Item 2.01
|
Completion of Acquisition or Disposition of Assets.
|
Business Combination
The disclosure set forth under “Introductory
Note” above is incorporated in this Item 2.01 by reference. The material terms and conditions of the Sale Agreement are described
on pages 73 to 75 of the Company’s definitive proxy statement dated November 21, 2016 (the “
Proxy Statement
”)
in the section entitled “The Business Combination Proposal,” which is incorporated by reference herein.
The Business Combination was approved by the
Company’s stockholders at a special meeting of the Company’s stockholders held on December 22, 2016 (the “
Special
Meeting
”). At the Special Meeting, 5,879,804 shares of the Company’s Common Stock were voted in favor of the proposal
to approve the Business Combination, 593,601 shares of the Company’s Common Stock were voted against that proposal, holders
of 99 shares of the Company’s common stock abstained and broker non-votes totaled 50,503 shares.
In connection with the closing of the Business
Combination (the “
Closing
”), the Company redeemed a total of 1,860,681 shares of its common stock pursuant to
the terms of the Company’s first amended and restated certificate of incorporation, resulting in a total cash payment from
the Company’s trust account to redeeming stockholders of $18,699,844.05.
As previously stated, the Sale Agreement reflected
a transaction value for the Business Combination of £200 million/$264 million, plus an earn-out of up to 2.5 million shares
of the Company (at an assumed price of $10.00/share), expected to represent approximately £96 million/$126 million of equity
value after adjusting for the maintenance of debt and certain other liabilities (the foregoing conversions from GBP to USD are
based on the USD/GBP exchange rate of $1.32/£1.00 as of July 13, 2016).
Although equivalent amounts are also expressed
in both UK pounds and US dollars, the payments have been made in UK pounds in the amounts stated. Exclusive of the potential earn-out,
the consideration paid for the equity and shareholder loan notes of the Target Parent and the Inspired Group was the aggregate
of the Base Consideration (as defined below),
less
a fixed amount of Accruing Negative Consideration (£21,500 per
day from but excluding July 2, 2016 through and including the closing of the Business Combination).
The “Base Consideration” paid for
the equity and shareholder loan notes pursuant to the Sale Agreement equaled (i) £100,363,394/$132,479,680,
plus
(ii)
any amount by which the Company’s transaction expenses (“
Purchaser Costs
”) referred to in Schedule 6 to
the Sale Agreement exceeds £8,237,909/$10,874,040,
minus
(iii) certain expenses of the Vendors noticed by the Institutional
Vendors’ Representative, not to exceed £3,000,000/$3,960,000,
minus
(iv) certain excess interest payments owing
on the Inspired Group’s existing financing arrangements.
The Vendors were paid the Base Consideration,
adjusted for the Accruing Negative Consideration (the “
Completion Payment
”), in newly-issued shares of Company
common stock (“
Purchaser Shares
”) at a value of $10.00 per share (the “
Stock Consideration
”),
as mutually agreed in the Completion Arrangements Agreement described in Item 1.01 above.
After giving effect to the redemptions described
above and the issuance of the Stock Consideration, we had outstanding as of December 23, 2016 20,199,391 shares of our Common Stock,
of which 11,801,369 shares, or 58.4 %, were issued by the Company to the Vendors and 5,523,927 shares, or 27.3%, were issued to
insiders of the Company or to public stockholders pursuant to the Company’s initial public offering. Such outstanding securities
do not include (i) 14,065 shares of common stock that will be paid to certain minority shareholders of the Inspired Group on January
4, 2017; (ii) up to 3,000,000 shares of our common stock issuable pursuant to our Incentive Plan and Second Plan (defined below);
(iii) an aggregate of 164,536 shares purchased by certain members of Inspired’s management on December 29, 2016 pursuant
to their transaction bonus arrangements (as described in Item 2.01. Completion of Acquisition or Disposition of Assets—Recent
Sales of Unregistered Securities below) and (iv) shares underlying the Company’s 19,079,230 outstanding Warrants.
FORM 10 INFORMATION
Prior to the Closing, the Company was a shell
company with no operations, formed as a vehicle to effect a business combination with one or more operating businesses. After the
Closing, the Company became a holding company whose assets primarily consist of interests in the Inspired Gaming Group. The following
information, pursuant to Item 2.01(f) of Form 8-K, is provided about the business of the Company following the consummation of
the Business Combination.
Cautionary Note Regarding Forward-Looking Statements
We make forward-looking statements in this Current
Report on Form 8-K. These forward-looking statements relate to expectations for future financial performance, business strategies
or expectations for our business, and the timing and ability for us to complete the Business Combination. Specifically, forward-looking
statements may include statements relating to:
|
·
|
the future financial performance of the Company following the Business Combination;
|
|
·
|
the market for the Inspired Gaming Group’s products and services;
|
|
·
|
expansion plans and opportunities, including future acquisitions or additional business combinations; and
|
|
·
|
other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,”
“forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,”
“target” or similar expressions.
|
These forward-looking statements are based on
information available as of the date hereof, and current expectations, forecasts and assumptions involve a number of judgments,
risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any
subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances
after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under
applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance
may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause
actual results to differ include:
|
·
|
the outcome of any legal proceedings that may be instituted against us in relation to the Business Combination and related
transactions;
|
|
·
|
the inability to maintain the listing of the Company’s common stock on NASDAQ;
|
|
·
|
our inability to achieve acceptance of our products in the market;
|
|
·
|
the risk that the Business Combination disrupts current plans and operations as a result of the announcement and consummation
of the transactions described herein;
|
|
·
|
the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things,
competition and the ability of the business to grow and manage growth profitably;
|
|
·
|
changes in applicable laws or regulations;
|
|
·
|
volatility in the currency exchange markets;
|
|
·
|
the possibility that we may be adversely affected by other economic, business, and/or competitive factors; and
|
|
·
|
other risks and uncertainties indicated herein, including those described under “Risk Factors”.
|
Business
The business of the Company is described in
the Proxy Statement in the sections entitled “Information about Target” beginning on page 119 and “Summary of
the Proxy Statement–Inspired Business Overview” beginning on page 24, each of which is incorporated by reference herein.
Risk Factors
The risk factors related to the Company’s
business, operations and industry and ownership of our common stock are described in the Proxy Statement in the section entitled
“Risk Factors” on pages 36 to 59, which description is incorporated by reference herein.
Selected Historical Financial Information Regarding the Inspired
Gaming Group
The Inspired Gaming Group reports its operations
on a 52 -53 week fiscal year ending on the Saturday closest to September 30. References herein and in the information incorporated
herein by reference to the following the Inspired Gaming Group fiscal years are references to the fiscal years ended on the following
dates:
Fiscal year
|
|
Fiscal year ended or
ending
|
|
|
|
Fiscal 2012
|
|
September 29, 2012
|
|
|
|
Fiscal 2013
|
|
September 28, 2013
|
|
|
|
Fiscal 2014
|
|
September 27, 2014
|
|
|
|
Fiscal 2015
|
|
September 26, 2015
|
|
|
|
Fiscal 2016
|
|
September 24, 2016
|
The selected historical financial information
of the Inspired Gaming Group is provided in the Proxy Statement in the section entitled “Target’s Management’s
Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 128, which is incorporated by
reference herein.
The following table sets forth selected historical
financial information for the Inspired Gaming Group for the Inspired Gaming Group’s years ended September 24, 2016, September
26, 2015, September 27, 2014, September 28, 2013 and September 29, 2012. Such financial information has been derived from the
proxy statement and from the Inspired Gaming Group’s audited consolidated financial statements as of September 24, 2016
and September 26, 2015 presented elsewhere in this Current Report on Form 8-K. In the opinion of the Inspired Gaming Group’s
management, such financial statements have been prepared on the same basis as the Inspired Gaming Group audited consolidated financial
statements presented in the Proxy Statement and reflect all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the Inspired Gaming Group’s results of operations and financial position for such periods and
dates. The historical results presented below are not necessarily indicative of the results to be expected for any other future
period and should be read in conjunction with the section herein entitled “—Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the Inspired Gaming Group’s audited consolidated financial statements
and the related notes presented elsewhere herein.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
24, 2016
|
|
|
26, 2015
|
|
|
27, 2014
|
|
|
28, 2013
|
|
|
29, 2012
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,486
|
|
|
|
4,060
|
|
|
|
19,252
|
|
|
|
17,200
|
|
|
|
36,237
|
|
Accounts receivable, net
|
|
|
16,446
|
|
|
|
25,740
|
|
|
|
32,861
|
|
|
|
39,592
|
|
|
|
28,507
|
|
Property and equipment, net
|
|
|
49,231
|
|
|
|
75,786
|
|
|
|
73,006
|
|
|
|
73,725
|
|
|
|
101,176
|
|
Software development costs, net
|
|
|
36,960
|
|
|
|
30,463
|
|
|
|
21,771
|
|
|
|
20,473
|
|
|
|
18,059
|
|
Goodwill and intangibles
|
|
|
57,939
|
|
|
|
71,561
|
|
|
|
80,733
|
|
|
|
83,788
|
|
|
|
110,294
|
|
Total assets
|
|
|
189,870
|
|
|
|
239,940
|
|
|
|
251,818
|
|
|
|
265,505
|
|
|
|
323,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Bank Debt
|
|
|
114,161
|
|
|
|
114,751
|
|
|
|
115,899
|
|
|
|
78,998
|
|
|
|
81,084
|
|
Long-term debt
|
|
|
312,975
|
|
|
|
337,891
|
|
|
|
316,294
|
|
|
|
272,847
|
|
|
|
233,790
|
|
Total liabilities
|
|
|
485,941
|
|
|
|
516,780
|
|
|
|
479,920
|
|
|
|
416,008
|
|
|
|
407,111
|
|
Total stockholders' deficit
|
|
|
(296,071
|
)
|
|
|
(276,840
|
)
|
|
|
(228,102
|
)
|
|
|
(150,503
|
)
|
|
|
(83,816
|
)
|
Total liabilities and stockholders' deficit
|
|
|
189,870
|
|
|
|
239,940
|
|
|
|
251,818
|
|
|
|
265,505
|
|
|
|
323,295
|
|
|
|
|
|
|
For the period ended
|
|
|
|
|
|
|
September 24,
|
|
|
September 26,
|
|
|
September 27,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
119,773
|
|
|
|
127,573
|
|
|
|
146,798
|
|
|
|
114,481
|
|
|
|
130,995
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,021
|
)
|
Net operating (loss)/profit
|
|
|
(1,283
|
)
|
|
|
(1,269
|
)
|
|
|
(12,748
|
)
|
|
|
(1,556
|
)
|
|
|
(26,294
|
)
|
Net (loss) from continuing operations
|
|
|
(59,877
|
)
|
|
|
(59,847
|
)
|
|
|
(67,811
|
)
|
|
|
(48,728
|
)
|
|
|
(63,038
|
)
|
(Loss) profit from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,572
|
)
|
|
|
5,774
|
|
Loss on sale of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,292
|
)
|
|
|
-
|
|
Net (loss) profit from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,864
|
)
|
|
|
6,481
|
|
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The Company is providing the following unaudited
pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination.
The following unaudited pro forma condensed
combined balance sheet as of September 30, 2016 combines the audited historical consolidated balance sheet of Target as of September
24, 2016 with the unaudited historical condensed balance sheet of Hydra Industries as of September 30, 2016, giving effect to the
Business Combination as if it had been consummated as of that date.
The following unaudited pro forma condensed
combined income statement for the twelve months ended September 30, 2016 combines the audited historical consolidated statement
of operations of Target for the fiscal year ended September 24, 2016 with the unaudited historical condensed statement of operations
of Hydra Industries for the twelve months ended September 30, 2016, giving effect to the Business Combination as if it had occurred
on October 1, 2015.
The historical financial information has been
adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually
supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the
unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information
necessary for an accurate understanding of the combined company upon consummation of the Business Combination.
The historical financial information of Target
was derived from the audited consolidated financial statements of Target as of September 24, 2016 and September 26, 2015 and for
the fiscal periods ended September 24, 2016, September 26, 2015 and September 27, 2014 included elsewhere in this Current Report
on Form 8-K. The historical information of Hydra Industries was derived from the audited financial statements of Hydra Industries
for the years ended December 31, 2015 and 2014 and the unaudited condensed financial statements of Hydra Industries for the nine
months ended September 30, 2016 and 2015 beginning on page F-1 of the Proxy Statement, which are incorporated herein by reference.
The unaudited pro forma condensed combined financial
information should be read in conjunction with the financial statements of the Inspired Gaming Group included in “Item 9.01.
Financial Statements and Exhibits” in this Current Report on Form 8-K, the analysis of the Inspired Gaming Group’s
fiscal 2016 set forth below under “—Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Hydra Industries Management’s Discussion and Analysis of Financial Condition and Results of
Operations” beginning on page 114 of the Proxy Statement and the historical financial statements and notes thereto of the
Company beginning on page F-1 of the Proxy Statement and the historical financial statements, all of which are incorporated herein
by reference.
The unaudited pro forma condensed combined financial
information is for illustrative purposes only. The financial results may have been different had the companies always been combined.
You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results
that would have been achieved had the companies always been combined or the future results that the combined company will experience.
