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Warthog PLC (WHOG)


Tuesday 30 December, 2003

Warthog PLC

Interim Results

Warthog PLC
30 December 2003

Warthog plc

For immediate release
30th December 2003

                                  PRESS RELEASE
                                  WARTHOG PLC
                           ('Warthog' or 'the Group')
                            ENDED 30th SEPTEMBER 2003
Warthog plc, the interactive entertainment software group, today announces its
Interim Results for the six months ended 30th September 2003.

Chairman's and CEO's Statement

The past financial half-year has been an extremely difficult period for Warthog.
There have been many excellent achievements and much progress made, but due, in
some part, to industry factors outside of our control, we have lost ground
financially and face a challenging period ahead. Our revenue for the half year
was £4.95 million (2002: £5.4 million) but various exceptional provisions have
generated a loss before tax of £2.6 million (2002: PBT £134k). These provisions
total £2.2 million and are made against both insolvent publishers and in respect
of developments cancelled or delayed due to uncertainty regarding the
intellectual property on which they are based. There is a more detailed
explanation of these issues under the heading 'Financial Review'.


Almost seven years ago, when the original founders established Warthog, their
vision was to build a world-class games development Company which would work on
the most exciting games projects, on behalf of the leading publishers and
intellectual property owners, in the world. They had seen others try and often
fail, usually because creativity in development was not accompanied by either
sufficient financial resource or adequate business management. Warthog was
determined to include all these essential ingredients and so make profitable
games for satisfied customers with happy, talented staff.

Since then, Warthog has fulfilled much of this vision, carefully building up a
superb development capability, internationally balanced across 4 studio bases in
the UK, US and Sweden and becoming an acknowledged leader amongst independent
games developers. We have developed our own proprietary software technology
which is both deployed and enhanced in almost every project we carry out, thus
creating software 'engines' to generate repeatable gaming elements and reduce
our development costs and time. This technology also facilitates the
simultaneous development of games across all four major platforms (PS2, XBox, GC
and PC). It was the use of this technology which enabled our Cheadle Studio to
carry out the development of 'Harry Potter and the Philosopher's Stone' in an
unprecedented timescale, across three simultaneous platforms, or SKU's (PS2,
XBox and GC). Warthog's engines are highly rated by our customers and throughout
the industry. These engines are not capitalised on our balance sheet but are one
of the Group's major assets along with our incredibly talented staff.

Cheadle Studio

Recently our main Cheadle Studio has completed a number of major games
developments, including 'Harry Potter and the Philosopher's Stone', 'Loony Tunes
- Back in Action', 'Battlestar Gallactica', 'Wolverine's Revenge' and 'Mace
Griffin Bounty Hunter'. All of these have shipped this year. Key clients include
Electronic Arts, Activision, Vivendi Universal Games, AOL Time-Warner and THQ -
who are amongst the most prestigious publishing/IP enterprises in the industry.

Satellite Studios

In our satellite studios, our pipeline of projects under development is healthy.
A contract for one of our original titles, which we acquired with Zed Two, has
been signed up for the North American market, with a European contract due to be
signed shortly. This Studio is also working on a children's game which has still
to be announced, where the publisher is sufficiently pleased as to be extending
the contract to cover two additional platforms. In our Swedish Studio, Warthog's
'Richard Burns Rally' game is looking impressive, has received excellent press
reviews and is expected to do well. We are discussing two new projects for the
Swedish Studio with this customer and expect to sign these in the New Year. Our
Texas Studio is performing very well with a highly prestigious, but as yet
totally confidential, project which is about half complete. We are also in
discussion with this customer regarding further related work for our Texas

Industry Changes

The global games industry has grown as rapidly as we had foreseen and the key
games projects are correspondingly large and complex, which plays to Warthog's
strengths. A game requiring 100 plus man-years of effort to develop is no longer
unheard of. What is changing more unexpectedly is the business model - the way
the developers make a reasonable profit for their efforts on work-for-hire
projects. The previous practice of a publisher, making a royalty advance
sufficient to fund the development of a game - out of which a developer can make
a reasonable profit, has all but gone. Instead, what is happening is that
developers are often expected to spend their own money bidding for projects
which they might never get, based on IP which in some cases the Publishers have
not fully secured or fully committed to production. This can add up to hundreds
of thousands of pounds of work which has to be written off if unsuccessful. Also
royalties on work-for-hire projects have all but disappeared with some
Publishers stating that they will no longer pay royalties for work-for-hire

The owners of the licensable rights to properties appropriate for games
development, such as film producers, are also unhappy at their lack of influence
and control over the games which are developed for them. Often there are severe
initial delays in contract negotiation and later in completion which inevitably
cause the core development of the game to be rushed and delivered in an
inefficient manner. This in turn can seriously reduce the commercial potential
of the game or game/film combination and importantly damage any future
interactive exploitation from the brand that the film producers have worked so
hard to create and promote.

