PART I [Business](index=6&type=section&id=ITEM%201.%20Business) Inspired Entertainment, Inc. is a global B2B gaming technology company providing Virtual Sports and SBG products, with 2019 marked by a significant acquisition and COVID-19 disruption - The company operates two primary business segments: Virtual Sports (including Interactive) and Server Based Gaming (SBG) As of December 31, 2019, its Virtual Sports products were in over **44,000** retail channels and **300+** websites, while its SBG products were offered through over **32,000** digital terminals[27](index=27&type=chunk)[28](index=28&type=chunk)[35](index=35&type=chunk) - On October 1, 2019, the company acquired the "Acquired Businesses" from Novomatic (UK) Limited, adding approximately **19,000** gaming machines and **35,000** amusement devices to its operations, primarily in the UK pubs, arcades, and holiday resorts sectors[30](index=30&type=chunk)[47](index=47&type=chunk) - The business has been severely disrupted by the COVID-19 pandemic, which forced the closure of customer retail venues in key markets In response, the company drew down its full **£20.0 million** revolving credit facility, implemented furloughs, and reduced compensation to lower cash expenditures[21](index=21&type=chunk)[22](index=22&type=chunk)[24](index=24&type=chunk) - The company's growth strategy focuses on developing new products, investing in technology to grow existing customer revenues, expanding into underpenetrated markets like North America, and pursuing targeted mergers and acquisitions[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - Geographically, the UK is the company's largest market, contributing over **half** of its revenues Other significant markets include Italy and Greece[32](index=32&type=chunk)[237](index=237&type=chunk) [Risk Factors](index=18&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, regulatory changes, customer concentration, and international operations, impacting financial controls and business continuity - The COVID-19 pandemic is a primary risk, causing the closure of all land-based gaming venues in key jurisdictions (UK, Greece, Italy), which generate a substantial portion of income This has also led to the identification of a material weakness in financial controls due to office closures and remote work[98](index=98&type=chunk)[99](index=99&type=chunk) - The company is highly dependent on a small number of customers In 2019, the top ten customers generated approximately **60%** of total revenues, with two customers accounting for **14%** and **13%** respectively[105](index=105&type=chunk) - Regulatory changes pose a significant risk The UK Government's reduction of maximum permitted bets on B2 Gaming Machines to **£2**, effective April 1, 2019, has had and is expected to continue to have a material negative impact on the business[110](index=110&type=chunk) - The business is subject to cybersecurity risks, including attacks that could lead to service interruptions, data breaches, and significant liability or reputational harm[112](index=112&type=chunk) - Operating internationally exposes the company to risks such as foreign currency fluctuations, complex foreign laws, and changes in local economic and political conditions, including Brexit[150](index=150&type=chunk)[194](index=194&type=chunk) [Unresolved Staff Comments](index=37&type=section&id=ITEM%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[195](index=195&type=chunk) [Properties](index=38&type=section&id=ITEM%202.%20Properties) As of December 31, 2019, the company leased 400,000 sq ft in the UK and smaller international spaces, with 2020 plans for UK consolidation and new offices - As of year-end 2019, the company occupied approximately **400,000 sq. ft.** of leased space in the UK, with smaller offices in Italy, India, and New York[197](index=197&type=chunk) - In the first half of 2020, the company plans to reduce its UK estate by **130,000 sq. ft.** and open new, consolidated offices in Burton-on-Trent (**40,000 sq. ft.**) and Kochi, India (**17,000 sq. ft.**)[197](index=197&type=chunk)[198](index=198&type=chunk) [Legal Proceedings](index=38&type=section&id=ITEM%203.%20Legal%20Proceedings) The company is involved in legal matters from time to time in the ordinary course of business, but believes none are currently material - The company states that while it is involved in ordinary course legal matters, it believes none are currently material[198](index=198&type=chunk) [Mine Safety Disclosures](index=38&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[199](index=199&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=39&type=section&id=ITEM%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq (INSE), with public warrants on OTC markets, and reported 64 holders of record as of March 25, 2020 - Common stock is listed on the Nasdaq Capital Market (INSE) and public warrants trade on OTC markets (INSEW)[202](index=202&type=chunk) - As of March 25, 2020, there were **64** holders of record of common stock[203](index=203&type=chunk) [Selected Financial Data](index=39&type=section&id=ITEM%206.