Interim Results

Bright Things plc 23 November 2007 Bright Things plc 23 November 2007 Bright Things plc ('Bright Things' or the 'Company') Interim Results for the six months ended 30 September 2007 Highlights: •Operating Loss reduced by 70% to £433,000 (2006 - £1,429,000) •Completion of development of Tiger Woods PGA Tour 07 and subsequently launched on schedule in the US and UK in time for Christmas •Reduction of overheads and cost base including a relocation of head office to a more cost effective location •Cash at the end of the period of £336,000 •Positive progress in the pursuit of new initiatives and opportunities Dominic Wheatley, CEO of Bright Things, said: 'Throughout the period we have made encouraging progress in our pursuit of new initiatives to enhance shareholder value whilst controlling our costs and continuing to develop our existing product line in time for its recent launch. We hope to be in a position to announce further details in respect of any new initiatives in due course.' For further information please contact: Bright Things PLC: Tel: 0870 351 7770 Dominic Wheatley, CEO Edward Levey, Finance Director HB Corporate Luke Cairns/ Rory Creedon Tel: +44 (0) 207 510 8600 Brunswick Group Giles Croot / Mark Antelme Tel: +44 (0) 207 404 5959 Chairman's Statement ==================== Introduction As announced in our results for the period ending 31 March 2007, your board has been reviewing a number of new initiatives and opportunities with a view to growing the business and, in doing so, create value for shareholders. Work has continued on the Company's existing products and the Tiger Woods PGA Tour 07 game has, subsequent to the period end, been launched on schedule with over 30,000 units ordered. In addition we continue to explore new opportunities for the ASIC chip. We do not expect further orders from the distributor of Bubble and will consider any future Bubble activity at the end of the current distribution agreement. The results for the six months ended 30 September reflect the seasonal nature of sales in the interactive DVD market. The main focus of activity within the Company during the period has been on completing development work on Tiger Woods PGA Tour '07 for its pre Christmas launch both in UK and USA. Product has now been shipped to both the UK distributor and US distributor. In the Annual Report I stated that the Directors had identified a number of ways of utilising the technologies developed to date and skills learnt by our people in that process to focus the future direction of the business. In particular other applications of the technology utilised in the Bubble development continue to be explored. Progress -------- The group has made progress in a number of areas: •Completed development and launched a Tiger Woods PGA Tour '07 game for release in the US and other territories for Christmas 2007. •Reduced the overhead and cost base and relocated our head office to a more cost effective location •Considered new business opportunities to enhance shareholder value. Results ------- Revenue at £96,000 (2006 H1 - £20,000) reflects limited sales of the ASIC development kit, component chips and interactive DVD software. As previously stated, the i-DVD market is seasonal and sales from the launch of the new Tiger Woods PGA '07 game will impact on the second half results The operating loss was £433,000 (2006 H1 loss £1,429,000), with Research & development costs at £82,000 (2006 H1 - £622,000) and Other administrative expenses at £448,000 (2006 H1 - £827,000). Cost reductions have reflected on the above overheads and this trend will increase during the remainder of the current year. Investment in development is now largely complete on current products. All overhead expenditure continues to be closely monitored. The Group had cash deposits of £336,000 (2006 H1 - £765,000) at the Balance Sheet date Prospects --------- As previously reported opportunities for new applications for the ASIC chip continue to be explored. New iDVD products will be considered in the New Year with the Company intending to remain selective in identifying premium licenses. The Company intends to extend its product range, and enter new markets organically and by acquisition. Summary ------- We continue to explore all opportunities to utilise the Company's expertise and intellectual property. Overheads have been significantly reduced and your Board will continue to carefully monitor the working capital requirements of the company. Finally, I would like to thank all employees for their hard work and dedication during the year. Ian Livingstone Chairman 21 November 2007 Operational and financial review ================================ Unaudited interim results for the 6 months ended 30 September 2007 and future product portfolio. Bright Things had no software or hardware product launches in the six month period to 30 September 2007. On 12 November 2007 'Tiger Woods PGA Tour '07' was released in the United Kingdom. Development model ----------------- We continue to retain the core management and technical skills in house and subcontract game development to external studios with appropriate expertise in DVD authoring and DVD game development. Manufacturing capabilities -------------------------- The i-DVDs are manufactured