Recognising the dissatisfaction of the IP owners and other parties involved and
working in conjunction with them, Warthog has developed a strategy involving a
change to our business model to respond to these factors and in line with the
latest thinking in the games industry. This involves creating a co-operative
relationship with the IP owner, who will provide, on a joint-venture basis, the
licensed property for a game to be funded and developed to prototype stage. It
will then be taken to a number of publishers to negotiate with one of them, a
sales volume and royalty deal. If required this can be used as the basis for a
development completion funding package to be obtained from a third party games
finance provider. Warthog has recognised for some time that getting close to the
IP owners is a key strategy and is therefore not a new idea but a change of
emphasis based on existing relationships. Recent work Warthog has done with
Warner Brothers has come close to this approach, where the licence owner has had
closer creative input and influence on production than previously while the
movie from which the licence was derived was being created in parallel.

US Focus and Management Changes

In the past year, the games industry has also become, to a larger extent, US
centric, being related to the film and television making industries and so
focused on the West Coast of America. For this reason we are planning to open a
small representative office on the West Coast to be closer to the games and film
markets, their creatives and decision makers. We are also planning to expand our
Texas Studio's capability, in line with new contract wins.

As part of our US focus, Ian Grieve, previously Warthog's Commercial Director,
has resigned from the Group Board and has relocated to the West Coast of America
to help steer our efforts there. Ashley Hall, CEO will carry the overall sales
responsibility at Board level in the meantime and will spend a high proportion
of his time in the US as well. Eric Elms stepped down from the Board earlier in
the year to focus on commercial development in Europe and is busy pursuing a
series of opportunities for the Company. Ian Templeton, Managing Director of
Acorn Capital Partners Limited, has been deeply involved in assisting the
Company with its financial strategy since joining the Warthog Board earlier in
the year and gives substantial support to Simon Elms, the Finance Director. We
are also actively working to recruit a US based Non-executive Director from the
publishing side of the games industry.

Financial Review

The trading of the business for the six months to September 2003 has been
comparable to the same period last year except for the fall in the value of the
US dollar which has hit us hard. Most of Warthog's revenues are US dollar
denominated, whereas almost all of Warthog's costs are incurred in sterling.
Consequently although we have earned comparable dollar revenues in this period
compared to last year we have received almost £450k less in sterling for our
efforts. Pre-empting this we have actively reduced our development cost base,
cutting over £150k compared to last year but have been unable to fully
compensate for this significant dollar movement. Thus our gross margins are down
4% on the same period last year. Our overhead is £192k higher although this has
largely been driven by the acquisitions we made in the second half of last year.
£107k alone relates to the amortisation costs of our acquisitions.

However, it is the £2.2 million of exceptional provisions that have most
negatively impacted upon our figures. As previously advised, some of the second
tier publishers in the games industry, for whom we had been developing games,
experienced severe financial problems, and we have suffered project delays and
cancellations as a result of their difficulties.

In some cases Warthog decided to complete projects at its own expense and then
to try to place them with new publishers. One such case is 'ET', against which
we have had to write off additional costs as a publisher deal has not been
concluded. In another project, the IP rights to 'Animaniacs' have been subject
to protracted legal negotiations with the publisher's liquidators and no new
publishing contract has been concluded. In a further project, 'X10', we had
incurred significant unpaid development cost, but being too far from completion
this has had to be cancelled and written off when the publisher became unable to
back the development. In total the combined effects of these items has
contributed almost £1 million to the half-year loss.

We have been working on several projects with top tier publishers only to find
these games have been shelved due to uncertainty regarding the nature and rights
to the intellectual property on which they are based, causing one or more of the
key parties to withdraw or to withdraw the game from certain gaming platforms.
Due to the way these games are funded and developed, this has cost Warthog a
further £1.2 million in exceptional write offs to the half-year.

As you will appreciate these provisions have severely impacted upon the
Company's balance sheet. Our net current assets are down £1.65 million on
September last year at £4.9 million. Contract work not yet billed remains
relatively stable at £3.5 million but our trade debtors have fallen £1.8 million
compared to last September.

Because the majority of this reduction has been through providing against bad or
doubtful debt rather than collection, our cash position is £1 million worse than
last year.

To compensate for this we have extended our bank facility by £1.5 million and
drawn down against this but this leaves us with net assets of £5.3 million
compared with £8.2 million last year.

Our increase in net-debt for the period was £1.2 million, almost £500k better
than the same period last year due to cost cutting measures and a significant
reduction in capital expenditure. However, this was substantially worse than
expected due to the exceptional items referred to above.

