NKTN.L Regulatory News (NKTN)

THIS ANNOUNCEMENT (INCLUDING THE APPENDIX) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA, THE REPUBLIC OF IRELAND OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

28 April 2015

Nektan plc

("Nektan", the "Company" or the "Group")

New financing of £7.1 million to support US expansion and continued European growth

Nektan,the leading international B2B mobile gaming platform provider, today announces a new financing package totalling approximately £7.1 million, comprising the issue of £4.7 million of Convertible Loan Notes, a placing of 1,044,774 Placing Shares, and the intended drawdown of a further £0.6m under the DTL Loan Facility.

Highlights

Commenting on the Financing, David Gosen, Nektan's Chief Executive Officer, stated: "The last six months have seen an acceleration in demand for our mobile, tablet and desktop gaming products and services, most notably with our landmark real money gaming partnership announced with The Sun in the UK. Media and brand owners with valuable audiences are clearly realising the benefits of providing real money and freemium gaming to build engagement and loyalty whilst also generating new revenue streams. In the US, our innovative and highly scalable in-venue casino products are gaining real traction with 18 contracts and/or letters of intent currently signed with US land-based casinos. The support from existing and new investors in this Financing is a clear endorsement of our focused strategy and will now allow Nektan to capitalise on our early market entry in the US and build on the European momentum with the continuing conversion of a strong partner pipeline."

- ends -

Enquiries:

IMPORTANT NOTICES

About Nektan

Nektan is the leading international B2B mobile gaming platform provider. It is a developer and operator of mobile games in the regulated, interactive real money gaming ("RMG") and freemium gaming space, delivering white label implementations to large commercial organisations that have established online audiences.

The Group launched its full end-to-end platform, 'Evolve', in April 2014 and is primarily focussed on supporting mobile gaming and in addition provides desktop coverage in line with partner needs. Nektan's white label platform simplifies the route to mobile and desktop gaming revenues for its target commercial entities: managing the full customer experience and back-office operations, allowing the partner solely to focus on marketing the product to its consumers.

Nektan operates under a full Remote Gambling Licence issued by the Gibraltar Licensing Authority and maintains sales and customer support operations in its two primary geographical targets, Europe and North America, from offices in Gibraltar, London and Las Vegas.

In 2015, Nektan has announced five major white label gaming partnerships:-

Nektan operates a joint venture, ReSpin, with Spin Games LLC to target significant opportunities in the US land-based casino market through in-venue mobile technology, offering casino operators an innovative way of refreshing their customer offer and increasing revenue from end-of-life cabinets whilst providing players new and innovative content to play which includes functionality on mobile devices. ReSpin has generated significant partner interest, with eighteen land-based casinos currently contracted or with signed letters of intent for delivery of in-venue mobile enabled gaming during 2015.

 APPENDIX

Details of the Financing and Fundraising Over-Allotment

Introduction

In its interim results announcement dated 25 March 2015, Nektan reported strong momentum in its business and highlighted that the accelerating level of activity would require additional capital. At that time, the Directors announced that £1.2 million of funding had already been secured and, as planned, can today set out details of the further capital which has been committed to underpin the Company's growth plan.

Background to and reasons for the Financing and Fundraising Over-Allotment

Mobile gaming continues to be the fastest growing segment of the global gaming sector. As consumers continue to shift towards mobile devices, innovative mobile content and an optimised user experience on mobile devices are key to customer engagement. Nektan considers its products to be at the forefront of development within the mobile gaming industry.

Nektan's strategy is to focus on two major market segments, casino and bingo, and to derive revenue from innovative content and games via the offer of RMG, freemium and content licensing. In order to achieve as broad a distribution as possible, the Group has established four routes to market: white label, Nektan house brands, content licensing and joint ventures.

Supporting this strategy is Evolve, the Group's fully-invested and proven proprietary mobile gaming platform, which was launched in 2014 and has been developed to be fully scalable for the operation of mobile gaming. A key differentiator of the Nektan solution is the speed to market that it can deliver.

In Europe, Nektan's white-label business, for both RMG and freemium bingo, and its content licensing business have gained clear momentum with 16 partners now live and 14 new contracts signed in recent weeks either live or in development.

In the US, the Group, via Respin LLC, its US joint venture with Spin Games LLC (the "JV"), has a significant opportunity to leverage its early-entrant advantage and existing relationships with US casinos to exploit an estimated $3 billion per annum potential market for enabling connected gaming in-venue for land-based casinos. The JV has been established to target the land-based US casino market with in-venue mobile technology and operates a per unit leasing model based on a fixed dollar amount per unit per day. The first two products developed by the JV are designed to increase slot machine returns by converting end-of-life slot machines into "smart" slot machines by installing mobile technology, either by the addition of a "bolt-on" module or by refurbishing old cabinets. An estimated 40 per cent. of installed slot machines in the US casino market are no longer supported with new game content. ReSpin has now signed 18 contracts and/or letters of intent with licensed operators in the US tribal and commercial casino market.