by Sony DADC located in the UK. Further revenue streams ------------------------ The Group's Patent and Intellectual Property portfolio is presenting opportunities to generate revenue using our technology within the Interactive DVD industry. Results for operations ====================== The Group made an operating loss of £433,000 (2006 H1 - £1,429,000). Key figures: 6 Months 6 Months Year Ended Ended Ended 30 30 31 September September March 2007 2006 2007 £'000 £'000 £'000 (as restated) (as restated) Revenue 96 20 205 ________ ________ ________ Gross Profit/(Loss) 97 20 101 ________ ________ ________ Research and Development 82 622 847 ________ ________ ________ Other administrative expenses 448 827 2,598 ________ ________ ________ Net assets 236 1,429 627 ________ ________ ________ Decrease in cash and cash equivalents 528 1,010 911 ________ ________ ________ Basic and diluted loss per share (1.4p) (6.9p) (13.5p) ________ ________ ________ Revenue, £96,000 (2006 H1 - £20,000) Revenue for the period primarily consists of ASIC revenue. Revenue is split between: ASIC revenue £62,000; i-DVD software £5,000; sales development kit £16,000; and chip sales £13,000. Cost of sales, (£1,000) (2006 H1 - nil) Cost of sales is made up of £1,000 commission on chip sales and a credit of £2,000 on royalties payable. Gross profit, £97,000 (2006 H1 - £20,000) The overall gross profit for the year is £97,000. This is split between: Gross profit on ASIC revenue of £62,000 achieving a gross margin of 100%; Gross Profit on i-DVD of £5,000 achieving a gross margin of 100%; Gross Profit on chip sales of £12,000 achieving a Gross Margin of 77%; Gross profit on royalties of £2,000, and a Gross Margin of £16,000 on sales development kit revenue. Administrative expenses Administrative expenses for the six months ended 30 September 2007 are the main component of the loss on ordinary activities during the period. Administrative expenses are in line with expectation and are analysed into four categories: Research & Development, £82,000 (2006 H1 - £622,000) Research and development expenditure in the 6 month period included £18,000 spent on the iDVD ASIC platform; £5,000 was spent on software titles that were not developed; and £94,000 on costs relating to the licensing and development of Tiger Woods PGA Tour 07 (revenue for this title will be included in the year ended 31 March 2008). There was also a credit of £35,000 relating to the Bubble (this cost was included in year ended 31 March 2006). Other administrative expenditure - £422,000 (2006 H1 - £777,000) The main component of general and administrative expenditure relates to human resource costs, totalling £203,000 (2006 H1 - £366,000) for the period. Also included in other administrative expenditure is depreciation and amortisation of £54,000 (2006 H1 - £37,000). Office and administration costs reduced to £48,000 (2006 H1 - £116,000) for the period, of which office costs were £23,000 (2006 H1 - £83,000). Travel and subsistence costs reduced to £25,000 (2006 H1 - £68,000). Marketing costs reduced to £20,000 (2006 H1 - £51,000) in the period. These costs primarily relate to retained agencies and consultants. £17,000 relate to the Tiger Woods iDVD. Professional expenses decreased in the year to £49,000 (2006 H1 - £107,000). Included in this, the amount relating to the portfolio of patent applications reduced to £1,000 (2006 H1 - £21,000) for the period. The decrease is as expected as the cost is maintaining patents acquired in previous years. Finance expenses for the period were £23,000 (2006 H1 - £32,000). Share based payment charges - IFRS 2 The charge in respect of share options totalled £26,000 (2006 H1 - £50,000). Exceptional administrative expenditure - Nil (2006 H1 - Nil) In the year to 31 March 2007, due to the uncertain nature of future cash flow, the Group decided to fully impair the goodwill, which related wholly to the acquisition of PushPlay Interactive LLC. Taxation No tax charge arises on the loss for the financial period. At 30 September 2007 the Group has approximately £11 million of losses available to carry forward to set against future taxable profits, subject to agreement with the UK and USA tax authorities. Loss per share Basic and diluted loss per share of 1.4p (2006 H1 loss of 6.9p) has decreased due to the scaling back of the research and development activities and a further reduction in general overheads. Working Capital The Group's operational cash position has been reduced by the continued investment in research and development during the year together with operational overheads and lower than anticipated sell through at retail of our products. Cash at bank at 30 September 2007 is £336,000. This comprises £298,000 held in a Special Interest Bearing Account (SIBA) with the remainder of the funds held in current accounts. At the end of the financial period the group had net assets of £236,000 (2006 H1 - £1,429,000). Net assets have decreased to £236,000 as at 30 September 2007 from £627,000 at 31 March 2007. This is due principally to the operating loss for the period. The Group has made further progress in reducing the monthly cash burn through a reduction in head count and down sizing of the serviced office space in all locations. The board continues to assess