Target and Hydra Industries have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma
adjustments were required to eliminate activities between the companies.
The Business Combination is accounted for as
a reverse merger in accordance with accounting principles generally accepted in the United States of America. Under this method
of accounting, Hydra Industries is treated as the “acquired” company for financial reporting purposes. This determination
was primarily based on Target stockholders having a majority of the voting power of the combined company, Target comprising the
ongoing operations of the combined entity, Target comprising a majority of the governing body of the combined company, and Target’s
senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Business
Combination is treated as the equivalent of Target issuing stock for the net assets of Hydra Industries, accompanied by a recapitalization.
The net assets of Hydra Industries are stated at historical cost, with no goodwill or other intangible assets recorded. Operations
prior to the Business Combination are those of Target.
The unaudited pro forma condensed combined financial
statements give effect to Hydra Industries’ extension of the date by which it has to consummate a Business Combination. As
a result of the extension amendment, 3,415,392 shares of common stock were presented for redemption. The Company paid cash in the
aggregate amount of $34,153,920, or $10.00 per share, to redeeming shareholders which was released from the Trust Account. In addition,
the pro forma condensed combined financial statements give effect to the contribution of $0.05 per share, or $229,230, to the Trust
Account for each public share that was not redeemed in connection with the extension amendment.
Pursuant to the Sale Agreement, the “Base
Consideration” paid for the equity and shareholder loan notes pursuant to the Sale Agreement equaled (i) £100,363,394,
plus any amount by which the Company’s transaction expenses (“Purchaser Costs”) referred to in Schedule 6 to
the Sale Agreement exceeded £8,237,909, minus (iii) certain expenses of the Selling Group noticed by its representatives,
not to exceed £3,000,000, minus (iv) certain excess interest payments owing on the Inspired Group’s existing financing
arrangements. The Selling Group was paid the Base Consideration, adjusted for the Accruing Negative Consideration (the “Completion
Payment”), in newly-issued shares of Hydra common stock (“Purchaser Shares”) at a value of $10.00 per share (the
“Stock Consideration”).
As a result of the Business Combination, after
1,860,681 shares of common stock were redeemed and converted into cash, shares issued to the Selling Group represented approximately
58.4% of the Company’s Common Stock outstanding immediately after the Business Combination, and the shares owned by the other
Hydra Industries stockholders represented approximately 41.6% of the Company’s outstanding Common Stock, based on the number
of shares of Hydra Industries common stock outstanding as of September 30, 2016.
The unaudited pro forma condensed combined financial
statements have been prepared based on 1,860,681 shares of the Company common stock redeemed at the Closing at a conversion price
of $10.05 per share, pursuant to the existing certificate of incorporation of the Company and the common stock share issuances
described above.
Included in the shares outstanding and weighted
average shares outstanding as presented in the pro forma condensed combined financial statements are 11,801,369 shares of the Company’s
common stock issued to Target stockholders.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2016
(UNAUDITED) (in thousands)
|
|
(A)
|
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
Hydra
Industries
|
|
|
Pro Forma
Adjustments
|
|
|
|
Pro Forma
Balance Sheet
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,486
|
|
|
$
|
218
|
|
|
$
|
27,375
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,558
|
)
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,520
|
)
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,323
|
)
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,809
|
)
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,652
|
)
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(214
|
)
|
(13)
|
|
$
|
23,007
|
|
Accounts receivable, net
|
|
|
16,446
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
16,446
|
|
Inventory, net
|
|
|
7,684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
7,684
|
|
Prepaid expenses and other current assets
|
|
|
19,124
|
|
|
|
24
|
|
|
|
-
|
|
|
|
|
19,148
|
|
Total Current Assets
|
|
|
44,740
|
|
|
|
242
|
|
|
|
21,303
|
|
|
|
|
66,285
|
|
Long term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities held in Trust Account
|
|
|
-
|
|
|
|
80,018
|
|
|
|
(34,154
|
)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,700
|
)
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,375
|
)
|
(5)
|
|
|
-
|
|
Property and equipment, net
|
|
|
49,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
49,231
|
|
Intangible assets, net
|
|
|
49,194
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
49,194
|
|
Goodwill
|
|
|
45,705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
45,705
|
|
Other assets
|
|
|
1,000
|
|
|
|
-
|
|
|
|
111
|
|
(8)
|
|
|
1,111
|
|
Total Long Term Assets
|
|
|
145,130
|
|
|
|
80,018
|
|
|
|
(79,907
|
)
|
|
|
|
145,241
|
|
Total Assets
|
|
$
|
189,870
|
|
|
$
|
80,260
|
|
|
$
|
(58,604
|
)
|
|
|
$
|
211,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
31,140
|
|
|
$
|
3,778
|
|
|
$
|
(3,128
|
)
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,410
|
)
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,809
|
)
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,512
|
|
(12)
|
|
$
|
25,083
|
|
Promissory notes - related parties
|
|
|
-
|
|
|
|
700
|
|
|
|
229
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(929
|
)
|
(13)
|
|
|
-
|
|
Corporate tax and other current taxes payable
|
|
|
4,665
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,665
|
|
Deferred revenue
|
|
|
9,593
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
9,593
|
|
Other current liabilities
|
|
|
3,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
3,115
|
|
Current portion of long-term debt
|
|
|
10,292
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
10,292
|
|
Total Current Liabilities
|
|
|
58,805
|
|
|
|
4,478
|
|
|
|
(10,535
|
)
|
|
|
|
52,748
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
402,492
|
|
|
|
-
|
|
|
|
(1,323
|
)
|
(10)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
(298,248
|
)
|
(14)
|
|
|
102,921
|
|
Deferred revenue, net of current portion
|
|
|
12,282
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
12,282
|
|
Deferred underwriting fees
|
|
|
-
|
|
|
|
2,800
|
|
|
|
(2,800
|
)
|
(8)
|
|
|
-
|
|
Earnout share laibility
|
|
|
-
|
|
|
|
-
|
|
|
|
9,575
|
|
(16)
|
|
|
9,575
|
|
Other long-term liabilities
|
|
|
12,362
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
12,362
|
|
Total Liabilities
|
|
|
485,941
|
|
|
|
7,278
|
|
|
|
(303,331
|
)
|
|
|
|
189,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to possible redemption
|
|
|
-
|
|
|
|
67,982
|
|
|
|
(34,154
|
)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,828
|
)
|
(4)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
165
|
|
|
|
-
|
|
|
|
1
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164
|
)
|
(15)
|
|
|
2
|
|
Additional paid-in capital
|
|
|
450
|
|
|
|
10,569
|
|
|
|
20,000
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298,248
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,127
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,405
|
)
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,575
|
)
|
(16)
|
|
|
331,874
|
|
Accumulated other comprehensive loss
|
|
|
33,105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
33,105
|
|
Accumulated deficit
|
|
|
(329,791
|
)
|
|
|
(5,569
|
)
|
|
|
(18
|
)
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,260
|
)
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,110
|
)
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,164
|
)
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,569
|
|
(15)
|
|
|
(343,343
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
|
(296,071
|
)
|
|
|
5,000
|
|
|
|
312,709
|
|
|
|
|
21,638
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
189,870
|
|
|
$
|
80,260
|
|
|
$
|
(58,604
|
)
|
|
|
$
|
211,526
|
|
Pro Forma Adjustments to the Unaudited Condensed
Combined Balance Sheet
(A)
|
Derived from the audited consolidated balance sheet of Target as of September 24, 2016.
|
(B)
|
Derived from the unaudited condensed balance sheet of Hydra Industries as of September 30, 2016.
|
|
|
(1)
|
To reflect the redemption of 3,415,392 shares of Hydra Industries’ common stock at $10.00 per share in connection with the Hydra Industries stockholder meeting held on October 27, 2016, pursuant to which the stockholders approved the date by which the Company had to consummate a Business Combination (“Extension Vote”).
|
(2)
|
To reflect the funding of $0.05 per share for each public share of Hydra Industries common stock that was not redeemed in connection with the Extension Vote.
|
(3)
|
To record interest on investments held in the trust account through the consummation of the Business Combination.
|
(4)
|
As a result of 1,860,681 shares redeemed by the Hydra Industries stockholders, $18,700 of the common stock subject to redemption was paid out in cash and the remaining balance of $15,128 was transferred to permanent equity.
|
(5)
|
To liquidate investments held in the trust account.
|
(6)
|
To record $20 million proceeds from the Macquarie Private Placement.
|
(7)
|
To record Macquarie Private Placement of 500,000 shares of Hydra Industries common stock.
|
(8)
|
To reflect payment of deferred underwriting fee payable and fees and expenses incurred by Hydra Industries related to the Business Combination and issuance of common stock in settlement of certain balances due to vendors.
|
(9)
|
To reflect payment of fees and expenses incurred by Target related to the Business Combination.
|
(10)
|
To record debt issuance costs incurred in connection with the extension of the maturity date of the Target’s senior debt.
|
(11)
|
To record payment of accrued interest on third party debt.
|
(12)
|
To record payment of management bonuses related to the Business Combination.
|
(13)
|
To record repayment of promissory notes to Sponsors and conversion of promissory notes to warrants.
|
(14)
|
To record adjustment to shareholder loan notes and concurrent cancellation of such shareholder loan notes as a capital contribution.
|
(15)
|
To reflect recapitalization of Target through issuance of 11,801,369 shares of Hydra Industries’ common stock and the elimination of the historical accumulated deficit of Hydra Industries, the accounting acquiree.
|
(16)
|
To reflect the value of contingent consideration in connection with the earn-out payments contemplated in the Sale Agreement, which are variable in nature, and dependent on the Target’s future performance.
|
(17)
|
Upon the consummation of the Business Combination, 10,000,000 rights converted into 1,000,000 shares of common stock at a
par value of $0.0001 per share.
|
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30,
2016
(UNAUDITED)
(in thousands except share and per share
amounts)
|
|
(A)
|
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
Hydra
Industries
|
|
|
Pro Forma
Adjustments
|
|
|
|
Pro Forma
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
119,773
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
119,773
|
|
Cost of sales
|
|
|
(20,414
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(20,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(65,632
|
)
|
|
|
(2,740
|
)
|
|
|
7,800
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
(4)
|
|
|
(60,203
|
)
|
Depreciation and amortization
|
|
|
(35,010
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(35,010
|
)
|
Total operating expenses
|
|
|
(100,642
|
)
|
|
|
(2,740
|
)
|
|
|
8,169
|
|
|
|
|
(95,213
|
)
|
Net operating income (loss)
|
|
|
(1,283
|
)
|
|
|
(2,740
|
)
|
|
|
8,169
|
|
|
|
|
4,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities held in Trust Account
|
|
|
-
|
|
|
|
2
|
|
|
|
(2
|
)
|
(1)
|
|
|
-
|
|
Interest income
|
|
|
287
|
|
|
|
107
|
|
|
|
(107
|
)
|
(1)
|
|
|
287
|
|
Interest expense
|
|
|
(58,327
|
)
|
|
|
-
|
|
|
|
(315
|
)
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,212
|
|
(6)
|
|
|
(19,430
|
)
|
Other finance costs
|
|
|
(247
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(247
|
)
|
Loss before income taxes
|
|
|
(59,570
|
)
|
|
|
(2,631
|
)
|
|
|
46,957
|
|
|
|
|
(15,244
|
)
|
Provision for income taxes
|
|
|
(307
|
)
|
|
|
-
|
|
|
|
3,356
|
|
(7)
|
|
|
3,049
|
|
Net loss
|
|
$
|
(59,877
|
)
|
|
$
|
(2,631
|
)
|
|
$
|
50,313
|
|
|
|
$
|
(12,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
3,037,318
|
|
|
|
16,980,786
|
|
(8)
|
|
|
20,018,104
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(0.87
|
)
|
|
|
|
|
|
|
$
|
(0.61
|
)
|
Pro Forma Adjustments to the Unaudited Condensed
Combined Income Statements
(A)
|
Derived from the audited consolidated statements of operations of Target for the fiscal year ended September 24, 2016.
|
(B)
|
Derived from the unaudited condensed statements of operations of Hydra Industries for the twelve months ended September 30, 2016.
|
(1)
|
To eliminate unrealized gain (loss) and interest income on marketable securities held in the trust account as of the beginning of the period.
|
(2)
|
To eliminate direct, incremental costs of the Business Combination which are reflected in the historical
financial statements of Target and Hydra Industries in the amount of $5,644 and $2,156, respectively, as of September 30, 2016.
|
(3)
|
To record compensation expense for Daniel Silvers, assuming his employment agreement entered into in connection with the Business Combination was effective as of the beginning of the period.
|
(4)
|
To record amortization of additional directors and officers insurance policy premium incurred in connection with the Business Combination as of the beginning of the period.
|
(5)
|
To record amortization of debt issuance costs incurred in connection with the extension of the maturity date of the Target’s senior debt as of the beginning of the period.
|
(6)
|
To eliminate interest expense on shareholder loan notes exchanged and purchased in connection with Business Combination as of the beginning of the period.
|
(7)
|
To record normalized income tax benefit of 20.0% for pro forma financial presentation purposes.
|
(8)
|
As the Business Combination is being reflected as if it had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the period presented. Weighted average common shares outstanding—basic and diluted is calculated as follows:
|
|
|
Twelve
Months
Ended
September 30,
2016
|
|
Hydra Industries weighted average shares outstanding
|
|
|
3,037,318
|
|
Hydra Industries shares and rights converted to shares issued to Macquarie
|
|
|
2,700,000
|
|
Hydra Industries rights converted to shares
|
|
|
800,000
|
|
Hydra Industries shares subject to redemption reclassified to equity
|
|
|
1,505,322
|
|
Hydra Industries shares issued to vendors
|
|
|
174,095
|
|
Hydra Industries shares issued in Business Combination
|
|
|
11,801,369
|
|
Weighted average shares outstanding
|
|
|
20,018,104
|
|
|
|
|
|
|
Percent of shares owned by Target holders
|
|
|
59.0
|
%
|
Percent of shares owned by Hydra Industries and Macquarie
|
|
|
41.0
|
%
|
|
|
|
|
|
Weighted average shares calculation, basic and diluted
|
|
|
|
|
Existing Target holders
|
|
|
11,801,369
|
|
Hydra Industries holders and Macquarie
|
|
|
8,216,735
|
|
Weighted average shares, basic and diluted
|
|
|
20,018,104
|
|
The computation of diluted loss per share excludes the
effect of warrants to purchase 9,539,615 shares of the Company’s common stock because their inclusion would be anti-dilutive.
