 72,140
1,953
56,461
58,555
Operating expenses:
Gaming operating expenses 12,243
252
10,088
12,369
Cost of equipment sales 1,607
—
893
395
Loss on disposition of assets 1,936
—
395
451
General and administrative 22,708
867
16,092
14,350
Selling and marketing 3,530
58
3,206
3,443
Phantom unit compensation —
—
543
654
Impairment of long lived assets 775
—
3,289
2,711
Impairment of intangibles 1,384
—
1,721
3,686
Impairment of goodwill —
—
—
18,679
Write downs and other charges 2,973
7,469
4,378
3,664
Depreciation and amortization 33,405
930
27,660
29,586
Total operating expenses 80,561
9,576
68,265
89,988
Loss from operations (8,421 ) (7,623 ) (11,804 ) (31,433 )
Interest expense 17,235
485
17,116
10,270
Interest income (42 ) —
(1,410 ) (439 )
Loss on debt retirement —
—
14,661
—
Other expense (income) 573
(6 ) 5
(66 )
Loss before income taxes $ (26,187 ) $ (8,102 ) $ (42,176 ) $ (41,198 )



	Year ended December 31,						$			%
	2015			2014			Change			Change
Consolidated Statements of Operations:
Gaming operations	$	117,013		$	68,981		48,032			69.6	%
Equipment sales	6,279			3,159			3,120			98.8	%
Total revenues	123,292			72,140			51,152			70.9	%
Operating expenses
Cost of gaming operations	23,291			14,169			9,122			64.4	%
Cost of equipment sales	1,548			1,607			(59		)	(3.7	)%
Selling, general and administrative	40,088			19,456			20,632			106.0	%
Research and development	14,376			4,856			9,520			196.0	%
Write downs and other charges	11,766			7,068			4,698			66.5	%
Depreciation and amortization	61,662			33,405			28,257			84.6	%
Total operating expenses	152,731			80,561			72,170			89.6	%
Loss from operations	(29,439		)	(8,421		)	(21,018		)	249.6	%
Interest expense	41,642			17,235			24,407			141.6	%
Interest income	(82		)	(42		)	(40		)	95.2	%
Other expense	3,635			573			3,062			534.4	%
Loss before income taxes	(74,634		)	(26,187		)	(48,447		)	185.0	%
Income tax benefit (expense)	36,089			(2,189		)	38,278			(1,748.7	)%
Net loss	$	(38,545	)	$	(28,376	)	(10,169		)	35.8	%

Key Performance Indicators:
Slot install base	19,251			8,735			10,516			120.4	%
Slot revenue per day	$	20.93		$	21.23		$	(0.30	)	(1.4	)%
Slot units sold	203			255			(52		)	(20.4	)%

Total Revenues

The inclusion of revenue from Cadillac Jack and AGSi increased total revenues by $46.1 million and $2.0 million, respectively, for the year ended December 31, 2015, compared to the prior year period. The increase in the slot install base was primarily due to the inclusion of Cadillac Jack, which accounted for approximately 10,500 units. The remaining increase in revenues was driven by improved game performance and a 150% increase in the install base of our Big Red slot machine that runs on our Colossal platform, which have historically been our best performing games. Slot revenue per day decreased in total, which is primarily attributable to the inclusion of the Cadillac Jack’s Mexico install base at lower revenues per day than the Company’s historical install base has returned.

Operating Expenses

Cost of gaming operations. The inclusion of Cadillac Jack and AGSi increased the cost of gaming operations expenses by $8.5 million and $0.6 million, respectively, for the year ended December 31, 2015, compared to the prior year period.

Selling, general and administrative. The inclusion of Cadillac Jack and AGSi increased selling, general and administrative expenses by $9.3 million and $3.1 million, respectively, for the year ended December 31, 2015, compared to the prior year period. The remaining increase is primarily due to increases in professional fees of $3.7 million. The increase is also attributable to payroll and related expenses of $2.2 million driven by increased headcount for corporate operations and our new

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table games division, trade shows and marketing expenses increased $1.0 million driven by our new table games division and increases in rent expense of $0.6 million related to our new corporate headquarters in Las Vegas and our new facility in Oklahoma City.

Research and development. The increase in research and development costs was primarily due to the inclusion of Cadillac Jack and AGSi, which accounted for $8.9 million and $0.8 million of the increase, respectively, for the year ended December 31, 2015, compared to the prior year period, offset by decreased headcount.

Write downs and other charges. During the year ended December 31, 2015, the Company recognized $11.8 million in write-downs and other charges primarily related to acquisition charges of $8.2 million. The Company also recognized an impairment to intangible assets of $3.4 million related to game titles and write-offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.3 million and the impairment of long-lived assets of $0.2 million, partially offset by net write downs of primarily contingent consideration $2.7 million that is described in Note 2 of our consolidated financial statements.

During the year ended December 31, 2014, the Company recognized $7.1 million in write-downs and other charges primarily related to acquisition charges of $2.8 million, losses from the disposal of assets of $1.9 million, an impairment to intangible assets of $1.4 million and the impairment of long-lived assets of $0.8 million.

Depreciation and amortization. The increase in depreciation and amortization was primarily due to the inclusion of Cadillac Jack and AGSi, which accounted for $26.7 million and $1.0 million, respectively, for the year ended December 31, 2015, compared to the prior year period. The remaining increase was due to an increase in capital expenditures during 2014.

Other Expense (Income), net

Interest expense. The increase is primarily attributed to the increase in the principal amounts outstanding under the senior secured credit facilities and the issuance ofsenior secured PIK notes during the year ended December 31, 2015, compared to the prior year period. The proceeds of the incremental term loans and PIK notes were used primarily to pay the consideration for the Cadillac Jack acquisition.

Other expense. The increase in other expense was primarily due to the inclusion of Cadillac Jack, which accounted for $2.8 million for the year ended December 31, 2015, compared to the prior year period. The remaining increase was due to unfavorable changes in foreign currency exchange rates.

Income Taxes

The Company's effective income tax rate for the year ended December 31, 2015, was a benefit of 48.4%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the year ended December 31, 2015, was primarily due to the income tax benefit recorded from the reversal of our valuation allowance on deferred tax assets as a result of the net deferred tax liabilities assumed in the Cadillac Jack acquisition. The Company's effective income tax rate for the year ended December 31, 2014 was an expense of 8.4%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the year ended December 31, 2014 was primarily due to valuation allowance considerations and amortization of indefinite life intangibles.

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Year Ended December 31, 2014 compared to the Combined Year Ended December 31, 2013

The following tables set forth certain selected audited consolidated financial data for the periods indicated (in thousands, except key performance indicators):



	Year ended December 31,						$			%
	2014			2013			Change			Change
Consolidated Statements of Operations:
Gaming operations	$	68,981		$	56,856		12,125			21.3	%
Equipment sales	3,159			1,558			1,601			102.8	%
Total revenues	72,140			58,414			13,726			23.5	%
Operating expenses
Cost of gaming operations	14,169			12,321			1,848			15.0	%
Cost of equipment sales	1,607			893			714			80.0	%
Selling, general and administrative	19,456			15,150			4,306			28.4	%
Research and development	4,856			3,092			1,764			57.1	%
Write downs and other charges	7,068			17,795			(10,727		)	(60.3	)%
Depreciation and amortization	33,405			28,590			4,815			16.8	%
Total operating expenses	80,561			77,841			2,720			3.5	%
Loss from operations	(8,421		)	(19,427		)	11,006			(56.7	)%
Interest expense	17,235			17,601			(366		)	(2.1	)%
Interest income	(42		)	(1,410		)	1,368			(97.0	)%
Loss on debt retirement	—			14,661			(14,661		)	(100.0	)%
Other expense (income)	573			(1		)	574			(57,400.0	)%
Loss before income taxes	(26,187		)	(50,278		)	24,091			(47.9	)%
Income tax benefit (expense)	(2,189		)	(54		)	(2,135		)	3,953.7	%
Net loss	$	(28,376	)	$	(50,332	)	21,956			(43.6	)%

Key Performance Indicators:
Slot install base	8,735			5,137			3,598			70.0	%
Slot revenue per day	$	21.23		$	20.36		$	0.87		4.3	%
Slot units sold	255			123			132			107.3	%

Total Revenues

~~Total revenues were $72.1 million for the year ended~~ ~~December 31,~~

The increase in total revenue in 2014 compared to ~~$58.4 million for the~~ 2013 ~~Combined Period, which represents an increase of $13.7 million, or 23.5%. Gaming revenues were $69.0 million for the year ended~~ ~~December 31, 2014~~ ~~compared~~is due to ~~$56.1 million for the 2013 Combined Period, which represents an increase of $12.9 million, or 23.0%.~~increases in gaming operations revenue and equipment sales. The increase in gaming revenue was partially a result of increased distribution of C2 Gaming platform and content after the acquisition of C2 Gaming, ~~a new hold strategy implemented in certain jurisdictions,~~ expansion of our operations into the Illinois market and a $3.8 million decrease in the accretion of lease incentives that were recorded as contra revenue for the 2013 Combined Period. ~~At Acquisition, the~~The lease incentives ~~that existed at the Closing Date~~ were ~~ascribed no value in purchase accounting. The Company recognized only $58,000 in contra revenue from new lease incentives~~written off in the ~~year ended~~ ~~December 31,~~AGS Capital Acquisition. Equipment sales increased due to an additional 132 units sold in 2014, compared to ~~$3.9 million in contra revenue recognized in~~ the ~~2013 Combined Period.~~prior year period.

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Operating Expenses

Gaming operating expenses. ~~Total~~The increase in gaming operating expenses ~~were $12.2 million for~~is commensurate with the ~~year ended~~ ~~December 31, 2014~~ ~~compared to $10.3 million for the 2013 Combined Period, which represents an increase of $1.9 million, or 18.4%. The increase is primarily due to an~~ increase in ~~recurring~~gaming operations revenue. ~~Additionally, gaming~~Gaming operating expenses as a percentage of gaming operations revenue ~~excluding contra revenue as a result of the lease incentives,~~ was ~~17.7%~~20.5% for the year ended December 31, 2014 compared to ~~17.4%~~21.7% for the 2013 Combined Period.

~~General~~Selling, general and administrative. ~~General and administrative costs were $22.7 million for the year ended~~ ~~December 31, 2014, compared to $17.0 million for the 2013 Combined Period, which represents an increase of $5.7 million, or 33.5%.~~ The increase is primarily due to a ~~$2.5~~$2.4 million increase in payroll and related expenses, $2.0 million increase in legal ~~fees~~ and professional fees, ~~a $0.5 million net increase in payroll due to increased headcount in Las Vegas offset by decreased headcount in Toronto, a $1.3~~$0.2 million increase in ~~severance payments and~~property taxes, $0.2 million increase in rent expense offset by a $0.6 million ~~increase in sign-on~~reduction of bad debt expense.

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Research and ~~retention bonuses.~~development. Increase was driven by increased severance costs and fees related to the closing of our Toronto operations.

~~Selling~~Write down and ~~marketing.~~other charges. ~~Selling and marketing costs were relatively consistent at $3.5 million and $3.3 million for~~During the year ended December 31, 2014, the Company recognized $7.1 million in write-downs and ~~2013 Combined Period, respectively.~~

~~Impairment~~other charges primarily related to acquisition charges of ~~long-lived assets.~~ ~~Impairment~~$2.8 million, losses from the disposal of assets of $1.9 million, an impairment to intangible assets of $1.4 million and the impairment of long-lived assets ~~was~~of $0.8 ~~million for~~million.

For the ~~year ended~~ Successor Period ending December 31, ~~2014, compared to $3.3~~2013, the Company recognized $7.5 million in write-downs and other charges for ~~the 2013 Combined Period and represents impairment losses for obsolete gaming machines.~~

~~Impairment of intangibles.~~ ~~Impairment of intangibles was $1.4 million for the year ended~~ ~~December 31, 2014~~,fees related to the ~~retirement~~AGS Capital Acquisition. For the Predecessor Period, the Company recognized $10.3 million in write downs and other charges that primarily consisted of ~~internally developed gaming titles that were discontinued, compared to $1.7~~$3.9 million ~~for the 2013 Combined Period, primarily~~in fees related to the ~~write-off~~AGS Capital Acquisition, $3.3 million related to the impairment of ~~a lease incentive~~long-lived assets, $1.7 million related to the impairment of intangible assets, $0.5 million related to the write-down of phantom unit compensation and $0.3 million for consulting fees paid to a ~~customer.~~related party.

Depreciation and amortization. ~~Depreciation and amortization was $33.4 million for the year ended~~ ~~December 31, 2014~~ ~~compared to $28.6 million for the 2013 Combined Period, which represents an increase of $4.8 million, or 16.8%.~~ The increase is primarily due to the step-up in fair value attributed to the tangible and intangible assets recognized in connection with the AGS Capital Acquisition and a significant increase in intangible assets and gaming equipment as a result of the acquisition of C2 Gaming in May 2014.

Other Expense (Income), net

Interest expense. ~~Interest expense was $17.2 million for the year ended~~ ~~December 31, 2014, and $17.6 million for the 2013 Combined Period, which represents a decrease of $0.4 million, or 2.3%.~~ The decrease is primarily attributed to the decreased interest rate associated with the ~~Term Loan Facility~~term loan facility versus the debt of the Predecessor, partially offset by an increase in the outstanding principal balance at December 31, 2014,, under ~~the Term Loan Facility~~our term loan and ~~Revolving Facility.~~revolving facilities.

Interest income. ~~Interest income was $42,000 for the year ended~~ ~~December 31, 2014~~ ~~compared to $1.4 million for the 2013 Combined Period.~~ The decrease in interest income was the result of notes receivable being retained by the Predecessor in connection with the AGS Capital Acquisition.

~~Combined Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012~~

~~Total Revenues~~Income Taxes

~~Total revenues were $58.4 million for the 2013 Combined Period compared to $58.6 million~~

The Company's effective income tax rate for the year ended December 31, ~~2012, which represents a decrease~~2014, was an expense of ~~$0.2 million, or 0.3%~~8.4%. ~~Gaming revenues were $56.1 million for~~The difference between the ~~2013 Combined Period compared to $54.0 million~~federal statutory rate of 35% and the Company's effective tax rate for the year ended December 31, ~~2012, which represents an increase of $2.1 million, or 3.9%. The decrease in total revenue~~2014, was primarily ~~a result~~due to valuation allowance considerations and amortization of ~~the termination of a software license agreement on March 29, 2013; partially offset by the increase in gaming revenues.~~indefinite life intangibles. The increase in gaming revenue was primarily a result of transitioning from predominantly participation based revenue to more lease based revenue, including the addition of an entirely new lease market when we expanded our operations into Illinois.

~~Operating Expenses~~

~~Gaming operating expenses. Total gaming operating expenses were $10.3 million for the 2013 Combined Period compared to $12.4 million~~Company's effective income tax rate for the year ended December 31, ~~2012, which represents a decrease~~2013 was an expense of ~~$2.1 million, or 16.9%~~0.7%. The ~~decrease in gaming operating expenses was primarily a result~~difference between the federal statutory rate of 35% and the consummation of the Bluberi transaction in May 2012, which reduced Bluberi commissions by approximately $3.0 million in 2013 and $0.4 million capitalization of certain production costs during 2013 that did not occur in 2012; partially offset by an increase facility specific fees and commission fees.

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~~Cost of equipment sales. Cost of equipment sales was $0.9 million for the 2013 Combined Period compared to $0.4 million~~Company's effective tax rate for the year ended December 31, ~~2012, which represents an increase of $0.5 million, or 126.1%. The increase is due to an increase in equipment sales.~~

~~General and administrative. General and administrative costs were $17.0 million for the~~ 2013 Combined Period compared to $14.4 million for the year ended December 31, 2012, which represents an increase of $2.6 million, or 18.1%. The increase is due to legal fees of $1.2 million related to an arbitration proceeding with a customer, legal fees of $0.4 million related to the filing of our registration statement, as well an increase in payroll costs; partially offset by a decrease in licensing fees related to initial licensing of new jurisdictions expensed in 2012.

~~Selling and marketing~~. ~~Selling and marketing costs were relatively consistent at $3.3 million for the 2013 Combined Period and $3.4 million for the year ended December 31, 2012.~~

~~Phantom unit compensation~~. Phantom unit compensation expense was $0.6 million for the 2013 Combined Period compared to $0.7 million for year ended December 31, 2012, which represents a decrease of $0.1 million, or 17.0%. The expense represents the recognition of the change in the fair value of the phantom units that vested during the two periods.

~~Impairment of long lived assets~~. Impairment of long-lived assets represents an impairment loss for obsolete gaming machines. The impairment charge was $3.3 million for the 2013 Combined Period compared to $2.7 million for the year ended December 31, 2012, which represents an increase of $0.6 million, or 22.2%.

~~Impairment of intangibles~~. Impairment of intangibles was $1.7 million for the 2013 Combined Period compared to $3.7 million for the year ended December 31, 2012, which represents a decrease of $2.0 million, or 54.1%. The 2013 Combined Period amount relates to a lease incentive associated with a long-term lease with a gaming operator in Illinois entered into in 2010 for which the lease was amended in September 2013. The 2012 amount related to adjusting our net carrying value of the cashless gaming system licenses required to operate certain gaming machines. The remaining amount related to customer agreements and internally developed software associated with a licensing agreement held by AGS Toronto, which we terminated in March 2013.

~~Impairment of goodwill~~. Impairment of goodwill was $0 and $18.7 million for the 2013 Combined Period and the year ended December 31, 2012, respectively. The 2012 impairment, which accounted for the entire balance, was primarily the result of actual results not meeting our long-term operating plan.

~~Write downs and other charges.~~ Write downs and other charges were $11.8 million and $3.7 million for the 2013 Combined Period and the year ended December 31, 2012, respectively, which represents an increase of $8.1 million, or 218.9%. The majority of the 2013 Combined Period costs related to transaction expenses incurred with respect to the Acquisition. The amounts for 2012 consist of $3.5 million of debt-related costs related to our prior credit facility, which was paid off with the proceeds of the Term Loans, and other costs incurred for unsuccessful financing transactions, and $0.2 million for consulting fees paid to a related party.

~~Depreciation and amortization. Depreciation and amortization was $28.6 million for the 2013 Combined Period compared to a $29.6 million for the year ended December 31, 2012, which represents a decrease of $1.0 million, or 3.4%.~~

~~Other (Income) Expense, net~~

~~Interest expense~~. Interest expense was $17.6 million for the 2013 Combined Period and $10.3 million for the year ended December 31, 2012, which represents an increase of $7.3 million, or 70.9%. The increase in interest expense was primarily due to ~~the increased interest rate for the new credit agreement entered into in August 2012.~~

~~Interest income. Interest income was $1.4 million for the 2013 Combined Period compared to $0.4 million for the year ended December 31, 2012. The increase in interest income was primarily the result~~valuation allowance considerations and amortization of additional interest recognized on the loans to the gaming operators in the Illinois VGT market partially offset by a decrease in the outstanding principal amount of our other development agreement notes receivable generating interest income.indefinite life intangibles.

~~Loss on debt retirement.~~ Loss on debt retirement was $14.7 million for the 2013 Combined Period compared to $0 for the year ended December 31, 2012, which represents an increase of $14.7 million. The expense for the 2013 Combined Period consisted of a $6.5 million early termination penalty, $4.2 million in deferred financing costs and $4.0 in debt discount related to the new credit facility entered into in 2012 that was paid off as part of the Acquisition.

~~Table of Contents~~LIQUIDITY AND CAPITAL RESOURCES

~~Liquidity and Capital Resources~~

We expect that primary ongoing liquidity requirements for the year ended December 31, ~~2015~~2016 will be for operating capital expenditures of between ~~$15~~$20 million and ~~$25~~$30 million, working capital, debt servicing, game development and other customer acquisition activities. We expect to finance these liquidity requirements through a combination of cash on hand and cash flows from operating activities.

Part of our overall strategy includes consideration of expansion opportunities and acquisition and other strategic opportunities that may arise periodically. We may require additional funds in order to execute on such strategic growth, and may incur additional debt or issue additional equity to finance any such transactions. We cannot assure you that we will be able to obtain such debt or issue any such additional equity on acceptable terms or at all.

As of December 31, ~~2014,~~2015, we had ~~$10.7~~$35.7 million in cash and cash equivalents and ~~$171.7~~$40.0 million ~~of outstanding indebtedness, which consisted of $153.5 million of outstanding indebtedness~~available under our Term Facility, $10.0 million outstanding under our Revolving Facility and $8.2 million in other long-term debt agreements. As of December 31, 2013, we had $21.7 million in cash and cash equivalents and $161.5 million of outstanding indebtedness, which consisted of $156.0 million of outstanding indebtedness under Term Facility and $5.5 million in notes payable related to the Acquisition. At December 31, 2013, we had no amounts drawn on our Revolving Facility.

~~Long-Term Debt~~

Concurrent with the consummation of the Acquisition, on December 20, 2013 (the “Closing Date”) we entered into our senior secured credit facilities, which consist of a $155 million term loan facility (the “Term Facility”) and a $25 million revolving credit facility (the “Revolving Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”). AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary of AP Gaming, is the borrower under the Senior Secured Credit Facilities and Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc. acted as joint lead arrangers and joint bookrunners for the Senior Secured Credit Facilities.

The proceeds of the Term Facility were used by the Borrower, together with the proceeds of the equity contribution and other sources of funds, to pay the consideration for the Acquisition, to refinance the Company’s existing credit facilities and to pay the costs and expenses of the Acquisition and other related transactions. The proceeds of the Revolving Facility, of which $15.0 million was available as of December 31, 2014, will be used by the Borrower from time to time for general corporate purposes and other purposes agreed to with the lenders. In May 2014, the Company drew $10.0 million on the Revolving Facility, the proceeds of which were used to partially finance the purchase of C2 Gaming. The Company intends to pay the remaining balance of the purchase price for C2 Gaming equal to approximately $11.5 million, either through available cash on hand or the remaining availability on the Revolving Facility. We believe the remaining availability on our Revolving Facility, as well as expected positive future cash flows, will be sufficient to meet our short-term and long-term liquidity requirements.

The Term Facility will mature on the seventh anniversary of the Closing Date, and the Revolving Facility will mature on the fifth anniversary of the Closing Date. The Term Facility requires scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the Term Facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the Revolving Facility bear interest at a rate equal to, at the Borrower’s option, either LIBOR or the base rate, plus an applicable margin rate. In addition, on a quarterly basis, the Borrower is required to pay each lender under the Revolving Facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum. As of December 31, 2014, $10.0 million was outstanding under the Revolving Facility. In the first quarter of 2015, the Company drew an additional $1.0 million under the Revolving Facility. The Company can draw all of the amounts available under the Revolving Facility without violating any debt covenants.

The Senior Secured Credit Facilities are guaranteed by AP Gaming Holdings, the Borrower’s material, wholly owned domestic subsidiaries (subject to certain exceptions) and AP Gaming NV, LLC, and are secured by a pledge by AP Gaming Holdings of the Borrower’s equity interest directly held by AP Gaming Holdings and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors and AP Gaming NV, LLC, subject to certain exceptions. The Senior Secured Credit Facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 5.5 to 1 beginning with the first quarter ending June 30, 2014. The Senior Secured Credit Facilities contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The Senior Secured Credit Facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. The Company was in compliance with the covenants of the Senior Secured Credit Facilities at December 31, 2014.

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In October 2013, AGS Capital entered into financing agreements to purchase 450 gaming machines from various third party suppliers for lease to a company that operates and service slot routes in Illinois. The agreements require monthly payments of interest and principle and have terms ranging from 24 to 36 months and carry an interest rate from 8.0% to 8.5%. The amounts due under these financing agreements were paid in full in connection with the Acquisition.

In January 2014, we entered into a financing agreement to purchase certain gaming devices and/or systems and related equipment in the amount of $2.7 million. The agreement requires monthly payments commencing 90 days from the date of delivery with a term of 36 months at an annual fixed interest rate of 7.5%.

~~There were no material changes to the Company’s contractual obligations outside of the ordinary course of business during the year ended December 31, 2014.~~facility. Based on our current business plan, we believe that our existing cash balances, cash generated from operations and availability under the ~~Revolving Facility~~revolving credit facility will be sufficient to meet our anticipated cash needs for at least the next twelve months. As of December 31, ~~2014~~2015, we are in compliance with the ~~Senior Secured Credit Facilities,~~the required covenants of our debt instruments, including the maximum net first lien leverage ratio. However, our future cash requirements could be higher than we currently expect as a result of various factors. Our ability to meet our liquidity needs could be adversely affected if we suffer adverse results of operations, or if we violate the covenants and restrictions to which we are subject under ~~the credit facility.~~our debt instruments. Additionally, our ability to generate sufficient cash from our operating activities is subject to general economic, political, regulatory, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our existing credit facility in an amount sufficient to enable us to pay our service or repay our indebtedness or to fund our other liquidity needs, and we may be required to seek

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additional financing through credit facilities with other lenders or institutions or seek additional capital through private placements or public offerings of equity or debt securities.

Indebtedness

Senior Secured Credit Facilities

On December 20, 2013, the Company entered into our senior secured credit facilities, which consisted of $155.0 million in term loans and a $25.0 million revolving credit facility. On May 29, 2015, the Company entered into incremental facilities for $265.0 million in term loans and on June 1, 2015, the Company entered into an incremental agreement for an additional $15.0 million of incremental revolving commitments. The proceeds of the incremental term loans were used primarily to pay the consideration for the Cadillac Jack acquisition.

The term loans will mature on December 20, 2020, and the revolving credit facility will mature on December 20, 2018. The term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the term loans bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the revolving credit facility bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the Company is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.

The senior secured credit facilities are guaranteed by AP Gaming Holdings, LLC, the AP Gaming I, LLC’s (the “Borrower”) material, wholly owned domestic subsidiaries (subject to certain exceptions), and are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. The senior secured credit facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 5.5 to 1 beginning with the first quarter ending June 30, 2014. The senior secured credit facilities contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The senior secured credit facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. The Company was in compliance with the covenants of the senior secured credit facilities at December 31, 2015.

