The shares fell 4p to 8p as the group revealed it needed a £3.7m rights issue - on the basis of three new shares for every five already held - to fund working capital requirements.
The accouncement came as Rhino reported that in 1994 it fell £2.67m into the red against a restated £1.13m profit in the previous year.
The company, which issued a profits warning in January, has also passed the dividend (0.5p). Directors said yesterday that the 1994 losses would result in a cash shortfall during this year, and that bank credit facilities of £6.7m were dependent upon the rights issue.
Rhino said that without the proceeds of the cash call it would not have enough funds for its working capital needs.
The company started 1995 with excess levels of stock, but said these had now been reduced by £3m. Rhino said this was possible because some stock was bought on a sale or return basis and because of sales volumes in January.
A cost reduction programme initiated at Christmas would achieve cost savings of £700,000 in 1995 after restructuring expenses, the board said. Rhino said its problems had been triggered by a downturn in the video games and computers market last year.
A company statement said: "The board believes this was a temporary downturn largely attributable to the premature announcement by suppliers of major new technology which will not be released in the United Kingdom until the second half of 1995. In addition, margins during the Christmas period were eroded as a result of discounting by competitors."
Rhino said 1995 and 1996 were expected to be important years for the British computer games industry, and that the group was well-placed to benefit from the expected increase in the market.
Sony has announced that it will launch the Sony Playstation, a CD-based machine, in the autumn.
Sega is expected to launch its new CD machine, the Sega Saturn, at about the same time.
The statement added: "These two new systems, which provide customers with faster responses, significantly improved graphics and stereo sound, have already been released in Japan and have resulted in substantial retail sales."Reuse content