At the half-year we were trading £700k within our banking facility but as stated
previously further losses will be incurred in the second half and we recognise
the need to repair the damage these exceptional provisions have caused,
strengthen our balance sheet and create a solid platform on which to move


While I greatly regret the currently weakened financial position that these
major challenges in the games industry have recently caused us, I am confident
that we have the talent, strategy and established relationships with key IP
owners, publishers and distributors to take Warthog successfully through to a
leading position in the sector. We have made enormous progress in a short time
and we are grateful for the support of our investors and our staff who have made
this possible. Our recent work on some of the best intellectual properties in
the world, some announced and some in the pipeline, endorses our view that the
company's skills and capabilities are recognised by IP owners and publishers
around the world. Despite the financial setbacks of recent months, we believe,
with the continued support of our investors and staff, that Warthog has an
exciting future ahead.

Iain A Macdonald     Ashley Hall
Chairman             CEO

Warthog PLC 
Consolidated Profit and Loss Account    
Period to 30th September 2003    

                                       Six Months      Six Months   Year Ended
                          Notes   ended 30/09/03    ended 30/09/02    30/09/03
                                                £               £            £

Turnover                                4,955,746       5,402,913   11,417,138
Cost of Sales                           4,216,899       4,367,792    9,200,899
Exceptional Costs             3         2,181,657               -    1,313,726
Gross Profit                           (1,442,810)      1,035,121      902,513
                                         ----------      ----------    ---------
Other operating expenses
(net)                                   1,098,485         905,465    1,659,543
                                         ----------      ----------    ---------
Operating (loss)/ profit               (2,541,295)        129,656     (757,030)
Investment income                           1,101          24,557       35,267
                                         ----------      ----------    ---------
                                       (2,540,194)        154,213     (721,763)
Interest payable                           83,870          19,820       68,942
                                         ----------      ----------    ---------
(Loss)/ profit on
ordinary activities
before taxation                        (2,624,064)        134,393     (790,705)
Taxation                      2            27,885         (48,900)     377,914
                                         ----------      ----------    ---------
Retained (loss)/ profit
for the year                           (2,596,179)         85,493     (412,791)
                                         ----------      ----------    ---------
Earnings per ordinary
share basic                   4             (5.37)p          0.18p       (0.87)p
Earnings per ordinary
share - diluted                             (5.37)p          0.16p       (0.87)p
Warthog PLC

Warthog PLC
Consolidated Balance Sheet

30th September 2003
                                Notes       30/09/03     30/09/02     31/03/03
                                                   £            £            £

Fixed Assets
Intangible fixed assets                      858,517      579,195      906,358
Tangible assets                            2,151,711    2,249,583    2,270,250
                                         -------------   ----------   ----------
                                           3,010,228    2,828,778    3,176,608

Current Assets
Stock                                      1,499,851      829,312    1,634,034
Debtors                                    4,426,085    5,956,953    5,570,430
Cash at bank and in hand                     212,415    1,228,655      359,488
                                         -------------   ----------   ----------
                                           6,138,351    8,014,920    7,563,952

Creditors: Amounts falling due
within one                                (1,258,004)  (1,489,860)  (1,411,267)

Net current assets                         4,880,347    6,525,060    6,152,685

Total assets less current
liabilities                                7,890,575    9,353,838    9,329,293

Creditors: Amounts falling due
after more                                (2,600,000)  (1,129,738)  (1,500,000)
than one year

Provisions for liabilities and
charges                                            -      (25,011)           -
                                         -------------   ----------   ----------
                                           5,290,575    8,199,089    7,829,293
                                         =============   ==========   ==========

Capital and reserves
Called up share capital                      489,280      471,881      481,820
Contingent Share capital                     143,442      286,885      286,885
Share premium account                      6,836,246    6,592,405    6,655,214
Merger reserve                                52,463       52,463       52,463
Profit and loss account                   (2,230,856)     795,455      352,911
                                         -------------   ----------   ----------
                                    5      5,290,575    8,199,089    7,829,293
                                         =============   ==========   ==========

Warthog PLC

Consolidated cash flow statement 
                                           Six Months      Six Months   Year Ended
                                        ended 30/09/03  ended 30/09/02    31/03/03
                                                    £               £            £

Cash flow from operating activities 7      (1,052,014)     (1,192,614)  (2,328,154)

Returns on investment and servicing
of finance                                    (82,768)          4,737      (33,675)

Taxation                                       27,155         (26,637)     110,718

Capital expenditure and servicing
of finance                                   (125,128)       (574,650)    (630,114)

Acquisitions                                        -          85,582      242,260
                                          -------------      ----------   ----------
Cash outflow before financing              (1,232,755)     (1,703,582)  (2,638,965)

Financing                                   1,085,682          39,086      169,652
                                          -------------      ----------   ----------
Decrease in cash in the period               (147,073)     (1,664,496)  (2,469,313)
                                          =============      ==========   ==========

Warthog PLC

Notes to the interim accounts for the period to 30th September 2003
The interim report was approved by the directors on 18th December 2003.
This interim report, which is the responsibility of the directors, has not been
audited but has been reviewed by our auditors Baker Tilly to the extent 
described in the review report.