Senior secured PIK notes

On May 29, 2015, the Company entered into a note purchase agreement with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as purchaser (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent. Pursuant to the agreement, the Company issued $115.0 million of its 11.25% senior secured PIK notes due 2021 (the “Notes”) at an issue price of 97% of the principal amount thereof to the Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The Notes are secured by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.

Interest on the Notes will accrue at a rate of 11.25% per annum. The Company may elect to pay interest due on the Notes in cash, by increasing the principal of the outstanding Notes or by issuing new Notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. Interest on the Notes will accrue from the date of issuance and will be payable on the dates described in more detail in the agreement. The Notes will mature on May 28, 2021. The net proceeds of the Notes were used primarily to finance the acquisition of Cadillac Jack.

The Notes contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The Notes also contains customary events of default included in similar transactions, including, among others, failure to make payments when due, acceleration of other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. At December 31, 2015, the Notes totaled $119.3 million, which includes capitalized interest of $7.6 million.

Seller notes

On December 20, 2013, the Company issued two promissory notes (the “AGS Seller Notes”) to AGS Holdings, LLC, in the amounts of $2.2 million and $3.3 million, to satisfy the conditions set forth in the Acquisition Agreement. At December 31,

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2015, notes payable related to the AGS Seller Notes totaled $6.5 million, which includes capitalized interest of $1.0 million. The AGS Seller Notes accrue interest on the unpaid principal balance at 8.5% per annum and shall be payable semi-annually in arrears on June 30 and December 31, commencing on June 30, 2014. Any interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of this AGS Seller Notes. All principal and interest under the AGS Seller Notes is due and payable on June 18, 2021, the maturity date. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the AGS Seller Notes.

On May 29, 2015, the Company issued a promissory note to Amaya Inc. (the “Amaya Seller Note”) with an initial principal amount of $12.0 million to satisfy the conditions set forth in the stock purchase agreement for the Cadillac Jack Acquisition. The Amaya Seller Note accrues interest on the unpaid principal amount at 5.0% per annum and is payable semi-annually on June 30 and December 31 (and on May 29, 2023, the maturity date of the note), commencing on June 30, 2015. All interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of the Amaya Seller Note. All principal under the note is due and payable on May 29, 2023. The Amaya Seller Note is required to be prepaid under certain circumstances described in more detail in the note agreement. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the Amaya Seller Note. The Amaya Seller Note includes certain covenants and events of default that are customary for instruments of this type. At December 31, 2015, the Amaya Seller Note totaled $12.4 million, which includes capitalized interest of $0.4 million.

Equipment Long Term Note Payable and Capital Leases

The Company has entered into a financing agreement to purchase certain gaming devices, systems and related equipment and has entered into leases for servers and equipment that are accounted for as capital leases.

The following table summarizes our historical cash flows (in thousands):


	Successor						Predecessor						Year ended December 31,
	Year ended December 31, 2014			Period from December 21, 2013 through December 31, 2013			Period from January 1, 2013 through December 20, 2013			Year ended December 31, 2012			2015			2014			2013⁽¹⁾
Cash Flow Information:
Net cash provided by (used in) operating activities	$	12,482		$	(8,626	)	$	9,014		$	17,940
Net cash provided by operating activities													$	9,403		$	12,482		$	388
Net cash used in investing activities	(33,922		)	(216,302		)	(27,018		)	(50,867		)	(401,850		)	(33,922		)	(243,320		)
Net cash provided by financing activities	9,860			243,448			14,323			28,806			417,547			9,860			257,771
Effect of exchange rates on cash and cash equivalents	518			(49		)	407			(121		)	(58		)	518			358
(Decrease) increase in cash and cash equivalents	$	(11,062	)	$	18,471		$	(3,274	)	$	(4,242	)
Increase (decrease) in cash and cash equivalents													$	25,042		$	(11,062	)	$	15,197

(1) 2013 balances represent the Combined period ended December 31, 2013.

Operating activities

The Company has historically produced a loss from operations, which is primarily due ~~mainly~~ to the capital nature of the business and the resulting depreciation and amortization expense. For the year ended December 31, ~~2014,~~2015, net cash provided by operating activities was ~~$12.5~~$9.4 million ~~which~~ compared to ~~$0.4~~$12.5 million for the ~~2013 Combined Period,~~year ended ended December 31, 2014, representing a decrease of $3.1 million. The decrease is primarily due to an $18.5 million decrease in income from operating activities excluding non-cash expenses, partially offset by an increase in net working capital fluctuations. The increased use of ~~$12.2 million~~cash for operating activities in the period is primarily related to the transaction related expenses for the Cadillac Jack and AGSi acquisitions.

Net cash provided by operating ~~activities.~~activities increased $12.1 million for the year ended ended December 31, 2014 compared to the Combined Period. The increase ~~is primarily~~was due to a decrease of ~~$10.0~~$8.1 million in loss from operations excluding non-cash expenses and an increase of ~~$2.3~~$4.0 million as a result of changes in net working capital. Net cash provided by operating activities was $9.0 million for the Predecessor Period compared to $17.9 million for the year ended December 31, 2012, representing a decrease of $8.9 million. The decrease is primarily due to a decrease in income from operating activities, excluding non-cash expenses, and a payment of $2.1 million on the Phantom unit plan offset by a $4.3 million increase in working capital.

Investing activities

Net cash used in investing activities for the year ended December 31, ~~2014~~2015, was ~~$33.9~~$401.9 million compared to ~~$243.3~~$33.9 million for the ~~2013 Combined Period,~~year ended December 31, 2014, representing an increase of $367.9 million. The increase was primarily due to

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the acquisition of Cadillac Jack, AGSi and table games related IP for $374.3 million, net of cash acquired. Purchases of property and equipment increased by $5.5 million, which was partially offset by a decrease in the purchase of intangible assets of $3.2 million.

Net cash used in investing activities decreased $209.4 ~~million.~~million for the year ended ended December 31, 2014 compared to the Combined Period. The decrease was primarily due to $215.0 million in cash paid for the AGS Capital Acquisition in the Successor Period and a decrease of $11.7 million in purchases of gaming equipment, vehicles and other equipment, partially offset by $11.8 million in cash paid for the C2 Gaming acquisition in 2014 and an increase of $4.9 million in purchases of intangible assets. Net cash used in investing activities for the Predecessor Period was $27.0 million compared to $50.9 million during the year ended December 31, 2012, representing a decrease of $23.9 million. The decrease is primarily due to a decrease in purchases of intangible assets of $18.6 million, as $19.9 million was spend last

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~~year on the Bluberi transaction, and a reduction in advances to customers of $6.0 million offset by an increase in software development of $0.8 million.~~

Financing activities

Net cash provided by financing activities for the year ended December 31, ~~2014 was $9.9~~2015 increased $407.7 million to $417.5 million compared to ~~$257.8~~$9.9 million for the ~~2013 Combined Period, representing~~same period in 2014. The increase was primarily due to the increase in the senior secured credit facilities of $265.0 million in incremental term loans entered into on May 29, 2015, the issuances of $115.0 million in senior secured PIK notes, cash provided by the issuance of common stock of $77.4 million, partially offset by a net pay down of the revolving credit facility of $10.0 million, payments for previous acquisition obligations of $10.0 million, $3.8 million paid in deferred financing costs associated with the issuance of new debt and payments on debt of $4.7 million.

Net cash provided by financing activities decreased $247.9 million ~~decrease.~~for the year ended December 31, 2014 compared to the Combined Period. The decrease was primarily due to a decrease of ~~$140.4~~$146.9 million in borrowings, a decrease of ~~$144.1~~$244.1 million in capital contributions from ~~members and a $100.0 million decrease in proceeds from~~the issuance of common stock, partially offset by a decrease in debt payments of ~~$128.0~~$134.9 million and a decrease in payments of deferred loan costs of ~~$7.2~~$6.2 million. Net cash provided by financing activities for the Predecessor Period was $14.3 million compared to $28.8 million provided by financing activities during the year ended December 31, 2012, representing a decrease of $14.5 million. The decrease in net cash provided by financing activities was primarily due to a significant decrease of approximately $109.8 million in borrowing in the Predecessor Period compared to 2012 offset by a member contribution of $144.1 million in the Predecessor Period compared to a $50.7 million member contribution in 2012.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Significant Accounting Policies and Critical Estimates

~~The preparation of~~

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ~~requires us~~of America. Accordingly, we are required to make ~~decisions~~estimates incorporating judgments and assumptions we believe are reasonable based ~~upon estimates, assumptions and factors we consider relevant to the circumstances. Such decisions include the selection of applicable accounting principles~~on our historical experience, contract terms, trends in our company and the ~~use of judgment~~industry as a whole, as well as information available from other outside sources. Our estimates affect amounts recorded in ~~their application, the~~our consolidated financial statements and there can be no assurance that actual results ~~of which impact reported amounts and disclosures.~~will not differ from initial estimates. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. ~~Accordingly, actual results could differ materially from those anticipated.~~Our accounting policies are more fully described in Note 1 to the consolidated financial statements, Description of Business and Summary of Significant Accounting Policies.

We ~~believe that~~consider the following ~~critical~~ accounting policies to be the most important to understanding and ~~underlying estimates~~evaluating our financial results. These policies require management to make subjective and complex judgments ~~involve a higher degree of complexity than others do:~~that are inherently uncertain or variable.

Management considers an accounting estimate to be critical if:

It requires assumptions to be made that were uncertain at the time the estimate was made, and

Changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operation or financial condition.

~~Revenue Recognition~~

~~Gaming Revenue~~Business Combinations

~~Gaming revenue~~

We apply the provisions of ASC 805, Business Combinations, in the accounting for acquisitions. It requires that we recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values. Goodwill as of the acquisition date is of a recurring nature and is generated by providing customers with gaming terminals, gaming terminal content licenses and back-office equipment, which are collectively referred to as gaming equipment, under participation arrangements. These participation arrangements are accounted for as operating leases pursuant to Accounting Standards Codification (“ASC”) 840, Leases. These arrangements are considered to be leases,measured as the ~~agreements convey~~excess of consideration transferred over the ~~right to use the equipment (i.e. gaming machines and related integral software) for a stated period of time. Under these arrangements, we retain ownership~~net of the ~~gaming equipment installed at customer facilities and receive revenue based on either a percentage~~acquisition date fair values of the ~~win per day generated by~~assets acquired and the ~~gaming equipment or a daily fee. The majority~~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 ~~our leases require us to provide maintenance throughout the entire term~~an appropriate discount rate (Assumption #1) and projection of the ~~lease. In some cases,~~cash flows (Assumption #2) associated with each acquired asset. As a ~~performance guarantee exists that, if not met, requires us to replace or remove~~result, during the gaming machines from the customer’s floor. Whether contractually required or not, we develop and provide new gaming titles throughout the life of the lease. Certain arrangements require a portion of the facilities’ win per day to be set aside to be used to fund facility-specific marketing, advertising, promotions and service. These amounts are offset against revenue. Gaming revenue is also derived from the licensing of table games content and is earned and recognized based on a fixed monthly rate.

~~Gaming Revenue - other~~

Licensing revenue represents the licensing of our trademarked title names to a single company in the sweepstakes phone card business. We recognized revenue when earned. This agreement was terminated in the first quarter of 2013.

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~~Equipment Sales~~

~~Revenues~~measurement period, which may be up to one year from the ~~stand-alone product sales or separate accounting units~~acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, deferred tax assets, deferred tax liabilities, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date and any adjustments to its preliminary estimates are recorded ~~when:~~

~~Pervasive evidence of an arrangement exists;~~

~~The sales price is fixed and determinable;~~

~~Delivery has occurred and services have been rendered; and~~

~~Collectability is probable.~~

~~Equipment sales are generated from the sale of gaming machines and licensing rights~~ to ~~game content software that is installed in the gaming machine, parts, and other ancillary equipment. Also included~~goodwill if identified within the ~~deliverables~~measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Gaming equipment sales do not include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as title and risk of loss have passedrecorded to the ~~customer and all other revenue recognition criteria have been satisfied. As the combination~~consolidated statements of game content software and the tangible gaming device function together to deliver the product’s essential functionality, revenue from the sale of gaming devices is recognized under general revenue recognition guidance.operations.

~~Notes Receivable and Development Agreements~~

We enter into development agreements to provide financing for new tribal gaming facilities or for the expansion of existing facilities. The agreements generally come in two forms. The first is in the form of a loan. Interest income is recognized on the repayment of the notes based on the stated rate or, if not stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible is recorded. The intangible is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement (Assumption #1). The second is in the form of an advance that is not expected to be repaid. These advances are accounted for as customer rights and amortized over the term of the agreement as a reduction in revenue. In both scenarios, the customer commits to a fixed number of gaming terminal placements in the facility, and we receive a fixed percentage of those gaming terminals’ win per day over the term of the agreement or a daily fee per gaming terminal. Certain agreements contain performance standards for the gaming terminals that could allow the facility to reduce a portion of the guaranteed floor space. In the event a portion of the guaranteed floor space is reduced, we would reduce the associated intangible asset. Interest income related to notes receivable is recorded as interest income in the accompanying consolidated statement of operations and comprehensive loss.

Generally, we utilize the term of a contract to amortize the intangible assets associated with development agreements. We review the carrying value of these contract rights at least annually, or whenever changes in circumstances indicate the carrying value of these assets may not be recoverable. While we believe that the estimates and assumptions used in evaluating the carrying value of these assets are reasonable, different assumptions could materially affect either the carrying value or the estimated useful lives of the contract rights.

We accrue interest, if applicable, on our notes receivables per the terms of the agreement. Interest is not accrued on past due notes receivable, or individual amounts that we have determined and specifically identified as not collectible. We will resume accruing interest to the extent payments are being received and collectability is determined to be highly probable.

We assess the impairment of notes whenever events or changes in circumstances indicate the carry value may not be realized. Impairment is measured based on the present value of the expected future cash flows and is recorded as bad debt expense in the period of assessment (Assumption #2). Pursuant to the Acquisition Agreement, notes receivable were retained by AGS Holdings on the Closing Date.

Assumptions/Approach used for Assumption #1:#1: ~~Intangibles that result from our notes receivable~~Fair value of identifiable tangible and ~~development agreements are generally amortized over~~intangible assets is based upon forecasted revenues and cash flows as well as the ~~life of~~selected discount rate. In determining the contract, using the straight-line method of amortization, which is recorded as a reduction of revenue generated from the gaming facility. We use a straight-line amortization method, as a pattern of future benefits cannot be readily determined.appropriate discount rate, we incorporate assumptions regarding capital structure and return on equity and debt capital consistent with peer and industry companies.

Effect if Different Assumptions used for Assumption #1: Valuation of identifiable tangible and intangible assets requires judgment, including the selection of an appropriate discount rate. While we believe ~~that~~our estimates used to select an appropriate discount rate, different assumptions could materially affect the ~~use~~measurement of fair value. If the selected discount rates are inaccurate for individual assets, the allocation of the ~~straight-line method of amortization is~~purchase price, including the ~~best way~~excess purchase price allocated to account for the intangible that results from our notes receivable and development agreement activity, the use of an alternative method could have a material effect on the amount recorded as a reduction to revenue in the current reporting period.goodwill, may be inaccurate.

Assumptions/Approach used for Assumption #2:#2: ~~We estimate cash flows directly associated with the use~~Fair value of ~~the~~identifiable tangible and intangible assets ~~to test recoverability and remaining useful lives~~is based upon forecasted ~~product~~ revenues and cash flows. In developing

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estimated cash flows, we incorporate assumptions regarding future performance, including estimations of ~~win per day~~revenues, costs, and estimated units. When the carrying amount exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset, we then compare the carrying amount to its current fair value. We recognize an impairment loss if the carrying amount is not recoverable and exceeds its fair value.capital expenditures.

Effect if Different Assumptions used for Assumption #2: ~~Impairment testing~~ Valuation of identifiable tangible and intangible assets requires judgment, including estimations of cash flows, and determinations of fair value. While we believe our estimates of future ~~revenues and~~ cash flows are reasonable, different assumptions could materially affect the measurement of ~~useful lives, recoverability and~~ fair value. If ~~actual~~the estimated cash flows ~~fall below initial forecasts, we~~are inaccurate for individual assets, the allocation of the purchase price, including the excess purchase price allocated to goodwill, may ~~need~~be inaccurate.

Revenue Recognition

We evaluate the recognition of revenue based on the criteria set forth in the accounting guidance as more fully described in Note 1 to ~~record additional amortization and/~~the consolidated financial statements, which contains a description of our revenue recognition policy for our revenue streams.

Judgment is often required to determine whether an arrangement consists of multiple deliverables, whether the delivered item has value to the customer on a standalone basis and, if applicable, management’s estimated selling price used to allocate the arrangement fee to each deliverable. The fair value of the undelivered elements is deferred and the remaining portion is allocated to the delivered item and is recognized as revenue. Such determination affects the timing of revenue recognition. We evaluate the primary use and functionality of each deliverable in determining whether a delivered item has standalone value and qualifies as a separate unit of accounting.

Judgment is required to determine whether there is sufficient history to prove assurance of collectability and whether pricing is fixed or ~~impairment charges.~~determinable. Other factors considered include the nature of our customers, our historical collection experience with the specific customer, the terms of the arrangement and the nature of the product being sold. Our product sales contracts do not include specific performance, cancellation, termination or refund-type provisions.

Determining whether certain of our products are within the scope of software revenue recognition and whether the software and non-software elements of these products function together to deliver the essential functionality can require judgment. Our determination dictates whether general revenue recognition guidance or software revenue recognition guidance applies and could impact the timing of revenue recognition.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts related to our accounts ~~receivable~~ and notes receivable deemed to have a high risk of collectability. We review our ~~accounts receivable and notes receivable~~receivables on a monthly basis to determine if any receivables will potentially be uncollectible. We analyze historical collection trends and changes in our customers’ payment patterns, customer concentration and credit worthiness when evaluating the adequacy of our allowance for doubtful accounts (Assumption #1). A large percentage of

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receivables are with Native American tribes that have their reservations and gaming operations in the state of Oklahoma, and we have concentrations of credit risk with several tribes. We include any receivable balances that are determined to be uncollectible in our overall allowance for doubtful accounts. Changes in our assumptions or estimates reflecting the collectability of certain accounts could materially affect our allowance for both trade and notes receivable.

Assumptions/Approach used for Assumption #1: We estimate our allowance for doubtful accounts based on historical collection trends, changes in our customers’ payment patterns, customer concentration and credit worthiness.

Effect if Different Assumptions used for Assumption #1: Recording an allowance for doubtful accounts requires judgment. While we believe our estimates are reasonable, if actual cash collections fall below our expectations, we may need to record additional bad debt expense.

Inventories

Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out (“FIFO”) method for all components of inventory. We regularly review inventory quantities and update 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 (Assumption #1), the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimation could materially affect the inventory carrying value.

Assumptions/Approach used for Assumption #1: Our estimates of net realizable value of inventory take into account projected usage including lease and sales levels that will utilize the existing inventory to assist in determining the net realizable value of the inventory at a balance sheet date. If inventory has no projected usage, it is written down to current market values (less costs to sell and dispose).

Effect if Different Assumptions used for Assumption #1: Although we believe our estimate of inventory usage are reasonable, different assumptions could materially affect the inventories net realizable value. If actual inventory usage is lower than our projections, additional inventory write-downs may be required.

~~Gaming~~

Property and Equipment ~~Vehicles and Other Equipment~~

The cost of ~~gaming~~property and equipment, consisting of gaming machines, file servers and other support equipment as well as ~~vehicles~~leasehold improvements, office and other equipment, is depreciated over their estimated useful lives, using the straight-line ~~method for financial reporting.~~method. Repairs and maintenance costs are expensed as incurred. We routinely evaluate the estimated lives used to depreciate assets (Assumption #1). WeUpon the occurrence of a triggering event, we measure 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 (Assumption #2). Our policy is to impair, when necessary, excess or obsolete gaming terminals on hand that we do not expect to be used. Impairment is based upon several factors, including estimated forecast of gaming terminal demand for placement into casinos.

Assumptions/Approach used for Assumption #1: The carrying value of the asset is determined based upon management’s assumptions as to the useful life of the asset, where the assets are depreciated over the estimated life on a straight line basis.

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Effect if different assumptions used for Assumption #1: While we believe the useful lives that we use are reasonable, different assumptions could materially affect the carrying value of the assets, as well as the depreciation expense recorded.

Assumptions/Approach used for Assumption #2: WeWhen we identify a triggering event, we estimate cash flows directly associated with the use of the gaming equipment to test recoverability and remaining useful lives based upon forecasted product revenues and cash flows. In developing estimated cash flows, we incorporate assumptions regarding future performance, including estimations of win per day and estimated units. When the carrying amount exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the asset, we then compare the carrying amount to its current fair value. We recognize an impairment loss if the carrying amount ~~is not recoverable and~~of the asset exceeds its fair value.

Effect if Different Assumptions used for Assumption #2: Impairment testing requires judgment, including ~~estimations~~estimates of cash flows, and determinations of fair value. While we believe our estimates of future revenues and cash flows are reasonable, different assumptions could materially affect the measurement of useful lives, recoverability and fair value. If actual cash flows fall below initial forecasts, we may need to record additional amortization and/or impairment charges.

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Valuation of Intangible Assets ~~other than goodwill~~and Goodwill

We group our ~~definite-lived~~ intangible assets at the lowest level for which there are identifiable cash flows ~~are largely independent~~The nature of ~~the cash flows of other assets and liabilities. We group~~ our ~~identifiable~~ intangible assets ~~and review them for impairment according to the groupings below:~~is primarily described as follows:

~~Definite-lived trade name~~Trade and brand names - ~~this~~ intangible ~~relates~~assets related to business and corporate trade names that were purchase in business acquisitions as well as the ~~“Gambler’s Choice” trade name~~brand names of product franchise titles. This category includes both definite- and indefinite-lived intangible assets.

Customer relationships – intangible assets that ~~was recognized in purchase accounting in connection with~~represent primarily the ~~Acquisition. The Company amortizes this trade name over an estimated useful life~~value that has been assigned to customer relationships as a result of 7 years using the straight line method. Our impairment analysis incorporates future expected revenues and cash flows of gaming titles operated under the Gambler’s Choice trade name in comparison to the underlying net book value of the trade name.business acquisitions.

Contract rights under development ~~agreements~~and placement fees ~~– these intangibles~~- intangible assets that relate to payments made to customers to secure floor space under lease agreements for out gaming machines and to a lesser extent we record intangible assets from the discounts on development ~~note receivables~~notes receivable loans that have been extended to customers at interest rates that are deemed below market in exchange for a fixed number of gaming terminal placements in the customer’s facility. The Company receives a fixed percentage of those gaming terminals’ win per day over the term of the agreement or a daily fee per gaming terminal. Contract rights under development agreements are amortized over the term of the agreement as a reduction in revenue. Our impairment analysis incorporates reviewing the future expected revenues and cash flows under the respective contracts in comparison to the underlying net book value of the associated intangible.

~~Customer agreements~~Gaming software and ~~relationships~~technology platforms – these intangibles represent either the cash advances to customers that are not expected to be repaid in exchange for a fixed number of gaming terminal placements in the customer’s facility or the value that has been assigned to the customer agreements as a result of acquisitions. We receive a fixed percentage of those gaming terminals’ win per day over the term of the agreement or a daily fee per gaming terminal. Customer agreements are amortized either over the term of the agreement or the expected life of the customer agreement as a reduction in revenue. Our impairment analysis incorporates the reviewing future expected revenues and cash flows with these related customer under the respective contracts in comparison to the underlying net book value of the associated intangible.

~~Third-party licenses~~ – these intangibles represent the rights to license third party gaming titles that the Company has purchased for use in its gaming terminals. Third-party licenses are amortized to operating expense over the shorter of the term of the license or the expected life of the titles, whichever is shorter. Our impairment analysis incorporates the future expected revenues and cash flows of the title or gaming titles in comparison to their underlying net book value of the associated intangible.

~~Internally developed gaming software~~ ~~– these intangibles~~intangible assets represent software development costs that are capitalized once technological feasibility has been established and are amortized when the software is placed into service. 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 developments costs are amortized over~~This category also includes the ~~expected life~~game content libraries and technology platforms that were purchased as part of ~~the title or group of titles, if applicable, to amortization expense.~~business acquisitions.

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with our review for impairment of the underlying gaming terminal. We evaluate the future revenues and cash flows associated with the underlying gaming terminal in comparison to the underlying net book value of the gaming terminal and associated TITO intangible asset.

~~Acquired intellectual~~Intellectual property – these ~~intangibles~~intangible assets represent ~~the acquisition of intellectual property related to several table games patents and~~ the platform and titles acquired through ~~the acquisition~~business acquisitions and stand alone purchases of C2 Gaming. These costs are amortized over the shorter of the expected life of the patent or the period the patent is legally enforceable using the strait-line method. Our impairment analysis incorporates the reviewing of the future expected revenuespatents and ~~cash flows of the table game titles associated with the patents in comparison to their underlying net book value of the associated intangible.~~related technology.

Definite-lived Intangible Asset Impairment

The Company reviews its definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ~~Examples of such events or changes in circumstances~~These indicators can include the ~~following:~~

~~Definite-lived trade name~~ ~~– other than temporary decreases in revenue and cash flows associated with~~loss of a ~~gaming title~~key customer or ~~group operated under the Gambler’s Choice trade name.~~

~~Contract rights under development agreements and customer agreements~~ ~~– (1) other than temporary decrease in revenue and cash flows associated with a particular customer (2) reduction in amount~~jurisdiction or cancellation of ~~gaming terminal placements in the customer’s facility.~~

~~Customer agreements and relationships~~ ~~– other than temporary decreases in revenue and cash flows associated with related customers under respective contracts.~~

~~Third-party licenses~~ ~~– other than temporary decreases in revenue and cash flows associated with a gaming title or group of gaming titles.~~

~~Internally developed gaming software~~ ~~– other than temporary decreases in revenue and associated cash flow associated with specific internally developed gaming titles.~~

~~Purchase software~~ ~~– other than temporary decreases in revenue and associated cash flow associated with~~ a specific ~~gaming terminal.~~

product line where there is no alternative future use for the intangible asset.