%20Selected%20Financial%20Data) This section is not required for the company - Not required[206](index=206&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=ITEM%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) 2019 financial performance was shaped by the NTG acquisition and UK regulatory changes, with post-period COVID-19 disruption leading to liquidity preservation measures Consolidated Results of Operations (2019 vs. 2018) | Metric (In millions) | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenue** | $153.4 | $140.7 | 9.0% | | **Net Operating Loss** | $(13.0) | $(5.3) | 147.0% | | **Net Loss** | $(37.0) | $(21.1) | 75.2% | | **Adjusted EBITDA** | $49.0 | $54.7 | (10.4)% | - The COVID-19 pandemic has caused severe disruption post year-end, with retail venue closures halting revenues from land-based operations In response, the company drew down its full **£20.0 million** revolving credit facility in March 2020 to ensure near-term liquidity[212](index=212&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - The acquisition of the NTG business from Novomatic UK was completed on October 1, 2019, and is reported as a new segment, "Acquired Businesses" This segment contributed **$32.9 million** in revenue for the fourth quarter of 2019[223](index=223&type=chunk)[255](index=255&type=chunk) - SBG segment revenue decreased by **18.2%** to **$84.5 million**, primarily due to a **$16.2 million** revenue decline in the UK LBO sector driven by the Triennial Implementation, which reduced maximum betting stakes[294](index=294&type=chunk)[296](index=296&type=chunk) - Virtual Sports revenue decreased slightly by **$0.4 million** to **$37.0 million** on a reported basis, but increased by **3.5%** on a constant currency basis, driven by growth in online virtuals and new customer launches[332](index=332&type=chunk) - The company refinanced its debt in connection with the NTG acquisition, entering into new senior secured term loans of **£140.0 million** and **€90.0 million**, and a **£20.0 million** revolving credit facility[380](index=380&type=chunk)[381](index=381&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from floating interest rates on its debt and foreign currency fluctuations, particularly GBP, Euro, and USD - The company is exposed to interest rate risk on its floating-rate senior bank debt of **£140.0 million** and **€90.0 million** A hypothetical **1%** increase in floating interest rates would result in an additional annual interest charge of approximately **$1.8 million**[480](index=480&type=chunk) - The company is exposed to foreign currency exchange rate risk as its functional currency is GBP but it reports in USD and has operations in other currencies like the Euro A hypothetical **10%** adverse change in the value of the Euro and USD relative to GBP would result in translation adjustments of approximately **$7.7 million** and **$0.0 million**, respectively[481](index=481&type=chunk) [Financial Statements and Supplementary Data](index=87&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the full consolidated financial statements and related notes, which are presented starting on page F-1 of the report - The company's audited consolidated financial statements are included from page F-1 onwards[485](index=485&type=chunk)[511](index=511&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=87&type=section&id=ITEM%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[486](index=486&type=chunk) [Controls and Procedures](index=88&type=section&id=ITEM%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of December 31, 2019, due to a material weakness in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2019[489](index=489&type=chunk) - A material weakness was identified in internal control over financial reporting, stemming from misstatements in draft year-end footnote disclosures This was attributed to unusual events like the COVID-19 outbreak, a significant acquisition, and new accounting standard adoption[493](index=493&type=chunk) - Despite the material weakness, management believes the consolidated financial statements included in the report fairly present the company's financial condition in all material respects[490](index=490&type=chunk) - Remediation plans include ensuring all internal reviews are completed before issuing draft financials to auditors and adding a third-party external review to the process[496](index=496&type=chunk) [Other Information](index=90&type=section&id=ITEM%209B.%20Other%20Information) Executive Chairman Lorne Weil withdrew his employment agreement, and executive pay was temporarily reduced as a cost-saving measure amid business disruptions - On March 26, 2020, Executive Chairman Lorne Weil voluntarily withdrew his new employment agreement from consideration at the upcoming annual meeting[498](index=498&type=chunk) - The Office of the Executive Chairman consented to temporary reductions in base pay, including a **25%** reduction for the Executive Chairman and a **21%** reduction for the President and COO[499](index=499&type=chunk)[500](index=500&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=91&type=section&id=ITEM%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders [Executive Compensation](index=91&type=section&id=ITEM%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=91&type=section&id=ITEM%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders [Certain Relationships and Related Transactions, and Director Independence](index=91&type=section&id=ITEM%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders [Principal Accounting Fees and Services](index=91&type=section&id=ITEM%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Stockholders PART IV [Exhibits, Financial Statement Schedules](index=92&type=section&id=ITEM%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the report, including the consolidated financial statements and various exhibits such as material contracts, governance documents, and certifications - This section contains the list of all financial statements, schedules, and exhibits filed with the Form 10-K[509](index=509&type=chunk)[510](index=510&type=chunk) [Form 10-K Summary](index=161&type=section&id=ITEM%2016.