PLAYSTUDIOS, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 68 Consolidated Balance Sheets 69 Consolidated Statements of Operations 70 Consolidated Statements of Comprehensive (Loss) Income 71 Consolidated Statements of Stockholders' Equity 72 Consolidated Statements of Cash Flows 75 Notes to Consolidated Financial Statements 77 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of PLAYSTUDIOS, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of PLAYSTUDIOS, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Las Vegas, Nevada March 10, 2023 We have served as the Company’s auditor since 2018. 68 PLAYSTUDIOS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value amounts) December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 134,000 $ 213,502 Receivables 27,016 20,693 Prepaid expenses 5,148 5,059 Income tax receivable 1,372 2,117 Other current assets 8,443 413 Total current assets 175,979 241,784 Property and equipment, net 17,532 5,289 Operating lease right-of-use assets 15,562 — Internal-use software, net 36,118 43,267 Goodwill 47,133 5,059 Intangibles, net 41,113 18,755 Deferred income taxes 13,969 6,282 Other long-term assets 4,603 14,408 Total non-current assets 176,030 93,060 Total assets $ 352,009 $ 334,844 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable 4,425 7,793 Warrant liabilities 3,682 6,521 Operating lease liabilities, current 4,571 — Accrued liabilities 21,473 15,599 Total current liabilities 34,151 29,913 Minimum guarantee liability 1,500 — Operating lease liabilities, non-current 11,660 — Other long-term liabilities 2,385 1,464 Total non-current liabilities 15,545 1,464 Total liabilities $ 49,696 $ 31,377 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.0001 par value ( 100,000 shares authorized, 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021) — — Class A common stock, $ 0.0001 par value ( 2,000,000 shares authorized, 116,756 and 110,066 shares issued, and 115,635 and 110,066 shares outstanding as of December 31, 2022 and December 31, 2021, respectively) 11 11 Class B common stock, $ 0.0001 par value ( 25,000 shares authorized, 16,457 and 16,130 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively). 2 2 Additional paid-in capital 290,337 268,522 Retained earnings 16,756 34,539 Accumulated other comprehensive (loss) income ( 151 ) 393 Treasury stock, at cost, 1,166 and 0 shares at December 31, 2022 and December 31, 2021, respectively ( 4,642 ) — Total stockholders’ equity 302,313 303,467 Total liabilities and stockholders’ equity $ 352,009 $ 334,844 The accompanying notes are an integral part of these consolidated financial statements. 69 PLAYSTUDIOS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2022 2021 2020 Net revenue $ 290,309 $ 287,419 $ 269,882 Operating expenses: Cost of revenue (1) 85,400 91,642 91,469 Selling and marketing 80,819 79,042 57,124 Research and development 63,315 61,343 51,696 General and administrative 40,274 27,902 16,960 Depreciation and amortization 35,562 27,398 22,192 Restructuring and related 13,020 3,082 20,092 Total operating costs and expenses 318,390 290,409 259,533 (Loss) Income from operations ( 28,081 ) ( 2,990 ) 10,349 Other income (expense), net: Change in fair value of warrant liabilities 1,047 13,933 — Interest expense, net 1,925 ( 235 ) ( 142 ) Other income (expense), net 1,491 ( 229 ) 929 Total other income, net 4,463 13,469 787 (Loss) Income before income taxes ( 23,618 ) 10,479 11,136 Income tax benefit 5,835 258 1,671 Net (loss) income $ ( 17,783 ) $ 10,737 $ 12,807 Net (loss) income per share attributable to Class A and Class B common stockholders: Basic $ ( 0.14 ) $ 0.10 $ 0.14 Diluted $ ( 0.14 ) $ 0.09 $ 0.12 Weighted average shares of common stock outstanding: Basic 128,353 111,718 92,917 Diluted 128,353 124,898 103,203 (1) Amounts exclude depreciation and amortization. The accompanying notes are an integral part of these consolidated financial statements. 70 PLAYSTUDIOS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (in thousands) Years Ended December 31, 2022 2021 2020 Net (loss) income $ ( 17,783 ) $ 10,737 $ 12,807 Other comprehensive (loss) income: Change in foreign currency translation adjustment (1) ( 544 ) ( 88 ) 383 Total other comprehensive (loss) income ( 544 ) ( 88 ) 383 Comprehensive (loss) income $ ( 18,327 ) $ 10,649 $ 13,190 (1) These amounts are presented gross of the effect of income taxes. The total change in foreign currency translation adjustment and the corresponding effect of income taxes are immaterial. The accompanying notes are an integral part of these consolidated financial statements. 71 PLAYSTUDIOS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Preferred Stock Common Stock Class A Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2019 162,596 $ 8 225,490 $ 11 — $ — — $ — $ 66,661 $ 98 $ 13,535 80,313 Retroactive application of reverse recapitalization ( 162,596 ) ( 8 ) ( 225,490 ) ( 11 ) 71,463 8 18,977 2 9 — — — Adjusted balance as of December 31, 2019 — $ — — $ — 71,463 $ 8 18,977 $ 2 $ 66,670 $ 98 $ 13,535 80,313 Net income — — — — — — — — — — 12,807 12,807 Exercise of stock options — — — — 3,801 — — — 992 — — 992 Stock-based compensation expense — — — — — — — — 4,124 — — 4,124 Repurchase and retirement of common stock — — — — ( 843 ) — — — — — ( 2,540 ) ( 2,540 ) Other comprehensive income — — — — — — — — — 383 — 383 Balance as of December 31, 2020 — $ — — $ — 74,421 $ 8 18,977 $ 2 $ 71,786 $ 481 $ 23,802 $ 96,079 72 PLAYSTUDIOS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Preferred Stock Common Stock Class A Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2020 162,596 $ 8 238,186 $ 12 — $ — — $ — $ 71,776 $ 481 $ 23,802 96,079 Retroactive application of reverse recapitalization ( 162,596 ) ( 8 ) ( 238,186 ) ( 12 ) 74,421 8 18,977 2 10 — — — Adjusted balance as of December 31, 2020 — $ — — $ — 74,421 $ 8 18,977 $ 2 $ 71,786 $ 481 $ 23,802 96,079 Net income — — — — — — — — — — 10,737 10,737 Acies Merger and PIPE Financing — — — — 32,969 3 ( 2,847 ) — 189,212 — — 189,215 Exercise of stock options — — — — 2,676 — — — 2,412 — — 2,412 Stock-based compensation — — — — — — — — 5,112 — — 5,112 Other comprehensive loss — — — — — — — — — ( 88 ) — ( 88 ) Balance as of December 31, 2021 — $ — — $ — 110,066 $ 11 16,130 $ 2 $ 268,522 $ 393 $ 34,539 $ 303,467 73 PLAYSTUDIOS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Class A Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Total Stockholders' Equity Shares Amount Shares Amount Balance as of December 31, 2021 110,066 $ 11 16,130 $ 2 $ 268,522 $ 393 $ 34,539 — 303,467 Net loss — — — — — — ( 17,783 ) — ( 17,783 ) Exercise of stock options 4,851 1 327 — 1,558 — — — 1,559 Issuance of shares upon vesting of restricted stock units 1,884 — — — — — — — — Stock-based compensation — — — — 20,257 — — — 20,257 Repurchase of common stock ( 1,166 ) ( 1 ) — — — — — ( 4,642 ) ( 4,643 ) Other comprehensive loss — — — — — ( 544 ) — — ( 544 ) Balance as of December 31, 2022 115,635 $ 11 16,457 $ 2 $ 290,337 $ ( 151 ) $ 16,756 $ ( 4,642 ) $ 302,313 The accompanying notes are an integral part of these consolidated financial statements. 74 PLAYSTUDIOS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net (loss) income $ ( 17,783 ) $ 10,737 $ 12,807 Adjustments: Depreciation and amortization 35,562 27,398 22,192 Amortization of loan costs 145 368 — Stock-based compensation expense 17,727 4,455 3,519 Change in fair value of warrant liabilities ( 1,047 ) ( 13,933 ) — Change in fair value of contingent consideration ( 2,411 ) — — Asset impairments 8,353 — — Deferred income tax benefit ( 7,791 ) ( 2,286 ) ( 3,568 ) Other 490 1,545 ( 467 ) Changes in operating assets and liabilities Receivables ( 1,486 ) ( 3,985 ) ( 2,367 ) Prepaid expenses and other current assets 204 90 ( 8 ) Income tax receivable 246 4,842 ( 4,902 ) Accounts payable & accrued liabilities 1,967 3,877 21,975 Other ( 792 ) 768 ( 781 ) Net cash provided by operating activities 33,384 33,876 48,400 Cash flows from investing activities: Acquisition of subsidiary, net of cash ( 70,365 ) — — Purchase of property and equipment ( 11,979 ) ( 2,010 ) ( 1,847 ) Additions to internal-use software ( 21,401 ) ( 25,890 ) ( 25,155 ) Purchase of intangible assets — ( 13,000 ) — Additions to notes receivable and other investments ( 1,011 ) ( 9,536 ) — Advance payment related to license agreements — ( 8,000 ) — Proceeds from notes receivable 2,407 1,500 — Net cash used in investing activities ( 102,349 ) ( 56,936 ) ( 27,002 ) Cash flows from financing activities: Proceeds from stock option exercises 1,493 2,412 992 Repurchases of treasury stock ( 4,272 ) — — Payment for tender offer of warrants ( 1,792 ) — — Payment for minimum guarantee obligations ( 5,000 ) — — Repurchases of common stock for retirement — — ( 2,540 ) Net proceeds from Acies Merger — 185,170 — Other — ( 690 ) ( 2,087 ) Net cash provided by (used in) financing activities ( 9,571 ) 186,892 ( 3,635 ) Foreign currency translation ( 966 ) 743 142 Net change in cash and cash equivalents ( 79,502 ) 164,575 17,905 Cash and cash equivalents at beginning of period 213,502 48,927 31,022 Cash and cash equivalents at end of period $ 134,000 $ 213,502 $ 48,927 Supplemental cash flow disclosures: Interest paid $ 150 $ 125 $ 53 Income taxes paid, net of (refunds) $ 1,884 $ ( 4,321 ) $ 7,015 75 Years Ended December 31, 2022 2021 2020 Non-cash investing and financing activities: Capitalization of stock-based compensation $ 2,530 $ 657 $ 605 Increase in property and equipment included in accounts payable and other long-term liabilities $ 888 $ — $ — Right-of-use assets acquired under operating leases $ 14,638 $ — $ — Additions to intangible assets related to minimum guarantee obligations $ 3,000 $ 5,000 $ — Exchange of notes receivable as consideration for business combinations $ 1,055 $ — $ — Contingent consideration related to business combinations $ 3,361 $ — $ — Reduction of notes receivable in exchange for internal-use software $ — $ 1,754 $ — Settlement of MGM Profit Share liability through the issuance of shares of Class A common stock $ — $ 20,000 $ — The accompanying notes are an integral part of these consolidated financial statements. 76 PLAYSTUDIOS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, unless otherwise noted) NOTE 1— BACKGROUND AND BASIS OF PRESENTATION Organization and Description of Business PLAYSTUDIOS, Inc., formerly known as Acies Acquisition Corp. (the "Company" or "PLAYSTUDIOS"), was incorporated on August 14, 2020 as a Cayman Islands exempted company, and domesticated into a Delaware corporation on June 21, 2021 (the "Domestication"). The Company's legal name became PLAYSTUDIOS, Inc. following the closing of the Acies Merger discussed in Note 3— Business Combinations . The prior period financial information represents the financial results and conditions of Old PLAYSTUDIOS (as defined in Note 3— Business Combinations ). The Company develops and operates online and mobile social gaming applications (“games” or “game”), many of which incorporate a unique loyalty program offering “real world” rewards provided by a collection of awards partners. The Company’s games are free-to-play and available via the Apple App Store, Google Play Store, Amazon Appstore, and Facebook (collectively, “platforms” or “platform operators”). The Company creates games based on its own original content as well as third-party licensed brands. The Company generates revenue through the in-game sale of virtual currency and through advertising. We have one operating segment with one business activity, developing and monetizing social games. Unless the context indicates otherwise, all references herein to “PLAYSTUDIOS,” the “Company,” “we,” “us,” and “our” are used to refer collectively to PLAYSTUDIOS, Inc. and its subsidiaries. Basis of Presentation and Consolidation The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of PLAYSTUDIOS, Inc. and its consolidated subsidiaries. In the opinion of management, all adjustments considered necessary for a fair presentation have been recorded within the accompanying financial statements, and all intercompany balances and transactions have been eliminated upon consolidation. Certain reclassifications in these consolidated financial statements have been made to comply with U.S. GAAP applicable to public companies and SEC Regulation S-X. Pursuant to the Acies Merger as discussed in Note 3— Business Combinations , the Acies Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Acies was treated as the “acquired” company for financial reporting purposes and the consolidated financial statements represent the accounts of Old PLAYSTUDIOS “as if” Old PLAYSTUDIOS is the predecessor to the Company. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and notes thereto. Significant estimates and assumptions reflected in the Company’s consolidated financial statements include the estimated consumption rate of virtual currency that is used in the determination of revenue recognition, useful lives of property and equipment and definite-lived intangible assets, the expensing and capitalization of research and development costs for internal-use software, assumptions used in accounting for income taxes, stock-based compensation, and the evaluation of goodwill and long-lived assets for impairment. The Company believes the accounting estimates are appropriate and reasonably determined. Due to the inherent uncertainties in making these estimates, actual amounts could differ materially. Emerging Growth Company At December 31, 2022, the Company qualified as an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and the Company has taken and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of 77 holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has opted to take advantage of such extended transition period available to emerging growth companies which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company can adopt the new or revised standard at the time private companies adopt the new or revised standard. As a result of the Company's qualification as an emerging growth company, the Company does not expect to adopt any accounting pronouncements currently deferred based on private company standards until a year subsequent to 2022. The Company will reevaluate its eligibility to retain emerging growth company status at the end of its second quarter of 2023, and otherwise as required. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and highly liquid investments with an original maturity of three months or less from the date of purchase and are stated at the lower of cost or market value. Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and receivables. The Company maintains cash and cash equivalent balances at several banks. Cash accounts located in the U.S. are insured by the Federal Deposit Insurance Corporation (FDIC). Although balances may exceed amounts insured by the FDIC, the Company believes that it is not exposed to any significant credit risk related to its cash or cash equivalents and has not experienced any losses in such accounts. Receivables and Allowance for Doubtful Accounts The Company’s receivables consist primarily of amounts due from social and mobile game platform operators, including Apple, Google, Facebook, and Amazon. Accounts receivable are typically non-interest bearing and are initially recorded at cost. The Company regularly reviews accounts receivable, considers current economic conditions and the financial positions of the Company’s platform operators. Accounts are written off when the Company deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. The Company reserves an estimated amount for receivables that may not be collected to reduce receivables to their net carrying amount, which approximates fair value. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered in determining reserves. Property and Equipment, net The Company states property and equipment at cost net of accumulated depreciation. The Company capitalizes the costs of improvements that extend the life of the asset, while costs of repairs and maintenance are charged to expense as incurred. Gains or losses on the disposition of property and equipment are included in the determination of income. Computer equipment, furniture, and fixtures are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the related lease term. Estimated Useful Life Computer equipment 3 years Purchased software 3 years Furniture and fixtures 3 - 7 years Building 39 years Building improvements 15 years Land improvements 5 years Leasehold improvements Lesser of 10 years or remaining lease term 78 Property and equipment are reviewed for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. If the Company reduces the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life. Internal-Use Software The Company recognizes internal-use software development costs in accordance with Accounting Standards Codification (ASC) 350-40, Internal-Use Software . Capitalized costs include consulting fees, payroll and payroll-related costs, and stock-based compensation for employees who devote time to the Company’s internal-use software projects. Capitalization begins when the preliminary project stage is complete and the Company commits resources to the software project and continues during the application development stage. Capitalization ceases when the software has been tested and is ready for its intended use. Qualified costs incurred during the post-implementation/post-operation stage of the Company’s software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality. Costs that cannot be separated between maintenance of, and minor upgrades and enhancements to, internal-use software are expensed as incurred. Capitalized internal-use software development costs are amortized on a straight-line basis over a three-year estimated useful life. The Company believes that a straight-line basis for amortization best represents the pattern through which the Company derives value from internal-use software. The Company evaluates the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Business Combinations The Company applies the provisions of ASC 805, Business Combination and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships, acquired technology and acquired trademarks from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Goodwill In accordance with Accounting Standards Update (ASU) No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill , goodwill is recorded as the excess of the purchase price over acquisition-date fair value of identifiable tangible and intangible assets and liabilities. Goodwill is tested for impairment annually as of October 1st of each year, or when a triggering event occurs. If a triggering event occurs, qualitative factors are first assessed to determine whether a quantitative impairment test is required. If a quantitative test is required, the fair value of the asset is compared to the asset's carrying amount. Any impairment would be recognized for the difference between the fair value and the carrying amount limited to the carrying amount of goodwill. Impairment testing for goodwill is performed at the reporting unit level. The Company has identified a single reporting unit based on the Company’s management structure. Intangible Assets Intangible assets are classified into one of the two categories: (1) intangible assets with definite lives subject to amortization and (2) intangible assets with indefinite lives not subject to amortization. For definite-lived intangible assets, amortization is recorded using the straight-line method, which materially approximates the pattern of the assets’ use. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of intangible assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. The estimated useful lives of the Company’s intangible assets are as follows: 79 Estimated Useful Life Licenses 2 - 5 years Trade names 5 - 10 years Acquired technology 5 years Customer relationships 5 years When factors indicate that a definite-lived intangible asset should be evaluated for possible impairment, the Company reviews intangible assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value. For indefinite-lived intangible assets, the Company conducts impairment tests annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of an indefinite-lived asset is less than its carrying value, or when circumstances no longer continue to support an indefinite useful life. If a triggering event occurs, qualitative factors are first assessed to determine whether a quantitative impairment test is required. If a quantitative test is required, the fair value of the intangible is compared to the asset’s carrying amount. Any impairment would be recognized for the difference between the fair value and the carrying amount. The Company performs its annual impairment testing as of October 1 of each year. Warrant Liabilities The Company evaluates all of its financial instruments, including issued warrants, to determine if such instruments are liability classified, pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) or derivatives or contain features that qualify as embedded derivatives pursuant to ASC Topic 815, Derivatives and Hedging (“ASC 815”). The classification of instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Issuance costs incurred with the Acies Merger that are attributable to liability classified warrants are expensed as incurred. Fair Value Measurements The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued liabilities, approximate fair value because of their short-term maturities. According to ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three tiers, which prioritize the inputs used in measuring fair value as follows: Level 1 —Observable inputs, such as quoted prices in active markets for identical assets or liabilities; Level 2 —Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3 —Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Entities are permitted to choose to measure certain financial instruments and other items at fair value. The Company has not elected the fair value measurement option for any of the Company’s assets or liabilities that meet the criteria for this election. License Agreements & Minimum Guarantees The Company enters into long-term license agreements with third parties in which it is obligated to pay a minimum guaranteed amount of royalties, typically annually over the life of the contract. The Company accounts for the minimum guaranteed obligations within “Accrued liabilities” and “Other long-term liabilities” at the onset of the license arrangement and record a corresponding licensed asset within “Intangibles, net” in the accompanying Consolidated Balance Sheets. The licensed intangible assets related to the minimum guaranteed obligations are amortized over the term of the license agreement with the amortization expense recorded in “Depreciation and amortization” in the accompanying Consolidated Statements of Operations. The Company classifies minimum royalty payment obligations as current liabilities to the extent they are contractually due within the next 12 months. The long-term portion of the liability related to the minimum guaranteed 80 obligations is reduced as royalty payments are made as required under the license agreement. The Company assesses the recoverability of license agreements whenever events arise or circumstances change that indicate the carrying value of the licensed asset may not be recoverable. Recoverability of the licensed asset and the amount of impairment, if any, are determined using the Company’s policy for intangible assets with finite useful lives. Leases The Company is the lessee primarily under non-cancelable office real estate and data center leases. The Company accounts for its leases under ASU No. 2016-02, Leases (Topic 842). Operating lease right-of-use ("ROU") assets and liabilities are recognized at the commencement date and initially measured based on the present value of lease payments and lease incentives received over the defined lease term. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of whether the Company is reasonably certain to exercise the option to extend or terminate the lease. For leases the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s real estate lease agreements do not contain any material residual value guarantees, restrictions or covenants. The Company’s lease agreements with lease and non-lease components are accounted for separately. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is estimated based upon the capital structure of the Company and upon the other information available at the lease commencement date in determining the present value of lease payments. The implicit rate will be used when readily determinable. The operating lease ROU assets also include any prepaid lease payments made and are net of lease incentives. The Company does not record an asset or liability for operating leases with a term of 12 months or less. Revenue Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 combined with all subsequent amendments, which is collectively ASC 606, Revenue from Contracts with Customers, provides guidance outlining a single five-step comprehensive revenue model in accounting for revenue from contracts with customers which supersedes all existing revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also required expanded disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On January 1, 2019, the Company adopted the new accounting standard and related amendments (collectively, the “new revenue accounting standard”) using the modified retrospective method. The Company determines revenue recognition by: • identifying the contract, or contracts, with a customer; • identifying the performance obligations in each contract; • determining the transaction price; • allocating the transaction price to the performance obligations in each contract; and • recognizing revenue when, or as, the Company satisfies performance obligations by transferring the promised goods or services. Virtual Currency The Company develops and operates free-to-play games which are downloaded and played on social and mobile platforms. Players may collect virtual currency free of charge through the passage of time or through targeted marketing promotions. Additionally, players can send free “gifts” of virtual currency to their friends through interactions with certain social platforms. Players may also purchase additional virtual currency through accepted payment methods offered by the respective platform. Once a purchase is completed, the virtual currency is deposited into the player’s account and are not separately identifiable from previously purchased virtual currency or virtual currency obtained by the player for free. Once obtained, virtual currency (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than gameplay. When virtual currency is consumed in our games, the player could “win” and would be awarded additional virtual currency or could “lose” and lose the future use of that virtual currency. As the player does not receive any additional benefit from our games, nor is the player entitled to any additional rights once the player’s virtual currency is substantially consumed, the Company has concluded that the virtual currency represents consumable goods. 81 Players can earn loyalty points through a variety of activities, including but not limited to playing the Company’s games, engaging with in-game advertising, engaging with marketing emails, and logging into the game. The loyalty points can be redeemed for rewards offered by the Company’s awards partners. There is no obligation for the Company to pay or otherwise compensate the Company’s awards partners for any player redemptions under the Company’s awards partner agreements. In addition, both paying and non-paying players can earn loyalty points. Therefore, the loyalty points earned by players are marketing offers and do not provide players with material rights. Accordingly, the loyalty points do not require any allocation to the transaction price of virtual currency. Additionally, certain of the Company’s games participate in an additional program which ranks players into different tiers based on tier points earned during a given time frame. Tier points can be earned through a variety of player engagement activities, including but not limited to logging into our games, achieving multi-day log-in streaks, collecting hourly bonuses, and purchasing virtual currency bundles. Depending on the tier, players are granted access to special benefits at the Company’s discretion. Similar to loyalty points that are redeemable for real-world rewards, the tier points are not awarded as a result of a contract with a customer since both paying and non-paying players can earn these tier points. As a result, the tier points earned by players do not provide players with material rights and do not require any allocation to the transaction price of virtual currency. The Company has the performance obligation to display and provide access to the virtual currency purchased by the Company’s player within the game whenever the player accesses the game until the virtual currency is consumed. Payment is required at the time of purchase and the transaction price is fixed. The transaction price, which is the amount paid for the virtual currency by the player, is allocated entirely to this single performance obligation. As virtual currency represents consumable goods, the Company recognizes revenue as the virtual currency is consumed over the estimated consumption period. Since the Company is unable to distinguish between the consumption of purchased or free virtual currency, the Company must estimate the amount of outstanding purchased virtual currency at each reporting date based on player behavior. The Company has determined through a review of player behavior that players who purchase virtual currency generally are not purchasing additional virtual currency if their existing virtual currency balances have not been substantially consumed. As the Company can track the duration between purchases of virtual currency for individual players, the Company is able to reliably estimate the period over which virtual currency is consumed. Based upon an analysis of players’ historical play behavior, the timing difference between when virtual currency is purchased by a player and when such virtual currency is consumed in gameplay is relatively short, currently one to seven days with an average consumption period of approximately one day. The Company recognizes revenue from in-game purchases of virtual currency over this estimated average period between when the virtual currency is purchased and consumed. If applicable, the Company records the unconsumed virtual currency in “Deferred revenue” and records the prepaid payment processing fees associated with this deferred revenue in “Prepaid expenses”. The Company continues to gather detailed player behavior and assess this data in relation to its revenue recognition policy. To the extent the player behavior changes, the Company reassesses its estimates and assumptions used for revenue recognition prospectively on the basis that such changes are caused by new factors indicating a change in player behavior patterns. Advertising Revenue The Company has contractual relationships with various advertising service providers for advertisements within the Company’s games. Advertisements can be in the form of an impression, click-throughs, banner ads, or offers. Offers are advertisements where the players are rewarded with virtual currency for watching a short video. The Company has determined the advertising service provider to be its customer and displaying the advertisements within its games is identified as the single performance obligation. Revenue from advertisements and offers are recognized at a point in time when the advertisements are displayed, or when the player has completed the offer as the advertising service provider simultaneously receives and consumes the benefits provided from these services. The price can be determined by the applicable evidence of the arrangement, which may include a master contract or a third-party statement of activity. The transaction price is generally the product of the advertising units delivered (e.g. impressions, videos viewed) and the contractually agreed upon price per advertising unit. Further, the price per advertising unit can also be based on revenue share percentages stated in the contract. The number of advertising units delivered is determined at the end of each month so there is no uncertainty about the transaction price. Payment terms are stipulated as a specific number of days subsequent to end of the month, ranging from 45 to 60 days. 82 Principal Agent Considerations The Company’s games are played on various social and mobile third-party platforms for which such third parties collect monies from players and remit net proceeds after deducting payment processing fees. The Company is primarily responsible for providing access to the virtual currency, has control over the content and functionality of games before they are accessed by players, and has the discretion to establish the pricing for the virtual currency. Therefore, the Company concluded that it is the principal and as a result, revenues are reported gross of payment processing fees. Payment processing fees are recorded as a component of “Cost of revenue” in the accompanying Consolidated Statements of Operations. The Company reports its advertising revenue net of amounts retained by advertising service providers. Cost of Revenue Cost of revenue relates to direct expenses incurred to generate revenue from online and mobile games and are recorded as incurred. The Company’s cost of revenue consists primarily of payment processing fees, hosting and data center costs related to operating its games, and royalties for licensed games. Payment processing fees consist of fees paid to third-party social and mobile platform operators. If applicable, other than the deferral of payment processing fees associated with deferred revenues, payment processing fees are expensed as incurred. Research and Development The Company incurs various direct costs in relation to the development of future social and mobile games along with costs to improve current social and mobile games. Research and development costs consist primarily of payroll and related personnel costs, stock-based compensation, and consulting fees. The Company evaluates research and development costs incurred to determine whether the costs relate to the development of software and are, therefore, qualified to be capitalized under ASC 350-40, Internal-Use Software . All other research and development costs are expensed as incurred. Advertising Advertising expenses for our games was $ 69.1 million, $ 70.3 million and $ 49.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. Advertising expenses are included in “Selling and marketing” expenses in the Consolidated Statements of Operations. Share-Based Compensation The Company measures compensation expense for all share-based awards at fair value on the date of grant and recognizes compensation expense over the service period on a straight-line basis for awards expected to vest. The Company uses the Black-Scholes-Merton option-pricing model to determine the fair value for option awards. In valuing our option awards, the Company makes assumptions about risk-free interest rates, dividend yields, volatility, and weighted-average expected lives. The Company accounts for forfeitures as they occur. Risk-free interest rates are derived from U.S. Treasury securities as of the option award grant date. Expected dividend yield is based on our historical cash dividend payments, which have been zero to date. The expected volatility for shares of the Company's Class A common stock is estimated using our historical volatility. The weighted-average expected life of the option awards is estimated based on our historical exercise data. The Company's dual class structure was created upon the Domestication (as defined in Note 3— Business Combinations ). The Class B common stock, including Class B common stock underlying stock options, held by Mr. Andrew Pascal, the Company's Chairman and Chief Executive Officer, or his affiliates (the "Founder Group") carry a super vote premium. As the Founder Group did not have control of Old PLAYSTUDIOS prior to the Acies Merger, and Mr. Pascal is an employee of the Company, the incremental value resulting from the super vote premium is accounted for as incremental compensation costs. The Company utilized the market approach by observing other market participants with (i) dual class structures, (ii) super vote premiums for a single class and (iii) both classes trading on a national exchange. Based on the observed data, management selected a premium for the Class B common stock and the stock options held by members of the Founder Group. Foreign Currency Translation and Transactions The functional currency of each of the Company’s wholly owned foreign subsidiaries is the applicable local currency. The translation of foreign currencies into U.S. dollars is performed for assets and liabilities using current foreign 83 currency exchange rates in effect at the consolidated balance sheet date and for revenue and expense accounts using average foreign currency exchange rates during the year. Capital accounts are translated at historical foreign currency exchange rates. Translation gains and losses are included in stockholders’ equity as a component of accumulated other comprehensive income. Adjustments that arise from foreign currency exchange rate changes on transactions, primarily driven by intercompany transactions, denominated in a currency other than the functional currency are included in “Other income (expense), net” in the Consolidated Statements of Operations. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its consolidated financial statements or tax returns. Under ASC 740, the Company determines deferred tax assets and liabilities based on the temporary difference between the consolidated financial statements and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which it expects the differences to be recovered or settled. The Company establishes valuation allowances when necessary, based on the weight of the available positive and negative evidence, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company accounts for uncertain tax positions in accordance with ASC 740, which requires companies to adjust their consolidated financial statements to reflect only those tax positions that are more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the issue. ASC 740 prescribes a comprehensive model for the consolidated financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. We have elected to account for the impact of the global intangible low-taxed income (GILTI) inclusion and base erosion anti-avoidance tax (BEAT) based on the period cost method. Net Income Per Share Net income per share (“EPS”) is calculated using the two-class method required for participating securities and multiple classes of common stock. Basic income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Net income available to common stockholders represents net income attributable to common stockholders reduced by the allocation of earnings to participating securities. Diluted income per share adjusts basic loss per share for the potentially dilutive impact of stock options, warrants, restricted stock, and contingently issuable earnout shares. The dilutive effect of stock options, warrants, restricted stock, and contingently issuable earnout shares is computed using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. EPS calculations for all periods prior to the Acies Merger have been retrospectively adjusted for the equivalent number of shares outstanding immediately after the Acies Merger to effect the reverse recapitalization. Subsequent to the Acies Merger, net income per share was calculated based on the weighted average number of common stock then outstanding . Recently Issued Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The new guidance replaces the incurred loss impairment methodology in current guidance with a current expected credit loss model (“CECL”) that incorporates a broader range of reasonable and supportable information including the forward-looking information. This guidance is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within that annual reporting period, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of adopting this guidance. Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842) . The amended guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and liabilities in the Consolidated Balance Sheets and disclosing key information about leasing arrangements. The adoption of this guidance resulted in a significant portion of the Company’s operating leases, where the Company is the lessee, to be recognized in the Company’s Consolidated Balance Sheets. The guidance requires lessees and lessors to 84 recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This guidance is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with earlier adoption permitted. The Company adopted this guidance on January 1, 2022 and the adoption of this guidance is disclosed in Note 12— Leases . In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The Company adopted this guidance prospectively on January 1, 2022 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. NOTE 3— BUSINESS COMBINATIONS WonderBlocks Acquisition On August 2, 2022, playBLOCKS, Inc., a newly formed wholly-owned subsidiary of the Company ("playBLOCKS") entered into an agreement with WonderBlocks Labs, Inc. (“WonderBlocks"), which provides tools for the development of a play-to-earn loyalty platform for digital entertainment on the Ethereum blockchain, pursuant to which playBLOCKS acquired substantially all of the assets of WonderBlocks. playBLOCKS paid WonderBlocks $ 2.0 million less Indebtedness (borrowed money and accrued interest, including debt to the Company) at closing and agreed to pay between zero and $ 3 million subject to the satisfaction of certain product and financial milestones. We believe this acquisition will allow us to enhance our playAWARDS model with new Web3 features and capabilities. The Company recorded the excess of the fair value of the consideration transferred in the acquisition over the fair value of net assets acquired as goodwill. The goodwill reflects our expectations of favorable future growth opportunities and anticipated synergies through the scale of our operations. The Company expects that none of the goodwill will be deductible for federal income tax purposes. The following table summarizes the consideration paid for WonderBlocks and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date: Consideration: August 2, 2022 Cash consideration $ 945 Note receivable plus accrued interest conversion 1,055 Contingent consideration 1,564 Total consideration transferred $ 3,564 Identifiable assets acquired and liabilities assumed: Developed technology (weighted-average useful life of 5 years) 2,403 Liabilities assumed $ ( 15 ) Total identifiable net assets $ 2,388 Goodwill $ 1,176 Brainium Studios Acquisition On October 7, 2022, PLAYSTUDIOS US, LLC, a direct wholly-owned subsidiary of the Company entered into a membership interest purchase agreement with Brainium Studios LLC (“Brainium"), a mobile game publisher, Farhad Shakiba, and Jake Brownson (together, the "Seller Members"), and Farhad Shakiba as the Sellers' Representative, pursuant to which PLAYSTUDIOS US, LLC acquired all of the issued and outstanding membership interests in Brainium from the Seller Members. The closing of the acquisition occurred on October 12, 2022, and Brainium became an indirect wholly-owned subsidiary of the Company. The purchase price for the membership interests was $ 70.0 million at closing, as adjusted for cash, indebtedness, and working capital, and between zero and $ 27.3 million following the closing subject to the satisfaction of certain financial milestones for the fiscal year ended December 31, 2022. The Company recorded the excess of the fair value of the consideration transferred in the acquisition over the fair value of net assets acquired as goodwill. The goodwill reflects our expectations of favorable future growth opportunities and anticipated synergies through the scale of our operations. The Company expects that substantially all of the goodwill will be 85 deductible for federal income tax purposes. The following table summarizes the consideration paid for Brainium and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date: Consideration: October 12, 2022 Cash consideration $ 73,457 Contingent consideration 1,797 Total consideration transferred $ 75,254 Identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 3,738 Accounts receivable 3,190 Property and equipment 4,042 Operating lease assets 4,195 Trade names (weighted-average useful life of 10 years) 1,500 Developed technology (weighted-average useful life of 5 years) 12,600 Customer relationships (weighted-average useful life of 5 years) 12,000 Other assets 740 Liabilities assumed ( 7,649 ) Total identifiable net assets $ 34,356 Goodwill $ 40,898 As of December 31, 2022, the fair value of the contingent consideration was zero . Merger with Acies Acquisition Corp. On June 21, 2021 (the “Closing Date”), Acies Acquisition Corp., a Cayman Islands exempted company (prior to the Closing Date, “Acies”), consummated the previously announced business combination (“Acies Merger”) with PlayStudios, Inc., a Delaware corporation (“Old PLAYSTUDIOS”) pursuant to the Agreement and Plan of Merger, dated as of February 1, 2021 (the “Merger Agreement”), by and among Acies, Catalyst Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Acies (“First Merger Sub”), Catalyst Merger Sub II, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Acies (“Second Merger Sub”), and Old PLAYSTUDIOS. In connection with the closing of the Acies Merger, Acies filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation (the “Certificate of Incorporation”) and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which Acies was domesticated and continues as a Delaware corporation, changing its name to PLAYSTUDIOS, Inc. As a consequence of filing the Certificate of Incorporation, the Company adopted a dual class structure, comprised of the Company’s Class A common stock, which is entitled to one vote per share, and the Company’s Class B common stock, which is entitled to 20 votes per share. See Note 17— Stockholders' Equity for further discussion on the dual class structure. In connection with the Acies Merger, Acies entered into subscription agreements with certain investors ("PIPE Investors"), whereby it issued 25.0 million shares of Class A common stock at $ 10.00 per share (the "PIPE Shares") for an aggregate purchase price of $ 250.0 million (the "PIPE Financing"), which closed simultaneously with the consummation of the Acies Merger. $ 20.0 million of the PIPE Financing was used to terminate the profit share provision of an agreement with MGM Resorts International, one of the PIPE Investors. In connection with the Acies Merger, the Company incurred direct and incremental costs of $ 32.8 million related to the equity issuance, consisting primarily of investment banking and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. The Company incurred approximately $ 1.4 million of expenses primarily related to advisory, legal, and accounting fees in conjunction with the Acies Merger. Of this, $ 0.1 million and $ 1.3 million was recorded in general and administrative 86 expenses on the Consolidated Statements of Operations for the years ended December 31, 2021 and December 31, 2020, respectively. The aggregate consideration for the Acies Merger was approximately $ 1,041.0 million, payable in the form of the Company's Class A and Class B common stock and cash. The following table summarizes the merger consideration (in thousands, except per share information): Consideration Cash consideration $ 102,020 Shares transferred at closing (1) 86,838 Value per share $ 10.00 Share consideration $ 868,380 Total consideration $ 970,400 Shares of common stock underlying vested options 7,060 Value per share $ 10.00 Total consideration for vested options 70,600 Aggregate consideration $ 1,041,000 (1) Excludes shares of common stock underlying stock options that are vested but unexercised as of the closing date of the Acies Merger. Since the shares do not represent legally outstanding shares of common stock at closing, they are excluded from the total consideration amount. The following table reconciles the elements of the Acies Merger to the Consolidated Statements of Cash Flows for the year ended December 31, 2021: Cash - Acies Trust and cash (net of redemptions) $ 101,965 Cash - PIPE 230,000 Less: Cash consideration ( 102,020 ) Less: Transaction costs, net of proceeds received from exercises of Old PLAYSTUDIOS' warrants ( 44,775 ) Net Acies Merger and PIPE Financing $ 185,170 The Acies Merger was accounted for as a reverse recapitalization and Acies was treated as the “acquired” company for accounting purposes. The Acies Merger was accounted as the equivalent of Old PLAYSTUDIOS issuing stock for the net assets of Acies, accompanied by a recapitalization. Accordingly, all historical financial information presented in these consolidated financial statements represents the accounts of Old PLAYSTUDIOS “as if” Old PLAYSTUDIOS is the predecessor to the Company. The common stock and net income per share, prior to the Acies Merger, have been adjusted to share amounts reflecting the recapitalization exchange ratio of approximately 0.233 for Old PLAYSTUDIOS common stock. NOTE 4— RELATED-PARTY TRANSACTIONS The following table is a summary of balance sheet assets and liabilities from related parties: December 31, 2022 December 31, 2021 Financial Statement Line Item Marketing Agreement $ 1,000 $ 1,000 Intangibles, net The Company did no t have any revenues recognized from related parties during the years ended December 31, 2022, 2021, and 2020. In connection with the Acies Merger and in accordance with the Merger Agreement, during the year ended December 31, 2021, the Company paid $ 2.5 million to PLAYSTUDIOS Impact Fund, formerly myCause Charitable Foundation ("myCause"), a 501(c)(3) foundation established and administered by certain members of management of the Company. The Company’s remaining expenses recognized from related parties were immaterial during the years ended December 31, 2022, 2021, and 2020. MGM Resorts International (“MGM”) 87 