~~Acquired intellectual property~~ ~~– other than temporary decreases in revenue and associated cash flow associated with licensed table games titles.~~

~~Impairment is reviewed at a minimum once a quarter.~~ When the estimated undiscounted cash flows are not sufficient to recover the intangible ~~assets’~~asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount (Assumption #1). The Company recognized an impairment charge of $1.4 million for the year ended December 31, 2014. The Predecessor recognized an impairment charge of $1.7 million and $3.7 million for the Predecessor Period and the year ended December 31, 2012, respectively.amount.

~~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.~~

Indefinite-lived Intangible Asset 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.

The “American Gaming Systems” trade name has an indefinite useful life. We do not amortize the indefinite lived trade name, but instead test for possible impairment at least annually or when circumstances warrant. WeFor the trade name and any other indefinite-lived intangible asset we can 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~~a quantitative impairment test is required. ~~We performed a qualitative assessment of the “American Gaming Systems” trade name as of October 1, 2014, and determined that it is not more-likely-than-not that~~The quantitative test compares the fair value of the ~~“American Gaming Systems” trade name is less than~~asset to its carrying ~~value; therefore no further~~amount and any excess carrying amount over the fair value is recorded as an impairment loss.

Costs of Capitalized Computer Software

Internally developed gaming software represents our internal costs to develop gaming titles to utilize on our gaming terminals. Internally developed gaming software is stated at cost, which is 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. Generally, the computer software we develop reaches technological feasibility when a working model of the computer software is available. After the product is complete and commercialized, any software maintenance costs, such as bug fixes and subsequent testing, ~~was performed.~~are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software developments costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

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On a quarterly basis, or more frequently if circumstances warrant, we compare the net book value of our internally developed computer software to the net realizable value on a title or group of titles 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 (Assumption #1).

Assumptions/Approach used for Assumption #1: We estimate the revenues and net cash flows ~~directly associated with the use of the~~from our internally developed software intangible ~~assets~~on a product by product basis to ~~test recoverability and remaining useful lives based upon forecasted product revenues and cash flows.~~compare net book value to net realizable value. In developing estimated revenues and cash flows, we incorporate assumptions regarding future performance, including estimations of win per day and estimated units. When the carrying amount exceeds the ~~undiscounted cash flows expected to result from~~net realizable value, the ~~use and eventual disposition of the asset, we then compare the carrying amount to its current fair value. We recognize an impairment loss if the carrying amount~~excess is ~~not recoverable and exceeds its fair value.~~written off.

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Effect if Different Assumptions used for Assumption #1: ~~Impairment testing~~Determining net realizable value requires judgment, including estimations of forecasted revenue and cash ~~flows, and determinations of fair value.~~flows. While we believe our estimates of future revenues and cash flows are reasonable, different assumptions could materially affect the measurement of ~~useful lives, recoverability and fair~~net realizable value. ~~If actual cash flows fall below initial forecasts, we may need to record additional amortization and/or impairment charges.~~

Goodwill

The excess of the purchase price of entities that are considered to be purchases of businesses over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. Goodwill is reviewed for possible impairment annually on October 1 or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable (Assumption #1). 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 units fair value 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 the reporting unit is not at risk of failing the qualitative assessment no impairment testing is required. If the Company determines that it is at risk of failing the qualitative assessment, the Company is required to perform an annual goodwill impairment ~~review,~~test, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to ~~income~~results from operations when its carrying amount exceeds its estimated fair value. We performed a qualitative assessment, Step 0, of goodwill as of October 1, 2014, and determined that it is not more-likely-than-not that the Company’s reporting unit’s fair value is less than its carrying value; therefore no further impairment testing was performed.

During 2014, the Company voluntarily changed the date of its annual goodwill and other indefinite-lived intangible asset impairment testing from the last day of the third quarter (September 30) to the first day of the fourth quarter (October 1). This voluntary change is preferable as it provides the Company with additional time to complete its annual goodwill and indefinite-lived intangible asset impairment testing in advance of reporting deadlines. The voluntary change in accounting principle related to the annual testing day will not delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of significant estimates and assumptions with the use of hindsight. Accordingly, goodwill is reviewed for possible impairment annually on October 1 of each year or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, or a loss of key personnel (Assumption #1).

~~In connection with the Acquisition, the Company recorded $63.9 million of goodwill. The Company recorded an additional $13.7 million of goodwill related to the acquisition of C2 Gaming.~~

Assumptions/Approach used for Assumption #1: In the first step of the goodwill impairment test, we estimate the fair value of our reporting ~~unit~~units and compare that to the carrying value. Fair value is based upon forecasted product revenues and cash flows. In developing estimated cash flows, we incorporate assumptions regarding future performance, including estimations of ~~win per day~~revenues, costs, and ~~estimated units.~~capital expenditures. When the carrying amount exceeds fair value, we then compare the carrying amount of goodwill to the implied fair value of goodwill. We recognize an impairment loss if the carrying amount is exceeds the implied fair value.

Effect if Different Assumptions used for Assumption #1: Impairment testing requires judgment, including estimations of cash flows, and determinations of fair value. While we believe our estimates of future ~~revenues and~~ cash flows are reasonable, different assumptions could materially affect the measurement of ~~useful lives, recoverability and~~ fair value. If actual cash flows fall below initial forecasts, we may need to record additional ~~amortization and/or~~ impairment charges.

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 ~~existing~~ assets and liabilities and their respective tax ~~bases.~~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. ~~Under the accounting guidance, the~~The effect on deferred tax assets and liabilities of a change in tax rates is recognized in ~~income in~~ the period that ~~included~~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.

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~~Costs of Computer Software~~

~~Internally developed gaming software represents~~We apply the accounting guidance to our ~~internal costs to develop gaming titles to utilize~~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 ~~our gaming terminals. Internally developed gaming software is accounted for under FASB ASC Topic 985-20,~~ ~~Costs of Software to Be Sold, Leased or Marketed, and is stated at cost, which is amortized over~~ the ~~estimated useful lives~~technical merits of the ~~software, generally using~~issue. The amount recognized in the ~~straight-line method (Assumption #1). Software development costs~~financial statements is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement.

We are ~~capitalized once technological feasibility has been established~~required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are ~~amortized when~~reasonable; however, there is no guarantee that the ~~software is placed into service. Generally, the computer software we develop reaches technological feasibility when a working model~~final outcome of the ~~computer software is available. Any subsequent software maintenance costs,~~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 ~~bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when~~ the ~~determination to discontinue is made. Software developments costs are amortized over the expected life~~closing of ~~the title~~a tax audit or ~~group of titles, if applicable, to amortization expense.~~

~~On a quarterly basis, or more frequently if circumstances warrant, we compare the net book value of our internally developed computer software~~changes in estimates. Our income tax provision may be impacted 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 (Assumption #2).

~~Assumptions/Approach used for Assumption #1~~: Internally developed gaming software intangibles are generally amortized over the expected life of the product, using the straight-line method of amortization, to amortization expense. We use a straight-line amortization method, as the associated revenue from our revenue share or daily fee arrangements is relatively consistent over the life of the product.

~~Effect if Different Assumptions used for Assumption #1~~: ~~While we believe~~extent that the ~~use~~final outcome of these tax positions is different than the straight-line method of amortization is the best way to account for the internally developed gaming software intangible, if the timing of actual revenues varies from forecasted revenues, our estimate and timing of the amortization may have to be altered.amounts recorded.

~~Assumptions/Approach used for Assumption #2~~: We estimate the revenues and net cash flows from our internally developed software intangible on a product by product basis to compare net book value to net realizable value. In developing estimated revenues and cash flows, we incorporate assumptions regarding future performance, including estimations of win per day and estimated units. When the carrying amount exceeds the net realizable value, the excess is written off.

~~Effect if Different Assumptions used for Assumption #2~~: Determining net realizable value requires judgment, including estimations of forecasted revenue and cash flows. While we believe our estimates of future revenues and cash flows are reasonable, different assumptions could materially affect the measurement of net realizable value.

~~Acquisition Accounting~~

We follow acquisition accounting for all acquisitions that meet the business combination definition. Acquisition accounting requires us to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest at the acquisition-date fair value. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

~~Research and Development~~

We conduct research and development activities primarily to develop new gaming platforms and gaming content. These research and development costs consist primarily of salaries and benefits and are expensed as incurred. Once the technological feasibility of a project has been established, capitalization of development costs begins until the product is available for general release. Research and development expenses are included as a component of general and administrative expense.

Contingencies

We assess our exposures to loss contingencies, including claims and legal proceedings, and accrue 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 our estimate, there could be a material impact on our results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

Recently adopted accounting pronouncements

For a description of recently adopted accounting pronouncements, see Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies.

Recently issued accounting pronouncements not yet adopted

For a description of recently issued accounting pronouncements not yet adopted, see Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies.

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Contractual Obligations

The following table contains information on our contractual obligations and commitments as of December 31, ~~2014~~2015 (in thousands):


			Payments Due by Period										Payments Due by Period
	Total		Less than 1 year		2-3 years		4-5 years		More than 5 years		Total		Less than 1 year		2-3 years		4-5 years		More than 5 years
Long term debt	$	171,692	$	2,495	$	4,385	$	13,100	$	151,712	$	562,235	$	6,919	$	11,608	$	402,187	$	141,521
Estimated interest payment	88,316		14,461		28,526		27,780		17,549
Interest payments											291,964		39,773		76,931		73,575		101,685
Operating leases	5,291		803		1,590		1,653		1,245		7,594		1,693		2,938		2,157		806
Other ¹											16,153		3,750		7,641		1,697		3,065
Total	$	265,299	$	17,759	$	34,501	$	42,533	$	170,506	$	877,946	$	52,135	$	99,118	$	479,616	$	247,077

¹ “Other” includes Wide Area Progressive jackpot liabilities, employee severances, contingent consideration to business combinations and placement fees payable described in the footnotes below.

$29.5 million of unrecognized tax benefits as of December 31, 2015 were not included in the table above. Due to the inherent uncertainty of the underlying tax positions, it is not practicable to assign this liability to any particular year.

Estimated interest payments on our debt as of December 31, ~~2014~~2015 are based on principal amounts outstanding, the stated interest rate as of December 31, ~~2014~~2015 and required principal payments through the maturity of the debt. ~~An assumed 1% increase in variable interest rates would cause our annual interest cost to increase by approximately $0.4 million, giving effect to our 1% LIBOR floor plus the applicable margin rate.~~

~~Recently Issued Accounting Pronouncements~~

~~In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11,~~ ~~Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,~~ which provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. These amendments in this ASU are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The adoption of this standard by the Company on January 1, 2014 had no material impact on the Company’s consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which clarifies the principles for recognizing revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendment is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2016 and may be adopted using either a full retrospective transition method or a modified retrospective transition method. Early adoption is not permitted. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

~~In June 2014, the FASB issued ASU No. 2014-12,~~ ~~Compensation—Stock Compensation (Topic 718):Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period~~. The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the provisions of ASU 2014-12 and assessing the impact on its financial position, results of operations or cash flows.

In August 2014, the FASB issued an accounting standards update that requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, consolidated in the aggregate, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date

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that the financial statements are issued. Currently, there is no guidance in U.S. GAAP for management's responsibility to perform an evaluation. Under the update, management’s evaluation is to be performed when preparing financial statements for each annual and interim reporting period and based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The Company will adopt this standard effective January 1, 2017. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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We are subject to certain market risks and uncertainties inherent in our operations. These market risks generally arise from transactions in the normal course of business. Our primary market risk exposures relate to interest rate risk and foreign currency exchange risks.

Interest ~~Rates.~~Rates

Our primary exposure to market risk is interest rate risk associated with our long-term debt, which accrues interest at variable rates. ~~The Senior Secured Credit Facilities~~Certain of our debt instruments accrue interest at LIBOR or the base rate, at our election, subject to an interest rate floor plus an applicable margin rate.

In ~~connection with~~ the ~~development agreements~~normal course of business, we ~~enter into with some~~are exposed to fluctuations in interest rates as we seek debt and equity capital to sustain our operations. All of our ~~customers, we provide financing~~interest rate sensitive financial instruments are held for purposes other than trading purposes. As of December 31, 2015, approximately 25% of our debt were fixed-rate instruments. As of December 31, 2015, the ~~construction~~three month LIBOR rate was 0.61%, with our term loans having a LIBOR floor of ~~new gaming facilities or~~1%, our variable debt is essentially at a fixed rate until the ~~expansion~~LIBOR rate exceeds 1%.

Foreign Currency Risk

We are also exposed to fluctuations in foreign currency exchange rates from our international transactions and because the financial results of ~~existing facilities, which~~our foreign subsidiaries are translated into U.S. dollars in consolidation. Assets and liabilities outside the United States are primarily located in Mexico. Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally ~~required~~considered long-term investments. In addition, a significant portion of the cost attributable to ~~be repaid. As a result~~our international operations is incurred in local currencies.

We derived approximately 10% of ~~these notes receivable,~~our revenue from sales to customers outside of the U.S. in 2015. To date, we ~~are subject to market risk with respect to interest rate fluctuations.~~

~~Any material increase in prevailing interest rates could cause us to incur significantly higher interest expense. These factors~~ have not ~~increased significantly; therefore no significant changes have been made~~engaged in ~~our strategies~~hedging activities intended to ~~manage any~~protect against foreign currency risk.

Table of ~~these exposures. We evaluate our exposure to market risk by monitoring interest rates in the market place.~~Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this item is contained in the financial statements listed in Item ~~15(a)~~15. “Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer(“CFO”), management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of December 31, ~~2014.~~2015. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

At the time that our Annual Report on Form 10-K for the year ended December 31, 2013 was filed on March 31, 2014, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2013. Subsequent to these evaluations, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of December 31, 2013, March 31, 2014, June 30, 2014 and September 30, 2014 because of a material weakness in our internal control over financial reporting, as described below.

Changes in Internal Controls

In connection with the preparation of our financial statements for the three months ended June 30, 2014, we determined that we had a material weakness in our internal control over financial reporting because we did not maintain effective controls over the application of lease accounting principles to the initial direct costs incurred related to our operating leases and the useful lives of certain gaming machines deployed under operating lease arrangements.

While the deficiency in this instance did not result in a material misstatement of our financial statements (as discussed in Note 6 to the consolidated financial statements), it was possible there could have been a material misstatement if the control deficiency was not remediated. Accordingly, management determined this control deficiency represented a material weakness

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~~in our internal controls over financial reporting that has been remediated as of December 31, 2014, through the efforts described below.~~

~~Except as disclosed above, there~~There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Remediation Efforts to Address Material Weakness~~

To remediate the material weakness in our internal control over financial reporting described above, we developed and implemented new control procedures, which included among other things supplementing our financial reporting group with additional personnel, regarding our accounting for the operating leases of gaming machines. In accordance with the Company’s internal control process, the material weakness designation cannot be closed until the remediation processes have been operational for a certain period of time and successfully tested. As of December 31, 2014, management concluded the remedial efforts have been operating effectively for an acceptable period of time and have been successfully tested.

As we continue to evaluate and work to enhance internal controls over financial reporting, we may determine that additional measures should be taken to address this or other control deficiencies, and/or that we should modify the remediation plan described above. We have concluded that the financial statements and other financial information included in this Annual Report on Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for an assessment of the effectiveness of internal control over financial reporting; as such items are defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance that our financial reporting and preparation of financial statements is reliable and in accordance with generally accepted accounting principles.

Our policies and procedures are designed to provide reasonable assurance that transactions are recorded and records maintained in reasonable detail as necessary to accurately and fairly reflect transactions and that all transactions are properly authorized by management in order to prevent or timely detect unauthorized transactions or misappropriation of assets that could have a material effect on our financial statements. Management is required to base its assessment on the effectiveness of our internal control over financial reporting on a suitable, recognized control framework. Management has utilized the criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the effectiveness of internal control over financial reporting.

Our management has performed an assessment according to the 2013 Internal Control-Integrated Framework established by COSO. Based on the assessment, management has concluded that our system of internal control over financial reporting, as of December 31, ~~2014,~~2015, is effective. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

An attestation report of the Company’s internal control over financial reporting by our independent registered public accounting firm is not included as non-accelerated filers are exempt from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002.

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Set forth below are the names, ages, positions, and biographical information of the executive officers of AGS Capital and the executive officers and director of the ~~Company.~~Company at December 31, 2015.

AGS Capital



Name	Age	Position
David Lopez	4041	Chief Executive Officer
Kimo Akiona	4142	Chief Financial Officer
~~Ken Bossingham~~ Mauro Franic⁽¹⁾	5044	Chief Operating Officer
Victor Gallo	4849	General Counsel, Compliance Officer and Vice President, Regulatory Affairs
Sigmund Lee	45	Chief Technology Officer
Julia Boguslawski	36	Chief Marketing Officer

⁽¹⁾Mr. Franic resigned as the Company’s Chief Operating Officer effective January 22, 2016.

AP Gaming



Name	Age	Position
David Lopez	4041	Chief Executive Officer, President and Secretary
Kimo Akiona	4142	Treasurer
David Sambur	3435	Director

The following are brief biographies describing the backgrounds of the executive officers of AGS Capital and the executive officers and director of the Company.

David Lopez. Mr. Lopez has served as the Chief Executive Officer of AGS Capital and Chief Executive Officer, President and Secretary of AP Gaming since February 3, 2014. Mr. Lopez most recently served as President and Chief Executive Officer of Global Cash Access, Inc., which he joined in May 2012. Prior to his role at Global Cash Access, Inc., Mr. Lopez served as Chief Operating Officer of Shuffle Master Inc. from November 2010 until May 2012. Mr. Lopez joined Shuffle Master Inc. in February 1998 and held various positions within the organization during his 14-year tenure, including Interim CEO, Executive Vice President, President of the Americas, Vice President of Product Management, as well as serving as a member of its Board of Directors from November 2010 until May 2012. Mr. Lopez is a graduate of the University of Nevada, Las Vegas with a B.S. in Business Administration.

Kimo Akiona. Mr. Akiona was appointed to serve as Treasurer of AP Gaming and Chief Financial Officer of the Company’s primary operating entity, AGS, LLC, on February 23, 2015. Mr. Akiona, ~~age 41,~~ most recently served as Senior Vice President and Corporate Controller of SHFL entertainment Inc. / Bally Technologies, Inc. Mr. Akiona joined SHFL entertainment Inc. in December 2005 and held various positions within the organization's finance and accounting department during his tenure, including Vice President and Corporate Controller and Director of SEC Reporting. Mr. Akiona is a graduate of University of Nevada, Las Vegas with a B.S. in Business Administration with a concentration in accounting.

~~Ken Bossingham.~~Mauro Franic. Mr. ~~Bossingham has~~Franic served as ~~our~~ Chief Operating Officer ~~since~~of the Company’s primary operating entity, AGS, LLC, from July 1, 2015 to January ~~2013. He previously spent 12 years with Atronic Americas, LLC~~22, 2016. Mr. Franic most recently served as ~~Senior Vice President of Sales and~~ Chief Operating Officer ~~leading them through~~of Cadillac Jack. Mr. Franic joined Cadillac Jack in September 2006 and held various positions within the ~~GTECH acquisition~~organization during his tenure, including Chief Operating Officer and Director of Product Management. Mr. Franic is a graduate of the Instituto Tecnologico de Buenos Aires with a B.A. and Masters in ~~2008. After the acquisition, Mr. Bossingham served as Vice President~~Industrial Engineering and ~~General Manager North American Casino for GTECH/Spielo until his departure~~University of Rochester with a Masters in ~~2013. Mr. Bossingham has also held senior management positions~~Business Administration with a concentration in ~~the gaming space with JCM Global and Aristocrat Technologies. He holds a Bachelor of Science degree from Moorhead State University and an MBA from Idaho State University.~~finance.

Victor Gallo. Mr. Gallo joined us in February 2010 as Vice President, Licensing and Compliance and Compliance Officer and currently serves as our General Counsel, Compliance Officer and Vice President, Regulatory Affairs. Previously, Mr. Gallo was General Counsel and Vice President of Business Development for Youbet.com, and Vice President of Legal and Compliance and Corporate Counsel for Konami Gaming. Mr. Gallo has also worked as an attorney in private practice, and as

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an active duty captain in the Air Force Judge Advocate General Corps. Mr. Gallo received his Bachelor of Science degree in Aerospace Engineering from the University of Southern California and a Juris Doctor from the University of the Pacific.

Sigmund Lee. Mr. Lee was appointed to serve as Chief Technology Officer of the Company’s primary operating entity, AGS, LLC, on July 1, 2015. Mr. Lee most recently served as Chief Technology Officer of Cadillac Jack. Mr. Lee joined Cadillac Jack in 2006 and served as their Chief Technology Officer during his tenure. Prior to his role at Cadillac Jack, Mr. Lee served as the Vice President of Engineering for Bally Technologies. Mr. Lee is a graduate of Georgia State University

Julia Boguslawski. Ms. Boguslawski was appointed to serve as Chief Marketing Officer of the Company’s primary operating entity, AGS, LLC, on September 7, 2015. Ms. Boguslawski most recently served as Chief of Staff at Scientific Games, Vice President of Global Marketing at Bally Technologies, Inc. and Vice President of Investor Relations and Corporate Communications at SHFL entertainment, Inc. Julia holds both a bachelor of arts from Rollins College and a Master’s in Business Administration with a concentration in Marketing and International Business.

David Sambur. Mr. Sambur has served as a member of the Board of AP Gaming since November 2013. Mr. Sambur is a Partner of Apollo, having joined in 2004. Mr. Sambur has experience in financing, analyzing, investing in and/or advising public and private companies and their board of directors. Prior to joining Apollo, Mr. Sambur was a member of the Leveraged Finance Group of Salomon Smith Barney Inc. from 2002 to 2004. Mr. Sambur serves on the board of directors of Caesars

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Entertainment, Caesars Acquisition Company, Verso Paper Corp., Momentive Performance Materials Holdings LLC, Momentive Performance Materials Inc. and Momentive Specialty Chemicals Inc. Mr. Sambur graduated summa cum laude and Phi Beta Kappa from Emory University with a BA in Economics. Mr. Sambur’s executive leadership experience, including his service on the board of several companies, and financial expertise is a valuable asset to the Board.

ITEM 11. EXECUTIVE COMPENSATION.

Executive Summary

The Company's goal for its executive compensation program is to utilize a pay-for-performance compensation program that is directly related to achievement of the Company's financial and strategic objectives. The primary elements of the program, which are discussed in greater detail below, include base salary, annual cash bonus incentives based on performance and long-term equity incentives in the form of stock-based compensation. These elements are designed to: (i) provide compensation opportunities that will allow the Company to attract and retain talented executive officers who are essential to the Company's success; (ii) provide compensation that rewards both individual and corporate performance and motivates the executive officers to achieve corporate strategic objectives; (iii) reward superior financial and operational performance in a given year, over a sustained period and expectations for the future; (iv) place compensation at risk if performance goals are not achieved; and (v) align the interests of executive officers with the long-term interests of stockholders through stock-based awards.

Summary Compensation Table

The following table discloses compensation for our fiscal years ending December 31, ~~2014~~2015 and ~~2013~~2014 received by Messrs. Lopez, ~~Miodunski, Mayer~~Franic, and ~~Bossingham,~~Lee, each of whom was a “named executive officer” during Fiscal ~~2014.~~2015.

Name and Principal
Position
Year Salary ($) Bonus ($)
Stock
Awards
($)(4)

Option
Awards
($)(4)

Non-Equity
Incentive Plan
Compensation
($)

All Other
Compensation
($)(5)
Total ($)
David Lopez
President, Chief Executive Officer and Secretary (1)
2014 446,154
—
500,000
1,859,899
438,909
13,849
$ 3,258,811
Robert Miodunski,
Former President and Chief Executive Officer (2)
2014 28,846
—
—
—
—
28,680
$ 57,526
2013 340,385
—
—
—
834,000
—
$ 1,174,385
Curt Mayer,
Chief Financial Officer (3)
2014 275,000
—
—
243,750
100,000
13,059
$ 631,809
2013 275,000
—
—
—
315,000
11,331
$ 601,331
Ken Bossingham, Chief Operating Officer 2014 300,000
—
—
243,750
131,673
17,404
$ 692,827
2013 268,846
180,000
—
—
375,000
6,923
$ 830,769



Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)(4)	Option Awards ($)(4)	Non-Equity Incentive Plan Compensation ($)	All Other Compensation ($)(5)	Total ($)
David Lopez President, Chief Executive Officer and Secretary (1)	2015	500,000	—	—	—	425,000	2,770	$	927,770
	2014	446,154	—	500,000	1,359,899	438,909	13,849	$	2,758,811
Mauro Franic, Chief Operating Officer (2)	2015	163,217	200,000	—	801,287	80,000	6,718	$	1,251,222
Sigmund Lee, Chief Technology Officer (3)	2015	163,217	200,000	—	801,287	95,625	13,973	$	1,274,102


(1)	Mr. Lopez was appointed as our President, Chief Executive Officer and Secretary on February 14, 2014.


(2)	Mr. ~~Miodunski retired~~Franic was appointed as our ~~President and~~ Chief ~~Executive~~Operating Officer on July 1, 2015. Mr. Franic resigned as the Company’s Chief Operating Officer effective January ~~30, 2014~~22, 2016.


(3)	Mr. ~~Mayer resigned from the Company effective March 11,~~Lee was appointed as our Chief Technology Officer on July 1, 2015.

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(4)	These columns reflect the aggregate grant date fair value of the awards computed in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718 (disregarding any risk of forfeiture assumptions). For a discussion of the relevant valuation assumptions, See Note 1611 to the Consolidated Financial Statements included in this Form10-K.


(5)	~~For Mr. Miodunski, amounts represent vacation payout in connection with his resignation. For the other named executive officers, amounts~~Amounts represent the Company’s matching under our 401(k) ~~Plan.~~Plan and various fringe benefits.