The interim report has been prepared using the accounting policies set out in
the Company's statutory accounts for the year ended 31st March 2003.
2. The taxation charge for the period is analysed as follows:

                                            Six Months      Six Months   Year Ended
                                        ended 30/09/03  ended 30/09/02     31/03/03
                                                    £               £            £

Current Tax
UK corporation tax charge at 30% on 
(loss)/ profit of the period                        -         (48,900)           -
Adjustments in respect of previous periods      27,885              -     (203,903)
                                                27,885        (48,900)    (203,903)
Deferred Tax
Origination of timing differences - 
 based on standard rate of                           -              -     (174,011)
corporation tax in the UK                  ________________________________________                                    
of 30% (31/03/03 - 30%)                         27,885        (48,900)    (377,914)                         

Exceptional items
Provisions totalling £2,181,657 (31/03/03 - £1,313,726) have been made in the
current period against the costs incurred in developing certain games.
The directors are of the opinion that these provisions are necessary in view
of the financial status of certain of the parties that had originally contracted 
these games,and due to uncertainty regarding the status of the intellectual 
property on which these games are based.
Earnings per share
Earnings per share for the half year ended 30th September 2003 have been
calculated using the number of shares inissue throughout the period of 
48,358,307 (31/03/03 - 47,344,052).

Basic and fully diluted earnings are the same due to the loss for the period.
The movement in shareholder funds is analysed as follows:

                                             Six Months       Six Months   Year Ended
                                         ended 30/09/03   ended 30/09/02     31/03/03       
                                                      £                £            £                                 
(Loss)/ profit for the financial year        (2,596,179)          85,493    (412,791)
Currency translation gain on foreign currency    12,412                -      55,740
net investments                                                                        

Proceeds from the issue of shares               188,492          359,642     432,390
Contingent share capital                       (143,443)         286,885     286,885
Net addition to shareholders' funds          (2,538,718)         732,020     362,224                          
Opening shareholders' funds                  7,829,293         7,467,069   7,467,069
                                             5,290,575         8,199,089   7,829,293
The results for the year ended 31st March 2003 are abridged from the 2003 annual
report and accounts which received an unqualified auditors' report 
and which have been filed with the Registrar of Companies.
Reconciliation of operating (loss)/ profit to net cash flow from operating
                                             Six Months      Six Months  Year Ended
                                         ended 30/09/03  ended 30/09/02    31/03/03
                                                     £                £           £

Operating (loss)/ profit                   (2,541,295)          129,656   (757,030)
Depreciation and amortisation                 347,487           214,390     621,232                  
Decrease/ (Increase) in stocks                134,183           641,030   (163,692)                        
Decrease/ (Increase) in debtors             1,155,622       (2,280,362) (1,492,879)
(Decrease)/ increase in creditors           (162,206)          102,672    (591,525)
Other non cash movements                       14,195                -      55,740                 
Net cash flow from operating activities   (1,052,014)      (1,192,614)  (2,328,154)
Analysis of net debt 
          At 1 April 2002  Cash Flow    At 31 March  Cash Flow   At 30 Sept 2003
                      £            £            £            £               £
Cash in
hand          2,828,801   (2,469,313)     359,488     (147,073)        212,415
and at

Debt due
within 1        
year            (12,000)      12,000            -            -               - 
Debt due
after        (1,137,992)    (362,008)  (1,500,000)  (1,100,000)     (2,600,000)
1 year          ---------   ----------   ----------   ----------       ---------
             (1,149,992)    (350,008)  (1,500,000)  (1,100,000)     (2,600,000)
                ---------   ----------   ----------   ----------       ---------
  Total       1,678,809   (2,819,321)  (1,140,512)  (1,247,073)     (2,387,585)
                =========   ==========   ==========   ==========       =========




We have been instructed by the company to review the financial information set
out on the preceding pages and we have read the other information contained in
the interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.

This report, including the conclusion, has been prepared for and only for the
company for the purpose of their interim report and for no other purpose. We do
not, therefore in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.

Directors' Responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. It is best
practice that the accounting policies and presentation applied to the interim
figures should be consistent with those applied in preparing the preceding
annual accounts except where any changes, and the reasons for them, are

Review Work Performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board as if that Bulletin applied. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information.

Review Conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2003.


Chartered Accountants
Brazennose House
Lincoln Square
M2 5BL

23 December 2003


Simon Elms                       0161 608 1204       (Cell: 07779 133808)
CFO, Warthog plc

Ashley Hall                      0161 608 1201       (Cell: 07974 919989)
CEO, Warthog plc

David Simonson / Kirsty Black    0207 653 6620       (Cell: 07831 347222)

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