the appropriate application of these funds. Financial Instruments During the period, the Group's financial instruments, comprised cash and various items such as trade debtors and creditors that arise directly from operations. The main purpose of these financial instruments is to finance the Group's operations. The Group's policy is, and was throughout the period under review, not to trade in financial instruments. The main risk arising from the Group's financial instruments are liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks on a regular basis. Liquidity risk The Group continually monitors the operational working capital requirements of the business. The Group continues to assess appropriate financing opportunities based on future business plans and working capital requirements. Edward Levey Finance Director 21 November 2007 Consolidated income statement for the six month period ended 30 September 2007 Note 6 months ended 6 months ended 12 months to 30 September 30 September 31 March 2007 2007 2006 (audited) (unaudited) (unaudited) (as restated) £'000 (as restated) £'000 £'000 Revenue 96 20 205 Cost of sales 1 - (104) _______ _______ _______ Gross profit 97 20 101 ------------ ------------ --------- Research and development costs (82) (622) (847) Administrative expenses - other (422) (777) (1,659) Administrative expenses - exceptional - - (832) Share based payment charge (26) (50) (107) ------------ ------------ ---------- Administrative expenses (530) (1,449) (3,445) _______ _______ _______ Loss from operations (433) (1,429) (3,344) Finance income 16 28 52 _______ _______ _______ Loss before tax and for the financial period (417) (1,401) (3,292) _______ _______ _______ Attributable to: === === === Equity shareholders (417) (1,401) (3,292) _______ _______ _______ Loss per share === === === Basic and diluted (1.4p) (6.9p) (13.5p) ========= ========= Consolidated balance sheet at 30 September 2007 Note 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £'000 (as restated) (as restated) £'000 £'000 Non-current assets Property, plant and equipment 22 61 38 Goodwill - 832 - Intangible assets 54 191 89 _______ _______ _______ 76 1,084 127 _______ _______ _______ Current assets Inventories 10 - 7 Trade and other receivables 17 29 165 Prepayments and accrued income 134 48 16 Cash and cash equivalents 336 765 864 _______ _______ _______ 497 842 1,052 _______ _______ _______ Total assets 573 1,926 1,179 Current liabilities Trade and other payables (120) (190) (194) Tax liabilities (8) (16) (11) Accruals and deferred income (209) (291) (347) _______ _______ _______ Total liabilities (337) (497) (552) _______ _______ _______ Net assets 236 1,429 627 _______ _______ _______ Equity Called up share capital 4 3,045 2,045 3,045 Share premium 9,589 9,559 9,589 Warrant reserve 267 267 267 Merger reserve (286) (286) (286) Share based payment reserve 246 163 220 Retained deficit (12,625) (10,319) (12,208) _______ _______ _______ Total Equity 236 1,429 627 _______ _______ _______ Consolidated cash flow statement for the six month period ended 30 September 2007 Note 6 months ended 6 months ended 12 months to 31 March 30 September 30 September 2007 2007 2006 (audited) (unaudited) (unaudited) (as restated) £'000 (as restated) £'000 £'000 Operating activities Net loss before taxation (417) (1,401) (3,292) Share based payments 26 50 107 Depreciation on property plant and equipment 18 26 38 Amortisation of intangible assets 35 11 113 Goodwill amortisation and impairment - - 832 _______ _______ _______ (338) (1,314) (2,202) (Increase)/decrease in inventory (3) - 7 Decrease in trade and other receivables 30 354 250 (Decrease)/increase in trade and other payables and accruals and deferred income (215) (50) 5 _______ _______ _______ Cash generated from operations (526) (1,010) (1,940) Investing activities Purchase of property, plant and equipment (3) - (6) Sale of property, plant and equipment 1 - 5 _______ _______ _______ Net cash used in investing activities (2) - (1) Financing activities Proceeds from issue of new share capital - - 1,100 Costs of issue of new share capital - - (70) _______ _______ _______ Net cash generated by financing activities - - 1,030 Net decrease in cash and cash equivalents (528) (1,010) (911) Cash and cash equivalents at start of period 864 1,775 1,775 _______ _______ _______ Cash and cash equivalents at end of period 336 765 864 _______ _______ _______ Consolidated statement of changes in equity for the period ended 30 September 2007 Other reserves Retained earnings ---------------- ------------------- Called up Share premium Merger reserve Warrant reserve Share based Retained Total share capital payment reserve deficit £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 2006 - restated 2,045 9,559 (286) 267 113 (8,918) 2,780 Share based payment - - - - 50 - 50 charge Loss for the period - - - - - (1,401) (1,401) ------- -------- ------- ------- ------- ------- ------- Total recognised income and expense for the period - - - - 50 (1.401) (1,351) ------- -------- ------- ------- ------- ------- ------- Net increase /(decrease) - - - - 50 (1.401) (1,351) ------- -------- ------- ------- ------- ------- ------- At 30 September 2006 - restated 2,045 9,559 (286) 267 163 (10,319) 1,429 (unaudited) Issue