%20Form%2010-K%20Summary) The company provides no summary for this item - None[797](index=797&type=chunk)

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Presents the company's financial position, operations, and cash flows, showing decreased assets and widened net loss year-over-year [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Balance Sheet Items (in millions USD) | Sep 30, 2019 (Unaudited) | Sep 30, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Total current assets | $58.0 | $58.6 | | Total assets | $175.4 | $207.9 | | **Liabilities & Stockholders' Deficit** | | | | Total current liabilities | $51.2 | $52.3 | | Long-term debt | $132.8 | $131.2 | | Total liabilities | $207.2 | $220.4 | | Total stockholders' deficit | $(31.8) | $(12.5) | - Total assets decreased from **$207.9 million** to **$175.4 million** year-over-year, primarily due to decreases in property and equipment. Total liabilities decreased slightly, but the total stockholders' deficit widened from **$(12.5) million** to **$(31.8) million**[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) | Metric (in millions USD, except per share) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $26.6 | $35.6 | $87.0 | $110.0 | | Net operating loss | $(5.7) | $(3.7) | $(10.9) | $(2.9) | | Net loss | $(8.5) | $(11.9) | $(24.2) | $(16.4) | | Net loss per common share – basic and diluted | $(0.38) | $(0.57) | $(1.11) | $(0.79) | - For the nine months ended September 30, 2019, revenue declined by **20.9% YoY** to **$87.0 million**, and net loss widened to **$24.2 million** from **$16.4 million** in the prior-year period[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in millions USD) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22.4 | $34.4 | | Net cash used in investing activities | $(16.5) | $(36.1) | | Net cash provided by financing activities | $9.0 | $12.9 | | **Net increase in cash** | **$13.6** | **$11.5** | - Cash from operations decreased to **$22.4 million** for the nine-month period, down from **$34.4 million YoY**. Cash used in investing activities significantly decreased to **$16.5 million** from **$36.1 million**, primarily due to lower purchases of property and equipment[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides details on operating segments, a significant acquisition, fiscal year-end change, and customer concentration - The company operates in two segments: **Server Based Gaming (SBG)** and **Virtual Sports**, providing omni-channel gaming solutions to regulated operators worldwide[20](index=20&type=chunk)[130](index=130&type=chunk) - On October 1, 2019, the company completed the acquisition of **Novomatic UK's Gaming Technology Group (NTG)** and entered into a new Senior Facilities Agreement to finance the transaction and refinance existing debt[21](index=21&type=chunk)[144](index=144&type=chunk)[148](index=148&type=chunk) - The Board of Directors approved a change in the company's fiscal year end from September 30 to December 31, commencing with the year ending December 31, 2019[24](index=24&type=chunk) - For the nine months ended September 30, 2019, three customers accounted for **20%, 16%, and 10% of total revenues**, indicating significant customer concentration[141](index=141&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=39&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Discusses financial performance, attributing revenue decline to regulatory changes and detailing liquidity post-acquisition [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Analyzes the 20.9% revenue decline and increased net loss, primarily due to UK regulatory impacts on the SBG segment | Metric (in millions USD) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | Variance (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $87.0 | $110.0 | (20.9)% | | Net Operating Loss | $(10.9) | $(2.9) | 275.6% | | Net Loss | $(24.2) | $(16.4) | 47.5% | - The decrease in SBG service revenue was primarily due to a **$11.4 million decline** in the UK LBO market, with **$10.7 million** of that driven by the Triennial Implementation which reduced maximum permitted bets on B2 gaming machines[261](index=261&type=chunk) - Virtual Sports revenue remained flat on a functional currency basis, with growth from UK and new customers offset by the rephasing of a major contract and the full amortization of some long-term licenses[263](index=263&type=chunk)[312](index=312&type=chunk) - Acquisition and integration related