Earnings per Share
The following table sets forth the per share
data of Hydra Industries and Target on a stand-alone basis and the unaudited pro forma condensed combined per share data for the
twelve months ended September 30, 2016 after giving effect to the Business Combination and the redemption of 1,860,681 shares of
Hydra Industries common stock that were converted upon consummation of the Business Combination.
You should read the information in the following
table in conjunction with the selected historical financial information summary included elsewhere in this Current Report on Form
8-K, and the historical financial statements and related notes of Target that are included elsewhere in this Current Report on
Form 8-K and the historical financial statements and related notes of Hydra Industries set forth in the Proxy Statement. The unaudited
Hydra Industries and Target pro forma combined per share information is derived from, and should be read in conjunction with, the
unaudited pro forma condensed combined financial statements and related notes included elsewhere in this Current Report on Form
8-K and set forth in the Proxy Statement.
The unaudited pro forma combined earnings per
share information below does not purport to represent the earnings per share which would have occurred had the companies been combined
during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value
per share information below does not purport to represent what the value of Hydra Industries and Target would have been had the
companies been combined during the period presented.
|
|
Target
|
|
|
Hydra
Industries
|
|
|
Pro Forma
Combined
|
|
|
|
(in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 24, 2016 (Target) and Twelve Months Ended September 30, 2016 (Hydra Industries)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(59,877
|
)
|
|
$
|
(2,631
|
)
|
|
$
|
(12,195
|
)
|
Stockholders’ equity (deficit) at September 30, 2016
|
|
$
|
(296,071
|
)
|
|
$
|
5,000
|
|
|
$
|
21,638
|
|
Weighted average shares outstanding – basic and diluted
|
|
|
|
|
|
|
3,037,318
|
|
|
|
20,018,104
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(0.87
|
)
|
|
$
|
(0.61
|
)
|
Stockholders’ equity per share - basic and diluted – at September 30, 2016
|
|
|
|
|
|
$
|
1.65
|
|
|
$
|
1.08
|
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Management’s Discussion and Analysis of
Financial Condition and Results of Operations of the Inspired Gaming Group is set forth in the Proxy Statement in the section entitled
“Target’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning
on page 128, which is incorporated by reference herein. That discussion pertains to the Inspired Gaming Group’s financial
position and results of operations for the annual periods specified therein. We have set forth below a comparable discussion with
respect to the Inspired Gaming Group’s results of operations for Fiscal 2015 and Fiscal 2016 and financial condition as of
the Business Combination. The information in the Proxy Statement section entitled “Information about Target” is also
incorporated by reference herein.
The following discussion and analysis of financial
condition and results of operations of the Inspired Gaming Group should be read in conjunction with the Inspired Gaming Group’s
audited financial statements for the years ended September 24, 2016 and September 26, 2015 and related notes appearing elsewhere
in this Current Report on Form 8-K. the Inspired Gaming Group’s actual results may not be indicative of future performance.
This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but
not limited to, those discussed in this Current Report on Form 8-K in the sections entitles “—Cautionary Note Regarding
Forward-Looking Statements” and “—Risk Factors.” Actual results may differ materially from those contained
in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Current Report on Form
8-K have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic
aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable,
when aggregated, may not be the arithmetic aggregation of the percentages that precede them.
We are a global gaming technology company,
supplying Virtual Sports and Server Based Gaming (“SBG”) systems to regulated lottery, betting and gaming operators
worldwide. Our strategic priorities are:
|
i)
|
to seek to extend our leadership positions in each of Virtual Sports and Server Based Gaming by developing new, omni-channel
products;
|
|
ii)
|
to continue to invest in content and technology in order to grow our existing customers’ revenue; and
|
|
iii)
|
to add new customers by expanding in underpenetrated markets and newly-regulated jurisdictions.
|
Segments
We report our operations in two business segments
– Server Based Gaming and Virtual Sports – representing our different products and services. We operate our business
and evaluate our business performance, resource allocation and capital spending on an operating segment level, where possible.
The Company uses its operating results and identified assets of each operating segment in order to make prospective operating decisions.
Although our revenues and cost of sales (excluding depreciation and amortization) are reported exclusively by segment, we do include
an unallocated column in our financial statements for certain expenses including depreciation and amortization as well as selling,
general and administrative expenses. Unallocated balance sheet line items include items that are a shared resource and therefore
not allocated between operating segments.
Foreign exchange
Our results are impacted by changes in foreign
currency exchange rates as a result of the translation of foreign functional currencies into US dollars and the remeasurement of
foreign currency transactions or balances. The impact of foreign currency exchange rate fluctuations represents the difference
between current rates and prior-period rates applied to current activity. The largest geographic region in which we operate is
the United Kingdom and the British pound (“
GBP
”) is considered to be our functional currency. Our reporting
currency is the US dollar (“
USD
”). Our results are translated from the functional currency of GBP into the reporting
currency using average rates for profit and loss transactions and the applicable spot rates for period end balances. The effect
of translating the functional currency into the reporting currency, as well as translating foreign subsidiaries that have a different
functional currency into the functional currency, is reported separately in Accumulated Other Comprehensive Income. We derived
approximately 27%, 25% and 19% of our revenue from sales to customers outside of the United Kingdom in 2016, 2015 and 2014, respectively.
In the section “Results of Operations”
below, the currency impact shown has been calculated as current period GBP:USD rate used less prior period rate used, multiplied
by the current period amount in the functional currency, and as such details the difference between GBP and USD movements. The
remaining difference is therefore calculated as the difference in the functional currency, multiplied by the prior period average
GBP:USD rate.
Goodwill and intangible impairment charges
A goodwill impairment charge of $1.0 million
was recorded in the period ending September 26, 2015, in relation to the goodwill arising from the acquisition of Merkur Inspired
Ltd, due to uncertainty of future positive cash flows. There were no goodwill impairment charges recorded in the period ending
September 24, 2016.
CRITICAL ACCOUNTING ESTIMATES
The Company's consolidated financial statements
are prepared in accordance with US GAAP, which require the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the
reporting periods and the related disclosures in the consolidated financial statements and related footnotes. The Company has disclosed
significant accounting policies, which are described in Note 1: Nature of Operations and Summary of Significant Accounting Policies
in the audited consolidated financial statements included in this Current Report on Form 8-K. We consider certain of these accounting
policies to be "critical," as they require management’s highest degree of judgment, estimates and assumptions.
While management believes its estimates, assumptions and judgments are reasonable, they are based on information presently available
and actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions.
Revenue Recognition
We derive revenue principally from the sale
and rental of our Server Based Gaming (“SBG”) terminals and related services, including content provision and servicing,
to regulated retail betting outlets, casinos and other gaming operators, and licensing of our Virtual Sports gaming software and
related services to regulated virtual sports retail, mobile and online operators. We evaluate the recognition of revenue based
on the criteria set forth in ASC 605, Revenue Recognition ("ASC 605") and ASC 985-605, Software-Revenue Recognition ("ASC
985"). Revenue is recognized when all of the following criteria are met:
|
1.
|
Persuasive evidence of an arrangement exists
|
|
2.
|
The price to the customer is fixed or determinable
|
|
3.
|
Delivery has occurred, title has been transferred, and
any acceptance terms have been fulfilled; and
|
|
4.
|
Collectability is probable
|
For our multiple-deliverable arrangements which
include hardware containing software that functions together with the hardware to deliver its essential functionality and undelivered
non-software services, deliverables are separated into more than one unit of accounting when: (i) the delivered element(s) have
value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially in the
control of the Company. When the final undelivered element(s) are non-software services and non-hardware, those deliverables are
recognized on a ratable basis over the remaining term of the arrangement.
We determine the relative selling price for
deliverables in the scope of ASC 605 based on the following selling price hierarchy:
|
1.
|
Vendor specific objective evidence ("VSOE"), (i.e., the price we charge when the product or service is sold separately)
if available,
|
|
2.
|
Third-party evidence (“TPE”) of fair value (i.e., the price charged by others for similar products and services)
if VSOE is not available, or
|
|
3.
|
our best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.
|
Our multiple-deliverable arrangements may also
contain one or more software deliverables in the scope of ASC 985-605. The revenue for these multiple-deliverable arrangements
is allocated to the software deliverables and the non-software deliverables based on the relative selling prices of all of the
deliverables in the arrangement using the fair value hierarchy outlined above. In circumstances where the Company cannot determine
VSOE or TPE of the selling price for any of the deliverables in the arrangement, BESP is used for the purpose of allocating the
arrangement consideration between software and non-software deliverable.
Revenue is allocated to the software deliverables
based on the relative fair value of each element, and fair value is determined using VSOE. Where VSOE does not exist for the undelivered
software element, revenue is deferred until either the undelivered element is delivered or VSOE is established, whichever occurs
first. When the final undelivered software element is services, the related revenue is recognized on a ratable basis over the remaining
service period. When VSOE of a delivered element has not been established, but VSOE exists for the undelivered elements, the Company
uses the residual method to recognize revenue when the fair value of all undelivered elements is determinable. Under the residual
method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated
to the delivered elements and is recognized as revenue.
In addition to the general policies discussed
above, the following are the specific revenue recognition policies for our revenue streams.
Server Based Gaming
Revenue from SBG terminals, access to our content
and SBG platform, including electronic table gaming products is recognized in accordance with the criteria set forth in ASC 605
and is usually based upon a contracted percentage of the operator’s net winnings from the terminals’ daily use. Where
this is not the case, revenue is based upon a fixed daily or weekly rental fee. We recognize revenue from these arrangements on
a daily basis over the term of the arrangement, or when not specified over the expected customer relationship period. Performance
obligations under these arrangements may include the delivery and installation of our SBG terminals for use over a term, as well
as service obligations related to hardware repairs and server based content and maintenance.
We sometimes bill for SBG arrangements up front
in order to help fund our working capital and development requirements, or at the request of a customer. Upfront fees on SBG arrangements
are deferred and recognized on a straight-line basis over the term of the arrangement or when not specified over the expected customer
relationship period. Hardware sales take the form of a transfer of ownership of our developed gaming terminals, and are recognized
upon delivery as they have value to our customers on a stand-alone basis.
Virtual Sports
Revenue from licensing of our gaming software
is recognized in accordance with the criteria set forth in ASC 985-605. Virtual sports retail revenue, which includes the provision
of virtual sports content and services to retail betting outlets, and virtual sports online and mobile revenue, which includes
the provision of virtual sports content and services to mobile and online operators, is based upon a contracted percentage of the
operator’s net winnings or a fixed rental fee. We recognize revenue for these fees on a daily or weekly basis over the term
of the arrangement, these arrangements typically include a perpetual license billed up front, granted to the customer for access
to our gaming platform and content. As we do not have VSOE for the undelivered elements in virtual sports arrangements, revenue
from the licensing of perpetual licenses is recognized on a straight-line basis over the term of the arrangement, or when not specified,
over the expected customer relationship period.
Revenue from the development of bespoke games
licenced on a perpetual basis to mobile and online operators is recognized on delivery and acceptance by the customer. We have
no ongoing service obligations subsequent to customer acceptance of our bespoke games.