The Company identified at the time of its IPO in November 2014 the potential requirement for additional capital when the full scale of the opportunities available to the Company was known. Since then, the Company has focussed on larger commercial opportunities in the US and Europe. In particular, the listing has enhanced the Company's profile and increased its credibility with key partners. Encouraging progress has been made, notably with ReSpin and the landmark Sun Play contract. The Board expects these larger projects to significantly underpin a material increase in trading during next 12 months.

On 25 March 2015, the Board announced that it had entered into a loan agreement with Disruptive Tech Limited ("DTL"), a 12.8 per cent. shareholder in the Company, for £1.2 million to support the larger projects and near term growth ("the DTL Loan Facility").

Use of proceeds

To allow the Company to accelerate its growth strategy and maintain momentum, Nektan intends to use the net proceeds of the Financing of approximately £6.7 million, together with existing sources of finance, to:

Current trading and outlook

Since January, the Company has signed new contracts with 14 real money gaming and freemium partners which are either currently live or due to go live imminently. The Company's US joint venture, ReSpin, now has 18 signed contracts or LOIs with licensed US tribal and commercial casino operators, with data highly encouraging from the one solution already live in-venue.

In the three month period to 31 March 2015, net gaming revenue from real money gaming white label partners more than doubled in the quarter versus the previous quarter. The Company has experienced strong growth in its RMG key performance indicators of new depositors, which grew by more than 84 per cent., and deposits, which grew by more than 85 per cent. in the quarter to March 2015 versus the previous quarter.

The Board has continued to consider several funding options for the Company, and believes that the Financing will ensure the Company now has the capital to accelerate its stated investment plans. The Company had originally expected to secure further capital in March and therefore the rate of investment and revenue growth over the last two months has not been at the levels originally envisaged by the Directors. The Directors, however, remain encouraged by the considerable progress in the business and have maintained a tight control over costs. The Directors believe that the net proceeds received by the Company from the Financing should ensure that it is fully funded to get to cash flow breakeven point.

Details of the Financing

Pursuant to the terms of a subscription agreement, the Company will issue Convertible Loan Notes to existing and new institutional and private investors (the "Noteholders"), raising, in aggregate, £4.7 million (the "Convertible Loan Note Subscription"). The Convertible Loan Note Subscription will be completed through the issue of, in aggregate, £0.5 million secured unlisted series B loan notes due for repayment on 28 April 2020 which are compliant with applicable venture capital trust ("VCT") rules (the "VCT Loan Notes") and the issue of, in aggregate, £4.2 million secured listed series A loan notes due for repayment on 28 April 2020 which are intended to be listed on the Channel Islands Securities Exchange (the "CISX") as soon as practicable (the "non-VCT Loan Notes", and together with the VCT Loan Notes, the "Convertible Loan Notes"). The Convertible Loan Notes attract accrued interest at a rate of 10 per cent. per annum, paid quarterly in arrears. The Convertible Loan Notes are secured by a first ranking fixed and floating charge on the assets of the Company and each of the Company's subsidiaries, with all other loans to the Company ranking behind the Convertible Loan Notes' security. The Convertible Loan Notes can be redeemed according to the following instances:

With regards to the VCT Loan Notes, the Company may, on all VCT Loan Note Noteholders, at any time after the issue of the Convertible Loan Notes and before Redemption, convert the VCT Loan Notes into new Ordinary Shares at a conversion price of 209 pence, subject to the price per Ordinary Share for the ten dealing days prior to the day of such notice was served was equal to or greater than the conversion price of 209 pence (the "VCT Conversion"), such VCT Conversion occurring 5 days following dispatch of the VCT Conversion notice.

With regards to the non-VCT Loan Notes, the Noteholder may, at any time after the issue of the Convertible Loan Notes and before Redemption, convert the Convertible Loan Notes into new Ordinary Shares in an amount or an integral multiple of £20,000 of that respective Noteholder's outstanding amount at a conversion price of 209 pence (the "non-VCT Conversion"), such non-VCT Conversion occurring 30 days following receipt of the non-VCT Conversion notice.

If Conversion were to occur in full, the Company would have to issue, in aggregate, 2,260,767 new Ordinary Shares. The new Ordinary Shares to be issued pursuant to the Conversion fall within the Directors' existing authority to allot new Ordinary Shares for cash on a non-pre-emptive basis.

Further, pursuant to the terms of the Equity Placing, a total of 1,044,774 new Ordinary Shares (the "Placing Shares") have been placed at a price of 167.5 pence per Placing Share (the "Placing Price"), raising gross proceeds of approximately £1.7 million for the Company. The Placing Price is equivalent to the closing mid-market price per Ordinary Share on 22 April 2015. The Placing Shares represent approximately 4.9 per cent. of the Company's existing issued ordinary share capital. The Placing Shares are to be issued by the Company pursuant to the Directors' existing authority to allot new Ordinary Shares for cash on a non-pre-emptive basis.

Within the Equity Placing, DTL has agreed to exchange with the Company the £0.6 million already drawn down to date under the DTL Loan Facility for a subscription of Placing Shares of equivalent value.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends or other distributions made, paid or declared in respect of such shares after the date of issue of the Placing Shares.