transaction expenses increased to **$4.9 million** for the nine-month period, related to the acquisition of Novomatic UK's Gaming Technology Group[268](index=268&type=chunk) [Non-GAAP Financial Measures](index=69&type=section&id=Non-GAAP%20Financial%20Measures) Reconciles net loss to non-GAAP Adjusted EBITDA, which decreased to $31.3 million for the nine-month period | Reconciliation (in millions USD) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net loss | $(24.2) | $(16.4) | | Costs of group restructure | $3.1 | $2.1 | | Acquisition and integration related transaction expenses | $4.9 | $0.3 | | Stock-based compensation expense | $6.6 | $4.2 | | Impairment expense | - | $7.7 | | Depreciation and amortization | $27.1 | $32.3 | | Total other expense, net | $13.2 | $13.4 | | Income tax | $0.1 | $0.1 | | **Adjusted EBITDA** | **$31.3** | **$44.3** | [Liquidity and Capital Resources](index=73&type=section&id=Liquidity%20and%20Capital%20Resources) Details cash position, operating cash flow, and new financing facilities secured for the Novomatic UK acquisition - On October 1, 2019, the company refinanced its debt to fund the Novomatic acquisition, entering into new term loans totaling **£140.0 million** and **€90.0 million**, and a **£20.0 million** revolving credit facility[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk) - Net cash provided by operating activities decreased by **$12.0 million YoY**, while net cash used in investing activities decreased by **$19.6 million** due to lower capital expenditures on machines[327](index=327&type=chunk)[333](index=333&type=chunk) - Management believes cash on hand, cash from operations, and the new financing facilities will be sufficient to fund net cash requirements through November 2020[337](index=337&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=78&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Addresses market risks from interest rate fluctuations on floating-rate debt and foreign currency exchange rate exposures - The company is exposed to interest rate risk on its **£113.6 million ($140.0 million)** of senior bank debt, which has a floating interest rate tied to 3-month LIBOR. A **1% increase in rates** would add approximately **$1.1 million** in annual interest charges[361](index=361&type=chunk) - Significant foreign currency exchange rate risk exists due to operations in multiple currencies, with the British Pound (GBP) as the functional currency and the U.S. Dollar (USD) as the reporting currency. The company uses cross-currency swaps to mitigate some of this risk, particularly related to its USD-denominated debt[363](index=363&type=chunk)[366](index=366&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=79&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls - The company's Certifying Officers concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[369](index=369&type=chunk) - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[370](index=370&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=80&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) States that the company is not currently involved in any material legal proceedings - As of the filing date, the company reports no material legal proceedings[373](index=373&type=chunk) [ITEM 1A. RISK FACTORS](index=80&type=section&id=ITEM%201A.%20RISK%20FACTORS) Highlights risks including customer concentration, regulatory changes, acquisition integration challenges, and restrictive debt covenants - The company is heavily dependent on renewing long-term contracts and relies on a small number of customers for a significant portion of its revenue, with the **top ten customers generating approximately 75% of total revenues** in the first nine months of 2019[375](index=375&type=chunk)[378](index=378&type=chunk) - The business is subject to strict and evolving government regulations in the gaming industry, and changes in laws or taxes could adversely affect customer revenues and, consequently, the company's revenue-sharing agreements[377](index=377&type=chunk)[381](index=381&type=chunk) - Significant risks are associated with the recent acquisition of Novomatic's Gaming Technology Group, including substantial integration costs and the challenge of combining different corporate cultures, systems, and operations[409](index=409&type=chunk)[410](index=410&type=chunk) - The company's new debt facilities, entered into for the acquisition, contain restrictive covenants that could limit its operational and financial flexibility, including restrictions on incurring additional debt, making distributions, and capital expenditures[399](index=399&type=chunk)[400](index=400&type=chunk)[405](index=405&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=87&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Reports no unregistered sales of equity securities during the period - None[412](index=412&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _______________ Commission File Number: 001-36689 INSPIRED ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) | Delaware | 47-1025534 | | --- | --- | | ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _______________ Commission File Number: 001-36689 INSPIRED ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of (I.R.S. ...