of shares 1,000 30 - - - - 1,030 Share based payment - - - - 57 - 57 charge Unrealised FX gain on translation of - - - - - 2 2 foreign subsidiaries Loss for the period - - - - - (1,891) (1,891) ------- -------- ------- ------- ------- ------- ------- Total recognised income and expense for the period 1,000 30 - - 57 (1,889) (802) ------- -------- ------- ------- ------- ------- ------- Net increase / 1,000 30 - - 57 (1,889) (802) (decrease) ------- -------- ------- ------- ------- ------- ------- At 31 March 2007 - restated 3,045 9,589 (286) 267 220 (12,208) 627 Share based payment - - - - 26 - 26 charge Loss for the period - - - - - (417) (417) ------- -------- ------- ------- ------- ------- ------- Total recognised income and expense for the period - - - - 26 (417) (391) ------- -------- ------- ------- ------- ------- ------- Net increase / - - - - 26 (417) (391) (decrease) ------- -------- ------- ------- ------- ------- ------- At 30 September 2007 3,045 9,589 (286) 267 246 (12,625) 236 (unaudited) ------- -------- ------- ------- ------- ------- ------- Notes forming part of the interim financial statements for the period ended 30 September 2007 ============================================================================================= Accounting Policies --------------------- Accounting policies adopted under IFRS These interim financial statements have been prepared using the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ('IFRS'). The basis of preparation and accounting policies used in preparing the interim accounts for the six months ended 30 September 2007 are set out below. The basis of preparation describes how IFRS has been applied under IFRS 1, the assumptions made by the Group about the Standards and Interpretations expected to be effective, and the policies expected to be adopted, when the Group issues its first complete set of IFRS financial statements for the year ending 31 March 2008. Basis of preparation -------------------- The financial information for the six months ended 30 September 2007, six months ended 30 September 2006 and the year ended 31 March 2007 is unreviewed and unaudited and, within the meaning of section 240 of the Companies Act 1985, such accounts do not constitute full statutory accounts of the Group. The accounting policies which follow set out those policies which are expected to apply in preparing the financial statements for the year ended 31 March 2008. These policies have been followed in producing these interim statements. The comparative figures for the financial year ended 31 March 2007 are not the statutory financial statements of Bright Things Plc for that financial year. Those financial statements, which were prepared under UK Generally Accepted Accounting Principles, have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985, however the auditors' report on those accounts included an emphasis of matter paragraph with regards to the going concern basis of preparation of the financial statements. Their opinion was not qualified in this respect. Significant accounting judgements and estimates ----------------------------------------------- The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These judgements and estimates are based on managements' best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimations is contained in the accounting policies and accompanying notes to the financial statements. Going concern ------------- The Directors continually monitor the financial position of the Group, taking into account the latest cash flow forecasts and the ability of the Group to generate cash. The Directors have prepared the financial statements on a going concern basis having given consideration to forecast game sales and the marketability of the ASIC chip for the period to 30 November 2008. While there will always remain some inherent uncertainty within the aforementioned cash flow forecasts, the Directors remain confident that they will be able to manage the Group's finances and operations so as to achieve the forecasted cash flows and, as a result, that it is appropriate to draw up the financial statements on a going concern basis. The financial statements do not include any adjustments that would result if the going concern basis of preparation were to become no longer appropriate. Revenue recognition ------------------- Revenue comprises: (a) sales of games and technology chips to retailers and external distributors at invoiced and accrued amounts less value added tax and provision against any subsequent returns. Where advance payments against sales are received, in so far as the Group's obligations have been fulfilled, such advances are recognised at the point at which they become non-returnable. The Group makes provision against any subsequent returns or price protection, and (b) royalty payments received or accrued from external distributors under licence of the right to distribute games in certain territories. Where advance payments against royalties are received under licence, in so far as the Group's obligations have been fulfilled, such advances are recognised at the point at which they become non-returnable. Revenue from sales of games and technology chips is recognised at the point at which the product is delivered. Basis of