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:

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:

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:

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.

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 Adjustments to the Unaudited Condensed Combined Balance Sheet

Pro Forma Adjustments to the Unaudited Condensed Combined Income Statements

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.

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:

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:

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:

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 :

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”.

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.

⁽¹⁾ Includes all SBG terminals in which the company takes a participation revenue share across all territories

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 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.