Share placing and loan notes

Issuance of Convertible Unsecured Loan Notes and Equity Placing

DDD Group plc (“DDD” or the “Company”) is pleased to announce that the Company has entered into agreements to issue £350,000 of Convertible Unsecured Loan Notes (“Notes”) pursuant to the existing authorities granted to the board of directors. The Company also announces today a proposed placing of, in aggregate, 23,750,000 new ordinary shares of 1 pence each (“New Shares”) at a price of 2 pence per share (“Issue Price”) conditional on the passing by shareholders of resolutions to authorise the directors of the Company (the “Directors”) to allot additional ordinary shares and disapply statutory pre-emption rights (“the Resolutions”) at the Company’s General Meeting to be held on 31st March 2015 (the “Equity Placing”).

Highlights

  • Issuance of £350,000 of Convertible Unsecured Loan Notes due 2017 have been completed under existing authorities
  • Equity Placing commitments, subject to shareholder approval, for £475,000 or 23,750,000 New Shares with institutional and accredited investors arranged by Peel Hunt LLP
  • The net proceeds (approx. £0.8 million) to be used to finance business development and licensing activities over the next 12 months
    • New licensing activities targeted at video conferencing and social photography apps for tablet, smartphone and PC
    • Planned phased increase in headcount from 20 to 23 staff in line with commercial license and development agreements

Further details of the Notes and Equity Placing are set out below.

Commenting on the transaction, Nicholas Brigstocke, Chairman of DDD said:

We are delighted to be able to announce a successful capital raising which, subject to completion, should assist the Company in continuing the transition of our licensing activities from the niche market of stereoscopic 3D into the larger 2D markets for video conferencing, social photography and enhanced end user engagement with content shared over social media.

We anticipate concluding a number of ongoing discussions and licensing negotiations over the coming months.

The additional capital will strengthen the financial resources of the Company as we continue our return towards operating cash break-even. The continuing support of our strategic commercial partners, existing shareholders and UK institutional investors represents a strong endorsement of DDD’s turnaround business plan and its near-term growth prospects.


Background to the Fundraising and Proposed Use of Proceeds

The Company has developed a range of intelligent video solutions that are based on patent-protected techniques. These solutions have been widely licensed to leading consumer electronics manufacturers including Samsung, LG, Sony, Lenovo and others to provide automatic 2D to 3D conversion for televisions, personal computers, smartphones and tablets. Until the end of December 2014, over 51 million products have been shipped by the Company’s licensees generating high margin licensing and royalty revenues.

As part of a turnaround plan developed by the Company following an unexpected decline in shipments of the Company’s TriDef 3D software in the PC market that occurred in early 2013, a range of new products have now been developed that are intended for use in larger 2D markets including video conferencing, social photography and improved social media engagement for PCs, smartphones and tablets. This initiative is intended to supplement the existing licensing activities in the stereoscopic 3D consumer market.

In late 2014, a number of existing and prospective licensees began evaluating these new solutions for use in video conferencing and social photography markets with promising initial results. The Placing and Subscription proceeds are expected to enable further licensing and commercialisation opportunities for these new 2D solutions.

The Company will continue to service existing 3D technology licensees and plans to secure additional patent license agreements through its IP licensing advisor for its 2D to 3D conversion patents in the consumer and professional 2D to 3D conversion services markets.

The Company’s recently announced solutions including TriDef SmartCam and TriDef MotionView are in beta testing with a number of prospective licensees in the PC and mobile market and the Company is focused on securing license agreements for these new products. It is the Company’s expectation that license agreements for these new products are likely to be secured in the first half of 2015 and additional product launches resulting from new product development activities should occur during H2 2015.

The Company expects that a successful conclusion of this financing transaction will provide sufficient working capital until at least the end of the year on the basis of continued demand for its 3D technologies together with a modest level of uptake of licenses for its recently announced 2D products, which are currently being evaluated by prospective customers. Specifically, the Directors plan to utilise the proceeds to meet the growth and working capital needs from currently identified opportunities during the current year, including a phased increase in headcount from 20 to 23 staff as new licensing and/or development agreements arise. The additional staff will focus primarily on software and application development and technical sales and will be based in the Company’s existing operations in the US and Australia. The balance of the Placing and Subscription proceeds will provide working capital for as-yet-unidentified opportunities in a rapidly evolving market as well as supporting ad-hoc costs incurred through the patent licensing program being managed by the Company’s patent advisor.

The Board will continue to review additional financing opportunities available to the Company as necessary including entering into strategic partnerships or additional loans on available terms. There can be no certainty that completion of additional financing will be achievable however and further announcements will be made in due course and as appropriate.

Details of Convertible Unsecured Loan Notes

The issue of the Notes will be conducted under the authority granted to the board of directors pursuant to Section 120 the Company’s Articles of Association. The right of conversion of the Notes into ordinary shares falls within the current partial dis-application of pre-emption rights approved by shareholders at the June 10th 2014 Annual Shareholders Meeting.

The following is a summary of the main provisions of the Notes. The Notes have an annual interest rate of 7%. The Notes can be converted by the holders into ordinary shares of 1 pence each in the capital of the Company (“Shares”) at a conversion price of 5 pence nominal amount of Notes per Share (a 250% premium to the Equity Placing price). The Company has the option to redeem the Notes at any time at a 5% premium to their nominal value plus accrued interest. Any Notes outstanding on 6 March 2017 will at the option of the Company be repaid in cash or settled by the issue of Shares at the conversion price; in both cases accrued interest will be payable in cash.