RESULTS OF OPERATIONS
The results of operations have been organized in the following manner
:
|
-
|
a discussion of the Company’s results of operations for the period ended September 24, 2016 compared to the same period
in 2015; and
|
|
-
|
a discussion of the Company’s results of operations for the period ended September 26, 2015 compared to the same period
in 2014.
|
The financial statement periods presented represent
a 52 week period, which approximates a 12 month period. The balance sheet date of each fiscal period represents the Saturday closest
to the 30
th
of September. Each 52 week fiscal year presented within these financial statements and footnotes are herein
referred to as a “period”.
|
|
For the period ended
|
|
|
Variance
|
|
|
|
September 24,
|
|
|
September 26,
|
|
|
September 27,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 vs 2015
|
|
|
2015 vs 2014
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
%
|
|
|
$ '000
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
112,200
|
|
|
|
115,325
|
|
|
|
120,868
|
|
|
|
(3,125
|
)
|
|
|
(3
|
)%
|
|
|
(5,543
|
)
|
|
|
(5
|
)%
|
Hardware
|
|
|
7,573
|
|
|
|
12,248
|
|
|
|
25,930
|
|
|
|
(4,675
|
)
|
|
|
(38
|
)%
|
|
|
(13,682
|
)
|
|
|
(53
|
)%
|
Total revenue
|
|
|
119,773
|
|
|
|
127,573
|
|
|
|
146,798
|
|
|
|
(7,800
|
)
|
|
|
(6
|
)%
|
|
|
(19,225
|
)
|
|
|
(13
|
)%
|
Cost of sales, excluding depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
(16,625
|
)
|
|
|
(16,481
|
)
|
|
|
(16,642
|
)
|
|
|
(144
|
)
|
|
|
1
|
%
|
|
|
161
|
|
|
|
(1
|
)%
|
Cost of hardware
|
|
|
(3,789
|
)
|
|
|
(7,746
|
)
|
|
|
(33,496
|
)
|
|
|
3,957
|
|
|
|
(51
|
)%
|
|
|
25,750
|
|
|
|
(77
|
)%
|
Selling, general and administrative expenses
|
|
|
(65,632
|
)
|
|
|
(65,229
|
)
|
|
|
(66,940
|
)
|
|
|
(403
|
)
|
|
|
1
|
%
|
|
|
1,711
|
|
|
|
(3
|
)%
|
Depreciation and amortization
|
|
|
(35,010
|
)
|
|
|
(39,386
|
)
|
|
|
(42,468
|
)
|
|
|
4,376
|
|
|
|
(11
|
)%
|
|
|
3,082
|
|
|
|
(7
|
)%
|
Net operating income(loss)
|
|
|
(1,283
|
)
|
|
|
(1,269
|
)
|
|
|
(12,748
|
)
|
|
|
(14
|
)
|
|
|
1
|
%
|
|
|
11,479
|
|
|
|
(90
|
)%
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
287
|
|
|
|
646
|
|
|
|
474
|
|
|
|
(359
|
)
|
|
|
(56
|
)%
|
|
|
172
|
|
|
|
36
|
%
|
Interest expense
|
|
|
(58,327
|
)
|
|
|
(58,100
|
)
|
|
|
(56,106
|
)
|
|
|
(227
|
)
|
|
|
0
|
%
|
|
|
(1,994
|
)
|
|
|
4
|
%
|
Other finance income/(costs)
|
|
|
(247
|
)
|
|
|
(153
|
)
|
|
|
271
|
|
|
|
(94
|
)
|
|
|
61
|
%
|
|
|
(424
|
)
|
|
|
(156
|
)%
|
Income/(loss) from equity
method investee
|
|
|
-
|
|
|
|
(340
|
)
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
(946
|
)
|
|
|
(156
|
)%
|
Total
other expense, net
|
|
|
(58,287
|
)
|
|
|
(57,947
|
)
|
|
|
(54,755
|
)
|
|
|
(340
|
)
|
|
|
1
|
%
|
|
|
(3,192
|
)
|
|
|
6
|
%
|
Net loss from continuing
operations before income taxes
|
|
|
(59,570
|
)
|
|
|
(59,216
|
)
|
|
|
(67,503
|
)
|
|
|
(354
|
)
|
|
|
1
|
%
|
|
|
8,287
|
|
|
|
(12
|
)%
|
Income tax expense
|
|
|
(307
|
)
|
|
|
(631
|
)
|
|
|
(308
|
)
|
|
|
324
|
|
|
|
(51
|
)%
|
|
|
(323
|
)
|
|
|
105
|
%
|
Net
loss
|
|
|
(59,877
|
)
|
|
|
(59,847
|
)
|
|
|
(67,811
|
)
|
|
|
(30
|
)
|
|
|
0
|
%
|
|
|
7,964
|
|
|
|
(12
|
)%
|
Period ended September 24, 2016 compared to September 26,
2015
Revenue
Revenue declined $7.8 million from $127.6 million
to $119.8 million, including negative currency translation of $(8.8) million. Virtual Sports revenue increased $8.5 million excluding
currency impacts driven by growth from both existing customers and new customers and increased activity on our remote gaming server
(RGS), Virgo. This was in part offset by declines in SBG revenue of $13.9 million or $7.6 million excluding currency impacts. The
main contributors of the underlying variance were the fall in hardware sales of $4.1 million and the exit of our final analogue
contract, contributing $3.9 million of the variance.
Cost of sales, excluding depreciation and amortization
Cost of sales, excluding depreciation and amortization,
which includes machine cost of sales, consumables and royalties and connectivity costs, decreased $3.8 million in the period from
$24.2 million to $20.4 million, of which $1.5 million was attributable to currency translation effects. The majority of the remaining
difference was due to the reduction in hardware sales.
Selling, general and administrative expenses
Selling, general, and administrative (“
SG&A
”)
expenses are defined to contain staff costs (including outsourced costs), travel costs, professional fees, technology costs (including
hosting fees, data centres etc.) and professional services. SG&A increased $0.4 million from $65.2 million to $65.6 million,
with reductions due to currency of $4.8 million offsetting underlying increases of $5.2 million. The main reason for the increase
was due to costs of $6.3 million of professional fees relating to the upcoming Hydra acquisition, recorded in the period. Cost
items not adjusted for in the Adjusted EBITDA (non-GAAP benchmark) below increased $2.4 million in the period, excluding currency
impacts, due to increased labor costs as a result of higher staff headcount and higher London facility costs.
Depreciation and amortization
Depreciation and amortization charge decreased
by $4.4 million from $39.4 million to $35.0 million, of which $2.6 million was attributable to currency movements. The remaining
variance reflects reduced depreciation from Italian assets as these assets reached residual value, as well as a goodwill impairment
in the prior period of $1.0 million. These decreases were offset in part an impairment of social gaming assets in the period ending
September 24, 2016, of $1.2 million.
Interest income
Interest income reduced by $0.4 million in the
period to $0.3 million due to a fall in foreign exchange gains on currencies held.
Interest expense
Interest expense increased $0.2 million to $58.3
million. Currency impacts reduced the charge by $4.3 million, resulting in a constant currency increase of $4.5 million due to
the compounding PIK balance (see Liquidity and Capital Resources section).
Other Finance Costs
Other finance costs increased reduced by $0.1
million in the period to $0.2 million.
Income Taxes
We recorded an income tax expense of $0.3 million for the period
ending September 24, 2016 compared to $0.6 million for the period ending September 26, 2015. The effective tax rates for the periods
were (0.5%) and (1%) respectively with reductions in UK and mainland Europe tax payable.
Period ended September 26, 2015 compared to September 27,
2014
Revenues
Revenue decreased by $19.2 million, from $146.8
million to $127.6 million, including currency translation impact of $8.6 million. The variance reflects a reduction in non-profit
making hardware sales of $15.7 million (at constant currency) and reduction in UK SBG performance of $0.8 million as a result of
machine gaming duty increases. This was offset by increases in UK SBG hardware sales of $1.8 million and Virtual Sports of $3.5
million, excluding currency impact, driven by strong growth of existing UK based customers and annualization of Italian customers.
Cost of sales, excluding depreciation and amortization
Cost of sales, excluding depreciation and amortization
decreased by $25.9 million, from $50.1 million to $24.2 million, including a reduction due to currency impacts of $1.6 million.
This reflects decreases in costs associated with machine sales in the UK of $27.1 million and $1.0 million associated with Italy.
This was offset by increases in costs associated with additional hardware sales to Greece of $2.0 million, consumables associated
with UK SBG terminals of $1.1 million and other increases of $0.8 million.
Selling, general and administrative expenses
SG&A expenses decreased by $1.7 million,
from $66.9 million to $65.2 million, including a reduction due to exchange rate movements of $4.4 million. The increases in underlying
spend include increases in a number of categories, representing increased development in key strategic areas. The key movements
include an increase in staff costs of $2.3 million, pension cost effects of $0.7 million and items classed internally as exceptional
costs (see Adjusted EBITDA benchmark below) of $1.1 million. This was offset in part by an increase in capitalized labor due to
the change in composition of the labor force, with an increase in development resources.
Depreciation and amortization
Depreciation and amortization expense declined
by $3.1 million, from $42.5 million to $39.4 million. This was driven predominantly by currency impacts of $2.7 million.
Interest income
Interest income increased by $0.2 million to
$0.6 million reflecting increased cash balances as well as the impact of the prior period including $0.4 million of gains in relation
to fair valuing of forward contracts – as detailed in note 13 of the audited consolidated financial statements.
Interest expense
Interest expense increased from $56.1 million
to $58.1 million. Currency translation impacts reduced the charge by $3.9 million, leaving a constant currency increase of $5.9
million. This was attributable to both the increase in external funding as well as the compounding PIK note balances which contributed
a $3.8 million and $4.7 million interest expense increase, respectively. Partially offsetting this is an increase in the amortisation
of loan notes in the period to September 27, 2014 due to a write off of fees equal to $2.0 million relating to previous financing.
The remaining difference is attributable to a change in forward contract fair values as well as retranslation of cash balances.
Other finance income/(costs)
This represents the difference between expected
return on pension scheme assets and interest costs on pension scheme liabilities, being a net cost when interest costs are higher.
In the period ending September 27, 2014 the net position was a gain of $0.3 million, versus a loss in the period ending September,
26 2015 of $0.2 million.
Income taxes
We recorded an income tax expense $0.6 million
and $0.3 million for the periods ended September 26, 2015 and September 27, 2014, respectively. The effective tax rates for the
periods ending September 26, 2015 and September 27, 2014 were (1%) and (0.5%) respectively. Within the UK, the Company has operating
losses available which offset the majority of taxable income. The Company only pays income taxes in certain foreign tax jurisdictions
where taxable income is present. UK taxes included in the income tax expense for the period ending September 26, 2015 were $0.2
million and $0.1 million for the period ending September 27, 2014. Foreign taxes, predominantly relating to mainland Europe, included
in the income tax expense were $0.5 million and $0.2 million for the periods ended September 26, 2015 and September 27, 2014, respectively.
BUSINESS SEGMENT RESULTS
Server Based Gaming
Our Server Based Gaming business segment designs,
develops, markets and distributes a comprehensive portfolio of products and services through our fully digital network architecture.
Our customers include UK licensed betting offices (“LBOs”), arcade and bingo operators and lotteries, in both the UK
and continental Europe, as well as government affiliated and licensed operators.
Revenue is generated from SBG through both product
sales and long-term participation agreements with our customers, which includes access to our server based gaming platform and
selection of game titles, over a term usually of three to five years. Our participation contracts are typically structured to pay
us a percentage of net win (defined as net revenue to our customer, after deducting player winnings and any relevant regulatory
levies) from SBG terminals placed in our customers’ facilities, which include retail outlets, casinos and other gaming operations
or SBG gaming software used to facilitate customer players through mobile or online devices. We recognize revenue from these arrangements
on a daily basis over the term of the contract.
Revenue growth for our SBG business is primarily
driven by the number of customers, the number of SBG machines in operation, the net win performance and the net win percentage
that is contracted with our customers.
