Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies

1. Nature of Operations, Management’s Plans and Summary of Significant Accounting Policies

Company Description and Nature of Operations

Inspired Entertainment, Inc. (the “Company,” “we,” “our,” and “us”) is a global business-to-business gaming technology company, supplying Server Based Gaming (“SBG”) and Virtual Sports (which includes Interactive) systems to regulated lottery, betting and gaming operators worldwide through an “omni-channel” distribution strategy. We provide end-to-end digital gaming solutions on our proprietary and secure network, which accommodates a wide range of devices, including land-based gaming machine terminals, mobile devices such as smartphones and tablets and online computer and social applications. Our products can be found in licensed betting offices, adult gaming centers, bingo halls, and through our Acquired Businesses (defined herein), in UK pubs, airports, motorway service areas, and leisure parks.

Management Liquidity Plans

As of September 30, 2020, the Company’s cash on hand was $43.9 million, and the Company had working capital of $10.3 million. The Company recorded net losses of $41.6 million and $24.2 million for the nine months ended September 30, 2020 and 2019, respectively. Net losses include non-cash stock-based compensation of $3.1 million and $6.6 million for the nine months ended September 30, 2020 and 2019, respectively, and excess depreciation and amortization over capital expenditure of $17.9 million and $10.6 million for the nine months ended September 30, 2020 and 2019, respectively. Historically, the Company has generally had positive cash flows from operating activities and has relied on a combination of cash flows provided by operations and the incurrence of debt and/or the refinancing of existing debt to fund its obligations. Cash flows provided by operations amounted to $31.5 million and $22.4 million for the nine months ended September 30, 2020 and 2019, respectively. Working capital of $10.3 million includes a non-cash settled item of $11.0 million of deferred income. Management currently believes that, subject to any unanticipated coronavirus (“COVID-19”) impact (see below), the Company’s cash balances on hand, cash flows expected to be generated from operations, ability to control and defer capital projects and amounts available from the Company’s external borrowings will be sufficient to fund the Company’s net cash requirements through February 2022.

Our business is being, and will continue to be, adversely affected by the expanding nature of the COVID-19 pandemic. There are continuing periods of increases or spikes in the number of COVID-19 cases in areas in which we operate, which have seen the government re-impose restrictions on our operations up to and including complete or partial closures of retail venues. Further, the long-term impacts of the pandemic on the global economy, trade relations, consumer behavior, our industry and our business operations, remain unknown.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2019 and 2018. The financial information as of December 31, 2019 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2020. The interim results for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.