Virtuality Entertainment Ltd, formerly W Industries Ltd, has come down to the wire on its plans for a listing for its shares on the London International Stock Exchange to raise cash to fund future development (CI No 2,245) – and IBM Corp and Motorola Inc have each reserved shares in the placing – Motorola will end up with 3.8% and IBM (Europe) Ltd 2.2%. With trading due to start on October 19, the company is hoping to raise UKP9.5m from the placing, which values Virtuality at UKP44.4m. The Leicester company is offering 7.433,813 ordinary shares through broker Beeson Gregory Ltd, at 170 pence per share. The management will be left with 12.5% of the equity. Some UKP3.5m of the capital raised will go into development, UKP1.5m into increasing working capital for the firm’s entertainment software business and UKP3m into marketing the technology to licensees. It leaves the firm, as before the floatation, with no borrowings. Of the shares on offer, 20.9% will come from the the current majority shareholder, capital venture firm Apax Partners & Co Ltd, which will retain a controlling 50.9% stake after the flotation. One reason for the placing seems to be because development money is thin on the ground. The company turned in pre-tax profits of UKP219,000 for the year ending December 31 1992 and UKP73,000 for the latest interim, and development costs are predicted to take it into a loss of UKP400,000 for 1993, taking the maximum initial loss per share to a forecast 1.86 pence. Once development costs have been covered, though, things will return to normal, and 1994 will be a watershed year in this respect according to the board. Funds are being eaten into by the company’s development of second generation technology, which it says will offer more detailed graphics and lighter, more manageable headgear. The technology will use a 100 MIPS chip from Motorola, although whether Virtuality machines will depart completely from their existing Amiga 3000-based architecture is unclear.
Subcontracts
What is clear is that the UKP1.7m in research and development over the past two fiscal years has gone on development rather than research. Virtuality doesn’t conduct pure research, and it subcontracts out low-value operations such as subassemblies. This activity will increase, with all manufacturing being contracted out as volumes increase. Founded in 1987 by Dr Jon Waldern, Virtuality Entertainments Ltd released its first virtual reality system in 1991. Its operations are split into three the hardware, the software, (including entertainment software and real-time operating system used to run it), and the technology licensing, which allows other firms using non-Virtuality systems to integrate the company’s products. It has established a relationship with Sega Enterprises to develop the Sega VR system, which will ship next year, and is developing a virtual reality underwater game for Matsushita Electric Industrial Co unit MCA Inc’s Wakayama theme park near Osaka, Japan. The firm will stay in entertainment systems for the foreseeable future, using its technology licensing to benefit from other opportunities such as scientific applications. The company will be hoping that it is greeted with the same kind of enthusiasm as Division Group Plc, whose shares, offered at 40 pence, have settled at around 80p after hitting UKP1.