Server Based Gaming
|
|
For the
period ended
|
|
|
Variance
|
|
|
|
|
September 24,
|
|
|
|
September 26,
|
|
|
|
September 27,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
|
2016 vs
2015
|
|
|
2015 vs
2014
|
|
|
|
|
$
'000
|
|
|
|
$
'000
|
|
|
|
$
'000
|
|
|
|
$
'000
|
|
|
|
%
|
|
|
|
$
'000
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
7,573
|
|
|
|
12,248
|
|
|
|
25,930
|
|
|
|
(4,675
|
)
|
|
|
(38
|
)%
|
|
|
(13,682
|
)
|
|
|
(53
|
)%
|
Service
|
|
|
78,912
|
|
|
|
88,139
|
|
|
|
95,325
|
|
|
|
(9,227
|
)
|
|
|
(10
|
)%
|
|
|
(7,186
|
)
|
|
|
(8
|
)%
|
Total
revenue
|
|
|
86,485
|
|
|
|
100,387
|
|
|
|
121,255
|
|
|
|
(13,902
|
)
|
|
|
(14
|
)%
|
|
|
(20,868
|
)
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation
and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of hardware
|
|
|
(3,789
|
)
|
|
|
(7,746
|
)
|
|
|
(33,496
|
)
|
|
|
3,957
|
|
|
|
(51
|
)%
|
|
|
25,750
|
|
|
|
(77
|
)%
|
Cost of service
|
|
|
(12,317
|
)
|
|
|
(11,895
|
)
|
|
|
(12,665
|
)
|
|
|
(422
|
)
|
|
|
4
|
%
|
|
|
769
|
|
|
|
(6
|
)%
|
Total
cost of sales
|
|
|
(16,106
|
)
|
|
|
(19,641
|
)
|
|
|
(46,160
|
)
|
|
|
3,536
|
|
|
|
(18
|
)%
|
|
|
26,519
|
|
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses
|
|
|
(19,128
|
)
|
|
|
(22,017
|
)
|
|
|
(24,001
|
)
|
|
|
2,889
|
|
|
|
(13
|
)%
|
|
|
1,984
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(26,678
|
)
|
|
|
(33,415
|
)
|
|
|
(34,584
|
)
|
|
|
6,737
|
|
|
|
(20
|
)%
|
|
|
1,169
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating profit
|
|
$
|
24,573
|
|
|
$
|
25,314
|
|
|
$
|
16,509
|
|
|
($
|
741
|
)
|
|
|
(3
|
)%
|
|
$
|
8,805
|
|
|
|
53
|
%
|
Key Performance Indicators
|
|
For the period ended
|
|
|
Variance
|
|
|
|
September 24,
|
|
|
September 26,
|
|
|
September 27,
|
|
|
2016 vs 2015
|
|
|
2015 vs 2014
|
|
SBG
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period installed base (# of terminals)
|
|
|
26,497
|
|
|
|
26,374
|
|
|
|
25,612
|
|
|
|
123
|
|
|
|
0.5
|
%
|
|
|
762
|
|
|
|
3.0
|
%
|
Average installed base (# of terminals)
|
|
|
26,227
|
|
|
|
25,917
|
|
|
|
24,930
|
|
|
|
309
|
|
|
|
1.2
|
%
|
|
|
988
|
|
|
|
4.0
|
%
|
Customer Gross Win per unit per day
(1)
|
|
£
|
118.20
|
|
|
£
|
111.74
|
|
|
£
|
111.63
|
|
|
£
|
6.46
|
|
|
|
5.8
|
%
|
|
£
|
0.10
|
|
|
|
0.1
|
%
|
Customer Net Win per unit per day
(1)
|
|
£
|
85.77
|
|
|
£
|
83.20
|
|
|
£
|
83.98
|
|
|
£
|
2.57
|
|
|
|
3.1
|
%
|
|
£
|
(
0.78
|
)
|
|
|
(0.9
|
)%
|
Inspired Blended Participation Rate
|
|
|
6.4
|
%
|
|
|
6.7
|
%
|
|
|
6.9
|
%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
(0.2
|
)%
|
|
|
|
|
(1)
Includes all SBG terminals in which the company takes
a participation revenue share across all territories
|
·
|
SBG End of Period Installed Base is equal to the number of deployed SBG terminals
at
the end of each period which have been placed on a participation basis. SBG participation revenue, which comprises the majority
of SBG Service revenue, is directly related to the machine installed base. This is the medium by which customers generate turnover
and distribute a revenue share to the Company. To the extent that all other KPIs remain constant, the larger the installed base
is, the higher the Company’s revenue will be for that period. Management gives careful consideration to this KPI in terms
of driving growth across the segment. The US GAAP revenues are derived from the performance of the installed base as described
by the Gross and Net Win key performance indicators. If the closing terminal base is materially different to the average installed
base this will give an indication of future performance. This metric is particularly useful for new customers or markets to indicate
the progress being made with respect to entering new territories or jurisdictions.
|
|
·
|
SBG Average Installed Base is the average installed base of terminals during the period.
Therefore, it is more closely aligned to the revenue in the period. This metric is particularly useful for existing customers or
markets to provide comparisons of historical size and performance.
|
|
·
|
Customer Gross Win per unit per day is a key performance indicator used by our internal decision makers to (i) assess impact
on the Company’s revenue (ii) determine changes in the strength of the overall market and (iii) evaluate the impacts of regulatory
change and our new content releases on our customers. Customer gross win per unit per day is the total cash generated in all SBG
terminals in which the Company takes a participation revenue share across all territories in the period, being the difference between
the amounts staked less winnings to players divided by the average installed base of SBG terminals in the period which is divided
by the number of days in the period. SBG revenue share income accrued in the period is derived from Customer Gross Win accrued
in the period after deducting gaming taxes (defined as a regulatory levy paid by the Customer to government bodies) and applying
the Company’s revenue share percentage. Our internal decision makers believe Customer Gross Win is a meaningful measure because
it represents a transparent view of customer operating performance that is unaffected by our revenue share percentage and allows
management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between customers and (3)
identify strategies to improve operating performance in the different markets in which we operate.
|
|
·
|
Customer Net Win per unit per day is Customer Gross Win per unit per but after the deduction of gaming taxes. Overall SBG revenue
from terminals placed on a participation basis can therefore be described as the product of the average installed base, the customer
net win per unit per day, the number of days in the period, and blended participation rate, reflecting the average across multiple
jurisdictions, customers, and contracts.
|
|
·
|
The Inspired blended participation rate is the weighted average revenue share percentage across all terminals on the estate
where revenue is earned on a participation basis.
|
Key events that impacted results for the period ended September
24, 2016
Our UK SBG terminals in Licenced Betting Offices
(“LBOs”) generated gross win (defined as stake less amounts returned to player, before gaming tax deductions) growth
of 6% year on year against a backdrop of increased gaming taxes for approximately half of the period, reducing net win growth to
3%. Average volumes across our total UK estate grew 3% over the period.
Our Italian SBG terminal business experienced
growth in gross win of 7%, due to the release of new titles, including Diamond Goddess and Regina delle Nevi (“Snow Queen”).
In Italy, we also completed contract extensions with Lottomatica and Sisal.
In Latin America we introduced new cabinet designs
for the Casino, Arcade and newly regulated Ruta markets.
In Greece, whilst we were disappointed that
we weren’t able to launch our SBG terminals in the period, we were informed of positive regulatory developments post period-end
which we expect to give us the ability to launch in 2017.
Key events that impacted results for the fiscal period ended
September 26, 2015
For our SBG customers, we continued to focus
on growing our market share and expanding machine deployments in markets that require minimal capital expenditure. In April of
2015, the UK Code of Conduct was implemented, which required significant changes throughout the UK gaming market, resulting in
the changes to player's experience and increasing player protection. This required significant modification of our existing platform
and gaming applications which were successfully implemented. In addition, in the UK we completed the finalisation of the upgrade
of the SBG Terminal estate to our new “Eclipse” terminal – bringing the total build and installed base to over
16,000 in less than two years.
We also completed a contract to deploy 3,960
SBG terminals in Greece, of which approximately one quarter were delivered during the period. These are ready to deploy but have
yet to go live due to regulatory delays in Greece, with rollout now expected in 2017. These terminals will earn revenue on a participation
basis.
On December 23, 2014, we acquired 50% of Merkur
Inspired Ltd, now renamed Inspired Gaming (Italy) Ltd, a joint venture with Merkur Gaming GmbH in which we previously owned 50%.
The acquisition of this interest, for consideration of £1, gives us 100% of the equity.
In the period, the acquisition of Inspired Gaming
(Italy) Ltd generated additional revenue for the company of $1.7 million, with extra SG&A costs of $1.7 million for the 9 months
ending September 26, 2015. The acquisition gave us the ability to take control of the existing customer contracts, control all
future customer negotiations and implement cost reductions. At the same time as the equity acquisition we also purchased over 3,000
SBG terminals from Merkur Gaming for continued supply to the Italian SBG market.
Key events that impacted results for the fiscal period ended
September 27, 2014
The Company successfully executed a five-year
contract extension with a major UK customer for supply of SBG terminals to its estate, with 75% of the terminal contract extended
for five years and 25% for between three and five years. At the period-end over 11,300 Eclipse terminals had been installed across
the UK estate retail venues. New Italian SBG contracts were signed with HBG and Cogetech, to deploy a combined total of 1,150 machines.
We continued deployment of SBG terminals in Colombia with average volumes increasing over 60% year on year.
Period ended September 24, 2016 compared to September 26,
2015
Revenue
Total SBG revenue declined by $13.9 million
from $100.4 million to $86.4 million, including negative currency translation of ($6.3 million). Underlying hardware revenue reduced
$4.7 million due to high levels in the prior year. SBG service revenue declined $9.2 million, of which $5.8 million was driven
by currency differences. On an underlying basis the reduction was caused by the exit of our final analogue contract in the UK which
resulted in a reduction of $3.9 million.
Average Installed Base increased 1.2% to 26,227
as reductions in Italy were offset by increased volume in the UK. Customer Gross win per unit per day increased 5.5% year on year
driven by an increase in the UK gross win per unit per day of 4% to £136 and Italian gross win per unit per day of 7% rising
to €85. Due to increases in the gaming levies, including in the UK where machine game duty increased from 20% to 25% in March
of 2015, Customer Net Win per unit per day increased by only 3%. Our blended participation rate decreased from 6.7% to 6.4% as
a higher proportion of terminals are located in the UK, where rates are typically lower but Customer Net Win is higher.
Segment Operating Profit
SBG operating profit decreased by $0.7 million
from $25.3 million to $24.6 million, including $1.8 million from currency changes. Reductions in revenue of $13.9 million were
partly offset by reductions in the cost of sales (excluding depreciation and amortisation) due to reduced hardware revenue, and
a decline in depreciation and amortization expense of $6.7 million. Depreciation decreased due to currency impacts of $2.0 million
and UK Casino and Bingo and Italian assets having reached their residual values. SG&A expenses decreased by $2.9 million, of
which $1.4 million is due to currency movements. On an underlying basis there were savings in UK operations due to lower headcount
and logistics costs.
Period ended September 26, 2015 compared to September 27,
2014
Revenue
SBG revenue declined by $20.9 million from $121.3
million to $100.4 million, including negative currency translation of ($6.8 million). The variance reflects a reduction in non-profit
making hardware sales of $15.7 million (at constant currency) and reduction in UK SBG performance of $0.8 million, primarily as
a result of machine gaming duty increases that took place in March of 2015, reflected in the decline in Net Win per unit per day
in the UK of 0.8% from £102 to £101. This was offset by increases in UK SBG hardware sales of $1.8 million. Our blended
participation rate decreased from 6.9% to 6.7% due to the proportion of machines in the UK increasing from 73% to 76% of total
machines.
During the period SBG average installed base grew 4% to 25,900 end points mostly through organic growth of
the existing customer base. Gross Win per unit per day remained in line versus the previous period at £112 driven by strong
growth in the UK market. This was offset by weaker Italy trading as gross win per unit per day decreased from £37 to £30
due to challenging competitive environment and a slow certification process leading to fewer new game launches.
Segment Operating Profit
SBG operating profit increased by $8.8 million
from $16.5 million to $25.3 million primarily from a decrease in cost of hardware cost of sales of $25.8 million. In FY 2014, the
Company sold SBG machines to a customer in the UK at below cost to secure a long term contract. SG&A decreased by $2.0 million,
of which $1.5 million was due to currency translation. The remaining $0.5 million decrease was made up of a reduction in service
operation costs in the UK, offsetting increases in Italy as a result of the joint venture acquisition. Depreciation and Amortization
also decreased by $1.2 million driven by a negative currency translation.
Virtual Sports
Our Virtual Sports sales include gaming software
and content to virtual sports retail and digital operators.
We generate Virtual Sports revenues from our
mobile and virtual customers from software sales and services. Revenue growth for our digital business is driven by the number
of customers, end points and the net win attributable to our products.
Our Virtual Sports segment is comprised primarily
of software licensing related to our Virtual Sports product, which is a complex software and networking package that provides fixed
odds wagering in the form of an ultra-high definition computer rendering of a sporting event, such as soccer or boxing. This creates
a form of simulated sports betting, in both a streaming and on-demand environment, overcoming the relative infrequency of live
sporting events. Our customers pay us for the use of this software through either a fixed license fee per period or on a participation
basis based on the volume of wagers and net win.
Our customers for Virtual Sports include UK
LBOs, casinos, online operators and other gaming and lottery operators in the UK, continental Europe and North America. Virtual
Sports can be adapted to function in a sports betting, lottery, or gaming environment and is therefore available to a wide range
of customers in both public and private implementations.
Virtual Sports
|
|
For the period ended
|
|
|
Variance
|
|
|
|
September 24,
|
|
|
September 26,
|
|
|
September 27,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 vs 2015
|
|
|
2015 vs 2014
|
|
|
|
|
$ '000
|
|
|
|
$ '000
|
|
|
|
$ '000
|
|
|
|
$ '000
|
|
|
|
%
|
|
|
|
$ '000
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Revenue
|
|
|
33,288
|
|
|
|
27,186
|
|
|
|
25,543
|
|
|
|
6,102
|
|
|
|
22
|
%
|
|
|
1,643
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Service
|
|
|
(4,308
|
)
|
|
|
(4,586
|
)
|
|
|
(3,977
|
)
|
|
|
278
|
|
|
|
(6
|
)%
|
|
|
(609
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(7,050
|
)
|
|
|
(6,691
|
)
|
|
|
(4,620
|
)
|
|
|
(359
|
)
|
|
|
5
|
%
|
|
|
(2,071
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(6,402
|
)
|
|
|
(3,952
|
)
|
|
|
(2,844
|
)
|
|
|
(2,450
|
)
|
|
|
62
|
%
|
|
|
(1,108
|
)
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating profit
|
|
$
|
15,528
|
|
|
$
|
11,957
|
|
|
$
|
14,102
|
|
|
$
|
3,571
|
|
|
|
30
|
%
|
|
$
|
(2,145
|
)
|
|
|
(15
|
)%
|
Key Performance Indicators
|
|
For the period ended
|
|
|
Variance
|
|
|
|
September 24,
|
|
|
September 26,
|
|
|
September 27,
|
|
|
2016 vs 2015
|
|
|
2015 vs 2014
|
|
Virtuals
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live Customers #
|
|
|
72
|
|
|
|
64
|
|
|
|
54
|
|
|
|
8
|
|
|
|
12.5
|
%
|
|
|
10
|
|
|
|
18.5
|
%
|
Total Revenue (£'000)
|
|
£
|
23,043
|
|
|
£
|
17,532
|
|
|
£
|
15,430
|
|
|
£
|
5,511
|
|
|
|
31.4
|
%
|
|
£
|
2,102
|
|
|
|
13.6
|
%
|
Revenue Per Customer (£'000)
|
|
£
|
320
|
|
|
£
|
274
|
|
|
£
|
286
|
|
|
£
|
46
|
|
|
|
16.8
|
%
|
|
£
|
(12
|
)
|
|
|
(4.1
|
)%
|
Virtual Sports Live Customers represents
the number of customers in the period from which there is Virtual Sports revenue within the period (either licence or recurring).