Employment Agreements with Named Executive Officers

David Lopez

On April 28, 2014, the Company entered into an employment agreement with David Lopez to serve as President and Chief Executive Officer of AGS Capital, LLC, a subsidiary of the Company, effective as of February 3, 2014. The agreement extends for an initial term of three years, until the third anniversary of February 3, 2014, and shall thereafter be automatically extended for successive one-year periods, unless either party provides written notice of non-renewal at least 90 days prior to the expiration of the initial term or any extended term. Pursuant to the ~~Employment Agreement,~~employment agreement, Mr. Lopez’s annual base salary shall be no less than $500,000 and Mr. Lopez shall be eligible to receive an annual performance-based bonus, with an annual target bonus opportunity of $500,000.

~~Robert Miodunski~~

Mauro Franic

On ~~June 2, 2010,~~July 1, 2015, we entered into an employment agreement with ~~Mr. Robert Miodunski, pursuant~~Mauro Franic to ~~which he was appointed Chairman of the Advisory Board and Interim President /~~serve as Chief ~~Executive Officer of AGS. Mr. Miodunski’s employment agreement was amended November 28, 2011 and again on March 21, 2013 to change his position to President/Chief Executive~~Operating Officer of AGS ~~and Chairman~~Capital, LLC, a subsidiary of the ~~Advisory Board until~~Company, effective as of July 1, 2015. The agreement with the ~~earlier of his four-year anniversary~~Company is "at-will," meaning that either Mr. Franic or the Company may terminate the employment relationship at any time and for any reason, either with ~~AGS,~~or without cause. Pursuant to the ~~hiring of a new President/CEO (at which time he would remain as Chairman) or a change in control of ownership of AGS.~~employment agreement, Mr. ~~Miodunski’s~~Franic’s annual base salary ~~is $450,000~~shall be $300,000 and he isshall be eligible ~~for~~to receive an annual performance-based bonus, with an annual target bonus opportunity equal to 75% of his base salary. Actual annual bonus amounts payable shall be ~~paid in cash~~determined by the Company based on ~~our~~the attainment of financial results and earnings targets. ~~Mr. Miodunski also received a one-time signing bonus of $100,000,~~Pursuant to ~~be credited against his bonuses earned, if any, in either 2010 or 2011. In accordance with his~~the employment agreement, Mr. ~~Miodunski was granted phantom equity units,~~Franic is also eligible for a cash retention bonus of $300,000 of which ~~vested~~$75,000 is payable on December 31, 2015, $150,000 payable on December 31, 2016 and $75,000 is payable on July 1, 2017, provided in ~~conjunction with the Acquisition and were paid out in full during the Predecessor Period. Effective April 1, 2013,~~each case that Mr. ~~Miodunski adopted a three-day work schedule, and his base salary~~

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was pro-rated accordingly to $300,000 per year. His annual performance bonus potential was also reduced pro rata by 60%. As noted above, Mr. Miodunski retired as our President and Chief Executive Officer effective January 30, 2014. Mr. Miodunski entered into a consulting agreementFranic remains continuously employed with the Company effective January 30, 2014, pursuant to which he will provide consulting services for a minimum period of six months and thereafter until either party provides 30 days advanced written notice. Mr. Miodunski will be paid a monthly consulting fee equal to $18,050 per month that he provides such consulting services.or its affiliates through the payment date.

~~Curt Mayer~~

Sigmund Lee

On ~~June 23, 2011,~~July 1, 2015, we entered into an employment agreement with Sigmund Lee to serve as Chief Technology Officer of AGS Capital, LLC, a subsidiary of the Company, effective as of July 1, 2015. The agreement with the Company is "at-will," meaning that either Mr. ~~Curt Mayer, pursuant~~Lee or the Company may terminate the employment relationship at any time and for any reason, either with or without cause. Pursuant to ~~which he was appointed Chief Financial Officer. Mr. Mayer’s~~the employment agreement, ~~was amended on March 18, 2013 to, among other things, increase his severance to nine months base salary.~~ Mr. ~~Mayer’s~~Lee’s annual base salary ~~was $275,000~~shall be $300,000 and he ~~was~~shall be eligible ~~for~~to receive an annual performance-based bonus, with an annual target bonus opportunity equal to 75% of his base salary. Actual annual bonus amounts payable shall be ~~paid in cash~~determined by the Company based on ~~our~~the attainment of financial results and earnings targets. ~~In accordance with his~~Pursuant to the employment agreement, Mr. ~~Mayer was granted profits interests~~Lee is also eligible for a cash retention bonus of $300,000 of which $75,000 is payable on December 31, 2015, $150,000 payable on December 31, 2016 and $75,000 is payable on July 1, 2017, provided in each case that ~~represent a percentage of the gains in equity value of~~Mr. Lee remains continuously employed with the Company inor its affiliates through the event of a sale. These interests vested in connection with the Acquisition and were paid out in full during the Predecessor Period. As noted above, Mr. Mayer resigned from the Company effective March 11, 2015.payment date.

~~Ken Bossingham~~

On December 13, 2012, we entered into an employment agreement with Mr. Ken Bossingham, pursuant to which he was appointed Chief Operating Officer. Mr. Bossingham’s base salary is $300,000 and he is eligible for an annual bonus to be paid in cash based on our attainment of financial results and earnings targets. Mr. Bossingham also received a one-time signing bonus of $180,000. In accordance with his employment agreement, Mr. Bossingham was granted profits interests that represent a percentage of the gains in equity value of the Company in the event of a sale. These interests vested in connection with the Acquisition and were paid out in full during the Predecessor Period.

Cash Bonuses

We maintain a ~~2014 Management Incentive Plan (“MIP”), filed as exhibit 10.1 in this annual report on Form 10-K, pursuant~~bonus plan to which ~~participants~~employees are eligible to earn annual cash bonuses based on our attainment of financial results and earnings targets. The following chart illustrates the target ~~and maximum~~ bonuses payable to our named executive officers ~~under the 2014 MIP.~~year ending December 31, 2015. For actual bonus amounts earned, which ~~will be~~were paid in ~~April 2015,~~March 2016, refer to the Summary Compensation Table above in the column titled “Non-Equity Incentive Plan Compensation.”

Target
($)

Maximum
($)
David Lopez $500,000 $1,000,000
Curt Mayer $137,500 $275,000
Ken Bossingham $150,000 $300,000



		Target ($)
David Lopez		$500,000
Mauro Franic		$225,000
Sigmund Lee		$225,000

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Equity Awards

The following table reflects the equity awards granted in Fiscal ~~2014~~2015 to our named executive officers:



Name	Grant Date	Options granted (#)	All other Stock Awards: Number of Shares or Units (#)	Exercise or Base Price of Options Awards ($)

~~David Lopez~~Mauro Franic	~~4/28/2014~~7/17/2015	~~30,000~~Time based - 75,000 (1)	~~50,000 (3)~~—	$1015.70
		~~Tranche A~~Performance based - ~~75,000~~20,000 (2)
~~Tranche B~~Sigmund Lee	7/17/2015	Time based - 75,000 ~~(2)~~(1)	—	$15.70
		~~Tranche C~~Performance based - ~~75,000 (2)~~
~~Curt Mayer~~	~~8/8/2014~~	~~Tranche A - 15,000 (2)~~	—	~~$10~~
		~~Tranche B - 15,000 (2)~~
		~~Tranche C - 15,000 (2)~~
~~Ken Bossingham~~	~~8/8/2014~~	~~Tranche A - 15,000 (2)~~	—	~~$10~~
		~~Tranche B - 15,000 (2)~~
		~~Tranche C - 15,000~~20,000 (2)


(1)	~~Represents an option to purchase 30,000 Class B Shares which was vested on the date of grant.~~

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~~(2)~~

Represents options to purchase Class B Shares granted pursuant to the Company’s form option award ~~agreement, pursuant to Tranche A options, Tranche B options and Tranche C options. Tranche A~~agreement. Time based options shall generally vest in equal installments of ~~20%~~25% on each of the first ~~five~~four anniversaries of the date of the grant, subject to continued employment with the Company or its subsidiaries. In the event of a termination of employment without cause or as a result of death or disability (each, a “Good Leaver Termination”), any ~~Tranche A~~Time based options which would have vested on the next applicable vesting date shall become vested, and the remaining ~~Tranche A~~Time based options shall be forfeited. In addition, upon a Change in Control, subject to continued employment through the date of the Change in Control, all outstanding unvested ~~Tranche A Options~~Time based options shall immediately vest. ~~Tranche~~

(2)

Represents options to purchase Class B Shares granted pursuant to the Company’s form option award agreement. Performance based options shall generally vest, subject to continued employment with the Company or its subsidiaries, ~~through~~upon the ~~first date~~Boards determination, made in its sole discretion, that ~~Apollo Management VIII, L.P. and its affiliates (the “Investor”) achieves an internal rate of return on its investments~~the Company’s EBITDA for fiscal 2017 has reached the targets set forth in ~~Class B Shares or other capital stock of~~ the ~~Company equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor’s investment in Class B Shares or other capital stock of the Company.~~agreement. In the event a change in control occurs prior to the Board’s determination of ~~a Good Leaver Termination, each unvested Tranche B option will remain eligible to vest~~the Company’s EBITDA for fiscal year 2017, subject to the ~~satisfaction of the above Tranche B performance targets (without regard to the~~Optionee’s continued ~~service requirement) until the first anniversary of~~employment through the date of ~~termination of employment,~~change in control, the option shall immediately vest and ~~all unvested Tranche B Options shall be forfeited at that time. In~~become exercisable upon the ~~event of a Change~~closing date if and only the Board determines, in Control upon which the Tranche B targets are achieved, all outstanding unvested Tranche B options will immediately vest. Tranche C options shall vest, subject to continued employment with the Company or its ~~subsidiaries, through the first date~~sole discretion, that the ~~Investor achieves an internal rate of return on its investments in Class B Shares or other capital stock of~~Company’s EBITDA for the ~~Company~~twelve-month period preceding the closing date is at least equal to orthe target set forth in ~~excess of 25%, subject to a minimum cash-on-cash return of 3.0 times~~ the Investor’s investment in Class B Shares or other capital stock of the Company. In the event of a Good Leaver Termination, each unvested Tranche C option will remain eligible to vest subject to the satisfaction of the Tranche C performance targets (without regard to the continued service requirement) until the first anniversary of the date of termination of employment and all unvested Tranche C options shall be forfeited at that time. In the event of a Change in Control upon which the Tranche C targets are achieved, all outstanding unvested Tranche C options will immediately vest.agreement.

~~(3)~~

Represents restricted Class B Shares (the “Restricted Shares”). The Restricted Shares shall vest in five equal installments on each of the first five anniversaries of the date of grant; subject to Mr. Lopez’s continued employment on each vesting date. In the event that Mr. Lopez is terminated without cause or for good reason, any Restricted Shares that would have vested had Mr. Lopez remained employed through the first anniversary of such termination shall accelerate and vest upon such termination, and the remaining Restricted Shares shall be forfeited.

Outstanding equity awards as of the year ended December 31, ~~2014:~~2015:


	Options				Stock Awards		Options				Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options That Are Not Exercisable (#)	Option Exercise or Base Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Yet Vested (#)	Market Value of Shares or Units of Stock That Have Not Yet Vested	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options That Are Not Exercisable (#)	Option Exercise or Base Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Yet Vested (#)	Market Value of Shares or Units of Stock That Have Not Yet Vested
David Lopez	30,000	225,000	$10	4/28/2024	50,000	$500,000	45,000	210,000	$10.00	4/28/2024	40,000	$628,000
Curt Mayer (1)	—	45,000	$10	8/8/2024	—
Ken Bossingham	—	45,000	$10	8/8/2024	—
Mauro Franic							—	95,000	$15.70	7/15/2025	—
Sigmund Lee							—	95,000	$15.70	7/15/2025	—


~~(1)~~	~~Mr. Mayer resigned from the Company effective March 11, 2015 and his options to purchase 45,000 Class B Shares were forfeited upon his resignation.~~

Pension Benefits

We do not maintain any defined benefit pension plan for the benefit of our named executive officers.

Nonqualified Deferred Compensation

We do not maintain any nonqualified deferred compensation plan for the benefit of our named executive officers.

Payments Upon Termination and Change of Control

Pursuant to each named executive officer’s employment agreement, upon the termination of his or her employment by the Company without “Cause,” (or “Good Reason” for Mr. Lopez) the Company would provide base salary continuation (24 months base salary for Mr. Lopez, ~~nine~~18 months base salary for Mr. ~~Mayer~~Franic and 1218 months base salary for Mr. ~~Bossingham)~~Lee). Mr. Lopez would also be eligible to receive continued health benefits at no greater cost than would apply if he were an active employee, for 18 months post termination, or if earlier, until he commences employment with a subsequent employer. All

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severance payments are subject to the execution of a release of claims. Messrs. Lopez, ~~Mayer~~Franic, and ~~Bossingham~~Lee are also subject to post termination non-solicitation and non-competition covenants for twenty-four ~~nine, and twelve~~ months, respectively, following termination of employment.

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“Cause” in the employment agreements includes (i) failure to correct underperformance after written notification from, in the case of Mr. Lopez, the Chairman of the Board or his designee, or, in the case of ~~Messrs. Mayer~~Franic and ~~Bossingham,~~Lee, the CEO or the Board, (ii) illegal fraudulent conduct, (iii) conviction of a felony, (iv) a determination that such named executive officer’s involvement with the Company would have a negative impact on our ability to receive or retain any licenses, (v) willful or material misrepresentation to the Company, CEO or Board relating to the business, assets, prospects or operation of the Company, or (vi) refusal to take any action as reasonably directed by the Board or any individual acting on behalf or at the direction of the Board.

For Mr. Lopez only, “Good Reason” in his employment agreement means his voluntary resignation after any of the following actions are taken by the Company or any of its subsidiaries without his consent: (i) removal from the office of President and Chief Executive Officer of the Company or a change in reporting lines such that Mr. Lopez no longer reports to the Board, (ii) a requirement that Mr. Lopez be based anywhere other than within 35 miles of Las Vegas, Nevada, or (iii) a notice from the Company to Mr. Lopez of non-extension of the employment term; provided, however, that a termination will not be for “Good Reason” unless Mr. Lopez shall have provided written notice to the Company of the existence of one of the above conditions within 30 days following the initial existence of such condition, specifying in reasonable detail such condition, the Company shall have had 30 days following receipt of such written notice to remedy the condition, the Company shall have failed to remedy the condition during the applicable cure period, Mr. Lopez shall have thereafter and prior to the provided a notice of termination to the Company, and Mr. Lopez’s date of termination shall have occurred within 30 days following expiration of the cure period.

For the treatment of equity upon termination of employment, please see the section titled “Equity Awards”. In addition, Class B Shares and options to purchase Class B Shares that are held by named executive officers are subject to repurchase rights (the “Repurchase Rights”) which enable the Company to recover the Class B Shares without transferring any appreciation of the fair value of the stock upon certain terminations prior to a “Qualified Public Offering”. If employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such named executive officer without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such named executive officer for the ~~lessor~~lesser of original cost and fair market value.

~~Hiring of New CFO~~

We hired Kimo Akiona as our new Treasurer and the Chief Financial Officer of AGS, LLC, effective February 23, 2015, upon the resignation of our former Treasurer and Chief Financial Officer, Curt Mayer.

Director Compensation

David Sambur is the sole member of our Board of Directors and does not receive any compensation from the Company for his services on the Board.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

As of ~~March~~February 27, ~~2015,~~2016, we had ~~10,000,000~~14,931,529 Class B Shares issued to Apollo Gaming Holdings, LP. and 100 Class A Shares, which have no economic rights, issued to AP Gaming VoteCo, LLC. The address of Apollo Gaming Holdings, L.P. is ~~c/o~~ Apollo Management, L.P., 9 West 57th Street, 43rd Floor, New York, NY, 10019, and the address of AP Gaming VoteCo, LLC is ~~6680 Amelia Earhart Court,~~5475 S. Decatur Blvd, Las Vegas, NV ~~89119.~~89118. The members of AP Gaming VoteCo, LLC are Marc Rowan, who is an affiliate of Apollo, and David Sambur. Apollo Gaming Holdings, L.P. is an affiliate of Apollo Management, L.P.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Related Transactions

~~Transactions Related to the Acquisition~~

On November 19, 2013, AGS Capital created a wholly owned subsidiary, AP Gaming NV, LLC (“AP Gaming NV”). Prior to the closing of the Acquisition, certain of AGS Capital’s assets and interests in the State of Nevada were transferred to

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AP Gaming NV. At the closing of the Acquisition, AGS Capital sold all of the equity interest in AP Gaming NV to Curt Mayer, who was recently licensed by the Nevada Gaming Commission as the chief financial officer of AGS, LLC, pursuant to a purchase and option agreement (the “P&O Agreement”). Also at the closing of the Acquisition, AGS Capital and AGS Gaming NV entered into a services and license agreement (the “Services and License Agreement”), pursuant to which AP Gaming NV receives operational and administrative services from AGS Capital and AGS Capital’s employees which, together with assets transferred to AP Gaming NV by AGS Capital, permit AP Gaming NV to continue the business’ Nevada operations on a seamless basis. In addition, at the closing of the Acquisition, AGS Capital entered into a revolving credit facility (the “Revolving Facility”) with AP Gaming NV to provide AP Gaming NV with sufficient liquidity to fund its operations.None.

Pursuant to the P&O Agreement, AGS Capital, the sole member of AP Gaming NV, retained an option to reacquire all of the equity interests in AP Gaming NV from Curt Mayer (the “Option”), which is exercisable on or prior to the tenth anniversary of the closing of the Acquisition. As required by the P&O Agreement, at the closing of the Acquisition, (a) AP Gaming NV executed and delivered a guarantee agreement in respect of the Senior Secured Credit Facilities and (b) AP Gaming NV entered into a collateral agreement in connection with the Senior Secured Credit Facilities in its capacity as a “Pledgor.”

Pursuant to the Services and License Agreement, AP Gaming NV receives operational and administrative services from AGS Capital and AGS Capital’s employees that, together with assets transferred to AP Gaming NV by AGS Capital, permit AP Gaming NV to continue the business’ Nevada operations on a seamless basis from and after the closing of the Acquisition. The agreement also provides AP Gaming NV a non-exclusive, non-transferable, worldwide, fully paid-up, royalty-free, non-assignable license to all intellectual property of AGS Capital and AGS, LLC. In addition, AP Gaming NV is entitled during the term of the agreement to use and access space at certain of the Company’s facilities, and is entitled to use the equipment located at such facilities pursuant to a limited license. The Services and License Agreement has a ten-year term.

The Revolving Facility provides for $1.0 million of maximum commitments. Loans under the Revolving Facility bear fixed interest at a rate equal to 5.0% per annum, payable quarterly in arrears. AP Gaming NV, in its discretion, may opt to pay the quarterly interest in kind by adding any accrued and unpaid interest to the outstanding principal of the loans. The Revolving Facility matures on the tenth anniversary of the facility. Among other customary terms, the Revolving Facility contains the following Events of Default: failure of Curt Mayer to own 100% of AP Gaming NV’s equity interests other than as a result of transfer to AGS Capital (or its designee), default or breach by AP Gaming NV of its obligations under the P&O Agreement or its operating agreement, or the expiry of AGS Capital’s Option under the P&O Agreement.

AGS Capital had a call option to repurchase the equity of AP Gaming NV, upon receipt of all regulatory approvals from the Nevada Gaming Commission and the Nevada Gaming Control Board. In July 2014, AGS Capital received regulatory approvals and exercised the call option and repurchased 100% of the equity of AP Gaming NV. The exercise of this call option had no impact on the consolidated financial statements of the Company.

~~Exclusive License and Distribution Agreements with Dr. Olaf Vancura~~

~~We have an exclusive license and distribution arrangement with Dr. Olaf Vancura, our former Vice President of Game Development, Game Ingenuity, LLC (“Game Ingenuity”), an entity in which Dr. Vancura is the managing member and Advanced Gaming Solutions, Inc. (“Advanced”), an unaffiliated entity. Dr. Vancura is no longer an employee of the Company as of May 2014.~~

Pursuant to the exclusive license agreement, Dr. Vancura and Game Ingenuity have agreed to exclusively license certain intellectual property rights to us during the period of Dr. Vancura’s employment and any non-compete period that follows his employment. Upon termination of Dr. Vancura’s employment and following the end of any non-compete period thereafter, our exclusive license automatically converted to a non-exclusive, perpetual right and license to use the intellectual property rights, as specified in the exclusive license agreement. We pay Dr. Vancura and Game Ingenuity royalties on the revenues we earn from or placement of select products that utilize the licensed intellectual property rights. For the year ended December 31, 2014, we have incurred $0.2 million pursuant to this license arrangement.

Pursuant to the exclusive distribution agreement, Game Ingenuity, Advanced and Dr. Vancura have granted us the exclusive rights to promote, place and/or sell certain game titles in Arizona, California, Florida, Illinois, Maryland, Minnesota, New Mexico and Oklahoma for a period of one year, which may be extended subject to agreement among the parties, until the termination of Dr. Vancura’s employment with AGS. In addition, the exclusive distribution agreement grants us the right to promote, place and/or sell the games Boogie Ball and Power Boogie non-exclusively in Nevada and exclusively in North America outside of Nevada. In exchange for this distribution right, we pay Game Ingenuity and Advanced royalties on the collections we receive from end-users using the gaming titles. For the year ended December 31, 2014, we have incurred approximately $15,000 in expense pursuant to this distribution arrangement.

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~~Other Related Transactions~~

During 2012, AGS Holdings, LLC, as the member of AGS Capital, contributed capital totaling approximately $60.7 million to AGS Capital. Approximately $50.7 million of the contributed capital was utilized to cure debt covenant violations, repay current debt obligations, finance the final payment of the Definitive Agreement with Bluberi and provide working capital to AGS Capital. The remaining $10.0 million was a forgiveness of long-term debt to a related party that occurred in August 2012 associated with the Term Loans.

~~On October 25, 2012, AGS Illinois, LLLP, a subsidiary of AGS Capital, assumed all rights and obligations of Alpine AGS, LLC (“Alpine AGS~~”), AGS Capital’s indirect parent prior to the Acquisition, to a loan agreement held by Alpine AGS for $1,864,500. Interest on the loan is payable at a rate of 15% per year on the outstanding balance of the loan, which matures on March 9, 2016. Repayment of the principal and any accrued and outstanding interest is in monthly installments, beginning April 9, 2013.

Policies and Procedures for Related Person Transactions

Although we do not yet have any policies or procedures for the review, approval or ratification of transactions with related persons, we intend to implement such policies and ~~procedures following the effectiveness of our registration statement on Form 10.~~procedures.

Director Independence

We ~~intend~~currently do not have, nor are we required to ~~form committees~~have, a majority of independent directors. Should we decide to list our ~~Board of Directors and satisfy~~Common Stock on a securities exchange, we will be required to adhere to the independence requirements ~~as and to the extent applicable to us following the effectiveness~~ of ~~our registration statement on Form 10.~~that exchange.

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ITEM 14. PRINCIPAL ~~ACCOUNTING~~ACCOUNTANT FEES AND SERVICES.

As the Company had no operations prior to its formation, we have included the principal accounting fees and services disclosure for our Predecessors. The following table summarizes the aggregate fees paid or accrued by the Company and AGS Capital to Ernst & Young LLP, its independent registered public accounting firm, during the years presented:


Category	2014		2013		2015		2014
Audit fees	$	593,425	$	705,000	$	1,268,902	$	593,425
Tax fees	142,650		202,750		289,785		142,650
Total	$	736,075	$	907,750	$	1,558,687	$	736,075

Audit fees consisted of the aggregate fees paid or accrued for professional services rendered for the annual audit of the Company’s ~~or Predecessor’s~~ financial statements including services related to SEC registration statement filings, SEC comment letters and reviews of the quarterly financial statements. In 2015, audit fees also includes fees related to the purchase of Cadillac Jack and related audit procedures.

Tax fees include the aggregate fees paid during the respective years for tax compliance and tax advisory services.

The ~~boards~~Board of ~~directors~~Directors of the Company ~~and AGS Capital have~~has each adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent auditors. The policy provides for pre-approval by ~~each respective board~~the Board of ~~directors~~Directors of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, ~~each board~~the Board of ~~directors~~Directors must approve the permitted service before the independent auditor is engaged to perform it. All of the fees described in the table above were pre-approved ~~by each respective board~~the Board of ~~directors.~~Directors.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1). Financial Statements.

Included in Part II of this Annual Report on Form 10-K:



Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations and Comprehensive Loss	F-3
Consolidated Statements of Changes in Stockholders’ Equity/Member’s Deficit	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Consolidated Financial Statements	F-6

(a)(2). Financial Statement Schedules.

We have omitted certain financial statement schedules because they are not required or are not applicable, or the required information is shown in the financial statements or notes to the financial statements.

(a)(3). Exhibits.