Four of the Directors of DDD or their affiliates have agreed to subscribe for Notes. The nominal amount of the Notes that they have agreed to acquire are as follows: Christopher Yewdall £10,000; Nicholas Brigstocke £15,000; Dr. Sanji Arisawa £15,000; and Victoria Stull £10,000. Additionally, Arisawa Manufacturing Co., Ltd. (“Arisawa”), currently a holder of 20.8% of the existing issued ordinary share capital of the Company has agreed to acquire £300,000 of the Notes (the “Transaction”).

The Transaction is a related party transaction for the purpose of AIM Rule 13, Arisawa and certain Directors being related parties within the meaning of the AIM Rules. The Directors of the Company who are independent to this Transaction, Paul Kristensen and Hans Snook, consider, having consulted with the Company’s nominated adviser, that the terms of the Transaction are fair and reasonable insofar as the Shareholders are concerned.

Details of the Proposed Equity Placing

Subject to the approval of the Resolutions at the Company’s General Meeting to be held on 31st March 2015 by the Company’s shareholders (the “Shareholders”), it is intended that the Company will raise £0.48 million (before expenses) by way of a conditional placing of 23,750,000 New Shares arranged by Peel Hunt LLP at 2 pence per share. The New Shares have been placed with a combination of institutional investors, accredited investors, and certain existing Shareholders conditional, inter alia, on the passing of the Resolutions and on the admission of the New Shares to the AIM market of the London Stock Exchange (the “Admission”). The Company reserves the right to accept additional subscribers for the New Shares prior to the General Meeting subject to applicable demand.

The Placing Price represents a premium of approximately 6.7 per cent. to the closing mid-market share price of 1.875 pence per Ordinary Share on 6 March 2015 (the latest practicable date prior to the date of this announcement). The Placing Shares will represent approximately 16.5 per cent. of the issued share capital of the Company prior to the issue of the Placing Shares.

The New Shares will be issued credited as fully paid and will rank pari passu in all respects with the existing 1p ordinary shares in the Company (“Ordinary Shares”) including the right to receive and retain all dividends and other distributions declared, paid or made in respect of the Ordinary Shares after the Admission.

Application will be made for the Placing Shares to be admitted to trading on the AIM market (“AIM”) of London Stock Exchange plc (the “London Stock Exchange”). Settlement for the Placing Shares and Admission is expected to take place at 8.00 a.m. on 1 April 2015.

Placing Agreement

On 9 March 2015, DDD entered into a placing agreement (the “Placing Agreement”) pursuant to which Peel Hunt LLP agreed conditionally, as agent for the Company, to use its reasonable endeavours to procure subscribers for the New Shares at the Issue Price.

The Placing Agreement contains warranties and indemnities from DDD in favour of Peel Hunt LLP which are customary for this type of agreement. Under the Placing Agreement, DDD has agreed to pay Peel Hunt LLP commission on the aggregate value of the New Shares placed and subscribed for at the Issue Price and the costs and expenses of the Placing together with any applicable VAT. The Placing Agreement contains provisions entitling Peel Hunt LLP to terminate the Placing Agreement at any time prior to Admission in certain circumstances including, amongst other things, in the event of a material breach of the warranties set out in the Placing Agreement.

Restatement of 2013 results

The 2013 financial results will be restated for the Yabazam discontinued operation (reclassification of $416,000 to loss from discontinued operation) and to correct a formulaic error which will increase amortization expense and accumulated amortization by $337,000; thereby increasing the total loss after tax for the 2013 financial year to $2,906,000 (EPS: 2.1 cents/share vs. 1.86 cents/share previously reported) and reducing the net book value of intangible assets reported in 2013 to $3,091,000 from $3,428,000. The restatements have no effect on the cash flow statement provided in the 2013 annual report and accounts.

APPENDIX I: Additional Disclosures

Subject to shareholder approval at the Company’s General Meeting

In accordance with the requirements of the Disclosure and Transparency Rules, it is expected that DDD’s issued ordinary share capital as at 1 April 2015 will consist of 167,413,572 Ordinary Shares, with voting rights based on the current Equity Placing commitments. DDD does not hold any Ordinary Shares in Treasury; therefore, it is expected that the total number of voting rights in DDD will be 167,413,572. It is expected that 167,413,572 may be used by Shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, DDD under the Financial Conduct Authority’s Disclosure and Transparency Rules.

The table below sets out the cumulative effect of the July 2014 Unsecured Loan Note (conversion in January 2016 at 10p per share price), the March 2015 Unsecured Loan Note (conversion in March 2017 at 5p per share price), and the March 2015 Equity Placing (assuming all become unconditional, the maximum number of shares are issued and Admission takes place) on those Directors and significant and substantial shareholders who have reported their expected holdings to the Company:

Directors*, Significant and Substantial Shareholders Existing shareholding % interest in the share capital of DDD prior to the Placing and Subscription Number of New Shares acquired Conversion Shares acquired through Notes in issue (including July 2014 issues) Resultant holding following the Placing and Subscription and conversion % interest in the enlarged share capital of DDD following the Placing and Subscription and conversion
Arisawa Manufacturing Co, Ltd. 29,856,123 20.8% 0 10,200,000 40,056,123 22.3%
Michael Stubbs 10,948,740 7.6% 12,500,000 0 23,448,740 13.0%
Robert Morton 10,500,000 7.3% 2,500,000 0 13,000,000 7.2%
Hans Snook* 4,056,652 2.8% 0 500,000 4,556,652 2.5%
Nicholas Brigstocke* 2,007,045 1.4% 0 550,000 2,557,045 1.4%
Christopher Yewdall* 2,681,808 1.9% 0 400,000 3,081,808 1.7%
Sanji Arisawa* 1,989,200 1.4% 0 500,000 2,489,200 1.4%
Victoria Stull* 251,000 0.2% 0 200,000 451,000 0.3%

*indicates a Director of the Company.

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