Virtual Sports Revenue per Customer represents
the total US GAAP revenue for the Virtual Sports segment in the period, divided by the Virtual Sports Live Customers.
Key events that impacted results for the fiscal period ended
September 24, 2016
In our Virtual Sports business, we signed new
virtual sports contracts with customers including Greentube, SNAI and Novomatic in Italy, Decart in Bulgaria and OPAP in Greece,
as well as launching new implementations including Betfair, the Bookmakers Technology Consortium in UK and ATG in Sweden. We also
launched a new soccer title, Rush Football 2, which features lifelike ultra HD graphics and over 30 betting markets, Rush Football
Live and Rush Golf Live, which feature on demand and in play options, and Virtuals Connect, a fully-managed turnkey solution. We
expanded our geographical reach as well, signing our first contracts for Virtual Sports in the US, with William Hill, Resorts World
Digital and Golden Nugget. For our mobile RGS, we signed new contracts with a number of customers as well as adding new RGS integrations
into customers including Bet365 and Betfred, as well as new game titles to our portfolio.
Key events that impacted results for the fiscal period ended
September 26, 2015
Related to our Virtual Sports business, we launched
a new mobile RGS product, Virgo, and contracted with four tier one operators, three of which were operational prior to the end
of the period. We achieved 15% growth year-over-year in recurring revenues in our virtual sports business (excluding licences),
with increases in all sales territories, and eight new revenue generating contracts.
Key events that impacted results for the fiscal period ended
September 27, 2014
In the virtual sports business, ten new customers
went live in Italy, generating in excess of €1.0 billion annually in customer wagers across 7,000 venues. Our contract with
our largest Virtual Sports customer, SNAI was extended for five years. In addition, we launched a second sports channel with William
Hill and successfully extended our contract with Coral to include a second channel and expansion to Mobile.
In our Mobile business we signed three new major
contracts with Betfred, Coral and William Hill. In addition, we successfully executed an omni-channel launch of two games across
three channels with William Hill.
Period ended September 24, 2016 compared to September 26,
2015
Revenue
Virtual sports revenue increased by $6.1 million
from $27.2 million to $33.3 million, despite a negative currency impact of ($2.4 million). This was primarily due to annualization
of customers that launched mid-way through the prior year as well as growth in the existing customer base, as a result of closer
account management and additional streams across key clients. We also went live with several new accounts globally, including in
the UK and Sweden.
Segment Operating Profit
Virtual Sports operating profit increased by
$3.6 million from $12.0 million to $15.5 million, despite a negative currency impact of $1.1 million. Increased revenues were partially
offset by an increase in depreciation and amortization of $2.9 million, excluding currency impact. This was the result of increased
amortization of software development from new game releases (including Rush football) as well as an impairment of a social gaming
asset of $1.2 million. SG&A expense increased $0.2 million, including a benefit due to currency movements of $0.5 million.
On an underlying basis, there was an increase in costs not adjusted in the Adjusted EBITDA table below of $2.0 million, reflecting
increased labor costs in sales, product development and operations. This was in part offset by a reduction in a deferred consideration
creditor relating to social gaming of $1.4 million.
Period ended September 26, 2015 compared to September 27,
2014
Revenue
The Virtual Sports segment grew revenues by
$1.6 million from $25.5 million to $27.2 million despite negative currency translation of ($1.8 million). On a constant currency
basis, the underlying growth during FY 2015 was $3.5 million. This was attributable to growth in the existing customer base and
10 new customer launches including key customers in Italy. Due to this growth in number of customers, the annual average revenue
per customer fell slightly by 4%.
Segment Operating Profit
Virtual Sports operating profit decreased by
$2.1 million from $14.1 million to $12.0 million due to an increase in SG&A and depreciation and amortization. SG&A expenses
grew by $2.1 million which consisted of increased headcount across sales, product development and operations to support growth
initiatives as well as additional expenses in relation to the launch of mobile RGS. Mobile RGS expenses included personnel, computer
and hosting charges, and non-capitalized development costs. Depreciation and amortization expense increased $1.1 million as a result
of amortization of software development from new game releases and mobile RGS development.
Non-GAAP Financial Metrics
The Company uses certain non-GAAP financial
measures, such as EBITDA and Adjusted EBITDA, to enable us
to analyze its performance and financial condition. We utilize these
financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance.
We believe that these measures are commonly used in the industry to measure performance. We believe these non-GAAP measures provide
expanded insight to measure revenue and cost performance, in addition to the standard GAAP-based financial measures. There are
no specific rules or regulations for determining non-GAAP measures, and as such, they may not be comparable to measures used by
other companies within the industry. The presentation of non-GAAP financial information should not be considered in isolation or
as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. You should read
this discussion and analysis of the Company’s financial condition and results of operations together with the consolidated
financial statements of the Company and the related notes thereto also included within
EBITDA
is defined as net loss
excluding depreciation and amortization, interest expense, interest income and income tax expense.
Adjusted EBITDA
is
defined
as net loss excluding depreciation and amortization, interest expense, interest income and income tax expense
,
and other
supplemental adjustments
.
The Company believes Adjusted EBITDA, when considered along with other performance measures, is
a useful measure as it reflects certain operating drivers of the business, such as sales growth, operating costs, selling and administrative
expense and other operating income and expense.
The Company believes Adjusted EBITDA can provide a more complete understanding
of the underlying operating results and trends and an enhanced overall understanding of the Company’s financial performance
and prospects for the future.
While Adjusted EBITDA is not a recognized measure under GAAP, management uses this financial
measure to evaluate and forecast business performance.
Adjusted EBITDA is not intended to be a measure of liquidity or cash
flows from operations or a measure comparable to net income or loss as it does not take into account certain requirements such
as
it excludes non-recurring gains and losses which are not deemed to be a normal part of the underlying business activities
.
The Company's use of Adjusted EBITDA may not be comparable to other companies within the industry. Management compensates for
these limitations by using Adjusted EBITDA as only one of several measures for evaluating its business performance. In addition,
capital expenditures, which impact depreciation and amortization, interest expense, and income tax benefit (expense), are reviewed
separately by management.
Reconciliations from Net Loss per the Consolidated
Statement of Operations and Comprehensive Loss to Adjusted EBITDA for the 52 week periods are shown below.
|
|
For the period ended
|
|
|
|
September
24, 2016
|
|
|
September
26, 2015
|
|
|
September
27, 2014
|
|
|
|
$ '000
|
|
|
$ '000
|
|
|
$ '000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(59,877
|
)
|
|
|
(59,847
|
)
|
|
|
(67,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Relating to Legacy Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to other discontinued analogue activities
|
|
|
(69
|
)
|
|
|
(3,374
|
)
|
|
|
(3,622
|
)
|
Costs relating to other former operations
|
|
|
43
|
|
|
|
243
|
|
|
|
142
|
|
Pension charges
|
|
|
865
|
|
|
|
1,222
|
|
|
|
414
|
|
Recognition of asset related obligations
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to be considered to be Exceptional in nature:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of group restructure
|
|
|
799
|
|
|
|
3,363
|
|
|
|
-
|
|
Italian tax related costs
|
|
|
964
|
|
|
|
1,025
|
|
|
|
-
|
|
Refinancing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
3,880
|
|
Deferred consideration write back
|
|
|
(1,351
|
)
|
|
|
-
|
|
|
|
-
|
|
PRS legal disute
|
|
|
368
|
|
|
|
-
|
|
|
|
-
|
|
Transaction fees
|
|
|
6,282
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
35,010
|
|
|
|
39,386
|
|
|
|
42,468
|
|
Net interest expense
|
|
|
58,287
|
|
|
|
57,608
|
|
|
|
55,361
|
|
Income tax
|
|
|
307
|
|
|
|
631
|
|
|
|
308
|
|
Adjusted EBITDA
|
|
|
41,629
|
|
|
|
40,169
|
|
|
|
31,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA £'000
|
|
|
28,816
|
|
|
|
25,904
|
|
|
|
18,769
|
|
As a result of nil margin hardware sales (which
may also be loss making when considered in isolation) distorting revenue, and therefore growth, ‘Revenue excluding nil margin
sales’ is considered internally. A reconciliation of this is shown below for the periods under review.
|
|
For the period ended
|
|
|
|
September 24,
|
|
|
September 26,
|
|
|
September 27,
|
|
$'000
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues per Financial Statements
|
|
|
119,773
|
|
|
|
127,573
|
|
|
|
146,798
|
|
Less Nil Margin Sales
|
|
|
37
|
|
|
|
(2,224
|
)
|
|
|
(17,610
|
)
|
Less Analogue Revenues
|
|
|
(69
|
)
|
|
|
(3,995
|
)
|
|
|
(5,757
|
)
|
Revenue Excl. Nil Margin and Analogue
|
|
|
119,741
|
|
|
|
121,354
|
|
|
|
123,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Excl. Nil Margin and Analogue £'000
|
|
|
82,887
|
|
|
|
78,259
|
|
|
|
74,563
|
|
RECENTLY ISSUED ACCOUNTING GUIDANCE
For a description of recently issued accounting pronouncements,
see Note 1 of the financial statements (Nature of Operations and Summary of Significant Accounting Policies).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Summary - A Three Year Comparative
|
|
|
|
|
|
|
|
|
For the period ended
|
|
|
Variance
|
|
(U.S. Dollars, '000)
|
|
September
24,
|
|
|
September 26,
|
|
|
September 27,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016 to 2015
|
|
|
2015 to 2014
|
|
Net loss excluding loss on Leisure disposal
|
|
|
(59,877
|
)
|
|
|
(59,847
|
)
|
|
|
(67,812
|
)
|
|
|
(30
|
)
|
|
|
7,965
|
|
Non-cash interest expense
|
|
|
40,540
|
|
|
|
41,911
|
|
|
|
34,977
|
|
|
|
(1,371
|
)
|
|
|
6,934
|
|
Other net cash provided by operating activities
|
|
|
37,984
|
|
|
|
43,187
|
|
|
|
54,087
|
|
|
|
(5,203
|
)
|
|
|
(10,900
|
)
|
Net cash provided by/(used in) operating activities
|
|
|
18,647
|
|
|
|
25,251
|
|
|
|
21,252
|
|
|
|
(6,604
|
)
|
|
|
3,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activites
|
|
|
(31,902
|
)
|
|
|
(39,203
|
)
|
|
|
(53,306
|
)
|
|
|
7,301
|
|
|
|
14,103
|
|
Net cash provided by (used in) financing activities
|
|
|
11,050
|
|
|
|
(123
|
)
|
|
|
34,253
|
|
|
|
11,173
|
|
|
|
(34,376
|
)
|
Effect of exchange rates on cash
|
|
|
(369
|
)
|
|
|
(1,117
|
)
|
|
|
(147
|
)
|
|
|
748
|
|
|
|
(970
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,574
|
)
|
|
|
(15,192
|
)
|
|
|
2,052
|
|
|
|
12,618
|
|
|
|
(17,244
|
)
|
Period ended September 24, 2016 compared to September 26,
2015
Net cash from operating activities
Cash flow from operating activities decreased
by $6.6 million during the period. Net loss excluding the non-cash interest expense remained flat year on year. Other net cash
provided by operating activities decreased $5.2 million, primarily driven by a reduction in the level of deferred revenue creditors.
Net cash from investing activities
Net cash used in investing activities decreased
by $7.3 million during the period to $31.9 million. The decreased spending was primarily attributable to lower spend on property,
plant and equipment purchases compared to the higher spend in the prior period which included expansionary expenditure on machines
for roll out into the Greece market and the purchase of Italian slant top machines in association with the acquisition of the remaining
50% of Merkur Inspired Ltd.
Net cash from financing activities
The period ended September 24, 2016 included
a short term draw of $11.2 million on the revolver facility with $0.1 million of cash used in the payment of finance leases. The
period ended September 26, 2015 also saw $0.1 million of cash used in the payment of finance leases.
Period ended September 26, 2015 compared to September 27,
2014
Net cash from operating activities
Cash flow from operating activities
increased
by $4.0 million during the period. Net loss excluding the non-cash interest expense decreased $14.9 million, as detailed in Results
of Operations for the same period. Other net cash provided by operating activities decreased $10.9 million, primarily driven by
higher production activity levels and timing of sales invoices.