Incorporated by Reference
Exhibit Number Exhibit Description Filed Herewith Form Period Ending Exhibit Filing Date
2.1 Amended and Restated Equity Purchase Agreement by and among AGS Capital, LLC, AGS Holdings, LLC and AP Gaming Acquisition, LLC, dated December 3, 2013. — 10 — 2.1 12/16/2013

3.1 Third Amended and Restated Certificate of Incorporation of AP Gaming Holdco, Inc. — 10/A — 3.1 2/10/2014

3.2 Bylaws of AP Gaming Holdco, Inc. — 10 — 3.2 12/16/2013

10.1 2014 Managerial Incentive Plan. X — — — —

10.5 Employment Agreement between American Gaming Systems, LLC and Robert Miodunski, dated June 2, 2010. — 10 — 10.5 12/16/2013

10.6 First Amendment to June 2, 2010 Employment Agreement between American Gaming Systems, LLC and Robert Miodunski, dated November 28, 2011. — 10 — 10.6 12/16/2013

10.7 Second Amendment to June 2, 2010 Employment Agreement between American Gaming Systems, LLC and Robert Miodunski, dated March 21, 2013. — 10 — 10.7 12/16/2013

10.8 Non-Disclosure, Non-Solicitation and Covenant Not to Compete Agreement between AGS LLC and Robert Miodunski, dated June 24, 2010. — 10 — 10.8 12/16/2013

10.9 Phantom Units Certificate between AGS Holdings, LLC and Robert Miodunski, dated August 16, 2012. — 10 — 10.9 12/16/2013

10.10 First Amendment to Phantom Units Grant between AGS Holdings, LLC and Robert Miodunski, dated April 1, 2013. — 10 — 10.10 12/16/2013

10.11 Employment Agreement between American Gaming Systems, LLC and Curt Mayer, dated June 23, 2011. — 10 — 10.11 12/16/2013

10.12 First Amendment to June 23, 2011 Employment Agreement between American Gaming Systems, LLC and Curt Mayer, dated March 18, 2013. — 10 — 10.12 12/16/2013

10.13 Non-Disclosure, Non-Solicitation and Covenant Not to Compete Agreement between AGS LLC and Curt Mayer, dated June 23, 2011. — 10 — 10.13 12/16/2013



			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit	Filing Date
2.1	Amended and Restated Equity Purchase Agreement by and among AGS Capital, LLC, AGS Holdings, LLC and AP Gaming Acquisition, LLC, dated December 3, 2013.	—	10	—	2.1	12/16/2013

2.2	Stock Purchase Agreement, dated as of March 30, 2015, by and among AGS, LLC, Amaya Inc. and Cadillac Jack, Inc.	—	8-K	—	2.1	4/1/2015

3.1	Third Amended and Restated Certificate of Incorporation of AP Gaming Holdco, Inc.	—	10/A	—	3.1	2/10/2014

3.2	Bylaws of AP Gaming Holdco, Inc.	—	10	—	3.2	12/16/2013

4.1	Note Purchase Agreement, dated as of May 29, 2015, by and among AP Gaming Holdco, Inc., AP Gaming Holdings, LLC, Deutsche Bank AG, London Branch, as purchaser and Deutsche Bank Trust Company Americas, as collateral agent.	—	8-K	—	4.1	6/3/2015

4.2	PIK Promissory Note, dated as of May 29, 2015, by and between AP Gaming Holdco, Inc. and Amaya Inc.	—	8-K	—	4.2	6/3/2015

10.1	2014 Managerial Incentive Plan.	—	10	—	10.1	3/31/2015

10.2	First Lien Credit Agreement dated as of December 20, 2013, among AP Gaming Holdings, LLC, as Holdings, AP Gaming I, LLC, as Borrower, the lenders party thereto, Citicorp North America, Inc., as Administrative Agent, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Joint Lead Arrangers and Joint Bookrunners, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Co-Syndication Agents, and Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Co-Documentation Agents.	—	10/A	—	10.18	2/10/2014

10.3	Collateral Agreement dated and effective as of December 20, 2013, among AP Gaming I, LLC, each Subsidiary Party party thereto and Citicorp North America, Inc., as Collateral Agent.	—	10/A	—	10.19	2/10/2014

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10.4	Subsidiary Guarantee dated and effective as of December 20, 2013, by and among each Subsidiary party thereto and Citicorp North America, Inc., as Collateral Agent.	—	10/A	—	10.20	2/10/2014

10.5	Holdings Guarantee and Pledge Agreement dated and effective as of December 20, 2013, between AP Gaming Holdings, LLC, as Holdings and Citicorp North America, Inc., as Agent.	—	10/A	—	10.21	2/10/2014

10.6	Securityholders Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc., Apollo Gaming Holdings, L.P. and David Lopez.	—	8-K	—	10.1	05/02/2014

10.7	AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan.	—	8-K	—	10.2	5/2/2014

10.8	Form of Option Agreement.	—	8-K	—	10.3	5/2/2014

10.9	Form of Subscription Agreement.	—	8-K	—	10.4	5/2/2014

10.10	Incremental Assumption Agreement, dated as of May 29, 2015, by and among AP Gaming Holdings, LLC, AP Gaming I, LLC, each subsidiary loan party listed on the signature pages thereof, Citicorp North America, Inc. and the lenders from time to time party thereto.	—	8-K	—	10.1	6/3/2015

10.11	Incremental Assumption Agreement, dated as of June 1, 2015, by and among AP Gaming Holdings, LLC, AP Gaming I, LLC, each subsidiary loan party listed on the signature pages thereof, Citicorp North America, Inc. and the lenders from time to time party thereto.	—	8-K	—	10.2	6/3/2015

10.12	Subscription Agreement Between Apollo Gaming Holdings, L.P. and AP Gaming Holdco, Inc.	—	10-Q	—	10.1	8/14/2015

10.13	Employment Agreement, dated April 28, 2014, by and between David Lopez and AP Gaming Holdco, Inc.	—	8-K	—	10.5	5/2/2014

10.14	Nonqualified Stock Option Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez.	—	8-K	—	10.6	5/2/2014

10.15	Restricted Stock Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez.	—	8-K	—	10.7	5/2/2014

10.16	Employment Agreement, dated as of July 1, 2015, by and between AGS, LLC and Mauro Franic.	—	10-Q	—	10.2	11/16/2016

10.17	Nonqualified Performance-Based Stock Option Agreement, dated July 17, 2015, by and between AP Gaming Holdco, Inc. and Mauro Franic.	X	—	—	—	—

10.18	Nonqualified Time-Based Stock Option Agreement, dated July 17, 2015, by and between AP Gaming Holdco, Inc. and Mauro Franic.	X	—	—	—	—

10.19	Employment Agreement, dated as of July 1, 2015, by and between AGS, LLC and Sigmund Lee.	X	—	—	—	—

10.20	Nonqualified Time-Based Stock Option Agreement, dated July 17, 2015, by and between AP Gaming Holdco, Inc. and Sigmund Lee.	X	—	—	—	—

10.21	Nonqualified Performance-Based Stock Option Agreement, dated July 17, 2015, by and between AP Gaming Holdco, Inc. and Sigmund Lee.	X	—	—	—	—

21.1	Subsidiaries of AP Gaming Holdco, Inc.	X	—	—	—	—

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

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10.14 Phantom Units Certificate between AGS Holding, LLC and Curt Mayer, dated August 16, 2012. — 10 — 10.14 12/16/2013

10.18 First Lien Credit Agreement dated as of December 20, 2013, among AP Gaming Holdings, LLC, as Holdings, AP Gaming I, LLC, as Borrower, the lenders party thereto, Citicorp North America, Inc., as Administrative Agent, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Joint Lead Arrangers and Joint Bookrunners, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Co-Syndication Agents, and Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Co-Documentation Agents. — 10/A — 10.18 2/10/2014

10.19 Collateral Agreement dated and effective as of December 20, 2013, among AP Gaming I, LLC, each Subsidiary Party party thereto and Citicorp North America, Inc., as Collateral Agent. — 10/A — 10.19 2/10/2014

10.20 Subsidiary Guarantee dated and effective as of December 20, 2013, by and among each Subsidiary party thereto and Citicorp North America, Inc., as Collateral Agent. — 10/A — 10.20 2/10/2014

10.21 Holdings Guarantee and Pledge Agreement dated and effective as of December 20, 2013, between AP Gaming Holdings, LLC, as Holdings and Citicorp North America, Inc., as Agent. — 10/A — 10.21 2/10/2014

10.22 Securityholders Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc., Apollo Gaming Holdings, L.P. and David Lopez. — 8-K — 10.1 05/02/2014

10.23 AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan. — 8-K — 10.2 5/2/2014

10.24 Form of Option Agreement. — 8-K — 10.3 5/2/2014

10.25 Form of Subscription Agreement. — 8-K — 10.4 5/2/2014

10.26 Employment Agreement, dated April 28, 2014, by and between David Lopez and AP Gaming Holdco, Inc. — 8-K — 10.5 5/2/2014

10.27 Nonqualified Stock Option Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez. — 8-K — 10.6 5/2/2014

10.28 Restricted Stock Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez. — 8-K — 10.7 5/2/2014

21.1 Subsidiaries of AP Gaming Holdco, Inc. X — — — —

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X — — — —

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X — — — —

32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X — — — —

101.IN XBRL Instance Document X — — — —

101.SCH XBRL Taxonomy Extension Schema Document X — — — —

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X — — — —

101.LAB XBRL Taxonomy Extension Label Linkbase Document X — — — —

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X — — — —

101.DEF XBRL Taxonomy Extension Definition Linkbase Document X — — — —




32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

101.IN	XBRL Instance Document	X	—	—	—	—

101.SCH	XBRL Taxonomy Extension Schema Document	X	—	—	—	—

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X	—	—	—	—

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X	—	—	—	—

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X	—	—	—	—

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X	—	—	—	—

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		AP GAMING HOLDCO, INC.

Date:	March ~~31, 2015~~9, 2016	By:	/s/ KIMO AKIONA
		Name:	Kimo Akiona
		Title:	Treasurer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Signature	Title	Date

/s/ DAVID LOPEZ	President and Chief Executive Officer (Principal Executive Officer)	March ~~31, 2015~~9, 2016
David Lopez		March ~~31, 2015~~9, 2016

/s/ KIMO AKIONA	Treasurer (Principal Financial ~~Officer~~ and ~~Principal~~ Accounting Officer)	March ~~31, 2015~~9, 2016
Kimo Akiona		March ~~31, 2015~~9, 2016

/s/ DAVID SAMBUR	Director	March ~~31, 2015~~9, 2016
David Sambur	Director	March ~~31, 2015~~9, 2016

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

AP Gaming Holdco, Inc.

We have audited the accompanying consolidated balance sheets of AP Gaming Holdco, Inc. ~~(Company)~~(the Company) as of December 31, ~~2014~~2015 and ~~2013,~~2014, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the ~~year~~years ended December 31, 2015 and 2014 and the period December 21, 2013 through December 31, 2013 (Successor), and the consolidated statements of operations and comprehensive loss, changes in member’s deficit and cash flows of AGS Capital, LLC for the period January 1, 2013 through December 20, 2013 ~~and~~(Predecessor). Our audits also included the ~~year ended December 31, 2012 (Predecessor).~~financial statement schedule listed in the Index at item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AP Gaming Holdco, Inc. as of December 31, ~~2014~~2015 and ~~2013,~~2014, and the consolidated results of ~~their~~its operations and ~~their~~its cash flows for the ~~year~~years ended December 31, 2015 and 2014 and the period December 21, 2013 through December 31, 2013 (Successor), and the consolidated results of the operations and cash flows for the period January 1, 2013 through December 20, 2013 ~~and the year ended December 31, 2012~~ of AGS Capital, LLC (Predecessor), in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Las Vegas, Nevada

March ~~31, 2015~~9, 2016

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AP GAMING HOLDCO, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)


	Successor						Successor
	December 31, 2014			December 31, 2013			December 31, 2015			December 31, 2014
Assets							Assets
Current assets
Cash and cash equivalents	$	10,680		$	21,742		$	35,722		$	10,680
Restricted cash	100			100			100			100
Trade accounts receivable, net of allowance of $29 and $9, respectively	8,835			7,505
Notes receivable—current portion	305			—
Inventories, net	3,175			3,891
Accounts receivable, net of allowance of $113 and $29, respectively							23,653			9,140
Inventories							7,087			3,175
Prepaid expenses	2,091			1,028			4,642			2,091
Deposits and other	2,007			3,174			2,440			2,007
Total current assets	27,193			37,440			73,644			27,193
Gaming equipment, vehicles and other equipment, net	40,769			49,505
Property and equipment, net							66,699			40,769
Goodwill							253,851			77,617
Deferred loan costs, net	5,343			5,913			8,144			5,343
Goodwill	77,617			60,384
Intangible assets, net	101,885			98,664
Deferred tax assets	—			220
Deferred tax asset							37			—
Intangible assets							290,356			101,885
Other assets	3,345			1,702			26,246			3,345
Total assets	$	256,152		$	253,828		$	718,977		$	256,152

Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued liabilities	$	22,795		$	6,247		$	23,030		$	23,316
Accrued interest	499			448
Customer deposits on gaming machine leases	22			—
Current maturities of long-term debt	2,495			1,550			6,919			2,495
Deferred tax liability	528			274			—			528
Total current liabilities	26,339			8,519			29,949			26,339
Phantom unit-plan liability	—			22
Other long-term liabilities	—			67
Long-term debt	164,194			153,377			541,120			164,194
Deferred tax liability - noncurrent	1,863			—			15,347			1,863
Other long-term liabilities							32,024			—
Total liabilities	192,396			161,985			618,440			192,396
Commitments and contingencies (Note 19)
Stockholders’ Equity:
Commitments and contingencies (Note 14)
Stockholders' equity
Preferred stock at $0.01 par value; 100,000 shares authorized, no shares issued and outstanding	—			—			—			—
Common stock at $0.01 par value; 30,000,100 shares authorized; 100 and 10,000,000 Class A Shares issued and outstanding at December 31, 2014 and 2013, respectively, and 10,000,000 Class B Shares issued and outstanding at December 31, 2014.	100			100
Additional Paid-in capital	99,900			99,900
Common stock at $0.01 par value; 30,000,100 shares authorized; 100 Class A Shares issued and outstanding at December 31, 2015 and 2014, and 14,931,529 and 10,000,000 Class B Shares issued and outstanding at December 31, 2015 and 2014, respectively.							149			100
Additional paid-in capital							177,276			99,900
Accumulated deficit	(36,532		)	(8,156		)	(75,077		)	(36,532		)
Accumulated other comprehensive income (loss)	288			(1		)
Accumulated other comprehensive (loss) income							(1,811		)	288
Total stockholders’ equity	63,756			91,843			100,537			63,756
Total liabilities and stockholders’ equity	$	256,152		$	253,828		$	718,977		$	256,152

~~F-10~~

~~Table of Contents~~

~~Predecessor Period ended December 31, 2013 and the year ended December 31, 2012 of $3.3 million and $2.7 million, respectively.~~

Intangible Assets

The Company groups its definite-lived intangible assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company groups its identifiable intangible assets and reviews them for impairment according to the groupings below:

~~Definite-lived trade name~~ - this intangible relates to the “Gambler’s Choice” trade name that was recognized in purchase accounting in connection with the Acquisition. The Company amortizes the trade name over an estimated useful life of 7 years using the strait-line method. Our impairment analysis incorporates future expected revenues and cash flows of gaming titles operated under the Gambler’s Choice trade name in comparison to the underlying net book value of the trade name.

~~Contract rights under development agreements~~ – these intangibles relate to the discounts on development note receivables loans that have been extended to customers at interest rates that are deemed below market in exchange for a fixed number of gaming terminal placements in the customer’s facility. The Company receives a fixed percentage of those gaming terminals’ win per day over the term of the agreement or a daily fee per gaming terminal. Contract rights under development agreements are amortized over the term of the agreement as a reduction in revenue. The Company’s impairment analysis incorporates reviewing the future expected revenues and cash flows under the respective contracts in comparison to the underlying net book value of the associated intangible.

~~Customer agreements and relationships~~ – these intangibles represent either the cash advances to customers that are not expected to be repaid in exchange for a fixed number of gaming terminal placements in the customer’s facility or the value that has been assigned to the customer agreements as a result of acquisitions. The Company receives a fixed percentage of those gaming terminals’ win per day over the term of the agreement or a daily fee per gaming terminal. Customer agreements are amortized either over the term of the agreement or the expected life of the customer agreement as a reduction in revenue. The Company’s impairment analysis incorporates the reviewing future expected revenues and cash flows with these related customer under the respective contracts in comparison to the underlying net book value of the associated intangible.

~~Third-party licenses~~ – these intangibles represent the rights to license third party gaming titles that the Company has purchased for use in its gaming terminals. Third-party licenses are amortized to operating expense over the shorter of the term of the license or the expected life of the titles, whichever is shorter. The Company’s impairment analysis incorporates the future expected revenues and cash flows of the title or gaming titles in comparison to their underlying net book value of the associated intangible.

~~Internally developed gaming software~~ – these intangibles represent software development costs that are capitalized once technological feasibility has been established and are amortized when the software is placed into service. 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 developments costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

~~Purchased software~~ – these intangibles represent the license to operate the ticket-in-ticket-out (“TITO”) technology associated with many of the Company’s gaming terminals. These costs are amortized over the expected life of the underlying gaming terminal. These TITO intangible assets are included with a gaming terminal and are not transferrable to other gaming terminals once placed into service; therefore, the Company’s impairment analysis is incorporated with the Company’s review for impairment of the underlying gaming terminal. The Company evaluates the future revenues and cash flows associated with the underlying gaming terminal in comparison to the underlying net book value of the gaming terminal and associated TITO intangible asset.

~~Acquired intellectual property~~ – these intangibles represent the acquisition of intellectual property related to several table games patents and the platform and titles acquired through the acquisition of C2 Gaming. These costs are amortized over the shorter of the expected life of the patent or the period the patent is legally enforceable using the strait-line method. Our impairment analysis incorporates the reviewing of the future expected revenues and cash flows of the table game titles associated with the patents in comparison to their underlying net book value of the associated intangible.

~~F-11~~

~~Table of Contents~~

The Company reviews its definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Examples of such events or changes in circumstances include the following:

~~Definite-lived trade name~~ ~~– other than temporary decreases in revenue and cash flows associated with a gaming title or group operated under the Gambler’s Choice trade name.~~

~~Contract rights under development agreements and customer agreements~~ ~~– (1) other than temporary decrease in revenue and cash flows associated with a particular customer; (2) reduction in amount of gaming terminal placements in the customer’s facility.~~

~~Customer agreements and relationships~~ ~~– other than temporary decreases in revenue and cash flows associated with related customers under respective contracts.~~

~~Third-party licenses~~ ~~– other than temporary decreases in revenue and cash flows associated with a gaming title or group of gaming titles.~~

~~Internally developed gaming software~~ ~~– other than temporary decreases in revenue and associated cash flow associated with specific internally developed gaming titles.~~

~~Purchase software~~ ~~– other than temporary decreases in revenue and associated cash flow associated with a specific gaming terminal.~~

~~Acquired intellectual property~~ ~~– other than temporary decreases in revenue and associated cash flow associated with licensed table games titles.~~

Impairment is reviewed at a minimum once a quarter. When the estimated undiscounted cash flows are not sufficient to recover the intangible assets’ carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

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.

~~The “American Gaming Systems”~~

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 ~~name has~~names have an indefinite useful ~~life. The~~life and the Company ~~does not amortize the indefinite lived~~tests these trade ~~name, but instead test~~names for possible impairment at least annually, on October 1, or ~~when~~whenever events or changes in circumstances ~~warrant.~~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. The Company performed a qualitative assessment of the “American Gaming Systems” trade name as of October 1, 2014, and determined that it is not more-likely-than-not that the fair value of the “American Gaming Systems” trade name is less than its carrying value; therefore no further impairment testing was performed.

~~there is only a remote likelihood that the fair value of the “American Gaming Systems” trade name is less than its carrying value, therefore no further impairment testing was performed.~~

Costs of Computer Software

Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming ~~terminals.~~machines. Internally developed gaming software is ~~accounted for under FASB ASC Topic 985-20,~~ ~~Costs of Software to Be Sold, Leased or Marketed, and is~~ stated at cost ~~which is~~and amortized over the estimated useful lives of the software, ~~generally~~ 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. ~~Generally, the~~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 ~~developments~~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

~~F-12~~

~~Table of Contents~~

group of gaming titles utilizing that software, if applicable. For the year ended December 31, 2014, the Company recognized an impairment charge of $1.4 million for internally developed gaming titles that were discontinued. For the year ended December 31, 2012, the Predecessor recognized an impairment charge of $0.8 million for internally developed costs that related to a licensing agreement held by AGS Toronto, which the Company terminated in March 2013. These assets had no future value and were written off accordingly.

Goodwill

The excess of the purchase price of ~~entities that are considered to be purchases of businesses~~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 ~~units~~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 ~~the reporting unit is not at risk of failing the qualitative assessment no impairment testing is required. If the Company determines~~ that it is ~~at risk of failing the qualitative assessment,~~more likely than not that a reporting unit’s fair value is less than its carrying value, the Company ~~is required to perform an annual~~performs a quantitative goodwill impairment ~~review,~~analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. ~~The Company performed a qualitative assessment, Step 0,~~

F-9

Table of goodwill as of October 1, 2014, and determined that it is not more-likely-than-not that the Company’s reporting unit’s fair value is less than its carrying value; therefore no further impairment testing was performed.Contents

During 2014, the Company voluntarily changed the date of its annual goodwill and other indefinite-lived intangible asset impairment testing from the last day of the third quarter (September 30) to the first day of the fourth quarter (October 1). This voluntary change is preferable as it provides the Company with additional time to complete its annual goodwill and indefinite-lived intangible asset impairment testing in advance of reporting deadlines. The voluntary change in accounting principle related to the annual testing day will not delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of significant estimates and assumptions with the use of hindsight. Accordingly, goodwill is reviewed for possible impairment annually on October 1 or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, or a loss of key personnel.

For the year ended December 31, 2012, the Predecessor recorded an impairment charge of $18.7 million which amounted to the entire balance of goodwill at that time. The impairment was primarily a result of actual results not meeting our long-term operating plan.

Deferred Loan Costs

Deferred loan costs consist of various debt issuance costs and are being amortized onusing the effective-interest method over the life of the related loans. The Company recognized amortization expense related to loan costs of $1.4 million and $0.6 million ~~and approximately $21,000~~ for the ~~year~~years ended December 31, 2015 and 2014, respectively. The Company recognized amortization expense related to loan costs of $21,000 and $1.2 million for the Successor Period ~~respectively, which was included in interest expense in the accompanying consolidated statements of operations~~ and ~~comprehensive loss. The Predecessor recognized $1.2 million and $1.6 million for the~~ Predecessor Period, ~~and the year ended December 31, 2012, respectively, which~~respectively. Amortization of deferred loan costs was included in interest expense in the accompanying consolidated statements of operations and comprehensive loss.

Acquisition Accounting

~~We follow acquisition~~

The Company applies the provisions of ASC 805, “Business Combinations” (ASC 805), in accounting for ~~all acquisitions that meet the~~ business ~~combination definition. Acquisition accounting~~acquisitions. It requires us to ~~measure~~recognize separately from goodwill the ~~identifiable~~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, and any noncontrolling interest at the acquisition-date fair value. While we use our best~~assumed. Significant estimates and assumptions ~~as part of the purchase price allocation process~~are required to ~~accurately~~ value assets acquired and liabilities assumed at the acquisition date ~~our~~as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to ~~refinement.~~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 established 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:

~~F-13~~

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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 2 inputs). The estimated fair value of our long-term debt was $529.2 million and $170.0 million as of December 31, 2015 and 2014, ~~was $170.0 million.~~ respectively.

Accounting for Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that included the enactment date. 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.

~~Research and Development~~

The Company conducts research and development activities primarily to develop new gaming platforms and gaming content. These research and development costs consist primarily of salaries and benefits and are expensed as incurred. Once the technological feasibility of a project has been established, capitalization of development costs begins until the product is available for general release. Research and development expenses were $1.8 million and $28,000 for the year ended December 31, 2014 and the Successor Period, respectively, and $1.9 million and $2.1 million for the Predecessor Period and the year ended December 31, 2012, respectively, and is included as a component of general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.

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

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impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

~~F-14~~

~~Table of Contents~~

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents ~~trade receivables~~ and ~~note receivable.~~accounts receivable, net. Cash equivalents are investment-grade, short-term debt instruments consisting of treasury bills which are maintained with high credit quality financial institutions under repurchase agreements. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of December 31, 2015 and 2014, the Company did not have cash equivalents.

~~The Company’s~~

Revenue from gaming ~~revenue customers are~~operations is concentrated in the Class II gaming and casino industry, ~~and are~~primarily located ~~primarily~~ in Oklahoma. ~~Certain Native American tribes or their gaming enterprise~~For the years ended December 31, 2015, 2014 and ~~certain commercial locations comprise a significant component~~the combined Successor and Predecessor periods of ~~the Company’s total~~2013, approximately 20%, 30% and 35% percent of our gaming revenue ~~or trade receivables. However, the~~was derived from one customer, respectively. The Company ~~also conducts business through distributor relationships, some~~had one customer with accounts receivable, net equaling 10% of ~~which act as a collection agent. The following gaming revenue and trade~~total outstanding accounts receivable, ~~concentrations existed~~net at December 31, ~~2014,~~ 2013 and ~~2012:~~none at December 31, 2015 and 2014.

