2. Restatement of Previously Issued Financial Statements

Restatement Background

On November 2, 2023, the Company in concurrence with the Company’s audit committee, concluded that our 2023 and 2022 consolidated financial statements and our unaudited consolidated financial statements as of and for each of the first two quarterly periods in 2023 and all quarterly periods in 2022, included in our Quarterly Reports on Form 10-Q for the respective periods, (collectively the “Prior Period Financial Statements”) should no longer be relied upon due to misstatements that are described below, and that we would restate such financial statements to make the necessary accounting corrections. Details of the restated consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 are provided below (“Restatement Items”). Details of the restated consolidated financial statements as of December 31, 2022 are provided in the amendment to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC as of the date of this report.

The Restatements Items reflect adjustments to correct errors in certain financial statement areas including capitalized software and costs to fulfill a contract, revenue and costs to obtain a contract, inventory, goodwill and intangibles, leasing, pension, and other reclassifications and immaterial errors identified. The nature and impact of these adjustments are described below and also detailed in the tables below.

The Company issued a revision for capitalized software and related amortization expense in the quarterly report on Form 10-Q filed on August 11, 2023 for the period ended June 30, 2023 (the “Revision”).This revision related to certain completed software development projects that were, but should not have been, delayed in the shift from work in progress to completed projects. Consequently, the commencement of amortization for certain projects was delayed and the reported amortization was lower than the actual amortization. The Revision covers the period ended June 30, 2023 and the year ended December 31, 2022 and is distinct from the capitalized software restatements below. The tables below have been updated to separate the impact of the Restatement Items from the Revision.

Restatement Items

Capitalized software and Costs to fulfill a contract – The Company historically assessed and applied incorrectly the accounting frameworks for developing external use software under ASC 985-20, Costs of Software to Be Sold, Leased or Marketed, and internal-use software under ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software and ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers. In addition, the Company determined routine software updates and certain minor software enhancements were inappropriately capitalized and capitalized labor rates inappropriately included certain indirect costs including overhead and non-development activities. Consequently, certain amortization was inappropriate. The corrections resulted in a decrease in Software development costs, net of $17.6 million and an increase in Costs of obtaining and fulfilling customer contracts, net of $7.8 million as of June 30, 2023, respectively. The corrections resulted in an increase to Selling, general and administrative expenses of $1.2, $2.3 million, $1.4 million and $1.7 million as well as a decrease in Depreciation and amortization of $1.8 million, $2.9 million, $0.5 million and $1.5 million for the three and six months ended June 30, 2023 and 2022, respectively. The previous revision of capitalized software resulted in an increase of Depreciation and amortization of $0.3 million and $0.6 million for the three and six months ended June 30, 2022. Refer to reference “a” below.

Revenue and Costs to obtain a contract – The Company identified several corrections related to ASC 606, Revenue from Contracts with Customers. The Company identified certain performance obligations were delivered and therefore should have been recognized at a specific point in time (rather than over time). Additionally, we identified that (i) for certain Interactive Aggregator contracts, revenue should have been reported on a net, rather than gross, basis and (ii) certain parts the Company acquired and sold to its contract manufacturer should have not been reported as revenue. These two items have no impact to profit. The Company also identified an immaterial contract that should have been recognized as a sales type lease rather than an operating lease. Items reported on a gross, rather than net basis are corrected with no impact to profit. Lastly, the Company had historically expensed certain commissions in the period incurred instead of capitalizing and amortizing them under the accounting framework for costs to obtain contracts with customers pursuant to ASC 606, Revenue from Contracts with Customers, and ASC 340-40, Other Assets and Deferred Costs – Contracts with Customers. The corrections resulted in a decrease in Property and equipment, net of $0.3 million as of June 30, 2023, respectively. The corrections also resulted in a decrease in Deferred revenue, current of $0.3 million as of June 30, 2023, a decrease in Deferred revenue, net of current position of $0.9 million as of June 30, 2023 and an increase in costs of obtaining and fulfilling contract costs, net of $0.8 million as of June 30, 2023. The corrections also resulted in a decrease in Revenue - service of $0.6 million, $1.3 million, $0.7 million and $1.7 million for the three and six months ended June 30, 2023 and 2022, respectively, a $0.4 million and $0.7 million decrease in Revenue – product sales for the three and six months ended June 30, 2023 and a $0.1 million decrease and $0.6 million increase in Revenue – product sales for the three and six months ended June 30, 2022, respectively, a decrease in Cost of sales – service of $2.2 million, $4.4 million, $1.6 million and $3.3 million for the three and six months ended June 30, 2023 and 2022, respectively, and a $0.4 million and $0.7 million decrease in Cost of sales – product sales for the three and six months ended June 30, 2023, respectively, as well as a $0.6 million decrease in Cost of sales – product sales for the six months ended June 30, 2022. The corrections also resulted in an increase in Depreciation and amortization increased by $1.5 million, $3.1 million and $0.6 million and $2.0 million for the three and six months ended June 30, 2023 and 2022, respectively as well as a $0.1 decrease in Interest expense, net for both the three and six months ended June 30, 2022. Refer to reference “b” below. Note 7, “Contract Liabilities and Other Disclosures” and Note 17, “Segment Reporting and Geographic Information” have also been corrected.