Net cash from investing activities
Net cash used in investing activities decreased
by $14.1 million during the period to $39.2 million. The decreased spending was primarily attributable to lower spend on property,
plant and equipment purchases compared to the high balance the prior period (see below). The period ended September 26, 2015 included
expansionary expenditure on machines for roll out into the Greece market and the purchase of Italian slant top machines in association
with the acquisition of the remaining 50% of Merkur Inspired Ltd. This period also saw the final part of the UK SBG estate upgrade
with new Eclipse machines. This was partially offset by cash acquired from the purchase of the former Italian joint venture, which
gave a cash inflow of $1.0 million.
Net cash from financing activities
There was $0.1 million of cash used in the payment
of finance leases in the period ended September 26, 2015. Cash flow from the proceeds of the issuance of long term debt contributed
$34.3 million net of cash during the period ended September 27, 2014. Refer to Note 12 in the Financial Statements for further
information.
Funding Needs and Sources
We have historically relied
on a combination of cash flows provided by operations and the incurrence of additional debt and/or the refinancing of existing
debt to fund the Company’s obligations. As of September 24, 2016, we had liquidity of $1.5 million in cash and cash equivalents,
compared to $4.1 million in the prior period. We had a working capital deficit of $14.1 million as of September 24, 2016 compared
to a working capital deficit of $2.0 million as of September 26, 2015, with the main difference being a draw on the revolver in
2016 of $10.1 million. The level of working capital surplus or deficit operated varies with the level of machine production and
capitalization. In periods where significant levels of machines are being manufactured, the levels of inventory and creditors are
higher than average and there is a natural timing difference between converting the stock into sellable or capitalized plant and
settling payment to the suppliers. This and movements in trading activity levels can result in significant working capital volatility.
In periods of lower activity, such as in the period ended September 24, 2016 the working capital elements return to a more normalized
level. Working capital is reviewed and managed to an extent to ensure that the current liabilities are covered by the level of
cash held and the expected level of short term receipts.
Long term and Other Debt
Debt consists of senior bank debt and loan notes
payable to the owners of Ordinary A shares (referred to as Payment in Kind (“PIK”) Loan Notes).
During 2014, we re-financed the existing senior
bank facility of $86.7 million with a new senior bank facility of $121.2 million. During 2014, unamortized senior bank debt issuances
fees of $2.0 million, were written off. The new senior bank facility has a cash interest rate on outstanding borrowings for this
line of credit being the Bank of England’s bank’s base rate plus the base rate margin or LIBOR rate plus the bank’s
LIBOR rate margin. The loan agreement includes a PIK interest rate on the outstanding borrowings that can be paid for or added
to the outstanding debt. Capitalized debt issuance fees of $5.4 million were realized in 2014 with the issuance of new debt. Note,
due to foreign currency translation, these figures are then revised at each Balance Sheet date.
The senior bank debt also included a revolving
facility commitment for $28.5 million. The revolver facility has an interest rate on unutilized borrowings of 2%. The line of credit
is scheduled to mature on September 30, 2017, although agreement has been reached to extend this by two years on successful acquisition.
As a September 24, 2016, an amount of $11.2 million had been drawn as a revolver. No revolver had been drawn on the prior period
ends. In addition to the revolver drawn, an amount of the facility had been utilized for the Duty Deferment guarantee and the Company
credit card scheme. The amounts utilized at September 24, 2016, September 26, 2015 and September 27, 2014 amounted to $0.4 million,
$0.5million and $0.7 million respectively.
We also have 13.5% PIK loan notes payable to
a syndicate of investors where interest of 13.5% is added to the loan amount and has a maturity of July 6, 2018. The total PIK
loan balance at September 24, 2016, September 26, 2015 and September 27, 2014 amounted to $298.2 million, $307.4 million and $289.7
million respectively. The balance at September 24, 2016 decreasing purely due to exchange rate movements.
Debt Covenants
The DMWSL 633 Ltd Group is subject to covenant
testing at quarterly intervals. The covenant testing is set at the DMWSL 631 Ltd group level and comprises tests on Leverage (Net
Debt/EBITDA), Interest Cover (EBITDA/Interest Costs) and Super Senior Leverage (Net Debt + Revolver/EBITDA). These are measured
under UK GAAP.
All trading in the DMWSL 633 Group is included
within the DMWSL 631 Ltd Group, the only difference between the two groups relating to a small level (approx. $0.3 million per
annum) of overhead and director costs.
The financial results of the DMWSL 631 Ltd Group
need to pass the covenant levels set at each quarter end to avoid being in a covenant breach. Besides the quarterly tests, there
is also an annual requirement that no more than £3 million can be spent on non-machine additions excluding labor capitalization.
In the period ended September 27, 2014 the DMWSL
631 Ltd group refinanced its debt. As part of the refinancing, the covenant testing was reviewed and amended to the tests as defined
above. Prior to the refinancing, the covenant testing was similar to current testing although with different ratios required for
passes.
There have been no breaches of debt covenants
in the periods ending September 24, 2016, September 26, 2015 and September 27, 2014.
Contractual obligations
As of September 24, 2016, the Company's contractual obligations
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
Contractual Obligations
|
|
Total
|
|
|
Less
than
1 Year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
than
5
years
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
3,923
|
|
|
|
1,135
|
|
|
|
2,031
|
|
|
|
707
|
|
|
|
50
|
|
Interest on long-term debt
|
|
|
13,479
|
|
|
|
10,658
|
|
|
|
2,821
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior bank debt – principal repayment
|
|
|
94,315
|
|
|
|
0
|
|
|
|
94,315
|
|
|
|
0
|
|
|
|
0
|
|
Senior bank debt – compounded PIK debt interest
|
|
|
18,395
|
|
|
|
0
|
|
|
|
18,395
|
|
|
|
0
|
|
|
|
0
|
|
Finance lease payments
|
|
|
375
|
|
|
|
210
|
|
|
|
162
|
|
|
|
3
|
|
|
|
0
|
|
Interest on non-utilisation fees
|
|
|
449
|
|
|
|
335
|
|
|
|
114
|
|
|
|
0
|
|
|
|
0
|
|
PIK loan notes - principal repayment
|
|
|
135,499
|
|
|
|
0
|
|
|
|
135,499
|
|
|
|
0
|
|
|
|
0
|
|
PIK loan notes – compound PIK interest
|
|
|
238,814
|
|
|
|
0
|
|
|
|
238,814
|
|
|
|
0
|
|
|
|
0
|
|
Off-Balance Sheet Arrangements
As of September 24, 2016, there were no off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information known
to the Company regarding beneficial ownership of shares of common stock of the Company upon consummation of the Business Combination
on December 23, 2016 by:
|
·
|
each person who is known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Company’s common stock;
|
|
·
|
zeach of the Company’s executive officers and directors;
and
|
|
·
|
all executive officers and directors of the Company as
a group.
|
Beneficial ownership is determined according
to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses
sole or shared voting or investment power over that security, including options, rights and warrants that are currently exercisable
or exercisable within 60 days.
Beneficial ownership of common stock of the
Company is based on 20,199,391 shares of common stock of the Company issued and outstanding upon consummation of the Business Combination,
reflecting the redemption of 1,860,681 shares of the Company’s common stock pursuant to the Business Combination and the
issuance of 11,801,369 shares of the Company’s common stock to the Seller as the Stock Consideration of the Completion Payment.
Unless otherwise indicated, we believe that
all persons named in the table below have sole voting and investment power with respect to all shares of Company Common Stock beneficially
owned by them.
As of December 23, 2016
|
Name of Beneficial Owners
|
|
Address
|
|
|
Amount of
Shares of
Common
Stock
|
|
|
Percent of Class
%
|
|
5% or Greater Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Landgame S.a.r.l.
|
|
|
(7
|
)
|
|
|
10,048,344
|
|
|
|
49.7
|
|
MIHI LLC
|
|
|
(8
|
)
|
|
|
4,023,750
|
(1)
|
|
|
19.0
|
(1)
|
Hydra Industries Sponsor LLC
|
|
|
(6
|
)
|
|
|
4,410,923
|
(2)
|
|
|
18.3
|
(2)
|
HG Vora Special Opportunities Master Fund, Ltd.
|
|
|
(9
|
)
|
|
|
2,850,000
|
(3)
|
|
|
13.8
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
A. Lorne Weil
|
|
|
(6
|
)
|
|
|
4,410,923
|
(2)
|
|
|
18.3
|
(2)
|
Luke L. Alvarez
|
|
|
(6
|
)
|
|
|
-
|
(4)
|
|
|
-
|
(4)
|
David G. Wilson
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
Stephen R. Rogers
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
Daniel B. Silvers
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
Nicholas Hagen
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
Ira H. Raphaelson
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
Philip M. Russmeyer
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
John M. Vandemore
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
Roger D. Withers
|
|
|
(6
|
)
|
|
|
-
|
(5)
|
|
|
-
|
(5)
|
All directors and executive officers as a group (10 persons)
|
|
|
|
|
|
|
4,410,923 (2)
|
(5)
|
|
|
18.3 (2)
|
(5)
|
|
(1)
|
Includes 1,000,000 shares underlying 2,000,000 warrants that become exercisable on January 22, 2017.
|
|
(2)
|
Includes 3,934,615 shares underlying 7,869,230 warrants that become exercisable on January 22, 2017.
|
|
(3)
|
Includes 400,000 shares underlying 800,000 warrants that become exercisable on January 22, 2017.
|
|
(4)
|
Does not include 150,720 shares of Common Stock purchased by Mr. Alvarez on December 29, 2016 in connection with his transaction
bonus arrangement. Does not include 940,583 shares of restricted stock granted to Mr. Alvarez pursuant to
the Incentive Plan subsequent to December 23, 2016.
|
|
(5)
|
Does not include grants of RSUs or restricted stock pursuant to the Incentive Plan subsequent to December 23, 2016.
|
|
(6)
|
Business address: 250 West 57th Street, Suite 2223, New York, NY 10107.
|
|
(7)
|
1, rue Hildegard von Bingen, L-1282 Luxembourg
|
|
(8)
|
c/o Macquarie Capital (USA) Inc., 125 West 55th Street, L-22, New York, NY 10019-5396
|
|
(9)
|
c/o HG Vora Capital Management, LLC, 330 Madison Avenue, 23
rd
Floor, New York, NY 10017.
|
Directors and Executive Officers
Information with respect to the Company’s
directors and executive officers immediately after the consummation of the Business Combination is set forth in the Proxy Statement
in the section entitled “Management After the Business Combination” beginning on page 149, in the section entitled
“Director Election Proposal” beginning on page 92 and in the other sections of the Proxy Statement cross-referenced
therein, all of which information is incorporated herein by reference.
We expect to conduct our next annual meeting
of stockholders during the second calendar quarter of 2017 and thereafter conduct our annual meetings during the second calendar
quarter of each subsequent year. Pursuant to the Second A&R Charter, the board of directors was reconstituted and comprised
of seven members, without classification. Biographical information for the members of our board is set forth in the following sections
of the Proxy Statement beginning on the following pages, all of which information is incorporated herein by reference:
Director
|
|
Section of the Proxy Statement
|
|
Proxy Page
|
A. Lorne Weil
|
|
“Director Election Proposal”
|
|
92
|
|
|
|
|
|
Luke L. Alvarez
|
|
“Director Election Proposal”
|
|
92
|
|
|
|
|
|
Nicholas Hagen
|
|
“Director Election Proposal”
|
|
93
|
|
|
|
|
|
Ira H. Raphaelson
|
|
“Director Election Proposal”
|
|
93
|
|
|
|
|
|
Philip M. Russmeyer
|
|
“Director Election Proposal”
|
|
93
|
|
|
|
|
|
John M. Vandemore
|
|
“Director Election Proposal”
|
|
93
|
|
|
|
|
|
Roger D. Withers
|
|
“Director Election Proposal”
|
|
93
|
|
|
|
|
|
Upon the Closing, Mr. Weil serves as Chairman
of the Board, Messrs. Vandemore, Hagen and Raphaelson comprise the Audit Committee of the board of directors, Messrs. Withers,
Raphaelson and Vandemore were appointed by the board of directors to serve on the Compensation Committee of the board of directors
and Messrs. Raphaelson, Hagen and Withers serve on the Corporate Governance, Nominating and Compliance Committee of the board of
directors. Information with respect to the Company’s Audit Committee, Compensation Committee and Corporate Governance, Nominating
and Compliance Committee is set forth in the Proxy Statement in the section entitled “Information about Hydra Industries—Management”
beginning on page 109, which is incorporated herein by reference.
Effective as of the Closing, Luke L. Alvarez
serves as the Company’s Chief Executive Officer, David G. Wilson serves as the Company’s Chief Operating Officer, Steven
R. Rogers serves as the Company’s Senior Vice President, Digital Games and Daniel Silvers serves as the Company’s Chief
Strategy Officer. Biographical information for Mr. Alvarez is set forth in the Proxy Statement in the section entitled “Director
Election Proposal” on page 92, which is incorporated herein by reference.