The following provides financial information concerning our operations by geographic area for the years ended December 31 (in thousands):

2014 2013 2012
Gaming revenue
Customer A 30 % 34 % 35 %
Customer B 8 % 11 % 9 %

Trade receivables
Customer A 9 % — %
Customer B 7 % — %
Customer C 4 % 10 %
Customer D 4 % 1 %
Customer E 3 % — %
Customer F — % 9 %
Customer G — % 3 %
Customer H 1 % 2 %



	Successor						Predecessor
Revenue:	Year ended December 31, 2015		Year ended December 31, 2014		Period December 21, 2013 through December 31, 2013		Period January 1, 2013 through December 20, 2013
United States	$	110,392	$	72,140	$	1,953	$	56,461
Other	12,900		—		—		—
	$	123,292	$	72,140	$	1,953	$	56,461

			Successor
Long-lived assets, end of year:			2015		2014		2013
United States			$	63,858	$	44,045	$	50,997
Other			6,909		69		210
			$	70,767	$	44,114	$	51,207

Foreign Currency Translation

The financial statements of the Company’s ~~Canadian subsidiary~~foreign subsidiaries are translated into U.S. dollars at the ~~year-end~~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 accumulated other ~~accumulated~~ comprehensive (loss) income ~~(loss)~~ in stockholders’ equity.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs for the year ended December 31, 2015 and 2014 ~~the Successor Period, the Predecessor Period and the year ended December 31, 2012~~ were ~~$0.3 million, $2,000,~~ $0.2 million and $0.3 million, respectively. During the Successor Period and Predecessor Period, the Company recognized advertising costs of $2,000 and $0.2 million, respectively.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ~~ASU~~an accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ~~The amendment is~~In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to annual periods, and interim reporting

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Table of Contents

~~effective for annual periods, and interim reporting~~ periods within those annual periods, beginning after December 15, ~~2016 and~~2017. The ASU may be adopted using either a full retrospective transition method or a modified retrospective transition ~~method. Early adoption is not permitted.~~method and will be adopted by the Company on January 1, 2018. The Company is currently evaluating the provisions of the ~~amendment~~amendments and the impact on its future consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the ~~periods~~period(s) for which the requisite service has already been rendered. The amendments in this ASU ~~are effective for annual periods and interim periods~~will be adopted by the Company beginning ~~after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating~~on January 1, 2016. We do not expect the ~~provisions of~~ ASU ~~2014-12 and assessing the impact~~to have a material effect on ~~its~~our financial ~~position,~~condition, results of operations or cash flows.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties About an ~~accounting standards update that~~Entity's Ability to Continue as a Going Concern. The ASU requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, consolidated in the aggregate, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Currently, there is no guidance in U.S. GAAP for management's responsibility to perform an evaluation. Under the update, management's evaluation is to be performed when preparing financial statements for each annual and interim reporting period and based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The Company will adopt this standard effective January 1, ~~2017.~~2017 and we do not expect it to have a material effect on our financial position, results of operations or cash flows.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement-Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. The ~~Company~~presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that were previously classified as extraordinary. ASU 2015-01 is ~~currently assessing the impact the adoption of this standard will have on its consolidated financial statements.~~

~~Immaterial error correction~~

~~In June 2014,~~effective for the Company ~~determined~~on January 1, 2016, with earlier adoption permitted using either a prospective or retrospective method. We do not expect the ASU to have a material effect on our financial condition, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 intends to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to ~~install~~a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and ~~deliver leased gaming machines were being capitalized~~measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 which clarifies that the guidance issued in April 2015 does not apply to line-of-credit arrangements. According to ASU 2015-15, line-of-credit arrangements will continue to present debt issuance costs as an asset and ~~incorrectly depreciated over~~subsequently amortize the ~~useful life of the machine rather than capitalized as initial direct~~deferred debt issuance costs ~~and amortized~~ratably over the term of the ~~lease~~arrangement. The ASU will be effective for the Company beginning on January 1, 2016. We do not expect the ASU to have a material effect on our financial condition, results of operations or cash flows.

In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at the lower of cost and net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The ASU will be effective for the Company beginning on January 1, 2017. The Company does not expect the provisions of the ASU to have a material effect on our financial condition, results of operations or cash flows.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement to retrospectively apply adjustments made to provisional amounts recognized in a business combination. It requires that an acquirer recognize and disclose adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, which should be calculated as if the accounting had been completed at the acquisition date. The ASU will be effective for the Company beginning on January 1, 2016. The amendments in this ASU will be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for

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financial statements that have not been issued. We do not expect this guidance to have a material effect on our financial position, results of operations or cash flows.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The ASU does not change the existing requirement that only permits offsetting within a jurisdiction – that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. We adopted the ASU effective December 31, 2015 and applied the provisions prospectively, for all deferred tax assets and liabilities.

NOTE 2. ACQUISITIONS

Cadillac Jack

On May 29, 2015, the Company acquired 100% of the equity of Amaya Americas Corporation (“Cadillac Jack”), a leading provider of Class II gaming machines for the North American tribal gaming market, with key regions of operation within Alabama, Mexico, and Wisconsin. This acquisition is expected to create growth opportunities in Class II and Class III jurisdictions and expands the Company’s geographic footprint. The combined management teams are complementary and possess years of combined experience that is expected to allow us to effectively grow and improve our business.

The acquisition was funded primarily from cash proceeds of incremental borrowings on our existing term loans, the issuance of senior secured PIK notes, as described in Note 6, and the issuance of additional common stock, as described in Note 7. The consideration also included a promissory note to the seller, Amaya Inc., for $12.0 million, as described in Note 6, as well as a contingent receivable that was recorded at its estimated fair value on the date of the acquisition. The contingent receivable is 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.

The following summarizes the consideration paid for Cadillac Jack (in thousands):



Contractual cash purchase price adjusted for working capital	$	369,760
Seller note	12,000
Contingent receivable	(1,300		)
Total consideration	$	380,460

We have recorded Cadillac Jack’s assets acquired and liabilities assumed based on our preliminary 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 estimated fair values of Cadillac Jack’s assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. The significant items for which a final fair value has not been determined as of the filing of this report on Form 10-Q include accrued liabilities, deferred income taxes and other long-term liabilities. During the quarter ended September 30, 2015, we determined the final net working capital adjustment with the seller and recorded a $1.2 million adjustment to goodwill for the amount that we received from the seller. We expect to complete our fair value determinations no later than the second quarter of 2016. We do not currently expect our fair value determinations to change; however, there may be differences compared to those amounts reflected in our consolidated financial statements at December 31, 2015, as we finalize our fair value analysis and such changes could be material.

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AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

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



	At May 29, 2015
Currents assets⁽¹⁾	$	34,871
Property and equipment	29,634
Goodwill	171,497
Intangible assets	199,752
Other long-term assets	23,828
Total assets	459,582
Current liabilities	8,636
Deferred tax liability non-current	51,486
Other long-term liabilities	19,000
Total equity purchase price	$	380,460

⁽¹⁾Current assets includes $4.2 million of cash acquired.

Based on our preliminary estimates, the total consideration exceeded the aggregate estimated 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 enhanced financial scale and geographic diversification, opportunities for synergies, assembled workforce and other strategic benefits. None of the goodwill associated with ~~our~~the acquisition is deductible for income tax purposes and, as such, no deferred taxes have been recorded related to goodwill.

We included an estimated value of $8.3 million in current assets above and in deposits and other in the consolidated balance sheet related to the value of stock options held by employees of Cadillac Jack. The stock options entitle the holder to purchase shares of Amaya Inc., the former global parent of Cadillac Jack, based on the holder’s continued employment at Cadillac Jack through the vesting date.

Our preliminary estimates of the fair values of depreciable tangible assets are as follows (in thousands):

Our preliminary estimates of the fair values of identifiable intangible assets are as follows (in thousands):



	Fair values at May 29, 2015		Average remaining useful life (in years)
Trade names	$	3,000	5
Brand names	10,600		3 - 5
Customer relationships	107,000		5 - 12
Gaming software and technology platforms	79,152		2 - 7
Total intangible assets	$	199,752

The fair value of gaming equipment ~~leases~~and other personal property assets as well as the fair value of gaming content software was primarily determined using cost approaches in ~~Illinois should have been depreciated over 6 years~~which we determined an estimated reproduction or replacement cost, as ~~compared to 5 years.~~ applicable.

The ~~Company recorded adjustments for~~estimated fair values of acquired trade names, brand names and gaming technology platforms was primarily determined using the ~~cumulative effect~~royalty savings method, which is a risk-adjusted discounted cash flow approach. The gaming technology

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AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

platforms include $30.0 million of in-process research and development. The royalty savings method values an intangible asset by estimating the royalties saved through ownership of the ~~correction~~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 ~~June 2014 (see Note 6). Accordingly,~~such valuation was based on a consideration of market rates for similar categories of assets.

The estimated fair values of customer relationships was determined using the ~~Company~~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 estimated 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 estimated fair value of deferred income taxes was determined by applying the appropriate enacted statutory tax rate to the temporary differences that arose on the differences between the financial reporting value and tax basis of the assets acquired and liabilities assumed. We recorded ~~adjustments to~~liabilities for estimated uncertain tax positions in other long-term liabilities and a related indemnification receivable in other long-term assets.

The revenue and net loss of Cadillac Jack from the acquisition date through December 31, 2015, are presented below and are included in our consolidated statements of operations and comprehensive ~~loss and cash flows for~~loss. These amounts are not necessarily indicative of the ~~Predecessor Period and year ended December 31, 2012,~~results of operations that Cadillac Jack would have realized if it had continued to ~~conform~~operate as a stand-alone company during the ~~respective periods~~period presented, primarily due to the ~~current year presentation.~~elimination of certain headcount and administrative costs since the acquisition date resulting from integration activities or due to costs that are now reflected in our unallocated corporate costs and not allocated to Cadillac Jack.



	From May 29, 2015 through December 31, 2015
Revenue	$	46,075
Net loss	$	17,133

The ~~cumulative effect of the adjustments to the consolidated~~following unaudited pro forma statements of operations for the Predecessor Period resulted in an increase to gaming revenue of $31,000, an increase in gaming operating expenses of $1.0 million, an increase in selling and marketing expenses of $52,000, a decrease in depreciation and amortization of $1.3 million and a decrease in impairment of long lived assets of $75,000. The impact on net loss for the Predecessor Period was a decrease of $0.4 million. The cumulativegive effect ~~of the adjustments~~ to the ~~consolidated statements~~Cadillac Jack acquisition as if it had been completed on January 1, 2014. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of ~~cash flow for~~what the ~~Predecessor Period, resulted~~operating results actually would have been during the periods presented had the acquisition been completed on January 1, 2014. In addition, the unaudited pro forma financial information does not purport to project future operating results. This information is preliminary in ~~a decrease in depreciation~~nature and amortization of $1.3 million, a decrease in the decrease in impairment of long lived assets of $75,000, a decrease in the decrease in trade accounts receivable and notes receivable of $31,000, an increase in the increase in deposits and other of $0.3 million, a decrease in the decrease in other assets, non-current, of $0.6 million and a decrease in purchases of gaming equipment, vehicles and other equipment of $1.9 million.

subject to change based on final purchase price adjustments. The ~~cumulative effect of the adjustments to the consolidated~~pro forma statements of operations do not reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the Cadillac Jack acquisition.



	Year ended December 31,
	2015		2014
Revenue	$	156,110	$	160,341
Net loss	$	54,682	$	83,709

Gamingo Limited

On June 15, 2015, the Company purchased 100% of the equity of Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”), a leading gaming company developing social casino titles for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with slots, table games, tournaments, and live events. The total consideration of $8.8 million includes an estimated $5.0 million of contingent consideration that is payable based on the operating results of AGSi during a twelve-month measurement period that will end on December 31, 2016. The amount of the contingent consideration recorded was estimated at the purchase date and is subject to change based on changes in the estimated operating results of AGSi and has been recorded in other long-term

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AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

liabilities in the consolidated balance sheet. As of December 31, 2015 the recorded value of the contingent consideration was written off in full to write downs and other charges based on the estimated fair value on that date.

We have recorded AGSi’s assets acquired and liabilities assumed based on our preliminary estimates of their fair values at the acquisition date. The estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. The allocation of the consideration given was allocated to the estimated fair values of the assets acquired and the liabilities assumed, which primarily included $4.9 million of goodwill and $4.2 million of identifiable intangible assets to be amortized over a weighted average period of 3 years.

Intellectual Property Acquisitions

During the quarter ended September 30, 2015, the Company acquired certain intangible assets related to the purchase of table games and table game related intellectual property. Some of the acquisitions were accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our preliminary estimates of their fair values at the acquisition dates. The estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. The total consideration of $10.0 million includes an estimated $1.5 million of contingent consideration that is payable periodically based on a percentage of product revenue earned on the related table games. The amount of the contingent consideration recorded was estimated at the purchase date and is subject to change based on changes in the estimated product revenue and has been recorded in other long-term liabilities in the consolidated balance sheet. The consideration was allocated primarily to goodwill for $2.6 million and intangible assets for $6.5 million, which will be amortized over a weighted average period of 8.5 years.

Prior Years’ Acquisitions

On May 6, 2014, the Company purchased 100% of the equity of C2 Gaming, LLC (“C2 Gaming”) for $23.3 million in cash, subject to terms outlined in the equity purchase agreement (the “C2 Acquisition Agreement”). C2 Gaming is an innovative manufacturer and developer of slot machines based in Las Vegas, Nevada. The purchase was expected to provide for the distribution of C2 Gaming’s platform and content to an increased number of markets in the United States. The acquisition was funded by an initial cash payment and an agreement to pay the sellers $9.0 million on the one-year anniversary of the closing of the acquisition, which was paid during the quarter ended June 30, 2015. The acquisition also included an amount of contingent consideration of $3.0 million that was payable upon the satisfaction of certain milestones, including the submission and approval of video slot platforms to various jurisdictions as outlined in the C2 Acquisition Agreement.

The following summarizes the consideration paid for C2 Gaming (in thousands):



Paid at close	$	11,000
One-year payment	9,000
Contingent consideration	3,000
Working capital adjustment	273
Total consideration	$	23,273

During the year ended December 31, ~~2012, resulted in an increase in gaming operating expenses~~2014, the Company paid $0.5 million of ~~$0.9~~the contingent consideration. In May 2015, the C2 Acquisition Agreement was amended to reduce the remaining contingent consideration liability of $2.5 million to $2.1 million and ~~an increase in depreciation and amortization of $0.1 million. The impact on net loss for~~to acknowledge that the ~~year ended December 31, 2012 was an increase of $1.0 million. The cumulative effect~~milestones of the ~~adjustments~~C2 Acquisition Agreement were satisfied. In July 2015, the Company paid $1.0 million of the contingent consideration, reducing the balance to $1.1 million, which was paid in January 2016.

The allocation of the purchase price to the ~~consolidated statements~~estimated fair values of ~~cash flow for~~ the ~~year ended December 31, 2012, resulted in an increase in depreciation~~assets acquired and ~~amortization of $0.1 million, an increase in~~ the increase in deposits and other of $44,000, an increase in the increase in other assets, non-current, of $9,000 and a decrease in purchases of gaming equipment, vehicles and other equipment of $0.9 million.liabilities assumed was as follows (in thousands):

~~Reclassification~~

~~The Company reclassified~~ ~~$1.0 million~~ ~~in deferred loan costs to debt discount at December 31, 2013, to conform prior year amounts with current year presentation.~~



At May 6, 2014
Current assets	$	545
Property and equipment	534
Goodwill	13,744
Intangible assets	8,722
Total assets	23,545
Total liabilities	272
Total equity purchase price	$	23,273

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AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~NOTE 3. ACQUISITIONS~~

Our estimates of the fair values of depreciable tangible assets were as follows (in thousands):

Our estimates of the fair values of identifiable intangible assets were as follows (in thousands):

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

~~As discussed~~

The estimate of the fair value of the acquired gaming software and technology platforms was determined using the relief from royalty method under the income approach, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset.

The estimate of the fair value of the acquired 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 goodwill recorded as a results of the acquisition is deductible for tax purposes and is attributed to enhanced financial scale, expanded video slot platforms and other strategic benefits. Some of the values and amounts used in ~~Note 1 to~~ the initial application of purchase accounting for our consolidated ~~financial statements,~~balance sheet were based on estimates and assumptions.

On September 16, 2013, ~~the Company acquired, through a~~AGS Holdings, LLC (“AGS Holdings”), AGS Capital, LLC (“AGS Capital”) and AP Gaming Acquisition, LLC (“AP Gaming Acquisition”), an indirect wholly owned subsidiary of the Company and an affiliate of Apollo Global Management, LLC (“Apollo”), entered into an equity purchase agreement (as subsequently amended and restated on December 3, 2013, the “Acquisition Agreement”). The Acquisition Agreement provided for the purchase of 100% of the equity inof AGS Capital from AGS ~~Holdings.~~Holdings, LLC (the “AGS Capital Acquisition”) by AP Gaming Acquisition for an aggregate purchase price of approximately $220.5 million. The AGS Capital Acquisition was consummated on December 20, 2013.

The AGS Capital Acquisition was financed in part by the ~~Senior Secured Credit Facilities, which are comprised~~senior secured credit facilities (as described in Note 6) and from the issuance of the $155 million Term Facility and the $25 million Revolving Facility (each, as defined herein). AP Gaming I, LLC, an indirect wholly owned subsidiary of AP Gaming, is the borrower of the Senior Secured Credit Facilities, which are guaranteed by AP Gaming Holdings, LLC (“AP Gaming Holdings”), AP Gaming I, LLC’s direct parent company, and each of AP Gaming I, LLC’s direct and indirect material wholly owned domestic subsidiaries including AGS Capital. Additionally, the Company issued 10,000,000 Class A shares of common stock at $0.01 par value to Apollo Gaming Holdings, L.P. ~~The~~for a total cost to acquire all the outstanding shares was $100,000,000. The source of the funds for the acquisition of the Company was provided by committed equity capital contributed by certain equity funds managed by Apollo.

The contractual purchase price of $220.3 million, a seller note of $2.2 million, the settlement of $3.3 million in contingent consideration resulting in an additional seller note of $3.3 million issued in January 2014, and a working capital reduction of $5.3 million, resulted in an aggregate purchase price of $220.5 million. The contingent consideration of $3.3 million was based on certain financial performance metrics that were achieved between signing and closing.

The following summarizes the consideration paid for the ~~Acquisition of~~ AGS Capital Acquisition (in thousands):



Contractual cash purchase price	$	220,300
Seller notes	5,531
Working capital adjustment	(5,340		)
Total consideration	$	220,491

~~The Acquisition was accounted for as a business combination using the acquisition method~~

F-17

Table of accounting, whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values. Fair value measurements have been applied based on assumptions that market participants would use in the pricing of the assets or liabilities.Contents

During the Company’s continued review of the allocation of the purchase price to the identified tangible and intangible assets, the Company refined certain assumptions used in the calculation of the internally developed gaming software. As a result the Company reduced the value of the acquired internally developed gaming software by $1.5 million with a corresponding increase to goodwill in the first quarter of 2014.AP GAMING HOLDCO INC.

In the second quarter of 2014, the Company reduced the value of the acquired gaming equipment, vehicles and other equipment, net by $2.0 million with a corresponding increase to goodwill. The decrease to the gaming equipment, vehicles and other equipment, net was a result of the removal of installation and delivery costs that were included in the fair value of the gaming machines in the valuation (see Note 6).NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~An allocation of the purchase price has been made to major categories of assets and liabilities based on management’s estimates.~~

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


At December 20, 2013
Currents assets	$	17,858	$	17,858
Gaming equipment, vehicles and other equipment, net	46,734
Property and equipment			46,734
Goodwill	63,873		63,873
Intangible assets	97,512		97,512
Other long-term assets	1,616		1,616
Total assets	227,593		227,593
Total liabilities	7,102		7,102
Total equity purchase price	$	220,491	$	220,491

~~F-17~~

~~Table of Contents~~

Our estimates of the fair values of depreciable tangible assets were as follows (in thousands):

Fair values at December 20, 2013 Average remaining useful life (in years)
Gaming equipment, vehicles and other $ 46,734
1 - 5

Our estimates of the fair values of identifiable intangible assets were as follows (in thousands):

Fair values at December 20, 2013 Average remaining useful life (in years)
Trade name - “American Gaming Systems” $ 12,126
Indefinite
Trade name - “Gambler’s Choice” 809
7
Customer agreements and relationships 60,112
7
Third party licenses 11,520
3 - 5
Internally developed gaming software 10,872
1 - 5
Purchased software 2,073
1 - 5
$ 97,512



	Fair values at December 20, 2013		Average remaining useful life (in years)
Indefinite lived trade names	$	12,126	Indefinite
Trade and brand names	809		7
Customer relationships	60,112		7
Gaming software and technology platforms	24,465		1 - 5
Total intangible assets	$	97,512

The fair value of acquired ~~gaming~~property and equipment ~~vehicles and other,~~ was determined using cost approaches in which we determined an estimated reproduction or replacement cost, as applicable.

The fair values of acquired finite- and indefinite-lived trade names, ~~third party licenses~~gaming software and ~~internally developed gaming software~~technology platforms was determined using the relief from royalty method under the income approach, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be impacted by the trade name, 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 indefinite-lived trade name relates to "American Gaming Systems" and the finite-lived trade name relates to “Gambler’s Choice”.~~

The fair value of the acquired 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, including trade names and internally developed gaming software and third party licenses - was estimated 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.

As a result of the AGS Capital Acquisition, the Company recognized goodwill, ~~of $63.9 million at December 31, 2014,~~ which is deductible for tax purposes and is primarily attributed to enhanced financial scale, opportunities for synergies and opportunities with other Apollo related companies and other strategic benefits.

~~The following table presents the unaudited pro forma results as if the Acquisition had occurred at the beginning of the period presented (in thousands, except per share data):~~

Year ended December 31, 2013
Revenues $ 58,414
Loss from operations (5,176 )
Net loss (21,223 )
Basic and diluted loss per share common share (2.13 )

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Table of Contents

~~C2 Gaming, LLC acquisition~~

~~As discussed in Note 1 to the consolidated financial statements, on May 6, 2014,~~ ~~a wholly owned subsidiary of the Company entered into an agreement to purchase100% of the equity of~~ C2 Gaming, LLC (“C2 Gaming”) for $23.3 million in cash, subject to terms outlined in the C2 Acquisition Agreement. The acquisition was initially funded by a $10.0 million draw on our Revolving Facility (as defined herein) and available cash on hand. The consideration paid for the acquisition of C2 Gaming consisted of the following (in thousands):

Paid at close $ 11,000
One-year payment 9,000
Contingent consideration 3,000
Working capital adjustment 273
Total consideration $ 23,273

~~The acquisition of C2 Gaming was consummated on May 6, 2014. The one-year payment of~~ ~~$9.0 million~~ ~~is due to the sellers on the one-year anniversary of the closing of the acquisition. The contingent consideration of~~ ~~$3.0 million~~ is subject to the satisfaction of certain milestones, including the submittal and approval of video slot platforms to various jurisdictions as outlined in the C2 Acquisition Agreement. As these milestones were considered to be probable of being met within one year, the $3.0 million liability approximates fair value. During the year ended December 31, 2014, the Company paid $0.5 million of the contingent consideration. The remaining purchase price is expected to be funded by existing cash or existing availability on the Revolving Facility.

The acquisition was accounted for as a business combination using the acquisition method of accounting, whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values. Fair value measurements have been applied based on assumptions that market participants would use in the pricing of the assets or liabilities.

An allocation of the purchase price has been made to major categories of assets and liabilities based on management’s estimates. The allocation of the purchase price to the estimated fair values of the assets acquired and the liabilities assumed was as follows (in thousands):

At May 6, 2014
Current assets $ 545
Gaming equipment, vehicles and other equipment 534
Goodwill 13,744
Intangible assets 8,722
Total assets 23,545
Total liabilities 272
Total equity purchase price $ 23,273

~~Our estimates of the fair values of depreciable tangible assets were as follows (in thousands):~~

Fair values at May 6, 2014 Average remaining useful life (in years)
Gaming equipment, vehicles and other $ 534
1 - 5

~~Our estimates of the fair values of identifiable intangible assets were as follows (in thousands):~~

Fair values at May 6, 2014 Average remaining useful life (in years)
Colossal platform $ 1,559
5
Colossal titles 2,126
3
Colossal customer agreements and relationships 5,037
7
$ 8,722

The estimate of the fair value of acquired gaming equipment, vehicles and other, was determined using cost approaches in which we determined an estimated reproduction or replacement cost, as applicable.

The estimate of the fair value of the acquired Colossal platform and titles was determined using the relief from royalty method under the income approach, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset.

~~F-19~~

~~Table of Contents~~

The estimate of the fair value of the acquired customer agreements and 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.

As a result of the acquisition, the Company recorded goodwill of $13.7 million at December 31, 2014, which is deductible for tax purposes, primarily attributed to enhanced financial scale, expanded video slot platforms and other strategic benefits. Some of the values and amounts used in the initial application of purchase accounting for our consolidated balance sheet were based on estimates and assumptions.

NOTE ~~4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)~~

~~The following table presents the changes by component, net of tax, in accumulated other comprehensive income (loss) of the Company (in thousands):~~

Foreign currency translation Accumulated other comprehensive income (loss)
December 31, 2013 $ (1 ) $ (1 )
Current period other comprehensive gain 289
289
December 31, 2014 $ 288
$ 288

~~NOTE 5. CONTRACT RIGHTS UNDER DEVELOPMENT AGREEMENTS~~3. PROPERTY AND ~~CUSTOMER AGREEMENTS~~

The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. The Company recognized $58,000 and $0 for the year ended December 31, 2014, and the Successor Period, respectively, as a reduction of revenue as accretion of contract rights under development agreements and customer agreements. The Predecessor recognized $3.9 million for both the Predecessor Period and the year ended December 31, 2012, as a reduction of revenue as accretion of contract rights under development agreements and customer agreements.

In connection with the Acquisition, the contract rights under development agreements and customer agreements that existed at December 20, 2013 were ascribed no value and a new intangible asset related to “Customer agreements and relationships as a result of purchase accounting related to the Acquisition” was established (see Note 7). Amortization of the fair value of this asset will be recorded in depreciation and amortization expense in the consolidated statements of operations and comprehensive loss.

~~NOTE 6. GAMING EQUIPMENT, VEHICLES AND OTHER~~ EQUIPMENT

~~Gaming equipment, vehicles~~Property and ~~other~~ equipment, net consist of the following (in thousands):


	December 31, 2014			December 31, 2013			December 31, 2015			December 31, 2014
Gaming equipment	$	50,516		$	44,212		$	89,361		$	53,295
Vehicles and other equipment	6,681			5,770
Other property and equipment⁽¹⁾							14,976			3,902
Less: Accumulated depreciation	(16,428		)	(477		)	(37,638		)	(16,428		)
Total gaming equipment, vehicles and other equipment, net	$	40,769		$	49,505
Total property and equipment, net							$	66,699		$	40,769

~~The above amounts,~~⁽¹⁾ $2.8 million included in other property and equipment as of December 31, 2014 ~~and 2013, include net fair value adjustments recorded as part of purchase accounting that increased~~has been reclassified to gaming equipment to be consistent with the ~~aggregate carrying value of property and equipment as of the Closing Date (see Note 3).~~current year presentation.