Inventory – The Company identified an error in the amount capitalized for field inventory, repair and consumable items. Refer to reference “c” below. Note 5, “Inventory” has also been corrected.

Goodwill and intangibles – Through review of the appropriate reporting units and asset groups to assess impairments at under ASC 350, Intangibles – Goodwill and Other and ASC 360, Property, Plant and Equipment, the Company identified a triggering event in the first quarter of 2020, related to the beginning of the COVID-19 pandemic, for which impairment assessment was required for (i) Server Based Gaming (“SBG”) and Acquired Business reporting units and (ii) all landbased asset groups. Based on the assessment, we determined that an impairment of goodwill and long-lived assets occurred in the first quarter of 2020. Additionally, we determined that a significant number of synergies existed from the acquisition in the fourth quarter of 2019 and therefore a portion of the acquisition goodwill should have been reallocated to other reporting units upon acquisition. The corrections resulted in a decrease of Depreciation and amortization of $0.1 million for both the six months ended June 30, 2023 and 2022 and a decrease in Other acquired intangible assets subject to amortization, net of $1.2 million as of June 30, 2023. Refer to reference “d” below.

Leasing – The Company had not historically included in-substance fixed payments related to certain leases according to the accounting framework in ASC 842, Leases. The corrections resulted in an increase in Operating lease right of use asset of $7.5 million, an increase in current Operating lease liabilities of $1.2 million and an increase in long-term Operating lease liabilities of $6.1 million as of June 30, 2023. Refer to reference “f” below. Note 14, “Leases” has also been corrected.

Basic and diluted net income (loss) per share – An error to shares outstanding primarily relates to the Company not including deferred settlement equity awards that had vested in the number of outstanding shares used in the calculation of basic and diluted weighted average number of shares outstanding pursuant to ASC 260, Earnings Per Share. Refer to reference “h” below. Note 10, “Net earnings (loss) per share” has also been corrected.

Pension – The Company had corrections to pension that primarily related to no longer updating the plan liability/ asset quarterly to comply with US GAAP. The corrections resulted in a reclassification of $1.3 million from Accumulated other comprehensive income to Other long-term liabilities as of June 30, 2023. In addition, the Company corrected the benefit obligation and fair value of plan assets for the buy-in contract.  The Company corrected the measurement of the plan assets and the estimated fair value of the buy in contract. Note 16, “Pension Plan” has also been corrected. Refer to reference “g” below.

Other errors identified – Through the restatement process, the Company has reclassified certain costs for salaries of service employees and recorded an adjustment related to foreign currency impacts on an intangible. In addition to the reclassification and intangible adjustment, the Company has corrected other adjustments that are quantitatively immaterial, individually and in aggregate, because we are correcting for these material errors, we have decided to correct these other adjustments. Refer to reference “f” below.

Income tax – The Company updated the income tax effects for the Restatement Items. Note 12, “Income Taxes” has also been updated.

Summary impact of Restatement Items to Prior Period Financial Statements 

The following tables present the effect of the Restatement Items on the Company’s consolidated balance sheets for the periods indicated (in millions, except per share):

 Schedule of Restatement Items to Prior Period Financial Statements

The following tables present the effect of the Restatement Items on the Company’s consolidated statement of operations for the periods indicated (in millions, except share and per share amounts):

The following tables present the effect of the Restatement Items on the Company’s consolidated statements of stockholders’ equity (deficit) for the periods indicated (in millions, except per share amounts):

The following tables present the effect of the Restatement Items on the Company’s consolidated statements of cashflows for the periods indicated (in millions):