MGM is a stockholder and MGM's Chief Commercial Officer also serves on the Company’s Board of Directors. MGM owned approximately 16.6 million shares of the Company's outstanding Class A common stock as of each of December 31, 2022 and December 31, 2021. Marketing Agreement In April 2011, the Company entered into a joint marketing agreement with MGM (as amended, the “Marketing Agreement”) in exchange for assistance with marketing campaigns and the exclusive right to utilize MGM’s licensed marks and licensed copyrights for the development of certain of the Company’s social casino games. The initial term was for one year from the go-live date of the first such game in July 2012, with an automatic renewal provision for successive two-year terms based on our games meeting certain performance criteria. If our games do not achieve the specified performance criteria, the term will be automatically renewed for a one-year period and the right to utilize MGM’s licensed marks and copyrights will become non-exclusive. The non-exclusive term will be automatically renewed for successive one-year periods so long as our games meet certain other performance criteria. As consideration for the use of MGM’s intellectual property, the Company issued 19.2 million shares of its common stock representing 10 % of its then-outstanding common stock; and in lieu of royalty payments, the Company agreed to pay MGM a profit share of: (i) during the exclusive term, a mid- to high-single digit percentage of cumulative net operating income, as defined in the Marketing Agreement, and (ii) during the non-exclusive term, a low- to mid-single digit percentage of cumulative net operating income. As further described in Note 9— Goodwill and Intangible Assets , the Marketing Agreement was recorded as an indefinite-lived intangible asset. On October 30, 2020, the Company and MGM agreed to amend the Marketing Agreement (the “MGM Amendment”), under which the Company and MGM agreed to terminate the profit share provision. In exchange, the Company agreed to remit to MGM a one-time payment of $ 20.0 million, payable on the earliest to occur of (i) the PIPE Financing, (ii) the date that the Company waives MGM’s commitment to participate in the PIPE Financing, or (iii) two years from the date of the MGM Amendment. In addition, MGM agreed to reinvest in the Company at a minimum amount of $ 20.0 million by participating in the PIPE Financing or a private placement of equity offering to third party investors for minimum gross proceeds to the Company of $ 50.0 million. As a result of the termination, the Company is no longer obligated to make profit share payments, but the other rights and obligations under the Marketing Agreement continue in full force and effect. The Company recorded zero , zero , and $ 0.3 million as profit share expense during the years ended December 31, 2022, 2021, and 2020, respectively. On June 21, 2021, the Company consummated the Acies Merger and MGM participated in the PIPE Financing. In connection with the PIPE Financing, the Company recorded an equity contribution from MGM as a settlement of the $ 20.0 million liability. As of December 31, 2021, the $ 20.0 million liability was settled in full and no amount remained outstanding. NOTE 5— RECEIVABLES Receivables consist of the following: December 31, 2022 December 31, 2021 Trade receivables $ 25,020 $ 20,540 Other receivables 1,996 153 Total receivables $ 27,016 $ 20,693 Trade receivables represent amounts due to the Company from social and mobile platform operators, including Apple, Google, Amazon, and Facebook. Trade receivables are recorded when the right to consideration becomes unconditional. No allowance for doubtful accounts was considered necessary as of December 31, 2022 and December 31, 2021. Concentration of Credit Risk As of December 31, 2022, Apple and Google accounted for 33.6 % and 27.2 % of the Company’s total receivables, respectively, while as of December 31, 2021, Apple and Google accounted for 43.0 % and 34.6 % of the Company’s total receivables, respectively. As of December 31, 2022 and December 31, 2021, the Company did not have any additional counterparties that exceeded 10% of the Company’s net accounts receivable. During the year ended December 31, 2021, the Company entered into agreements pursuant to which the Company acquired the rights to develop and operate Tetris®-branded mobile games. As contemplated in the agreements, the Company 88 agreed to a $ 8.0 million Advance Payment (as defined in Note 16— Commitments and Contingencies ). If the Company and the c ounterparty fail to perform according to the terms of the agreements, the maximum amount of loss which the Company may incur is approximately $ 9.9 million, of which $ 8.0 million related to the Advance Payment is reported within the "Other current assets" line item on the Consolidated Balance Sheets. NOTE 6— FAIR VALUE MEASUREMENT The carrying values of the Company’s cash and cash equivalents, trade receivables, and accounts payable approximate fair value due to their short maturities. The following tables present the liabilities measured at fair value on a recurring basis, by input level, in the Consolidated Balance Sheet at December 31, 2022 and December 31, 2021: December 31, 2022 Level 1 Level 2 Level 3 Total Financial liabilities: Public Warrants $ 2,153 — — $ 2,153 Private Warrants — 1,529 — 1,529 Total financial liabilities $ 2,153 $ 1,529 $ — $ 3,682 December 31, 2021 Level 1 Level 2 Level 3 Total Financial liabilities: Public Warrants $ 4,255 — — $ 4,255 Private Warrants — 2,266 — 2,266 Total financial liabilities $ 4,255 $ 2,266 $ — $ 6,521 The change in fair value of contingent consideration payable was valued using significant unobservable inputs (Level 3). The change was included in "Other income (expense), net" in the Consolidated Statements of Operations and consisted of the following: Total Balance as of December 31, 2021 $ — Recorded in connection with business combinations 3,361 Fair value adjustments based upon post-acquisition performance ( 2,411 ) Balance as of December 31, 2022 $ 950 89 NOTE 7— PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following: December 31, 2022 December 31, 2021 Land and land improvements $ 1,382 $ — Building and building improvements 3,705 — Computer equipment 9,423 8,819 Leasehold improvements 10,204 6,310 Purchased software 4,471 542 Furniture and fixtures 3,553 2,125 Construction in progress 648 721 Total property and equipment 33,386 18,517 Less: accumulated depreciation ( 15,854 ) ( 13,228 ) Total property and equipment, net $ 17,532 $ 5,289 The aggregate depreciation expense for property and equipment, net is reflected in “Depreciation and amortization” in the Consolidated Statements of Operations. During the years ended December 31, 2022, 2021, and 2020, depreciation expense was $ 4.7 million, $ 2.8 million, and $ 2.8 million, respectively. No impairment charges or material write-offs were recorded for the years ended December 31, 2022, 2021, and 2020. Property and equipment, net by region consists of the following: December 31, 2022 December 31, 2021 United States $ 12,331 $ 1,672 EMEA (1) 3,756 2,813 All other regions and countries 1,445 804 Total property and equipment, net $ 17,532 $ 5,289 (1) Europe, Middle East, and Africa (“EMEA”). Amounts primarily represent leasehold improvements of local office space and computer equipment. NOTE 8— INTERNAL-USE SOFTWARE, NET Internal-use software, net consists of the following: December 31, 2022 December 31, 2021 Internal-use software $ 145,798 $ 130,942 Less: accumulated amortization ( 109,680 ) ( 87,675 ) Total internal-use software, net $ 36,118 $ 43,267 The aggregate amortization expenses for internal-use software, net is reflected in "Depreciation and amortization" in the Consolidated Statements of Operations. During the years ended December 31, 2022, 2021, and 2020, the Company capitalized internal-use software development costs of $ 23.9 million, $ 28.3 million, and $ 25.8 million, respectively. Total amortization expenses associated with its capitalized internal-use software development costs for the years ended December 31, 2022, 2021, and 2020 was $ 22.7 million, $ 23.7 million, and $ 18.7 million, respectively. The Company recorded an $ 8.4 million non-cash impairment charge within "Restructuring and related" in the Consolidated Statement of Operations during the year ended December 31, 2022 related to the suspension of further development of Kingdom Boss, resulting in a change in the useful life of the assets associated with the game. There were no write-offs or impairment charges recorded for the years ended December 31, 2021 and 2020. 90 NOTE 9— GOODWILL AND INTANGIBLE ASSETS Goodwill The following table provides the changes in the carrying amount of goodwill for the years ended December 31, 2022 and December 31, 2021: Goodwill, Gross Accumulated Impairment Goodwill, Net Balance as of December 31, 2020 $ 5,059 $ — $ 5,059 Additions from acquisitions — — — Measurement period adjustments — — — Balance as of December 31, 2021 5,059 — 5,059 Additions from acquisitions 42,074 — 42,074 Measurement period adjustments — — — Balance as of December 31, 2022 $ 47,133 $ — $ 47,133 Intangible Assets The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset other than goodwill: December 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortizable intangible assets: Licenses $ 21,040 $ ( 7,962 ) $ 13,078 $ 19,000 $ ( 1,245 ) $ 17,755 Acquired technology 15,003 ( 830 ) 14,173 — — — Customer relationships 12,000 ( 600 ) 11,400 — — — Trade names 2,740 ( 1,278 ) 1,462 1,240 ( 1,240 ) — 50,783 ( 10,670 ) 40,113 20,240 ( 2,485 ) 17,755 Nonamortizable intangible assets: Marketing Agreement with MGM Resorts International 1,000 — 1,000 1,000 — 1,000 Total intangible assets $ 51,783 $ ( 10,670 ) $ 41,113 $ 21,240 $ ( 2,485 ) $ 18,755 Intangible assets consist of trade names, long-term license agreements with various third parties, acquired technology, and customer relationships. The Company entered into agreements with N3TWORK Inc. and The Tetris Company, LLC pursuant to which the Company acquired the rights to develop and operate Tetris ® -branded mobile games for an initial term through August 2024. The Company paid N3TWORK Inc. $ 13.0 million at closing and agreed to pay up to an additional $ 34.0 million subject to satisfaction of certain conditions, of which $ 8.0 million was an Advance Payment (as defined in Note 16— Commitments and Contingencies ) . In addition, the Company will pay royalties to The Tetris Company, LLC, the licensor of the rights. The aggregate amortization expenses for amortizable intangible assets are reflected in “Depreciation and amortization” in the Consolidated Statements of Operations. During the years ended December 31, 2022, 2021, and 2020, amortization expenses were $ 8.2 million, $ 0.9 million, and $ 0.7 million, respectively. There were no impairment charges for intangible assets for the years ended December 31, 2022, 2021, and 2020. 91 As of December 31, 2022, the estimated annual amortization expenses for the years ending December 31, 2022 through 2027 is as follows: Year Ending December 31, Projected Amortization Expense 2023 $ 13,137 2024 11,042 2025 5,551 2026 5,551 2027 4,120 Thereafter 712 Total $ 40,113 NOTE 10— WARRANT LIABILITIES Public Warrants and Private Warrants Upon the closing of the Acies Merger, there were approximately 7.2 million publicly-traded redeemable warrants to purchase shares of Class A common stock (the "Public Warrants") and 3.8 million redeemable warrants to purchase shares of Class A common stock initially issued to the Sponsor in a private placement (the "Private Warrants") by Acies. Each whole Public Warrant entitles the registered holder to purchase one whole share of the Company’s Class A common stock at a price of $ 11.50 in cash per share, subject to adjustment as discussed below, as of October 27, 2021. Pursuant to the Warrant Agreement, a holder of Public Warrants may exercise the Public Warrants only for a whole number of shares of Class A common stock. The Public Warrants will expire 5 years after the completion of the Acies Merger, or earlier upon redemption or liquidation. The Private Warrants are identical to the Public Warrants, except that the Private Warrants and the shares of Class A common stock issuable upon exercise of the Private Warrants were not transferable until after the completion of the Acies Merger, subject to certain limited exceptions. Additionally, the Private Warrants are non-redeemable so long as they are held by the initial holder or any of its permitted transferees. If the Private Warrants are held by someone other than the initial holder or its permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. The Private Warrants may be exercised on a cashless basis so long as held by the Sponsor or certain permitted transferees. The Company may redeem the outstanding Public Warrants in whole, but not in part, at a price of $ 0.01 per Public Warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s Class A common stock equals or exceeds $ 18.00 per share for any 20 -trading days within a 30 -trading day period ending three business days before the Company sends the notice of redemption to the holders of the Public Warrants. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. In no event will the Company be required to net cash settle the exercise of Public Warrants. On April 1, 2022, the Company commenced (i) an offer to each holder of its outstanding Public Warrants and Private Warrants (collectively, the “Warrants”) the opportunity to receive $ 1.00 in cash, without interest, for each outstanding Warrant tendered by the holder pursuant to the offer (the “Offer to Purchase”), and (ii) the solicitation of consents (the “Consent Solicitation”) from holders of the outstanding Warrants to amend the Warrant Agreement, dated as of October 22, 2020, by and between the Company (formerly Acies Acquisition Corp.) and Continental Stock Transfer & Trust Company, which governs all of the Warrants (the “Warrant Amendment”) (collectively the "Tender Offer"). The Tender Offer expired midnight, Eastern Time, at the end of the day on May 13, 2022 (the “Expiration Date”), in accordance with its terms. Broadridge Corporate Issuer Solutions, Inc., the depositary for the Tender Offer, indicated that as of the Expiration Date, (i) 1,792,463 outstanding Public Warrants, or approximately 25 % of the outstanding Public Warrants were validly tendered in and not withdrawn from the Offer to Purchase, and (ii) none of the outstanding Private Warrants were validly tendered in and not withdrawn from the Offer to Purchase. The Warrant Amendment was not approved. The Company paid $ 1.8 million for all Public Warrants tendered by the holders pursuant to the Offer to Purchase and $ 1.1 million of fees, expenses, and other related amounts incurred in connection with the Tender Offer. At December 31, 2022, there were approximately 5.4 million Public Warrants and 3.8 million Private Warrants outstanding. Refer to Note 6— Fair Value Measurement for further information. 92 NOTE 11— ACCRUED LIABILITIES Accrued liabilities consist of the following: December 31, 2022 December 31, 2021 Accrued payroll and vacation 9,666 5,696 Accrued user acquisition 4,183 1,700 Income taxes payable 702 1,201 Accrued royalties 1,484 — Minimum guarantee liability 1,500 5,200 Other accruals 3,938 1,802 Total accrued liabilities $ 21,473 $ 15,599 NOTE 12— LEASES On January 1, 2022, the Company adopted the guidance set forth in ASU No. 2016-02, Leases (Topic 842) using the optional transition method provided by the guidance set forth in ASU No. 2018-11, Leases (Topic 842). Our operating leases primarily consist of real estate leases such as offices. Our leases have remaining terms of approximately one year to six years . During the year ended December 31, 2022, operating lease expense was $ 4.2 million. We do not have any finance leases. Our total variable and short-term lease payments were immaterial for all periods presented. Supplemental balance sheet information related to operating leases are as follows: December 31, 2022 Operating lease right-of-use assets, net $ 15,562 Operating lease liabilities, current 4,571 Operating lease liabilities, noncurrent 11,660 Operating lease liabilities, total $ 16,231 Weighted average remaining lease term, years 4.0 Weighted average discount rate 3.3 % Operating lease liability maturities: Year ending December 31, Operating Leases 2023 $ 5,085 2024 4,784 2025 2,909 2026 2,535 2027 1,747 Thereafter 382 Total undiscounted cash flows $ 17,442 Less: imputed interest $ ( 1,211 ) Lease liabilities, total $ 16,231 As of December 31, 2022, we did not have material additional operating leases that have not yet commenced. NOTE 13— LONG-TERM DEBT Credit Agreement On June 24, 2021, in connection with the closing of the Acies Merger, the Company terminated and replaced the Revolver (as defined below). The Company, a subsidiary of the Company, JPMorgan Chase Bank, N.A., as administrative 93 agent and JPMorgan Chase Bank, N.A., Silicon Valley Bank and Wells Fargo Securities, LLC, as joint bookrunners and joint lead arrangers entered into a credit agreement (the “Credit Agreement”) which provides for a five-year revolving credit facility in an aggregate principal amount of $ 75.0 million. Borrowings under the Credit Agreement may be borrowed, repaid and re-borrowed by the Company, and are available for working capital, general corporate purposes, and permitted acquisitions. Commitment fees and interest rates are determined on the basis of either a Eurodollar rate or an Alternate Base Rate plus an applicable margin. The applicable margins are initially 2.50 %, in the case of Eurodollar loans, and 1.50 %, in the case of Alternate Base Rate loans. The applicable margin is subject to adjustment based upon the Company's Total Net Leverage Ratio (as defined in the Credit Agreement). Eurodollar rates and the Alternate Base Rate are subject to floors of 0.00 % and 1.00 %, respectively. The Credit Agreement contains various affirmative and negative financial and operational covenants applicable to the Company and its subsidiaries. The Credit Agreement includes customary reporting requirements, conditions precedent to borrowing and affirmative, negative and financial covenants. Specific financial covenants include the following, commencing with the quarter ended September 30, 2021: • Total Net Leverage Ratio of 3.50 :1.00 (subject to increase to 4.00 :1.00 following consummation of certain material acquisitions) • Fixed Charge Coverage Ratio of not less than 1.25 :1.00. On May 13, 2022, the Company entered into the Amendment No. 1 to the Credit Agreement, which amended the Credit Agreement to, among other things, exclude from the definition of Fixed Charge Coverage Ratio certain funds, up to $ 15.0 million, expended or to be expended by the Company in connection with the Tender Offer. On August 9, 2022, the Company entered into the Amendment No. 2 to the Credit Agreement, which further amended the Credit Agreement (as amended by Amendment No. 1 to the Credit Agreement) to, among other things, (i) increase the total current available line of credit from $ 75.0 million to $ 81.0 million, (ii) change the basis for calculation of interest under the facility from LIBOR to SOFR, and (iii) exclude from the calculation of the Fixed Charge Coverage Ratio (A) up to $ 6.0 million for the acquisition of, and improvements to, the real property located at 10150 Covington Cross Drive, Las Vegas, Nevada 89144 incurred on or prior to the first anniversary of the effective date of Amendment No. 2 to the Credit Agreement, and (B) up to $ 20.0 million for the redemption or repurchase of up to $ 11.0 million warrants to purchase shares of Class A common stock of the Company, and shares of Class A common stock of the Company, on or before December 31, 2023, of which as of the date of Amendment No. 2 to the Credit Agreement the Company had used $ 1.8 million to redeem outstanding warrants to purchase Class A common stock in connection with the Tender Offer. The Company capitalized a total of $ 0.7 million in debt issuance costs related to the Credit Agreement and subsequent amendments. As of December 31, 2022, the Company does not have any balances outstanding under the Credit Agreement. NOTE 14— REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of Revenue The following table summarizes the Company’s revenue disaggregated by type, and by over time or point in time recognition: Years Ended December 31, 2022 2021 2020 Virtual currency (over time) (1) $ 261,620 $ 280,087 $ 268,137 Advertising (point in time) 21,839 6,964 1,745 Other revenue (point in time) $ 6,850 $ 368 $ — Total net revenue $ 290,309 $ 287,419 $ 269,882 (1) Virtual currency is recognized over the estimated consumption period. 94 The following table summarizes the Company’s revenue disaggregated by geography: Years Ended December 31, 2022 2021 2020 United States $ 253,556 $ 250,252 $ 228,568 All other countries 36,753 37,167 41,314 Total net revenue $ 290,309 $ 287,419 $ 269,882 Contract Balances Contract assets represent the Company’s ability to bill customers for performance obligations completed under a contract. As of December 31, 2022 and December 31, 2021, there were no contract assets recorded in the Company’s consolidated balance sheets. The deferred revenue balance related to the purchase of virtual currency was immaterial as of December 31, 2022 and December 31, 2021. The opening and closing balance of trade receivables is further described in Note 5— Receivables . NOTE 15— INCOME TAXES As of December 31, 2022, unremitted earnings in foreign subsidiaries are indefinitely reinvested. Should these earnings be distributed in the future in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to various jurisdictions. Due to the 2017 Tax Act, there is no U.S. federal tax on cash repatriation from foreign subsidiaries, but it could be subject to foreign withholding tax and U.S. state income taxes. Income (loss) before income taxes by tax jurisdiction consists of the following for the periods shown below (in thousands): Years Ended December 31, 2022 2021 2020 United States $ ( 27,615 ) $ 25,181 $ 8,738 Foreign 3,997 ( 14,702 ) 2,398 Total income (loss) $ ( 23,618 ) $ 10,479 $ 11,136 Provision for (benefit from) current and deferred income taxes consists of the following for the periods shown below (in thousands): Years Ended December 31, 2022 2021 2020 Current tax expense: Federal $ ( 422 ) $ 959 $ 945 State ( 314 ) 731 297 Foreign 2,632 396 791 Total current tax expense $ 1,896 $ 2,086 $ 2,033 Deferred tax expense: Federal $ ( 6,818 ) $ 1,443 $ ( 3,045 ) State 197 ( 404 ) ( 748 ) Foreign ( 1,110 ) ( 3,383 ) 89 Total deferred tax expense $ ( 7,731 ) $ ( 2,344 ) $ ( 3,704 ) Income tax benefit $ ( 5,835 ) $ ( 258 ) $ ( 1,671 ) The difference between the actual rate and the federal statutory rate is as follows: 95 Years Ended December 31, 2022 2021 2020 Statutory rate 21.0 % 21.0 % 21.0 % Foreign provision — 0.6 ( 0.3 ) State/province income tax 5.8 4.0 0.1 Stock compensation 8.9 ( 1.6 ) ( 19.2 ) Unrecognized tax benefits 0.9 8.9 — Other effects of check-the-box election — — ( 6.2 ) Research credit 3.5 ( 11.0 ) ( 11.5 ) Adjustment to carrying value 0.8 1.5 ( 4.0 ) Foreign tax credit ( 10.2 ) ( 4.6 ) ( 9.1 ) Valuation allowance ( 3.6 ) 3.2 9.0 Foreign-derived intangible income deduction (FDII) 0.3 — ( 2.7 ) Global intangible low taxed income (GILTI) ( 0.5 ) — — Non-deductible expenses-other ( 2.3 ) 3.4 2.4 Foreign branch income ( 3.5 ) 1.3 4.5 Foreign tax deduction 2.4 — — Fair value adjustment on warrants 0.9 ( 27.9 ) — Other 0.2 ( 1.3 ) 1.0 Effective tax rate 24.6 % ( 2.5 ) % ( 15.0 ) % Deferred tax assets and liabilities consist of the following (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 8,704 $ 10,384 Tax credit carryforwards 3,213 4,929 Accrued liabilities 1,308 785 Stock compensation 4,712 2,221 Charitable contribution 651 697 Deferred rent — 41 Operating lease assets and lease liabilities, net 181 — Other — 89 Total gross deferred tax assets $ 18,769 $ 19,146 Less: Valuation allowance ( 2,191 ) ( 1,334 ) Total deferred tax assets $ 16,578 $ 17,812 Deferred tax liabilities: Intangibles 373 176 Property and equipment 748 10,189 Prepaid expenses 1,031 1,165 Other 457 — Total deferred tax liabilities $ 2,609 $ 11,530 Deferred tax assets (liability), net $ 13,969 $ 6,282 As of December 31, 2021, the Company had a full valuation allowance of $ 1.3 million on the foreign tax credit carryforward due to the uncertainty of future foreign source taxable income, primarily due to projected tax deductions associated with future exercises of non-qualified stock options. During the year ended December 31, 2022, the Company filed an amended 2020 Federal tax return to remove the foreign tax credit carryforward and claim a deduction for foreign taxes 96 paid. The amended return reduced the credit carryforward to $ 0 which supported the release of the full valuation allowance on foreign tax credits as of December 31, 2022. The Company had $ 3.5 million of California research credit carryforwards as of December 31, 2022, which may be carried forward indefinitely. Due to the uncertainty of utilization of these tax credits, primarily due to lower projected state taxable income associated with California's non-conformity to the capitalization of Section 174 expenses, the company decided to record a partial valuation allowance of $ 2.2 million on the California research credit carryforward. In making such determination, the Company considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial operations. The following is a tabular reconciliation of the total amounts of deferred tax asset valuation allowance: Years Ended December 31, 2022 2021 2020 Balance at beginning of period $ 1,334 $ 1,002 $ — Increase 2,191 332 1,002 Decrease ( 1,334 ) — — Balance at end of period $ 2,191 $ 1,334 $ 1,002 The Company had approximately $ 34.4 million of accumulated federal net operating loss as of December 31, 2022, which may be carried forward indefinitely to offset taxable income. The Company had approximately $ 0.8 million of federal research credit carryforwards as of December 31, 2022. The federal research credits are limited to a 20-year carryforward period and will expire starting in 2041. The Company also had a charitable contribution carryforward of approximately $ 2.6 million as of December 31, 2022. The charitable contribution is limited to a 5-year carryforward period and will expire in 2026. The Company had tax effected state net operating loss carryforwards of approximately $ 1.9 million as of December 31, 2022, which will expire between 2031 and 2042. The Company had $ 3.5 million of California research credit carryforwards as of December 31, 2022, which may be carried forward indefinitely. The Company also had $ 0.7 million of Texas research credit carryforwards as of December 31, 2022, which may be carried forward for 20 years and will expire starting in 2038. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: Years Ended December 31, 2022 2021 2020 Balance at beginning of period $ 637 $ — $ — Increases for tax positions of prior years 313 609 — Increases for tax positions of current year — 148 — Decreases for tax positions of prior years — — — Settlements ( 183 ) ( 120 ) — Decreases for lapses in statute of limitations ( 234 ) $ — $ — Balance at end of period $ 533 $ 637 $ — The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns and for all open tax years. As of December 31, 2022, the Company recorded approximately $ 0.5 million of unrecognized tax benefits, all of which would impact the effective tax rate, if recognized. The Company does not anticipate that its unrecognized tax benefits will materially change within the next 12 months. The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense. As of December 31, 2022, income tax expense includes an accrual of $ 0.1 million for the payment of interest and penalties associated with unrecognized tax benefits. The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, the Company is subject to examination for both U.S. federal and state tax returns for the years 2019 to present. In late 2019, the Company was notified by the Israel Tax Authority that the Company’s Israel tax returns for the tax years ended December 31, 2016 through 2018 are under examination. Tax years starting from 2017 remain open to examination under the statute of limitations by the Israel Tax Authority for Israel. The tax years starting from 2019 remain open to examination by the Hong 97 Kong Inland Revenue Department for Asia. For the remaining jurisdictions, the Company is subject to examination by tax authorities from the date the Company started operations in the respective foreign jurisdiction to present. NOTE 16— COMMITMENTS AND CONTINGENCIES Minimum Guarantee Liability The following are the Company’s total minimum guaranteed obligations: Years Ended December 31, 2022 2021 Minimum guarantee liability-current $ 1,500 $ 5,200 Minimum guarantee liability-noncurrent 1,500 — Total minimum guarantee obligations $ 3,000 $ 5,200 Weighted-average remaining term (in years) 2.0 2.6 The following are the Company’s remaining expected future payments of minimum guarantee obligations as of December 31, 2022: Year Ending December 31, Minimum Guarantee Obligations 2023 $ 1,500 2024 1,500 2025 — 2026 — 2027 — Total $ 3,000 N3TWORK, Inc. On November 22, 2021, the Company entered into agreements with N3TWORK Inc. and The Tetris Company, LLC pursuant to which the Company acquired the rights to develop and operate Tetris®-branded mobile games for an initial term through August 2024. The Company paid N3TWORK Inc. $ 13.0 million at closing and agreed to pay up to an additional $ 34.0 million subject to satisfaction of certain conditions (the "Contingent Payments"). As of December 31, 2022, the Company advanced $ 8.0 million of the Contingent Payments (the "Advance Payment"). None of the Advance Payment was considered earned as of December 31, 2022, which is included within "Other current assets" within the Consolidated Balance Sheets. Contingent Consideration In connection with the WonderBlocks acquisition, the Company agreed to pay between $ 0.0 million and $ 3.0 million subject to the satisfaction of certain product and financial milestones. As of December 31, 2022, the fair value of the contingent consideration is $ 0.9 million. Other The Company is party to ordinary and routine litigation incidental to its business. On a case-by-case basis, the Company engages inside and outside counsel to assess the probability of potential liability resulting from such litigation. After making such assessments, the Company makes an accrual for the estimated loss only when the loss is reasonably probable and an amount can be reasonably estimated. The Company does not expect the outcome of any pending litigation to have a material effect on the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows. In May 2021, the Company became party to a litigation matter brought by TeamSava d.o.o. Beograd (“TeamSava”) and other related parties. The plaintiffs filed a Statement of Claim in May 2021 in Tel Aviv District Court in Israel, alleging claims, among other things, that the Company breached the terms of a commercial contract relating to services provided by TeamSava and related parties in connection with the sourcing and administrative management of personnel in Serbia who provided game development services exclusively for the Company. The pending litigation seeks damages of 27.3 million 98 New Israeli Shekels ("NIS"). The Company believes that the claims are without merit and the Company intends to vigorously defend against them; however, there can be no assurance that the Company will be successful in the defense of this litigation. The Company’s range of possible loss could be up to 27.3 million NIS based on the claim amount of the litigation, but the Company is not able to reasonably estimate the probability or amount of loss and therefore has not made any accruals. On April 6, 2022, a class action lawsuit was filed in the United States District Court, Northern District of California, by a purported Company shareholder in connection with alleged federal securities law violations: Christian A. Felipe et. al. v. PLAYSTUDIOS, Inc. (the “Felipe Complaint”). On July 15, 2022, the Felipe Complaint was transferred to the United States District Court for the District of Nevada, Southern Division. On October 4, 2022, the plaintiffs filed an amendment to the Felipe Complaint. The Felipe Complaint names the Company, several current and former board members of the Company, board members and officers of Acies Acquisition Corp., and Andrew Pascal, the Company’s Chairman and CEO, as defendants. The Felipe Complaint alleges misrepresentations and omissions regarding the state of the Company’s development of the Kingdom Boss game and its financial projections and future prospects in the S-4 Registration Statement filed by Acies that was declared effective on May 25, 2021, the Proxy Statement filed by Acies on May 25, 2021, and other public statements that touted Old PLAYSTUDIOS’ and the Company’s financial performance and operations, including statements made on earnings calls and the Amended S-1 Registration Statement filed by the Company that was declared effective on July 30, 2021. The Felipe Complaint alleges that the misrepresentations and omissions resulted in stock price drops of 13 % on August 12, 2021, and 5 % on February 25, 2022, following (i) the Company’s release of financial results for the second quarter of 2021, ended on June 30, 2021, and (ii) the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and issuance of a press release summarizing financial results for the fourth quarter and year ended December 31, 2021, respectively. The Felipe Complaint seeks an award of damages for an unspecified amount. The Company believes that the claims are without merit and the Company intends to vigorously defend against them; however, there can be no assurance that the Company will be successful in the defense of this litigation. The Company is not able to reasonably estimate the probability or amount of loss and therefore has not made any accruals. On February 28, 2023, the Company initiated an internal reorganization plan which is intended to enhance efficiency and reduce operating expenses. The reorganization plan includes a reduction of the Company’s current total global workforce by approximately 14 percent. The Company expects to substantially complete the personnel reduction by the end of the second quarter of fiscal year 2023, but the timing of certain reductions will vary based on job function and location, including local legal requirements. The Company estimates that it will incur approximately $ 4.5 million to $ 5.5 million in charges in connection with the plan, which will be substantially incurred in the first and second quarters of fiscal year 2023. These charges primarily relate to employee transition, severance payments, employee benefits, stock-based compensation, and lease termination costs. The estimates of the charges and expenditures that the Company expects to incur in connection with the reorganization plan, and the timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates. In addition, the Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the reorganization plan. NOTE 17— STOCKHOLDERS’ EQUITY The Consolidated Statements of Stockholders’ Equity reflect the reverse recapitalization as discussed in Note 3— Business Combinations as of June 21, 2021. As Old PLAYSTUDIOS was deemed the accounting acquirer in the reverse recapitalization with Acies, all periods prior to the consummation date reflect the balances and activity of Old PLAYSTUDIOS. The consolidated balances and the audited consolidated financial statements of Old PLAYSTUDIOS, as of December 31, 2020, and the share activity and per share amounts in these Consolidated Statements of Stockholders' Equity were retroactively adjusted, where applicable, using the recapitalization exchange ratio of 0.233 for Old PLAYSTUDIOS common stock. Old PLAYSTUDIOS Series A Preferred Stock, Old PLAYSTUDIOS Series B Preferred Stock, Old PLAYSTUDIOS Series C-1 Preferred Stock, and Old PLAYSTUDIOS Series C Preferred Stock were deemed converted into shares of Old PLAYSTUDIOS common stock at a share conversion factor of 1.0 as a result of the reverse recapitalization. Old PLAYSTUDIOS warrants to purchase preferred stock were deemed exercised and the underlying shares converted based on the respective preferred stock conversion ratio. See Note 3— Business Combinations for further discussion. Common Stock Subject to the prior rights of the holders of any preferred stock, the holders of common stock are entitled to receive dividends out of the funds legally available at the times and in the amounts determined by the Company's Board of Directors. Each holder of Class A common stock is entitled to one vote for each share of Class A common stock held and each holder of 99 Class B common stock is entitled to twenty votes for each share of Class B common stock held. After the full preferential amounts due to preferred stockholders have been paid or set aside, the remaining assets of the Company available for distribution to its stockholders, if any, are distributed to the holders of common stock ratably in proportion to the number of shares of common stock then held by each such holder. None of the Company’s common stock is entitled to preemptive rights or subject to redemption. With the exception of the conversion of the Class B common stock into Class A common stock as described below, the Company’s common stock is not convertible into any other shares of the Company’s capital stock. The shares of Class B common stock are subject to a “sunset” provision if any member of the Founder Group transfers shares of Class B common stock outside the Founder Group (except for certain permitted