David G. Wilson
, our Chief Operating
Officer (“COO”) has been with the Inspired Gaming Group since April 2004, first acting as an independent business restructuring
consultant and then serving as COO - Leisure Link from June 2005 to August 2008, as COO/CFO – Inspired Gaming from September
2008 to September 2014 (including responsibility for the SBG business unit) and more recently as COO – Inspired Gaming focused
on all aspects of operations and delivery. Prior to joining Inspired, Mr. Wilson held the position of Strategy and Business Development
Director at Pink Roccade UK – an IT applications and infrastructure services company for approximately 2 years after having
spent nearly 20 years at Nortel Networks serving in various vice president and managing director business unit and senior operations
roles in Europe and in voice and data network product management roles in North America. Mr. Wilson started his career at Nortel
in treasury, finance and accounting. He holds a Bachelor of Commerce degree from McMaster University and an MBA from the University
of Toronto.
Steven R. Rogers
is the Chief Commercial
Officer of Inspired's Digital Games Division and is responsible for divisional P&L and product strategy of the Virtual Sports
product area. Mr. Rogers joined Inspired in 2006 while he was the Chief Operating Officer of Red Vision, a CGi company based in
Manchester, UK which specialized in animation for the television and film industries and was acquired by Inspired in 2006. Mr.
Rogers is a Chartered Management Accountant who completed his accountancy qualifications while being employed as Management Accountant
and Finance Director from 1998-2002 at Red Vision.
Daniel Silvers
is our Chief Strategy
Officer. He is also the founder and managing member of Matthews Lane Capital Partners LLC. He also currently serves on the boards
of directors of Forestar Group Inc., PICO Holdings, Inc., where he serves as Lead Independent Director, and India Hospitality Corp.
He has previously served on the boards of directors of International Game Technology, Universal Health Services, Inc. and bwin.party
digital entertainment plc, as well as serving as President of Western Liberty Bancorp, an acquisition-oriented company which bought
and recapitalized Service1st Bank of Nevada, a community bank in Las Vegas, Nevada. In 2015, Mr. Silvers was featured in the National
Association of Corporate Directors' “A New Generation of Board Leadership: Directors Under Age 40” list of emerging
corporate directors. Prior to founding Matthews Lane, Mr. Silvers was the President of SpringOwl Asset Management LLC, having joined
a predecessor entity in 2009. Previously, Mr. Silvers was a Vice President at Fortress Investment Group, a leading global alternative
asset manager, where he worked from 2005 to 2009. Prior to joining Fortress, he was a senior member of the real estate, gaming
and lodging investment banking group at Bear, Stearns and Co. Inc., where he worked from 1999 to 2005. Mr. Silvers holds a B.S.
in Economics and an M.B.A. in Finance from The Wharton School of the University of Pennsylvania.
In connection with the Closing, Stephen J. Dannhauser,
Jonathan S. Miller, Kenneth Shea and M. Brent Stevens resigned from their positions as directors of the Company.
Executive Compensation
The compensation of the Company’s executive
officers before the Business Compensation is described in the Proxy Statement in the section entitled “Information About
Hydra Industries – Executive Compensation” beginning on page 112, which is incorporated herein by reference. The compensation
of the Inspired Gaming Group’s named executive officers before the Business Combination is described in the Proxy Statement
in the section entitled “Executive and Director Compensation of Target” beginning on page 127, which is incorporated
herein by reference. Messrs. Wilson and Rogers have continuing employment arrangements with the Company. The disclosure regarding
Mr. Silvers’ employment agreement included in Item 1.01 above is hereby incorporated by reference into this Item 2.01. Executive
Compensation for Messrs. Weil and Alvarez has yet to be determined.
On December 22, 2016, the stockholders of the
Company approved the Inspired Entertainment 2016 Long-Term Incentive Plan (the “
Incentive Plan
”). The description
of the Incentive Plan set forth in the section of the Proxy Statement entitled “Incentive Plan Proposal” beginning
on page 95 is incorporated herein by reference. A copy of the full text of the Incentive Plan is set forth as Annex C to the Proxy
Statement and is incorporated herein by reference.
Effective as of December 29, 2016, Mr. Alvarez
received a grant of 940,583 shares of restricted stock pursuant to the Incentive Plan.
On December 22, 2016, the Compensation Committee
and the full board of directors of the Company approved the Inspired Entertainment, Inc. Second Long-Term Incentive Plan (the “
Second
Plan
”). The terms of the Second Plan are substantially similar to those of the Incentive Plan. The Second Plan was adopted
principally in order to provide a mechanism through which certain management bonuses due in cash to certain members of management
of Inspired Gaming Group upon consummation of the Business Combination could be paid partially in stock in order to preserve liquidity
in the Company. Under such arrangement, certain members of management entitled to such cash bonuses agreed to accept 50% of the
bonuses due in cash at closing and 50% in Restricted Stock Units under the Second Plan, subject to the approval of the Second Plan
by the Company’s stockholders. The maximum number of Restricted Stock Units that can be granted under the Second Plan is
200,000.
Director Compensation
The board has not yet made a determination regarding
compensation to be paid to the Company’s directors subsequent to the Business Combination. On December 24, 2016, the Board
approved grants to the directors pursuant to the Incentive Plan.
Certain Relationships and Related Party Transactions
A description of certain relationships and related
party transactions is included in the Proxy Statement in the section entitled “Certain Relationships and Related Party Transactions”
beginning on page 169, which is incorporated herein by reference.
“Item 1.01 Entry Into a Material Agreement
– Indemnification Agreements” of this Current Report on Form 8-K is incorporated herein by reference.
In connection with the closing of the Business
Combination, the Hydra Sponsor and the Macquarie Sponsor each agreed to have amounts that would become owing them at closing pursuant
to promissory notes issued by the Company converted into warrants of the Company at a price of $0.50 per warrant. The Hydra Sponsor
received 1,079,230 Warrants for forgiveness of loans in the aggregate amount of $539,615.20. The Macquarie Sponsor received 500,000
Warrants for forgiveness of loans in the aggregate amount of $250,000. This arrangement with the Sponsors was ratified by the complete
board of directors with Mr. Weil abstaining.
Independence of Directors
The Company’s board of directors has determined
that Messrs. Hagen, Raphaelson, Withers and Vandemore are independent within the meaning of Nasdaq Rule 5605(a)(2) and, to the
extent applicable, that they qualify as independent directors according to the rules and regulations of the SEC with respect to
audit committee membership.
Legal Proceedings
From time to time, we may become involved in
various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
We are currently not aware of any pending
legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings
that are contemplated by any governmental authority, except: A claim from the Performing Rights Society is ongoing and relates
to the alleged infringement of copyrighted material of the Performing Rights Society’s members in certain games on Fixed
Odds Betting Terminals in UK Licensed Betting Offices. The Company and the other defendants (who have formed a litigation club)
filed a defense to the claim raised by the Performing Rights Society on December 22, 2015. The parties have mutually agreed to
begin a process of mediation in September 2016. The Company has made a provision in the period ending July 2, 2016 of $0.3 million,
which management believes to be adequate to cover the total net exposure to the Company, including professional fees.
Properties
The Company occupies approximately 91,300
square feet of leased space in the United Kingdom, 11,900 square feet of leased space elsewhere in Europe and a small office in
New York.
|
·
|
We lease approximately 8,000 square feet of office space on one floor in Birmingham, West Midlands for Games Development and
Production.
|
|
·
|
We lease approximately 11,000 square feet of office space on one floor in Burton-on-Trent, East Midlands for Finance, IT and
HR management and administration and Central System Estate Monitoring.
|
|
·
|
We lease approximately 6,500 square feet of office space on two floors in London for Product Development, Technical Operations,
Legal, Marketing, Change and Release Management and Market Account Management.
|
|
·
|
We lease approximately 10,500 square feet of office space on two floors in Manchester for all Virtuals activities except the
London-based Market Account Management team.
|
|
·
|
We lease approximately 50,000 square feet of administrative offices, workshop and warehousing in Wolverhampton, West Midlands
for Service Operations, Product and Content Test, Gaming Machine Engineering, Assembly, Repair, Storage, Parts Supply and Repair
and Market Account Management.
|
|
·
|
We occupy, out of lease, approximately 4,500 square feet of office space on one floor in Bangor, North Wales for Product and
Platform Development, Remote Operational Services and Problem Management.
|
|
·
|
We rent, under a short term agreement, approximately 800 square feet of office space in London for Virtuals Market Account
Management and Insight internal and external BI Reporting.
|
|
·
|
We lease approximately 9,500 square feet of administrative offices, workshop and warehousing in Cologno Monzese, Northern Italy
for Service Operations, Gaming Machine Repair and Storage, Parts Triage, Remote Operational Services and Market Account Management.
|
|
·
|
We lease approximately 2,000 square feet of offices on one floor in Rome, Italy for Market Account Management and Product Management
and Release.
|
|
·
|
We lease approximately 400 square feet of office space on one floor in Gibraltar for CEO and Market Account Management.
|
|
·
|
In New York, we occupy unleased office space at the offices of Hydra Management at 250 West 57th Street, Suite 2223, New York,
New York.
|
Market Price of and Dividends on the Registrant’s
Common Equity and Related Stockholder Matters
Information about the market price, number
of stockholders and dividends for the Company’s securities is set forth in the Proxy Statement in the section entitled “Price
Range of Securities and Dividends” beginning on page 174, which is incorporated herein by reference. On December 23, 2016,
the closing sale price of our common stock and warrants was $5.70 per share and $0.62 per warrant, respectively. During the period
from January 1, 2015 through September 30, 2016, the high and low sales prices for our common stock and warrants were as follows:
|
|
Year ended December
31, 2015
|
|
|
Nine months ended
September 30, 2016
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
Common Stock
|
|
$
|
10.00
|
|
|
$
|
9.48
|
|
|
$
|
10.28
|
|
|
$
|
9.70
|
|
Warrants
|
|
$
|
0.36
|
|
|
$
|
0.16
|
|
|
$
|
0.45
|
|
|
$
|
0.14
|
|
The Company believes that, prior to the
consummation of the Business Combination, there were 11 holders of record of the Company’s Common Stock, 3 holders of record
of our Warrants and 0 holders of record of units (which, upon consummation of the Business Combination were divided into shares
of our common stock and Warrants). As of and after the Business Combination, the Company believes there were 38 record holders
of shares of Common Stock and 4 record holders of Warrants.
In connection with the closing of the Business
Combination, the Company’s common stock trading symbol was changed to “INSE” and its warrant trading symbol was
changed to “INSEW.”
Recent Sales of Unregistered Securities
Information about unregistered sales of
the Company’s equity securities is set forth in “Part II, Item 15. Recent Sales of Unregistered Securities” of
Amendment No. 4 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 20, 2014.
On December 23, 2016, the Company consummated
the Business Combination, issuing a total of 11,801,369 shares of common stock to the Vendors as the Stock Consideration of the
Completion Payment, a total of 2,700,000 shares of common stock to our Macquarie Sponsor pursuant to the Macquarie Forward Purchase
and a total of 174,095 shares of common stock to certain advisors and vendors of the Company as payment for services rendered.
The issuances of shares occurred pursuant
to privately negotiated transactions that did not involve a public offering of securities and, accordingly, the Company believes
that the transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof
and Rule 506 of Regulation D promulgated thereunder. Each of the Vendors, our Macquarie Sponsor and other recipients of Company
common stock represented to the Company that he, she or it was an “accredited investor” (as defined by Rule 501 under
the Securities Act) and was acquiring the shares for investment and not distribution, that he, she or it could bear the risks of
the investment and could hold the securities for an indefinite period of time. The investors received written disclosures that
the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement
or an available exemption from such registration.
On December 29, 2016, three members of Inspired’s
management, including Mr. Alvarez, purchased an aggregate of 164,536 shares pursuant to their transaction bonus arrangements. Mr.
Alvarez purchased 150,720 shares of Common Stock, for a price of $10.00 per share. Two other members of Inspired’s management
purchased 6,908 shares of Common Stock each, for a purchase price of $10.00 per share.
Description of the Company’s Securities
A description of the Company’s common
stock and warrants is included in the Proxy Statement in the section entitled “Description of Securities” beginning
on page 154, which description is incorporated herein by reference.
The Company has authorized 50,000,000 shares
of capital stock, consisting of 49,000,000 shares of common stock, $0.0001 par value per share, and 1,000,000 shares of preferred
stock, $0.0001 par value per share. After giving effect to the Business Combination, the redemptions described above and the issuance
of the Stock Consideration but without giving effect to the conversion of any warrants, there were 20,199,391 shares of the Company’s
common stock issued and outstanding and warrants to purchase 9,539,615 shares of the Company’s common stock outstanding.
To the Company’s knowledge, as of the consummation of the Business Combination, there were approximately 38 holders of record
of the Company’s common stock and 4 holders of record of the Company’s Warrants. Such numbers do not include DTC participants
or beneficial owners holding shares through nominee names.
Indemnification of Directors and Officers
Information about the indemnification of
the Company’s directors and officers is set forth in “Item 1.01 Entry Into a Material Agreement – Indemnification
Agreements” of this Current Report on Form 8-K, which is incorporated herein by reference.
Financial Statements and Supplementary Data
The historical financial statements (and
accompanying notes) of the Inspired Gaming Group identified in Section (a) under “Item 9.01 Financial Statements and Exhibits”
of this Current Report on Form 8-K are incorporated herein by reference.