Gaming equipment ~~vehicles~~ and other property and equipment are depreciated over the respective useful lives of the assets ranging from three to ~~seven~~six years. Depreciation expense was ~~$16.8 million, $0.5 million, $14.7~~$23.4 million and ~~$14.6~~$16.8 million for the year ended December 31, 2015 and 2014, respectively. Depreciation expense was $0.5 million and $14.7 million for the Successor Period ~~the~~and Predecessor Period, ~~and the year ended December 31, 2012,~~ respectively.

~~F-20~~

~~Table of Contents~~

~~Immaterial Error Correction~~

The Company determined that costs to install and deliver leased gaming machines were being capitalized and incorrectly depreciated over the useful life of the machine rather than capitalized as initial direct costs and amortized over the term of the lease in accordance with ASC 840-20-35-2. Additionally, the Company determined the gaming machines associated with our gaming equipment leases in Illinois should have been depreciated over 6 years as compared to 5 years given this period represents the estimated term of leases in Illinois and the fact that this represents the useful life in this jurisdiction. Based on the analysis performed, the estimated fair value of gaming equipment, vehicles and other equipment acquired in the Acquisition was overstated by $2.0 million. The Company reduced gaming equipment, vehicles and other equipment by $2.0 million with a corresponding increase to goodwill in the second quarter of 2014. For activity subsequent to the Acquisition, the cumulative effect of the analysis performed as of June 30, 2014, resulted in a decrease to gaming equipment of $2.0 million, an increase to deposits and other of $0.2 million, an increase to other assets of $0.4 million. Additionally, depreciation expense was reduced by $0.3 million in June 2014 for activity related to the period from the Acquisition date to the second quarter of 2014. We have performed an evaluation to determine if the financial statement impact resulting from these errors in accounting were material, considering both quantitative and qualitative factors. Based on this materiality analysis, we concluded correcting the cumulative error would be immaterial to the current year financial statements and a correction of the errors, individually and in the aggregate, would not have a material impact to any individual prior post Acquisition period financial statements. Accordingly, we recorded the entire cumulative reduction to depreciation expense of $0.3 million ($0.03 per share) in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2014. Additionally, to conform the Predecessor financial statements to the current year presentation, the Company recorded adjustments in the Predecessor Period and the year ended December 31, 2012 (see Note 2).

NOTE 7.4. GOODWILL AND INTANGIBLES

~~The~~

There were no accumulated impairments of goodwill as of December 31, 2015. Changes in the carrying amount of goodwill isare as follows (in thousands):

December 31, 2014 December 31, 2013
Gross Carrying amount
Accumulated
Impairment

Net Carrying
Value
Gross Carrying amount Accumulated
Impairment Net Carrying
Value
Goodwill $ 77,617
$ —
$ 77,617
$ 60,384
$ —
$ 60,384



	Gross Carrying Amount
Balance at December 31, 2014	$	77,617
Acquisition - Cadillac Jack	171,497
Acquisition - AGSi	4,855
Acquisition - Intellectual Property	2,600
Foreign currency adjustments	(2,282		)
Other	(436		)
Balance at December 31, 2015	$	253,851

As discussed in Note 2, the Company evaluates goodwill for impairment annually on October 1. The Company performed a qualitative assessment, Step 0, of goodwill as of October 1, 2014, and determined that it is not more-likely-than-not that the Company’s reporting unit’s fair value is less than its carrying value; therefore no further impairment testing was performed.

Intangible assets consist of the following (in thousands):

December 31, 2014 December 31, 2013
Useful life (years)
Gross
Value

Accumulated
Amortization

Net Carrying
Value

Gross
Value

Accumulated
Amortization

Net Carrying
Value
Trade name - “American Gaming Systems” Indefinite $ 12,126
$ —
$ 12,126
$ 12,126
$ —
$ 12,126
Trade name - “Gambler’s Choice” 7 809
(119 ) 690
809
(3 ) 806
Customer agreements and relationships as a result of the Acquisition 7 60,112
(8,841 ) 51,271
60,112
(254 ) 59,858
Customer agreements and relationships as a result of the C2 Gaming acquisition 7 5,037
(472 ) 4,565
—
—
—
Customer agreements 1 - 7 678
(58 ) 620
—
—
—
Covenants not to compete 3 10
—
10
—
—
—
Third party licenses 3 - 5 11,520
(2,437 ) 9,083
11,520
(70 ) 11,450
Internally developed gaming software 1 - 5 14,504
(3,509 ) 10,995
12,474
(108 ) 12,366
Acquired intellectual property 10 - 20 10,965
(811 ) 10,154
—
—
—
Purchased software 1 - 5 2,854
(483 ) 2,371
2,076
(18 ) 2,058
$ 118,615
$ (16,730 ) $ 101,885
$ 99,117
$ (453 ) $ 98,664



		December 31, 2015							December 31, 2014
	Useful Life (years)	Gross Value		Accumulated Amortization			Net Carrying Value		Gross Value		Accumulated Amortization			Net Carrying Value
Indefinite lived trade names	Indefinite	$	12,126	$	—		$	12,126	$	12,126	$	—		$	12,126
Trade and brand names	7	13,600		(1,721		)	11,879		809		(119		)	690
Customer relationships	7	170,927		(26,676		)	144,251		65,159		(9,313		)	55,846
Contract rights under development and placement fees	1 - 7	16,311		(548		)	15,763		678		(58		)	620
Gaming software and technology platforms	1 - 5	116,930		(23,735		)	93,195		32,564		(7,108		)	25,456
Intellectual property	10 - 20	14,030		(888		)	13,142		7,279		(132		)	7,147
		$	343,924	$	(53,568	)	$	290,356	$	118,615	$	(16,730	)	$	101,885

~~F-21~~

~~Table of Contents~~

The above amounts as of December 31, 2014 and December 31, 2013, include net fair value adjustments recorded as part of purchase accounting that increased the aggregate carrying value of intangible assets as and resulted in the recognition of $60.4 million in goodwill as of the Closing Date that was further adjusted to $63.9 million as of December 31, 2014 (see Note 3). The Company recognized an additional $13.7 million in goodwill as a result of the acquisition of C2 Gaming on May 6, 2014 (see Note 3).

~~On the Closing Date, the Company recognized a $12.1 million indefinite lived asset related to the “American Gaming Systems” trade name and a $0.8 million intangible asset~~ related to the “Gambler’s Choice” trade name with an estimated useful life of 7 years. Additionally, the Company recorded $60.1 million in customer agreements and relationships on the Closing Date as a result of the valuation. The Company reviewed the terms of the agreements and the historical relationship with their existing customers and determined an estimated useful life of 7 years.

In connection with the acquisition of C2 Gaming, the Company recognized $5.0 million in customer agreements and relationships and $3.7 million in acquired intellectual property as of December 31, 2014.

~~The Company accounted for the acquisition of Casino War Blackjack as an asset acquisition, where the acquired~~Intangible assets are measured by allocating the cost of the acquisition on a relative fair value basis. The cost of the acquisition was allocated to intellectual property owned by Casino War Blackjack. In addition to the acquisition of Casino War Blackjack, during the year ended December 31, 2014, the Company acquired intellectual property related to several table games patents, including $3.8 million paid to a single entity. The total acquired intellectual property for the year ended December 31, 2014 was $7.3 million.

On January 9, 2012, the Predecessor entered into a definitive agreement (the “Definitive Agreement’) with Bluberi Gaming Technologies, Inc. (“Bluberi”) pursuant to which the Predecessor agreed to terminate its existing distribution agreement with Bluberi (the “Existing Distribution Agreement”) and to purchase all of Bluberi’s right, title and interest in certain game titles covered by the Existing Distribution Agreement (the “Bluberi Transaction”). In connection therewith, the Predecessor agreed to pay $22.8 million to Bluberi and to enter into a five-year service agreement with Bluberi for which the Predecessor would pay Bluberi a $2.0 million servicing fee paid ratably over the term of the service agreement and a one-time $1.0 million performance-based bonus. According to the Definitive Agreement, $3.5 million was due to Bluberi upon execution of the Definitive Agreement and $19.3 million (the “Balance”) was due no later than February 28, 2012 subject to certain restrictions as defined. At the Predecessor’s option, payment of the approximately $19.3 million could be extended one month by paying approximately $2.5 million (the “First Option Payment”) no later than February 28, 2012 and could be extended an additional month by paying approximately $2.5 million (the “Second Option Payment”) no later than March 31, 2012 with both payments applying to the Balance. On March 27, 2012, an addendum to the Definitive Agreement was executed which eliminated the Second Option Payment and replaced it with payments of approximately $0.5 million due March 30, 2012, April 6, 2012, April 13, 2012, April 20, 2012 and April 27, 2012. On May 11, 2012, the Predecessor made its final payment in accordance with the Definitive Agreement and its addendum using proceeds from the capital contribution (see Note 12).

On April 2, 2012, the Predecessor entered into a Letter of Intent to purchase the assets of a video lottery terminal business for a total cash consideration of approximately $5.0 million. $1.8 million of the purchase price would be paid upon the execution of an asset purchase agreement and $3.0 million would be paid at closing. On April 5, 2012, the Predecessor paid $0.2 million (the “Lock-up Fee”) to secure a 60-day exclusivity period, to perform due diligence related to the acquisition. The Predecessor also received a license for a game title as consideration for the Lock-up Fee. The payment of the Lock-up Fee is included as part of purchased software on the accompanying consolidated financial statements. On May 31, 2012, the Predecessor terminated its Letter of Intent for the acquisition and received a license for an additional game title.

On July 13, 2012, the Predecessor entered into a contract rights under development agreement with a new tribal customer for the right to place 64 Class II games in exchange for a single up-front payment of $0.6 million. The amount will be amortized over the life of the agreement.

~~Intangibles~~ are amortized over ~~the~~their respective estimated useful lives ~~of the assets~~ ranging from one to ~~ten~~twenty years. ~~The weighted average useful life for our definite-live intangible assets was 6.4 years as of December 31, 2014.~~ Amortization expense related to ~~intangibles, inclusive of contract rights under development agreements and customer agreements,~~intangible assets was ~~$16.8 million, $0.5 million, $16.8~~$38.3 million and ~~$19.0~~$16.6 million for the year ended December 31, 2015 and 2014, respectively, and $0.4 million and $13.0 million for the Successor Period ~~the~~and Predecessor Period, ~~and the year ended December 31, 2012,~~ respectively. Included in depreciation and amortization expense is amortization of internally developed software of $3.6 million, $0.1 million, $3.2 million and $3.5 million for the year ended December 31, 2014, the Successor Period, the Predecessor Period and the year ended December 31, 2012, respectively.

Management reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the year ended December 31, 2015 and 2014, the Company recognized an impairment charge of $3.4 million and $1.4 million, respectively, related to ~~the~~ internally developed gaming titles that were

F-19

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AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

discontinued. During the Predecessor Period, the ~~Predecessor~~Company recognized an impairment charge of $1.7 million related to lease incentives paid to a customer.

~~F-22~~

~~Table of Contents~~

~~customer. For~~The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the ~~year ended December 31, 2012,~~development agreements are repaid to the ~~Predecessor recognized an impairment of $3.7 million, related to decreasing~~Company in accordance with the ~~carrying value~~terms of the ~~cashless gaming system licenses required to operate certain gaming machines.~~

~~As discussed~~agreement, whereas placements fees are not reimbursed. For development agreements in ~~Note 2,~~ the ~~Company does not amortize its “American Gaming Systems” trade name, but instead tests for possible impairment at least annually or when circumstances warrant. The Company performed~~form of a ~~qualitative assessment~~loan, interest income is recognized on the repayment of the ~~“American Gaming Systems” trade name~~notes based on the stated rate or, if not stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to be other than a market rate or zero, a discount is recorded on the note receivable as ~~of October 1, 2014, and determined that it is not more-likely-than-not that the fair value~~a result of the ~~“American Gaming Systems” trade name~~difference between the stated and market rate and a corresponding intangible asset is ~~less than its carrying value; therefore no further impairment testing was performed.~~

recorded. The ~~estimated amortization~~intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense ~~on software development, purchased software and intangible assets, inclusive~~is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and ~~customer~~placement fees of $0.5 million for the year ended December 31, 2015. The amounts amortized in 2014 and the Successor Period were nominal. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $3.9 million for the Predecessor Period.

The estimated amortization expense of definite-lived intangible assets as well as the accretion of contract rights under development and placement fees, for each of the next five years and thereafter is as follows (in thousands):


			Amortization Expense		Placement Fee Accretion
For the year ended December 31,
2015	$	17,873
2016	17,852		$	52,113	$	4,663
2017	14,414		48,047		4,537
2018	13,547		40,805		3,795
2019	10,222		33,706		2,609
2020			26,943		57
Thereafter	15,851		60,853		102

~~NOTE 8. CANADIAN PAYROLL TAX RECEIVABLE~~

Certain Company expenditures incurred through its subsidiary AGS Toronto are eligible for the Ontario Interactive Digital Media Tax Credit (“OIDMTC”). The OIDMTC is a refundable payroll tax credit paid to corporations that develop interactive digital media products within Ontario. The OIDMTC is based upon the Ontario labor expenditures and eligible marketing and distribution expenditures claimed by a qualifying corporation with respect to eligible products. For a certified game developer, eligible expenses include Ontario salaries and wages. The developer must incur at least $1 million of Ontario labor expenses per year developing eligible interactive digital media games to qualify.

Pursuant to the Acquisition Agreement the Canadian payroll tax receivable balance, on the Closing Date, was retained by AGS Holdings. The Company has recognized a Canadian payroll tax receivable related to the OIDMTC of $0.2 million and $23,000 as of December 31, 2014 and 2013, respectively, included in other assets in the accompanying consolidated balance sheets.

NOTE 9.5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following (in thousands):


	December 31, 2014		December 31, 2013		December 31, 2015		December 31, 2014
Trade accounts payable	$	1,266	$	2,005	$	4,776	$	1,517
Salary and payroll tax accrual	3,002		1,660		5,851		3,002
Accrued commission	351		318
C2 Gaming one-year payout (see Note 3)	9,000		—
C2 Gaming contingent consideration (see Note 3)	2,500		—
Proceeds from employees in advance of common stock issuance (see Note 11)	1,969		—
Taxes payable					2,440		566
Accrued interest					8		499
C2 Gaming one-year payout (see Note 2)					—		9,000
C2 Gaming contingent consideration (see Note 2)					1,125		2,500
Proceeds from employees in advance of common stock issuance					—		1,969
Placement fees payable					4,525		—
Accrued other	4,707		2,264		4,305		4,263
Total accounts payable and accrued liabilities	$	22,795	$	6,247	$	23,030	$	23,316

~~F-23~~F-20

Table of Contents

AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE ~~10.~~6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

December 31, 2014 December 31, 2013
$155 million Term Facility, interest above LIBOR or base rate (9.25% at December 31, 2014), net of unamortized discount of $5.0 and $5.6 million at December 31, 2014 and 2013, respectively. $ 148,447
$ 149,396
$25 million Revolving Facility, interest above LIBOR or base rate (8.46% at December 31, 2014). 10,000
—
Equipment long-term note payable 2,230
—
Seller notes 6,012
5,531
Total debt 166,689
154,927
Less—Amounts due within one year (2,495 ) (1,550 )
Long-term debt $ 164,194
$ 153,377



	December 31, 2015			December 31, 2014
Senior secured credit facilities:
Term loans, interest at LIBOR or base rate plus 8.25% (9.25% at December 31, 2015), net of unamortized discount of $10.9 million and $5.0 million at December 31, 2015 and December 31, 2014, respectively.	$	404,019		$	148,447
$40 million revolving credit facility, interest at LIBOR or base rate plus 8.25%	—			10,000
Senior secured PIK notes, net of unamortized discount of $3.3 million at December 31, 2015	119,292			—
Seller notes	18,902			6,012
Equipment long-term note payable and capital leases	5,826			2,230
Total debt	548,039			166,689
Less: Current portion	(6,919		)	(2,495		)
Long-term debt	$	541,120		$	164,194

Senior Secured Credit Facilities

~~Concurrent with the consummation of the Acquisition, on the Closing Date~~

On December 20, 2013, the Company entered into our senior secured credit facilities, which ~~consist~~consisted of ~~a $155~~$155.0 million in term ~~loan facility (the “Term Facility”)~~loans and a ~~$25~~$25.0 million revolving credit ~~facility (the “Revolving Facility”~~facility. On May 29, 2015, the Company entered into incremental facilities for $265.0 million in term loans and ~~together with~~on June 1, 2015, the ~~Term Facility, the “Senior Secured Credit Facilities”). AP Gaming I, LLC (the “Borrower”), a wholly owned indirect subsidiary~~Company entered into an incremental agreement for an additional $15.0 million of AP Gaming, is the borrower under the Senior Secured Credit Facilities and Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc. acted as joint lead arrangers and joint bookrunners for the Senior Secured Credit Facilities.

incremental revolving commitments. The proceeds of the ~~Term Facility~~incremental term loans were used ~~by the Borrower, together with the proceeds of the equity contribution and other sources of funds,~~primarily to pay the consideration for the Acquisition, to refinance the Company’s existing credit facilities and to pay the costs and expenses of the Acquisition and other related transactions. The proceeds of the Revolving Facility will be used by the Borrower from time to time for general corporate purposes and other purposes agreed to with the lenders. In May 2014, the Company drew $10.0 million on the Revolving Facility, the proceeds of which were used to partially finance the acquisition of C2 Gaming.Cadillac Jack acquisition.

The ~~Term Facility~~term loans will mature on ~~the seventh anniversary of the Closing Date,~~December 20, 2020, and the ~~Revolving Facility~~revolving credit facility will mature on ~~the fifth anniversary of the Closing Date.~~December 20, 2018. The ~~Term Facility requires~~term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the ~~Term Facility~~term loans bear interest at a rate equal to, at the ~~Borrower’s~~Company’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the ~~Revolving Facility~~revolving credit facility bear interest at a rate equal to, at the ~~Borrower’s~~Company’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the ~~Borrower~~Company is required to pay each lender under the ~~Revolving Facility~~revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum. ~~As of December 31, 2014, $10.0 million was outstanding under the Revolving Facility. In the first quarter of 2015 the Company drew an additional $1.0 million under the Revolving Facility.~~

The ~~Senior Secured Credit Facilities~~senior secured credit facilities are guaranteed by AP Gaming Holdings, LLC, the ~~Borrower’s~~AP Gaming I, LLC’s (the “Borrower”) material, wholly owned domestic subsidiaries (subject to certain exceptions), and are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. The ~~Senior Secured Credit Facilities~~senior secured credit facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 5.5 to 1 beginning with the first quarter ending June 30, 2014. The ~~Senior Secured Credit Facilities~~senior secured credit facilities contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The ~~Senior Secured Credit Facilities~~senior secured credit facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. The Company was in compliance with the covenants of the ~~Senior Secured Credit Facilities~~senior secured credit facilities at December 31, ~~2014.~~2015.

~~In connection~~

Senior secured PIK notes

On May 29, 2015, the Company entered into a note purchase agreement with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as purchaser (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent. Pursuant to the ~~Acquisition,~~agreement, the Company issued $115.0 million of its 11.25% senior secured PIK notes due 2021 (the “Notes”) at an issue price of 97% of the principal amount thereof to the Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The Notes are secured

F-21

Table of Contents

AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.

Seller notes

On December 20, 2013, the Company issued two promissory notes (the ~~“Seller~~“AGS Seller Notes”) to AGS Holdings, LLC, in the amounts of $2.2 million and $3.3 million, to satisfy the conditions set forth in the Acquisition Agreement. At December 31, ~~2014,~~2015, notes payable related to the AGS Seller Notes totaled ~~$6.0~~$6.5 million, which ~~included $0.5 million in~~includes capitalized ~~interest.~~interest of $1.0 million. The AGS Seller Notes accrue interest on the unpaid principal balance at 8.5% per annum and shall be payable ~~in United~~

~~F-24~~

~~Table of Contents~~

~~States dollars~~ semi-annually in arrears on June 30 and December 31, ~~(and on the Maturity Date),~~ commencing on June 30, 2014. Any interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of this AGS Seller Notes. All principal and interest under the AGS Seller Notes ~~are~~is due and payable on June 18, 2021, ~~(the “Maturity Date”).~~the maturity date. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the AGS Seller Notes.

~~In January 2014,~~

Equipment Long Term Note Payable and Capital Leases

The Company has entered into a financing agreement to purchase certain gaming devices, ~~and/or~~ systems and related equipment ~~in the amount~~and has entered into leases for servers and equipment that are accounted for as capital leases.

Scheduled Maturities of ~~$2.7 million. The agreement requires monthly payments commencing 90 days from the date of delivery with a term of 34 months at an annual fixed interest rate of 7.5%.~~Long-Term Debt

Aggregate contractual future principal payments (excluding the effects of repayments for excess cash flow) of long-term debt for the years following December 31, ~~2014,~~2015, are as follows (in thousands):

F-22

Table of Contents

AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)


Years ending December 31,	Successor			Successor
2015	$	2,495
2016	2,569			$	6,919
2017	1,816			6,325
2018	11,550			5,283
2019	1,550			4,234
2020				397,953
Thereafter	151,712			141,521
Total scheduled maturities	171,692			562,235
Unamortized debt discount	(5,003		)	(14,196		)
Total long-term debt	$	166,689		$	548,039

NOTE ~~11.~~7. STOCKHOLDERS’ EQUITY

Common Stock

The ~~Company is authorized to issue up to 30,000,100 shares of its~~Company’s common stock ~~$0.01 par value per share,~~consists of ~~which 10,000,100 shares were issued and outstanding as of December 31, 2014. After the Acquisition, the Company restructured its common stock into~~ two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”), with Apollo Gaming Holdings, L.P. holding 10,000,000 Class A Shares. On April 28, 2014, upon receipt of all required governmental regulatory approvals, Apollo Gaming Holdings, L.P. exchanged its 10,000,000 Class A Shares for 10,000,000 Class B Shares, and the Company issued 100 Class A Shares to AP Gaming VoteCo, LLC.. The holders of the Class A Shares are entitled to one vote per share on all matters to be voted on by the stockholders of the Company. The holders of the Class A Shares have no economic rights or privileges, including rights in liquidation, and have no right to receive dividends or any other distributions. The holders of the Class B Shares have no right to vote on any matter to be voted on by the stockholders of the Company. Each holder of Class B Shares is entitled to share equally, share for share, dividends declared, as well as any distributions to the stockholders, and in the event of the Company’s liquidation, dissolution or winding up, is entitled to share ratably in any remaining assets after payment of or provision for liabilities and the liquidation on preferred stock, if any.

On April 28, 2014, ~~the Company~~our controlling stockholder exchanged its 10,000,000 Class A Shares for 10,000,000 Class B Shares. On May 29, 2015, we issued ~~20,000~~an additional 4,931,529 Class B Shares to ~~its President and Chief Executive Officer~~our controlling stockholder for ~~$0.2 million, which shares were subsequently repurchased by~~total proceeds of $77.4 million. The funds received from the ~~Company on August 7, 2014. On August 8, 2014, the Company entered into subscription agreements to issue 196,875~~May 2015 issuance of Class B Shares were used, in addition to ~~certain employees, which shares were issued upon the Company obtaining approval for such issuance~~proceeds from the ~~Nevada Gaming Commission in January 2015. This~~ issuance ~~qualifies as shares~~of long-term debt, to fund the acquisition of Cadillac Jack.

As of December 31, 2015, 107,498 Class B Shares issued to a “Management ~~Holder”~~Holder,” as defined in the Securityholders Agreement dated April 28, 2014 (the “Securityholders Agreement”). were outstanding. The Class B Shares issued to Management Holder’s are not considered issued for accounting purposes as they contain a substantive performance condition that must be met for the Management Holder to benefit from the ownership of the shares. As a result, shares issued to Management Holder’s are not considered issued for accounting purposes until such time that the performance condition is met.

Class B Shares that are held by a Management Holder are subject to repurchase rights (the “Repurchase Rights”), as outlined in Section 6 of the Securityholders Agreement, that are contingent on the Management Holder’s termination. The Repurchase Rights enable the Company to recover the Class B Shares issued to a Management ~~Holders~~Holder without transferring any appreciation of the fair value of the stock to the Management Holder upon certain terminations of the Management Holder’s employment prior to a “Qualified Public Offering”, as defined in the Securityholders Agreement. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such Management Holder without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for the ~~lessor~~lesser of original cost and fair market value. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering other than as described above and in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for fair market value. ~~The Qualified Public Offering~~

~~F-25~~

~~Table of Contents~~

represents a substantive performance condition that must be met for the Management Holder to benefit from the ownership of the shares. As a result, in accordance with ASC 718, shares issued to Management Holders are not considered issued for accounting purposes until such time that the performance condition is met.

~~As of December 31, 2014, the Company received~~ ~~$2.0 million~~ in cash from certain members of management in respect of the purchase of Class B Shares. Regulatory approvals were obtained for the issuance of Class B Shares to certain employees in January 2015. As of December 31, 2014, these payments were classified within accounts payable and accrued expenses on the consolidated balance sheet.

~~Preferred Stock~~

The Company is authorized to issue up to 100,000 shares of preferred stock, $0.01 par value per share, of which none were issued as of December 31, 2014. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the preferred stock in one or more classes or series, to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding) and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, powers, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by a majority of the entire Board providing for the issuance of such class or series including, without limitation, the authority to provide that any such class or series may be (a) subject to redemption at such time or times and at such price or prices, (b) entitled to receive dividends (which may be cumulative or noncumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series, (c) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Company, or (d) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Company at such price or prices or at such rates of exchange and with such adjustments, all as may be stated in such resolution or resolutions. Notwithstanding the foregoing, the rights of each holder of the preferred stock shall be subject at all times to compliance with all gaming and other statutes, laws, rules and regulations applicable to the Company and such holder at that time.