transfers). In the event of such non-permitted transfers, any share transferred will automatically convert into shares of Class A common stock. In addition, the outstanding shares of Class B common stock will be subject to a “sunset” provision by which all outstanding shares of Class B common stock will automatically convert into shares of Class A common stock (i) if holders representing a majority of the Class B common stock vote to convert the Class B common stock into Class A common stock, (ii) if the Founder Group and its permitted transferees collectively no longer beneficially own at least 20 % of the number of shares of Class B common stock collectively held by the Founder Group as of the closing of the Acies Merger, or (iii) on the nine-month anniversary of the Founder’s death or disability, unless such date is extended by a majority of independent directors of the Company. Accumulated Other Comprehensive Income The following tables show a summary of changes in accumulated other comprehensive income / (loss): Currency Translation Adjustment Total Accumulated Other Comprehensive Income / (Loss) Balance as of December 31, 2021 $ 393 $ 393 Foreign currency translation ( 544 ) ( 544 ) Balance as of December 31, 2022 $ ( 151 ) $ ( 151 ) Currency Translation Adjustment Total Accumulated Other Comprehensive Income Balance as of December 31, 2020 $ 481 $ 481 Foreign currency translation ( 88 ) ( 88 ) Balance as of December 31, 2021 $ 393 $ 393 Stock Repurchase Program On November 10, 2021, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to purchase up to $ 50.0 million of the Company’s Class A common stock over a period of 12 months. On November 2, 2022, the Company's Board of Directors extended such period for an additional 12 months until November 10, 2023. Subject to applicable rules and regulations, the shares may be purchased from time to time in the open market or in privately negotiated transactions. Such purchases will be at times and in amounts as the Company deems appropriate, based on factors such as market conditions, legal requirements, and other business considerations. As of December 31, 2022, the Company has acquired 1.2 million shares of its Class A common stock under this program at an aggregate value of $ 4.6 million and an average of $ 3.96 per share. Repurchased shares were held in treasury. The remaining availability under the November 2022 $ 50.0 million stock repurchase program was $ 45.4 million as of December 31, 2022. Subsequent to December 31, 2022, the Company acquired 1.3 million shares of its Class A common stock under this program at an aggregate value of $ 5.4 million and an average of $ 4.29 per share. Repurchased shares were held in treasury. 100 NOTE 18— STOCK-BASED COMPENSATION 2011 and 2021 Equity Incentive Plans The Company has two equity incentive plans: Old PLAYSTUDIOS' 2011 Omnibus Stock and Incentive Plan (the “2011 Plan”) and the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other stock awards, and performance awards to employees, officers, non-employee directors and independent service providers of the Company. The 2021 Plan became effective immediately upon the closing of the Acies Merger and replaced the 2011 Plan. No additional awards will be available under the 2011 Plan. Each Old PLAYSTUDIOS stock option from the 2011 Plan that was outstanding immediately prior to the Acies Merger and held by current employees or service providers, whether vested or unvested, was converted into an option to purchase 0.233 shares of Class A common stock (each such option, an “Exchanged Option”). Except as specifically provided in the Merger Agreement, following the Acies Merger, each Exchanged Option continues to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Old PLAYSTUDIOS option immediately prior to the consummation of the Acies Merger. All equity awards activity was retroactively restated to reflect the Exchanged Options. The number of shares of Class A common stock available under the 2021 Plan will increase annually on the first day of each calendar year, beginning with the calendar year ended December 31, 2022, with such annual increase equal to the lesser of (i) 5 % of the number of shares of common stock issued and outstanding on the last business day of the immediately preceding fiscal year and (ii) an amount determined by the Company's Board of Directors. If any award (or any award under the 2011 Plan) is forfeited, cancelled, expires, terminates or otherwise lapses or is settled in cash, in whole or in part, without the delivery of Class A common stock or Class B common stock, then the shares (including both the Class A common stock and Class B common stock) covered by such forfeited, expired, terminated or lapsed award shall again be available as shares for grant under the 2021 Plan. As of December 31, 2022, the Company had 18.9 million shares of Class A common stock reserved for issuance upon exercise of outstanding awards under the 2011 Plan or vesting and settlement of outstanding awards under the 2021 Plan, 1.9 million shares of Class B common stock reserved for issuance upon exercise of outstanding awards under the 2011 Plan, and 10.6 million shares of Class A common stock reserved for future issuance under the 2021 Plan. Stock-Based Compensation In connection with the Domestication and the closing of the Acies Merger, the Founder Group beneficially owned 16.1 million shares of Class B common stock, resulting in 74.6 % of voting power of the Company. In addition, on the Closing Date of the Acies Merger, the Founder Group was the beneficial owner of 2.2 million fully vested options underlying shares of Class B common stock, which accounted for all of Mr. Pascal's outstanding options on the Closing Date of the Acies Merger. As a result of the Acies Merger, the Founder Group has a controlling interest in the Company. As the Founder Group did not have control of Old PLAYSTUDIOS immediately prior to the Acies Merger, and as Mr. Pascal is an employee of the Company, the incremental value resulting from the super vote premium is accounted for as incremental compensation costs. During the year ended December 31, 2022, the Company incurred $ 1.1 million of additional compensation expense related to the Founder Group's beneficial ownership interest in Class B common stock and the underlying vested options as of the Closing Date. The following table summarizes stock-based compensation expense that the Company recorded in (loss) income from operations for the periods shown: Years Ended December 31, 2022 2021 2020 Selling and marketing $ 813 $ 72 $ 94 General and administrative 8,547 1,704 1,044 Research and development 8,367 2,679 2,381 Stock-based compensation expense $ 17,727 $ 4,455 $ 3,519 Capitalized stock-based compensation $ 2,530 $ 657 $ 605 Stock Options 101 All of the options granted under the 2011 Plan have time-based vesting periods vesting over a period of three to four years and a maximum term of 10 years from the grant date. The following is a summary of stock option activity for time-based options for the year ended December 31, 2022 (in thousands, except weighted-average exercise price and remaining term): No. of Options Weighted-Average Exercise Price Weighted-Average Remaining Term (in Years) Aggregate Intrinsic Value Outstanding - December 31, 2021 14,749 $ 0.85 Granted — — Exercised ( 5,178 ) 0.31 Forfeited ( 245 ) 1.90 Expired ( 104 ) 1.99 Outstanding - December 31, 2022 9,222 1.11 5.5 $ 25,969 Unvested - December 31, 2022 1,249 0.96 6.7 3,866 Exercisable - December 31, 2022 7,973 1.14 5.3 22,103 The following table presents the weighted-average assumptions used to estimate the fair value of the stock options granted in the Company’s consolidated financial statements: For the Years Ended December 31, 2022 2021 2020 Expected term (in years) 0.00 5.86 5.96 Expected volatility — % 51.24 % 59.56 % Risk-free interest rate range 0.00 % –  0.00 % 0.54 % –  0.60 % 0.24 % – 0.51 % Dividend yield 0 % 0 % 0 % Grant-date fair value $ — $ 4.01 $ 0.60 As of December 31, 2022, there was approximately $ 2.3 million of total unrecognized compensation expense related to stock options to employees. As of December 31, 2022, this cost is expected to be recognized over a remaining average period of 0.60 . The total intrinsic value of stock options exercised under the provisions of the 2011 Plan during the years ended December 31, 2022, 2021, and 2020, was $ 20.0 million, $ 17.6 million, and $ 19.6 million, respectively. Restricted Stock Units ("RSUs") RSUs are typically granted using a three or four year vesting schedule, either vesting pro rata annually or a cliff vest over the requisite service period, subject to continued employment. Except as provided in an award agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested awards as of the date of termination will be forfeited. RSUs settle for outstanding shares of the Company’s Class A common stock upon vesting. The following is a summary of RSU activity for the year ended December 31, 2022 (in thousands, except weighted-average grant date fair value): No. of RSUs Weighted-Average Grant Date Fair Value Total Fair Value of Shares Vested Outstanding - December 31, 2021 — $ — Granted 13,922 4.28 Vested ( 1,884 ) 4.34 $ 8,170 Forfeited ( 517 ) 4.11 Outstanding - December 31, 2022 11,521 $ 4.28 As of December 31, 2022, there was approximately $ 39.6 million of total unrecognized compensation expense related to RSUs granted to employees and other service providers and this cost is expected to be recognized over a remaining average period of 3.0 years. The total intrinsic value of RSUs vested during the years ended December 31, 2022, 2021, and 2020, was $ 9.0 million, $ 0.0 million , and $ 0.0 million , respectively. 102 NOTE 19— NET (LOSS) INCOME PER SHARE Basic net (loss) income per share is computed by dividing net (loss) income attributable to Class A and Class B common stockholders by the weighted-average number of shares of each respective class of common stock outstanding during the period. Diluted net (loss) income per share is computed by dividing net (loss) income attributable to Class A and Class B common stockholders by the weighted-average number of each respective class of common stock outstanding, including the potential dilutive securities. For the calculation of diluted net (loss) income per share, net income attributable to Class A and Class B common stockholders is adjusted to reflect the potential effect of dilutive securities. As result of the reverse recapitalization, the Company has retroactively adjusted the weighted average shares outstanding prior to the Acies Merger to give effect to the Exchange Ratio used to determine the number of shares of common stock into which they were converted. The following table sets forth the computation of basic and diluted net (loss) income attributable to Class A and Class B common stockholders per share (in thousands except per share data): Years Ended December 31, 2022 2021 2020 Class A Class B Class A Class B Class A Class B Numerator Net (loss) income attributable to common stockholders – basic $ ( 15,535 ) $ ( 2,248 ) $ 9,182 $ 1,555 $ 10,191 $ 2,616 Potential dilutive effect of stock options — — 4 ( 4 ) 79 ( 79 ) Net (loss) income attributable to common stockholders – diluted $ ( 15,535 ) $ ( 2,248 ) $ 9,186 $ 1,551 $ 10,270 $ 2,537 Denominator Weighted average shares of common stock outstanding - basic 112,133 16,220 95,588 16,130 73,940 18,977 Potential dilutive effect of stock options — — 11,229 1,951 8,819 1,467 Weighted average shares of common stock outstanding - dilutive 112,133 16,220 106,817 18,081 82,759 20,444 Net (loss) income attributable to common stockholders per share Basic $ ( 0.14 ) $ ( 0.14 ) $ 0.10 $ 0.10 $ 0.14 $ 0.14 Diluted $ ( 0.14 ) $ ( 0.14 ) $ 0.09 $ 0.09 $ 0.12 $ 0.12 For the periods presented above, the net (loss) income per share amounts are the same for Class A and Class B common stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Certificate of Incorporation. The undistributed earnings for each period are 103 allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the period had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. The following equity awards outstanding at the end of each period presented have been excluded from the computation of diluted net (loss) income per share of common stock for the periods presented due to their anti-dilutive effect: December 31, 2022 December 31, 2021 December 31, 2020 Stock options 9,222 — 79 Restricted stock units 11,521 — — Public Warrants 5,383 7,175 — Private Warrants 3,822 3,821 — Earnout Shares 15,000 15,000 — 44,948 25,996 79 104 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE None.