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News
.30/01/04 Fund Raising
As it hinted it would in its last few RNS statements, Warthog
today announced its intention to raise up to £6m (pre-expenses) of new money via a placing and rights issue. In actual fact Warthog has more or less secured the placing portion - around £4.5m pre-expenses - of the
fund-raising (rights issues always have to be announced at the beginning of the process, in contrast to most placings). The rights issue is due to be completed in early April and if fully subscribed, would bring in
an additional £1.5m pre-expenses. The decision to price the placing and 3 for 2 rights issue at a 47% discount to the market price reflects the gravity of the financial problem faced by the Company.
Furthermore, the issue of 225m new shares for the placing delivers around 80% of the issue share capital of the Company and thus represents massive dilution for existing shareholders (unless they participated
in the placing or took up their rights in the rights issue) . The Company's directors are investing £0.1m of their own money to acquire shares in the placing and although the rights issue is not being underwritten,
the placing has been. The proceeds will be used to establish a Californian development studio (near Warthog's biggest IP-holding clients), pay off some of its accumulated debt and provide continuing working capital
for its core development business. The Company also revealed that it was confident of signing a major new licence development contract in the second half of calendar 04 and as a result expects to return to a
positive cashflow position during calendar 05.
23/02/04 Further product cancellation
Warthog's publisher problems continue with the announcement that another of
its projects has been canceled. This time round, however, the Company was able to build enough project termination protection into its development contract that the cancellation of the product, at its Texas-based
Fever Pitch studio, will yield what it calls a "substantial" termination fee. As a result its FY03 year-end figures will be marginally improved but it still leaves the company with a new task of securing a new
development contract for the team to work on as the termination fee will only cover the team's costs for so long.
12/03/04 New Publishing deal
Warthog has signed up US publisher Crave for the North American release of Pillage
(now called Future Tactics) and an as yet unnamed publisher for the European release. Pillage was more or less complete when Warthog acquired Zed Two and has been one of several titles that Warthog has been seeking
publishing homes for. Although Crave is one of the smaller North American publishers and the product will be released at a mid-price point, the contract carries no risk for the Company and should generate revenues
from day one. The title is due for release in both Europe and North America during Warthog's 1H FY05.
28/09/04 Full year results
Warthog revealed disastrous results for its year to 31st March 2004 with sales halving
to £5.7m and losses sinking to £9.4m after tax. The Company has attributed its dire performance to 2 product cancellations during the period and its failure to secure new publishing deals. The results include £4.4m
of exceptionals although gross losses amounted to £3m. Cash stood at just £0.4m, the same as last year despite its fund-raising in the new year. The FY04 cash outflow was £3.6m so the Company cannot afford a poor
FY04.
Unlike Argonaut who have found themselves in the same boat over the last few years, Warthog have recognised this contracting publisher demand and slashed its overhead, bringing its headcount down to 120
from a high of 280. As pointed out on so many occasions on this site, development problems tend to scale upwards in line with development headcount growth and very few developers have managed to maintain a
consistently high level of product quality whilst managing a large number of teams. To manage 280 staff at a time when the development market is already overcrowded and publishers are allocating a smaller proportion
of their development investment towards third party developers was always going to prove problematic.
The Company has therefore moved away from what it labels "risky" licence development work towards original IP
development. The risk of license development is that developers have to pitch for a development contract, investing in the creation of a prototype, and are by no means guaranteed to win that contract. This is ironic
for two reasons. Firstly, Warthog's TUSK development technology (which it boasts about in the interims) should theoretically give the Company a distinct advantage in licence pitches, minimising the prototype
development costs and thus minimising the risk relative to most other developers. Secondly, original IP development is generally recognised as being considerably more risky than licence development as there is no
more assurance that the product will be signed and some developers end up funding an original IP development project to a much later stage than prototype in the hope of attracting a publisher. Even then, they are
still not guaranteed a publishing contract or return on their investment (as Argonaut have proven with a number of their original IP products).
Warthog have hit the restart button, drastically streamlining and
refocusing their operation. They have a number of products in development, many with publishing contracts. However, investors will hope that their original IP investments will find a publishing home soon and
that the Company knows when to give up on unsigned new IP before they overextend their financial commitment.
03/11/04 Disposal of Warthog subsidiaries
Unlike at Argonaut which ploughed headlong into administration, the
Warthog directors have achieved a degree of value for the Company's shareholders with the sale of the PLC's subsidiaries to US
electonics manufacturer Tiger Telematics. That Warthog sought and achieved a sale is not surprising although the choice of acquirer certainly is. Warthog had adopted a risk-laden strategy following its emergency fund-raising and it was looking increasingly unlikely that it would pay off. With cash supplies dwindling, Warthog is known to have entered disposal discussions with a few parties. The choice of Tiger Telematics it appears was based on the rapidity with which Tiger both wanted and was able to complete the transaction.
Strategically, Warthog and Tiger are a poor match. Tiger is attempting to position itself as a handheld games platform company with the launch of its Gizmondo portable multimedia device. Gizmondo is primarily a
games device but incorporates a range of additional functionality and is a direct competitor to both Nintendo's forthcoming DS device and more directly, Sony's PSP. Gizmondo has been launched in the UK first with
launches in the rest of the world due in 2005.Tiger has been busy trying to secure content for its device and faces an impossible task of trying to outdo Sony and Nintendo's software efforts. That it will fail in
this is undoubted; Sony and Nintendo have already garnered widespread unsolicited support for their new handheld platforms whilst Tiger, like Nokia with its nGage,is having to spend its own money to secure content
support. The acquisition of Warthog is one strand of this strategy although given that the bulf of Warthog's development resources was devoted to console platforms and the PC, there are few obvious synergies between
what Tiger need and what Warthog have to offer.
Consideration for the transation amounts to approximately $7.5m comprising $1.13m cash and 497,866 restricted Tiger Telematics shares. The shares cannot be redeemed
for 12 months by Warthog PLC (which will, in the mean time, presumably remain listed as an investment vehicle). $150k of the cash consideration will also be deferred for 12 months too. Warthog shareholders therefore
do not now own a games company but an investment-holding shell and it is unclear what plans the Company has to return its current and future cash holding to shareholders. Unfortunately,the value of its Tiger holding
has already decreased 15% to $6.2m although there is still 11 months to go..
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