~~NOTE 12. RELATED PARTY TRANSACTIONS~~

During 2010, the Predecessor entered into a separate exclusive distributor agreement with Game Ingenuity (in which a related party is a principal) to place or sell games developed utilizing Game Ingenuity intellectual property into all markets where the Company is licensed or will be licensed within one year from the placement of the first game, or as otherwise mutually agreed between the parties. During the year ended December 31, 2014, the Company incurred $0.2 million in expenses as part of this agreement. During the Predecessor Period, the Predecessor incurred $0.2 in expenses as part of this agreement. The Predecessor did not incur any expense related to this agreement for the year ended December 31, 2012.

During 2012, the Predecessor’s member contributed capital totaling $60.7 million to the Predecessor. $50.7 million of the 2012 contributed capital was utilized to cure debt covenant violations, repay the current obligations of debt (See Note 10), finance the final payment of the Definitive Agreement and to provide working capital for the Predecessor. $10.0 million of the 2012 contributed capital was a forgiveness of long-term debt to a related party that occurred in August 2012 associated with the Predecessor entering the Initial Term Loan.

~~For the Predecessor Period and the year ended December 31, 2012, the Predecessor paid Alpine Management Services, III LLC $0.3 million and $0.2 million, respectively, for consulting services.~~

In July 2014, the Company entered into an agreement to purchase intellectual property developed by an employee of the Company. The Company pays royalties to the employee based on revenue generated from games developed by the employee. For the year ended December 31, 2014, the Company incurred $519 in expense as part of the agreement.

NOTE ~~13.~~8. WRITE DOWNS AND OTHER CHARGES

The consolidated statements of operation and comprehensive loss include various non-routine transactions and related ~~party~~ consulting fees. For the year ended December 31, 2015, the Company recognized $11.8 million in write-downs and other charges primarily related to acquisition related charges of $8.2 million. The Company also recognized an impairment to intangible assets of $3.4 million related to game titles, write offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.3 million and the impairment of long-lived assets of $0.2 million, partially offset by net write downs of primarily contingent consideration of $2.7 million that is described in Note 2.

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Table of Contents

For the year ended December 31, 2014, the Company recognized ~~$3.0~~$7.1 million in write-downs and other charges primarily related to acquisition charges of $2.8 million, losses from the disposal of assets of $1.9 million, an impairment to intangible assets of $1.4 million and an impairment of ~~prepaid royalties, fees related to the acquisition~~long-lived assets of ~~C2 Gaming and other professional fees.~~ $0.8 million.

For the Successor Period ending December 31, 2013, the Company recognized $7.5 million in write-downs and other charges for fees related to the AGS Capital Acquisition. For the Predecessor Period, the ~~Predecessor~~Company recognized ~~$4.4~~$10.3 million in write downs and other charges that primarily consisted of $3.9 million in fees related to the AGS Capital Acquisition, $3.3 million related to the impairment of long-lived assets, $1.7 million related to the impairment of intangible assets, $0.5 million related to the write-down of phantom unit compensation and $0.3 million for consulting fees paid to a related party. For the year ended December 31, 2012, the Company had $3.7 million in write downs and other charges that consisted of $3.5 million of costs related to the write off of debt issue costs related to the 2007 UBS debt agreement and other

~~F-26~~

~~Table of Contents~~

~~costs incurred in conjunction with an unsuccessful financing transaction as well as $0.2 million for consulting fees paid to a related party.~~

NOTE ~~14.~~9. BASIC AND DILUTED LOSS PER SHARE

The Company computes net ~~loss~~income (loss) per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the consolidated statement of operations and comprehensive ~~loss.~~income (loss). Basic EPS is computed by dividing net ~~loss~~income (loss) for the period by the weighted average number of shares outstanding during the period. Basic EPS excludes Class B Shares issued to Management Holders until the performance condition or termination event is considered probable (see Note ~~11)~~7). Until such time, the Class B Shares issued to Management Holders will be included in the calculation of ~~Diluted~~diluted EPS using the treasury stock ~~method.~~method and are treated as stock options. Diluted EPS is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note ~~16)~~11).

There were no potentially dilutive securities for the year ended December 31, 2015.

Excluded from the calculation of diluted EPS for the year ended December 31, ~~2014, were~~2015, are 50,000 restricted shares and 0.3 million stock options, as such securities were anti-dilutive. ~~There were no potentially dilutive securities during the Successor Period.~~

NOTE ~~15.~~10. BENEFIT PLANS

The Predecessor implemented the AGS Holdings Inc. Phantom Units Plan (the “Plan”) which was intended to reinforce and encourage the continued attention and dedication of certain Covered Executives (as defined) to their assigned duties to the Predecessor until a Change in Control (as defined) ~~has~~ occurred. Units of the Plan ~~have been~~were issued as a percentage and in terms of number of units within the Plan at a strike price of $56.0 million and ~~vest~~vested over a period of up to four years. The value of the units was determined as the product of the percentage held in the Plan and the summation of the enterprise value of the Company less the net debt of the Company less the strike price. During 2013, $2.1 million was paid out under the terms of the Plan. During the second quarter of 2014, the Plan was finalized and settled resulting in a payment of approximately $22,000 to Plan unit holders.

The Company has established a 401(k) defined contribution plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows employees to contribute up to 15% of their pretax earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the 401(k) Plan for the year ended December 31, 2015, December 31, 2014, the Successor Period and the Predecessor Period was $0.6 million, $0.3 million, $7,000 and $0.2 million, respectively. The increase in the expense associated with the 401(k) Plan compared to the prior year was due to the inclusion of Cadillac Jack, which accounted for $0.2 million of the expense for the year ended December 31, ~~2012 was $0.3 million, $7,000, $0.2 million and $0.2 million, respectively.~~2015.

On April 28, 2014, the Board of Directors of the Company approved the 2014 Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase Class B Shares, restricted stock, restricted stock units and other awards to be settled in, or based upon, Class B Shares to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate ten years after approval by the Board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of Class B Shares that may be delivered pursuant to awards under the LTIP is 1,250,000.

~~On April 28, 2014, in connection with the approval~~

F-24

Table of the LTIP, the President and Chief Executive Officer of the Company acquired (i) 20,000 Class B Shares (as described above), (ii) an aggregate of 50,000 restricted shares of Class B Shares, which vest in five equal installments on each of the first five anniversaries of the grant date of such restricted shares, subject to partial acceleration upon the occurrence of certain terminations of employment, (iii) a fully vested option to purchase 30,000 Class B Shares under the LTIP and (iv) an option to purchase 225,000 Class B Shares under the LTIP, which option will vest as described in Note 16. On August 7, 2014, the Company repurchased the 20,000 Class B shares issued to the Chief Executive Officer and on August 8, 2014, the Company entered into subscription agreements with certain employees to issue 196,875 Class B Shares, which shares were issued upon the Company obtaining approval for such issuance from the Nevada Gaming Commission in January 2015.Contents

AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE ~~16.~~11. SHARE-BASED COMPENSATION

Stock Options

~~During the year ended December 31, 2014, the~~

The Company has granted stock awards to eligible participants under the LTIP. The stock awards include options to purchase the Company’s Class B Shares. These stock options include a combination of service and market conditions, as further described below. In addition, these stock options include a performance vesting condition, a Qualified Public Offering (see Note ~~11)~~7), which is not considered to be probable as of December 31, ~~2014.~~2015. As a

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~~Table of Contents~~

result, no share-based compensation expense for stock options ~~was~~has been recognized ~~in the year ended December 31, 2014~~ and none will be recognized for these stock awards until the performance condition is considered to be probable. When the performance condition is considered probable, the stock awards will vest in accordance with the underlying service and market conditions.

~~The terms of the options granted in each of the year ended December 31, 2014 are further described below:~~

On April 28, 2014, the Company granted fully vested stock options to purchase 30,000 Class B Shares of with an exercise price of $10 per share. The options expire on the second anniversary of the grant date.

The Company granted stock options to purchase 225,000 and 321,250 Class B Shares on April 28, 2014 and August 8, 2014, respectively, with an exercise price of $10 per share. These stock options were designated as Tranche A options, Tranche B options, and Tranche C options, collectively “the Options”, as discussed below. The Options expire on the tenth anniversary of the grant date.

The 182,082 Tranche A options granted become exercisable in five equal installments on each of the first five anniversaries of the grant date, or immediately upon a change in control, subject to the optionee’s continued employment with the Company through these dates.

The 182,084 Tranche B options granted become exercisable upon the optionee’s continued employment with the Company or its subsidiaries through the first date that the Investor (as defined in the LTIP) achieves an internal rate of return (“Investor IRR”), as defined in the LTIP, equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor investment (the “Tranche B Targets”) on or after the date of such an event. In the event of a change in control upon which the Tranche B Targets are achieved, all outstanding unvested Tranche B options will immediately vest.

The 182,084 Tranche C options granted become exercisable upon the optionee’s continued employment with the Company or its subsidiaries through the first date that the Investor achieves an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor investment (the “Tranche C Targets”) on or after the date of such an event. In the event of a change in control upon which the Tranche C Targets are achieved, all outstanding unvested Tranche C options will immediately vest.

~~F-28~~

~~Table of Contents~~

The Company calculated the grant date fair value of ~~the fully vested~~ stock options ~~and the Tranche A options~~that vest over a service period using the Black Scholes ~~model, and~~model. For stock options that contain a market condition related to the ~~Tranche B and Tranche C~~return on investment that the Company’s stockholders achieve, the options were valued using a lattice-based option valuation model. The assumptions used in these calculations are noted in the following table. Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity. The expected dividend yield is 0% for all stock awards. ~~The grant date fair value and related assumptions for~~



	Year Ended December 31,
	2015	2014	2013
Option valuation assumptions:
Expected dividend yield	—%	—%	—%
Expected volatility	55%	73%	—%
Risk-free interest rate	1.69%	1.63%	—%
Expected term (in years)	6.4	5.0	0

A summary of the changes in stock options ~~granted~~outstanding during the year ended December 31, ~~2014,~~2015, is as follows:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)	Aggregate Intrinsic Value
Options outstanding as of December 31, 2014	576,250		$	10.00
Granted	347,875		$	15.41
Canceled	(158,750	)	$	10.00
Options outstanding as of December 31, 2015	765,375		$	12.46	8.6	$	2,481,113
Exercisable as of December 31, 2015	55,833		$	10.00	8.4	$	117,169

No options expired or were forfeited for the year ended December 31, 2015.

Restricted awards

A summary of the changes in restricted stock awards outstanding during the year ended December 31, 2015, is as follows:

Tranche Grant Date Outstanding Fair Value (Per Share) Total Fair Value Assumptions
Fully vested options April 28, 2014 30,000
$ 4.07
$ 122,021

Risk free interest rate 0.4 %
Expected term 2 years
Expected volatility 75.0 %

Tranche A Options April 28, 2014 75,000
$ 6.53
$ 489,888

Risk free interest rate 2.2 %
Expected term 6.5 years
Expected volatility 70.0 %

Tranche B Options April 28, 2014 75,000
$ 5.18
$ 388,514

Risk free interest rate 1.5 %
Time to liquidity event 4.5 years
Expected volatility 75.0 %
Forward expected volatility rate 55.0 %
Forward risk free interest rate 3.6 %

Tranche C Options April 28, 2014 75,000
$ 4.79
$ 359,476

Risk free interest rate 1.5 %
Time to liquidity event 4.5 years
Expected volatility 75.0 %
Forward expected volatility rate 55.0 %
Forward risk free interest rate 3.6 %

Tranche A Options August 8, 2014 107,082
$ 6.51
$ 697,231

Risk free interest rate 2.0 %
Expected term 6.5 years
Expected volatility 70.0 %

Tranche B Options August 8, 2014 107,084
$ 5.08
$ 543,933

Risk free interest rate 1.5 %
Time to liquidity event 4.5 years
Expected volatility 75.0 %
Forward expected volatility rate 55.0 %
Forward risk free interest rate 3.2 %

Tranche C Options August 8, 2014 107,084
$ 4.66
$ 498,925

Risk free interest rate 1.5 %
Time to liquidity event 4.5 years
Expected volatility 75.0 %
Forward expected volatility rate 55.0 %
Forward risk free interest rate 3.2 %
Total 576,250
$ 3,099,988

No ~~Options~~restricted awards were ~~cancelled~~granted or forfeited during the year ended December 31, ~~2014.~~2015.

~~Restricted Stock~~

F-25

Table of Contents

AP GAMING HOLDCO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following is provided for the share award vesting from the plans (in thousands, except weighted average grant date fair value):



	Year Ended December 31,
	2015		2014		2013
Weighted average grant date fair value	$	—	$	10.00	$	—

No restricted stock was granted, canceled or forfeited during the year ended December 31, 2015. During the year ended December 31, 2014, the Company granted 50,000 restricted Class B Shares that vest in five equal installments on each of the first five anniversaries of the grant date. This restricted stock includes a service condition and a performance vesting condition (a Qualified Public Offering), which iswas not considered to be probable of occurring as of December 31, ~~2014.~~2015. As a result, no share-based compensation expense was recognized infor the ~~year~~years ended December 31, 2015 and 2014,

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~~Table of Contents~~

and none will be recognized for restricted stock until the performance condition is considered to be probable. When the performance condition is considered probable, the stock awards will vest in accordance with the underlying service condition.

~~On April 28, 2014,~~

NOTE 12. RESTRUCTURING

We recorded employee termination and restructuring costs of $1.4 million and $1.2 million during the Company issued 50,000 restricted Class B Shares that vest in five equal installments on each of the first five anniversaries of the grant date. The fair value of the the restricted stock granted on April 28, 2014, was $10 per share of restricted stock.

~~No restricted stock was cancelled or forfeited during either the year~~years ended December 31, 2015 and 2014, orrespectively. We do not anticipate additional costs associated with the ~~Successor Period.~~

~~NOTE 17. RESTRUCTURING~~following plans in excess of amounts accrued below. Employee termination and restructuring costs are classified in selling, general and administrative as well as research and development expense and have been recorded for the following restructuring plans.

Toronto Restructuring Plan

In June 2014, ~~the Company~~we took steps to reduce current and future expenses by reducing staff in our technology and game development division that operated primarily out of our Toronto location. The ~~Las Vegas location now serves as the primary location for our technology and game development division. The~~ Company has also entered into retention agreements with certain employees that ~~extend through July 2015. During~~will be paid upon the ~~year ended~~ ~~December 31, 2014~~,completion of their service period.

Cadillac Jack Integration Plan

In June 2015, we took actions to reduce the staff in all of our locations and to streamline our operations and cost structure. The Company ~~expensed approximately $1.2 million in restructuring costs related to termination benefits and expects to incur an additional~~ ~~$0.4 million~~ ~~related to~~has also entered into retention agreements with certain ~~employees.~~employees that will be paid upon the completion of their service period.

The following table summarizes the change in our ~~severance accrual~~restructuring accruals for the year ended December 31, ~~2014~~2015 (in thousands), which is included in accounts payable and accrued liabilities in the consolidated balance sheets:


	Successor
	December 31, 2013		Charge to expense		Cash paid		Costs settled		December 31, 2014		December 31, 2014		Charge to expense		Cash paid		December 31, 2015
Accrued severance	$	—	$	894	$	767	$	—	$	127	$	127	$	935	$	1,025	$	37
Accrued retention bonuses	—		273		—		—		273		216		437		653		—
Property costs											—		25		25		—
Total	$	—	$	1,167	$	767	$	—	$	400	$	343	$	1,397	$	1,703	$	37



Delaware		46-3698600
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o



	Successor
	Allowance for Accounts Receivables Year ended December 31, 2015
	Beginning Balance		Charge-offs			Recoveries		Provision		Ending Balance
Accounts receivable, current	$	29	$	(22	)	$	—	$	106	$	113



	Successor
	Allowance for Accounts Receivables Year ended December 31, 2014
	Beginning Balance		Charge-offs			Recoveries		Provision		Ending Balance
Accounts receivable, current	$	9	$	(36	)	$	—	$	56	$	29



	Successor
	Allowance for Accounts Receivables Period from December 21, 2013 through December 31, 2013
	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance
Accounts receivable, current	$	—	$	—	$	—	$	9	$	9



(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	FORWARD LOOKING STATEMENTS	1

	PART I

ITEM 1	BUSINESS	3

ITEM 1A	RISK FACTORS	1412

ITEM 1B	UNRESOLVED STAFF COMMENTS	2423

ITEM 2	PROPERTIES	2423

ITEM 3	LEGAL PROCEEDINGS	2524

ITEM 4	MINE SAFETY DISCLOSURES	2524

	PART II

ITEM 5	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES	25

ITEM 6	SELECTED FINANCIAL DATA	25

ITEM 7	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS	26

ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4241

ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	4243

ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE	4243

ITEM 9A	CONTROLS AND PROCEDURE	4243

ITEM 9B	OTHER INFORMATION	43

	PART III

ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	44

ITEM 11	EXECUTIVE COMPENSATION	45

ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ~~ANDRELATED~~AND RELATED STOCKHOLDER MATTERS	48

ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR	48

ITEM 14	PRINCIPAL ACCOUNTING FEES AND SERVICES	5049

	PART IV

ITEM 15	EXHIBITS AND FINANCIAL STATEMENT ~~SCHEDULES~~SCHEDULE	5150

	SIGNATURES	53


5.	Build Momentum in Class III Markets and Pursue Class II Market Leadership


6.	Focus on Innovation and New Product Verticals For the Next Generation of Casino Players



	Target ($)	Maximum ($)
David Lopez	$500,000	$1,000,000
Curt Mayer	$137,500	$275,000
Ken Bossingham	$150,000	$300,000




10.14	Phantom Units Certificate between AGS Holding, LLC and Curt Mayer, dated August 16, 2012.	—	10	—	10.14	12/16/2013

10.18	First Lien Credit Agreement dated as of December 20, 2013, among AP Gaming Holdings, LLC, as Holdings, AP Gaming I, LLC, as Borrower, the lenders party thereto, Citicorp North America, Inc., as Administrative Agent, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Joint Lead Arrangers and Joint Bookrunners, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Co-Syndication Agents, and Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Nomura Securities International, Inc., as Co-Documentation Agents.	—	10/A	—	10.18	2/10/2014

10.19	Collateral Agreement dated and effective as of December 20, 2013, among AP Gaming I, LLC, each Subsidiary Party party thereto and Citicorp North America, Inc., as Collateral Agent.	—	10/A	—	10.19	2/10/2014

10.20	Subsidiary Guarantee dated and effective as of December 20, 2013, by and among each Subsidiary party thereto and Citicorp North America, Inc., as Collateral Agent.	—	10/A	—	10.20	2/10/2014

10.21	Holdings Guarantee and Pledge Agreement dated and effective as of December 20, 2013, between AP Gaming Holdings, LLC, as Holdings and Citicorp North America, Inc., as Agent.	—	10/A	—	10.21	2/10/2014

10.22	Securityholders Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc., Apollo Gaming Holdings, L.P. and David Lopez.	—	8-K	—	10.1	05/02/2014

10.23	AP Gaming Holdco, Inc. 2014 Long-Term Incentive Plan.	—	8-K	—	10.2	5/2/2014

10.24	Form of Option Agreement.	—	8-K	—	10.3	5/2/2014

10.25	Form of Subscription Agreement.	—	8-K	—	10.4	5/2/2014

10.26	Employment Agreement, dated April 28, 2014, by and between David Lopez and AP Gaming Holdco, Inc.	—	8-K	—	10.5	5/2/2014

10.27	Nonqualified Stock Option Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez.	—	8-K	—	10.6	5/2/2014

10.28	Restricted Stock Agreement, dated April 28, 2014, by and between AP Gaming Holdco, Inc. and David Lopez.	—	8-K	—	10.7	5/2/2014

21.1	Subsidiaries of AP Gaming Holdco, Inc.	X	—	—	—	—

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

101.IN	XBRL Instance Document	X	—	—	—	—

101.SCH	XBRL Taxonomy Extension Schema Document	X	—	—	—	—

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X	—	—	—	—

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X	—	—	—	—

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X	—	—	—	—

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X	—	—	—	—



	Predecessor
	Allowance for Notes Receivables Period from January 1, 2013 through December 20, 2013
	Beginning Balance		Charge-offs			Recoveries		Provision		Ending Balance		Ending Balance Individually Evaluated For Impairment		Ending Balance Collectively Evaluated For Impairment
Notes receivable, current	$	—	$	—		$	—	$	—	$	—	$	—	$	—
Notes receivable, non-current	447		(419		)	—		126		154		154		—
	$	447	$	(419	)	$	—	$	126	$	154	$	154	$	—



	Predecessor
	Allowance for Notes Receivables Year ended December 31, 2012
	Beginning Balance		Charge-offs			Recoveries		Provision		Ending Balance		Ending Balance Individually Evaluated For Impairment		Ending Balance Collectively Evaluated For Impairment
Notes receivable, current	$	—	$	—		$	—	$	—	$	—	$	—	$	—
Notes receivable, non-current	8,876		(8,876		)	—		447		447		447		—
	$	8,876	$	(8,876	)	$	—	$	447	$	447	$	447	$	—



Gaming equipment ~~deployed~~	3 to 6 years
~~Vehicles~~Other property and ~~other~~ equipment	3 to 6 years


1.	Expand and Diversify Our Library of Content


2.	Optimize Mix of Game Titles


3.	Expand Our Footprint Through Strategic Acquisitions


4.	Focus on Development of Unique Niche Products



	Fair values at December 20, 2013		Average remaining useful life (in years)
Trade name - “American Gaming Systems”	$	12,126	Indefinite
Trade name - “Gambler’s Choice”	809		7
Customer agreements and relationships	60,112		7
Third party licenses	11,520		3 - 5
Internally developed gaming software	10,872		1 - 5
Purchased software	2,073		1 - 5
	$	97,512



	Year ended December 31, 2013
Revenues	$	58,414
Loss from operations	(5,176		)
Net loss	(21,223		)
Basic and diluted loss per share common share	(2.13		)



	Fair values at May 6, 2014		Average remaining useful life (in years)
Colossal platform	$	1,559	5
Colossal titles	2,126		3
Colossal customer agreements and relationships	5,037		7
	$	8,722



	December 31, 2014			December 31, 2013
$155 million Term Facility, interest above LIBOR or base rate (9.25% at December 31, 2014), net of unamortized discount of $5.0 and $5.6 million at December 31, 2014 and 2013, respectively.	$	148,447		$	149,396
$25 million Revolving Facility, interest above LIBOR or base rate (8.46% at December 31, 2014).	10,000			—
Equipment long-term note payable	2,230			—
Seller notes	6,012			5,531
Total debt	166,689			154,927
Less—Amounts due within one year	(2,495		)	(1,550		)
Long-term debt	$	164,194		$	153,377



Tranche	Grant Date	Outstanding	Fair Value (Per Share)		Total Fair Value		Assumptions
Fully vested options	April 28, 2014	30,000	$	4.07	$	122,021
Risk free interest rate							0.4	%
Expected term							2 years
Expected volatility							75.0	%

Tranche A Options	April 28, 2014	75,000	$	6.53	$	489,888
Risk free interest rate							2.2	%
Expected term							6.5 years
Expected volatility							70.0	%

Tranche B Options	April 28, 2014	75,000	$	5.18	$	388,514
Risk free interest rate							1.5	%
Time to liquidity event							4.5 years
Expected volatility							75.0	%
Forward expected volatility rate							55.0	%
Forward risk free interest rate							3.6	%

Tranche C Options	April 28, 2014	75,000	$	4.79	$	359,476
Risk free interest rate							1.5	%
Time to liquidity event							4.5 years
Expected volatility							75.0	%
Forward expected volatility rate							55.0	%
Forward risk free interest rate							3.6	%

Tranche A Options	August 8, 2014	107,082	$	6.51	$	697,231
Risk free interest rate							2.0	%
Expected term							6.5 years
Expected volatility							70.0	%

Tranche B Options	August 8, 2014	107,084	$	5.08	$	543,933
Risk free interest rate							1.5	%
Time to liquidity event							4.5 years
Expected volatility							75.0	%
Forward expected volatility rate							55.0	%
Forward risk free interest rate							3.2	%

Tranche C Options	August 8, 2014	107,084	$	4.66	$	498,925
Risk free interest rate							1.5	%
Time to liquidity event							4.5 years
Expected volatility							75.0	%
Forward expected volatility rate							55.0	%
Forward risk free interest rate							3.2	%
Total		576,250			$	3,099,988



	Successor							Predecessor
	Year to date December 31, 2015			Year ended December 31, 2014		Period December 21 through December 31, 2013		Period January 1, 2013 through December 20, 2013
Current:
Federal	$	932		$	—	$	—	$	—
State	(10		)	7		—		—
Foreign	1,424			—		—		—
Total current income tax expense	2,346			7		—		—

Deferred:
Federal	(34,589		)	2,005		50		—
State	(2,506		)	177		4		—
Foreign	(1,340		)	—		—		—
Total deferred income (benefit) expense	(38,435		)	2,182		54		—

Total income tax (benefit) expense	$	(36,089	)	$	2,189	$	54	$	—




	December 31, 2015
Balance-beginning of year	$	—
Current year acquisitions	29,701
Increases based on tax positions of the current year	795
Currency translation adjustments	(973		)
Balance-end of year	$	29,523



	Year ended December 31, 2015
	Quarter ended March 31, 2015			Quarter ended June 30, 2015			Quarter ended September 30, 2015			Quarter ended December 31, 2015
Consolidated Income Statement Data:
Revenues	$	18,795		$	26,296		$	38,105		$	40,096
Loss from operations	(3,736		)	(11,339		)	(13,017		)	(1,347		)
Net (loss) income	(9,235		)	2,849			(23,279		)	(8,880		)



	Year ended December 31, 2014
	Quarter ended March 31, 2014			Quarter ended June 30, 2014			Quarter ended September 30, 2014			Quarter ended December 31, 2014
Consolidated Income Statement Data:
Revenues	$	17,158		$	17,428		$	18,836		$	18,718
Income (loss) from operations	695			(1,468		)	(3,432		)	(4,216		)
Net loss	(4,249		)	(6,203		)	(8,674		)	(9,250		)

Fair values at May 29, 2015

Average remaining useful life (in years)

Gaming equipment

Other property and equipment

Total property and equipment