In connection with the Equity Placing, the Company has entered into a placing agreement (the "Placing Agreement") pursuant to which Panmure Gordon has agreed, in accordance with its terms, to use reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price. The Placing is not underwritten. The Placing is conditional upon, inter alia, admission of the Placing Shares to trading on AIM ("Admission") and the Placing Agreement between the Company and Panmure Gordon not being terminated prior to Admission. Applications are in the process of being made to AIM for Admission of the 1,044,774 Placing Shares, and it is expected that such Admission will become effective and that dealings will commence on AIM at 8.00 a.m. UK (BST) time on 1 May 2015.

Following the issue and allotment of the Placing Shares, the Company's enlarged issued ordinary share capital will comprise 22,484,825 Ordinary Shares. The Company does not hold any Ordinary Shares in treasury. This figure of 22,484,825 Ordinary Shares may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the Financial Conduct Authority's Disclosure and Transparency Rules.

In addition to the Fundraising, the Company intends to draw down a further £0.6 million from the DTL Loan Facility, under the terms of the DTL Loan Facility's agreement announced on 25 March 2015.

Panmure Gordon acted as Financial Adviser, Nominated Adviser and Corporate Broker in connection with the Fundraising and Welbeck Capital Partners LLP acted as placing agent in connection with the Convertible Loan Note Subscription.

Directors' participation

Certain Directors of the Company have agreed to acquire Placing Shares pursuant to the terms of the Equity Placing. The beneficial interests of the participating Directors (including related associates) as a result of the Fundraising are shown below:

Related party transaction

Octopus Investments currently has a beneficial interest in 13.4 per cent. of the issued share capital of the Company, and its participation in the Financing consequently constitutes a related party transaction under Rule 13 of the AIM Rules for Companies. The Company's independent directors, being those not involved in the Financing as a related party, having consulted with the Company's nominated adviser, consider that the terms of the Financing are fair and reasonable insofar as its shareholders are concerned.

Disruptive Tech Limited currently has a beneficial interest in 12.8 per cent. of the issued share capital of the Company, and its participation in the Financing consequently constitutes a related party transaction under Rule 13 of the AIM Rules for Companies. The Company's independent directors, being those not involved in the Financing as a related party, having consulted with the Company's nominated adviser, consider that the terms of the Financing are fair and reasonable insofar as its shareholders are concerned.

General Meeting and the Fundraising Over-Allotment 

The Directors have been encouraged by the level of commitments received from existing shareholders and new investors, and the Company has received demand for participation in the Fundraising which it is not able to fulfil at present, as the Fundraising utilises the majority of the Company's existing available authority to issue and allot equity securities for cash on a non-pre-emptive basis. So that it can meet additional demand and raise funds to further accelerate the growth of its business plan the Company will hold a General Meeting to increase the authority to issue and allot equity securities for cash on a non-pre-emptive basis up to an aggregate nominal value equal to one tenth of the share capital of the Company as at the date of the General Meeting.

Participation in the Fundraising Over-Allotment may be indicated by certain qualifying investors to Panmure Gordon and/or Welbeck Capital Partners any time prior to 6.00 p.m. on Wednesday 20 May 2015. All Convertible Loan Notes or new Ordinary Shares issued pursuant to the Fundraising Over-Allotment will be issued at the same price as those issued in the Fundraising. The Fundraising Over-Allotment has the potential to generate additional gross proceeds to the Company of up to an aggregate nominal value equal to 10 per cent. of the aggregate nominal value of the share capital of the Company as at the date of the General Meeting.

The issue of new Ordinary Shares (if any) and/or Convertible Loan Notes under the Fundraising Over-Allotment is to be effected pursuant to the authority to issue shares for cash on a non-pre-emptive basis which is being sought from shareholders at the General Meeting to be held at 10.00 a.m. on Friday 22 May 2015 at the office of K&L Gates LLP, One New Change, London, EC4M 9AF, United Kingdom. Any issue of new Ordinary Shares will be conditional on the admission of those new Ordinary Shares to trading on AIM. The circular to shareholders in the Company, including a notice convening the General Meeting, will be dispatched shortly and will also be available on the Company's website.

Recommendation by the Directors and Irrevocable Undertakings

The Directors believe that the Fundraising Over-Allotment is in the best interest of the Company and its Shareholders as a whole. Accordingly, the Directors recommend that Shareholders vote in favour of the resolutions to be proposed at the General Meeting as the Directors have irrevocably undertaken to do in respect of their own beneficial holdings amounting to, in aggregate, 3,280,859 Ordinary Shares, representing approximately 15.30 per cent. of the existing Ordinary Shares.

In addition to the Directors, certain Shareholders have irrevocably undertaken or provided commitments of support to vote in favour, or procure the vote in favour, of the resolutions in respect of the existing Ordinary Shares in which they are interested, amounting to, in aggregate, 8,164,463 Ordinary Shares, representing approximately 38.08 per cent. of the existing Ordinary Shares.

Definitions

The following definitions apply throughout this announcement, unless the context otherwise requires.