Consolidation --------------------- The consolidated Group financial statements incorporate the results of Bright Things Plc and its subsidiary undertaking, Bright Entertainment Limited, using the merger accounting method. The results also include the results of its other subsidiaries, Bright Things International Limited (date of incorporation 16 February 2005), Bright Things Inc (date of incorporation 6 April 2005) and PushPlay Interactive LLC (purchase date 28 June 2005), using the acquisition accounting method. Merger accounting ----------------- In the Group financial statements, merged subsidiary undertakings are treated as if they had always been a member of the Group. The results of such a subsidiary are included for the whole period in the year it joins the group. The corresponding figures for the previous year include its results for that period, the assets and liabilities at the previous balance sheet date and the shares issued by the company as consideration as if they had always been in issue. Any difference between the nominal value of the shares acquired by the company and those issued by the company to acquire them is taken to reserves. Acquisition accounting ---------------------- In the Group financial statements, the results of acquired subsidiary undertakings are taken from the date of acquisition. Any difference between the fair value of assets acquired and the consideration paid is treated as goodwill in the consolidated balance sheet. Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and provision for impairment. Depreciation is provided on all property plant and equipment, at rates calculated to write off the cost less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows: Computer equipment and software - 3 years straight line Office fixtures, fittings & equipment - 3 years straight line Goodwill and business combinations ---------------------------------- Goodwill results from the acquisition of subsidiaries, associates and joint entities and corresponds to the difference between the acquisition cost and the fair value of the assets, liabilities and contingent liabilities identified at the date of acquisition. The Group has elected to take the exemption not to apply IFRS 3 retrospectively to business combinations occurring prior to the date of transition to IFRS. Under IFRS 3 Business Combinations and IAS 38 Intangible Assets goodwill is not amortised, but it is subject to an annual impairment review. As the Group has elected not to apply IFRS 3 retrospectively to business combinations prior to 1 April 2006 the original UK GAAP goodwill balance at 1 April 2006 (£832,000) has been included in the opening IFRS consolidated balance sheet and is no longer amortised, but continues to be subject to impairment reviews. The goodwill amortisation charge previously calculated under UK GAAP has been credited to the profit and loss account. The recoverable value of goodwill is then estimated on the basis of the higher of market value or value in use. Value in use is defined as the present value relating to the cash flow generating units with which the goodwill is associated. When the market value or value in use is less than the accounting value, impairment is recorded and is irreversible. IFRS 1 First-time Adoption of International Financial Reporting Standards requires that an annual impairment review of goodwill is conducted in accordance with IAS 36 Impairment of Assets at the date of transition, irrespective of whether there is an indication of impairment. The directors conducted impairment reviews at the date of transition and also at 31 March 2007 and at that time fully impaired goodwill (£832,000). Intangible assets ----------------- Intangible assets acquired by the Group are recorded at their valuation or cost less the total of amortisation and impairment. In accordance with IAS 38 'Intangible assets', only elements whose cost can be determined reliably and for which it is probable that future benefits exist are recorded as non current assets. Intangible assets are amortised over the expected period of use: Intellectual Property - 3 years straight line (2006 - 10 years straight line) Licences - 10 years straight line Having given regard to the market opportunities relating to intellectual property the estimated useful life is now considered to be 3 years. Inventory Inventory comprise finished goods for resale, and are stated at the lower of cost and net realisable value. Cost is calculated as cost of materials. Net realisable value is based on estimated selling price, less further disposal costs. The Company reviews the net realisable value of and demand for its inventory on an annual basis to ensure recorded inventory is stated at the lower of cost or net realisable value, after making due allowance for obsolete and slow-moving items. Factors that could impact estimated demand and selling prices are the timing and success of future technological innovations, competitor actions, supplier prices and economic trends. Foreign currency ---------------- Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which it operates (the 'functional currency') are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the income statement. On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the 'foreign currency translation reserve'). Exchange differences recognised in the income statement of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the foreign exchange reserve if the item is denominated in the functional currency of the Group or the overseas operation concerned. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal. Financial assets ---------------- The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows: Fair value through profit or loss: This category comprises only in-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss. Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), but also incorporate other types of contractual monetary asset. They are carried at amortised cost using effective rate method. Held-to-maturity investments: These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity. These assets are measured at amortised cost, with changes through the income statement. Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognised in the income statement. Financial liabilities --------------------- The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows: Fair value through profit or loss: This category comprises only out-of-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other financial liabilities: Other financial liabilities include the following items: Trade payables and other short-term monetary liabilities, which are recognised at cost. Bank borrowings are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. 'Interest expense' in this context includes initial transaction costs and premia payable on redemption, as well as any interest payable while the liability is outstanding. Capitalised development costs ----------------------------- Capitalised development costs correspond to the development of new products once the Group has determined that: the product is technically and commercially feasible; the project is clearly defined and related expenditure is separately identifiable; current and future costs are expected to be exceeded by future sales; the Group has the intention and ability to complete the intangible asset and use or sell it; and adequate resources exist for the product to be completed. Capitalised development costs are amortised over the period that prudently simulates the flow of revenues from a typical product. At the close of each fiscal year products are reviewed for any loss of value. Where contribution made by a product does not exceed the expected total cost of development then an impairment provision is made. All research and development expenditure in these Group financial statements has been charged to the income statement as incurred. Licence fees ------------ Licence fees payable to organisations for use of their Intellectual Property are charged to the income statement over their useful economic lives, which, to the Group, equates to the forecast period of product sales. Management regularly reviews the carrying value of such licences. All licence fees in these Group financial statements have been charged to the income statement as incurred. Royalties payable ---------------- Royalties are accounted for as payable when units of hardware or software are sold into the sales channel by our distributor and calculated in accordance with the commercial terms entered into with licensors. Share based compensation ------------------------ Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Where equity instruments are granted to persons other than employees, the income statement is charged with the fair value of goods and services received. If it is not possible to identify the fair value of these goods or services provided, the income statement us charged with the fair value of the options granted. Deferred taxation ----------------- Deferred income tax is calculated using the balance sheet asset-liability method of tax allocation for all temporary differences arising between the book value of assets and liabilities and their tax bases, except for differences arising on the initial recognition of goodwill. A deferred income tax asset is recognised only to the extent that it is probable that there will be future taxable profits on which this asset can be charged. Deferred income tax assets are reduced to the extent that it is no longer likely that a sufficient taxable benefit will arise. Deferred taxation is shown on the balance sheet separately from current tax assets and liabilities and categorised among non-current items. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable Group company or different Group entities which intend to either settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Deferred tax balances are not discounted. Changes in accounting policies IFRS 2 (FRS 2) 'Share based payment' During the year ended 31 March 2007 the Group adopted IFRS 2 (FRS 20) 'Share based payment' application of which is obligatory for AIM listed companies with accounting periods commencing on or after 1 January 2006. The impact of this was reflected in the 2007 results and the interim 2006 figures have been restated to reflect the change in policy. IFRS 2 (FRS 20) 'Share based payment' requires the recognition of share based payment transactions with employees or other parties at fair value at the date of grant. Prior to the adoption of IFRS 2 (FRS 20), the group recognised the financial effect of the share based payment in the following way: when shares and share options were awarded to employees a charge was made to the profit and loss account based on the difference between the market value of the company's shares at the date of grant and the option excise price in accordance with UTIF Abstract 17 (revised 2003) 'Employee Share Schemes'. The credit entry for this charge was taken to the profit and loss reserve and reported in the reconciliation of movements in shareholder's funds. For the year to 31 March 2007, the change in accounting policy resulted in net increase in loss for the year of £107,000. For the year ended 31 March 2006 the impact of share based payments was a net charge to income of £113,000. In the six months to 30 September 2007 the net charge to income is £26,000 (2006 H1 - £50,000). The share based payments expense has been included in the following line of the consolidated income statement: administrative expenses £530,000 (2006 H1 - £1,449,000). Taxation -------- Corporation tax payable is provided on taxable profits at prevailing rates. Transition to IFRS The consolidated financial information for the six months ended 30 September 2007 and the year ended 31 March 2007 and the opening balance sheet at 1 April 2006 have been prepared in accordance with International Financial Reporting Standards (IFRS) for the first time. The Group's transition date to IFRS is 1 April 2006. The rules for first-time adoption of IFRS are set out in IFRS 1 'First time adoption of international reporting standards'. In preparing the IFRS financial information, these transition rules have been applied to the amounts reported previously under generally accepted accounting principles in the United Kingdom ('UK GAAP'). IFRS 1 generally requires full retrospective application of the Standards and Interpretations in force at the first reporting date. However, IFRS 1 allows certain exemptions in the application of particular Standards to prior periods in order to assist companies with the transition process. As the Group has elected not to apply IFRS 3 retrospectively to business combinations prior to 1 April 2006 the original UK GAAP goodwill balance at 1 April 2006 (£832,000) has been included in the opening IFRS consolidated balance sheet and is no longer amortised, but continues to be subject to impairment reviews. No amortisation has been charged for the 6 months to 30 September 2006. Previously £45,000 had been charged under UK GAAP. There is no net impairment of IFRS restatement to 31 March 2007. Opening goodwill at 1 April 2006 was fully impaired at 31 March 2007. Under UK GAAP the figures to 30 September 2006 and 31 March 2007 needed no IFRS 2 adjustment as this charge was already reflected by FRS 20. For the period to 30 September 2006, the impact of the restatement of the share based payments charge resulted in net charge for the period of £50,000. The IFRS conversion statements have neither been audited nor reviewed by the Company's auditors BDO Stoy Hayward LLP. IFRS restatement of Income Statement for the year ended 31 March 2007 ===================================================================== UK GAAP Adjustment IFRS Year ended Year ended Year ended 31 March 2007 31 March 2007 31 March 2007 £'000 £'000 £'000 Revenue 205 205 Cost of sales (104) (104) _______ _______ _______ Gross profit/loss 101 101 ------------- ------------- ------------ Research and development costs (847) (847) Administrative expenses - other (1, 749) 90 (1,659) Administrative expenses - exceptional (742) (90) (832) Share based payment charge (107) (107) ------------- ------------- ------------ Administrative expenses (3,445) (3,445) _______ _______ _______ Operating loss (3,344) (3,344) Finance income 52 52 _______ _______ _______ Loss before tax and for the financial period (3,292) (3,292) _______ _______ _______ Attributable to: === === === Equity shareholders (3,292) (3,292) === ========= _______ _______ _______ Loss per share Basic and diluted (13.5p) (13.5)p ======================================= UK GAAP Adjustment IFRS Six months Six months Six months ended ended ended 30 September 30 September 30 September 2006 2006 2006 (as restated) £'000 £'000 £'000 Revenue 20 20 Cost of sales - - _______ _______ _______ Gross profit/loss 20 20 ------------- ------------- ------------- Research and development costs (622) (622) Administrative expenses - other (822) 45 (777) Administrative expenses - - - exceptional Share based payment charge (50) (50) ------------- ------------- ------------- Administrative expenses (1,494) 45 (1,449) _______ _______ _______ Operating (loss)/profit (1,474) 45 (1,429) Finance income 28 28 _______ _______ _______ (Loss)/profit before tax and for the financial period (1,446) 45 (1,401) _______ _______ _______ Attributable to: === === === Equity shareholders (1,446) 45 (1,401) _______ _______ _______ Loss per share Basic and diluted (7.1p) 0.2p (6.9p) ========= ======= ========= IFRS restatement of Balance sheet as at 31 March 2007 ===================================================== UK GAAP Adjustment IFRS 31 March 31 March 31 March 2007 2007 2007 £'000 £'000 £'000 Non-current assets Property, plant and equipment 38 38 Intangible assets 89 89 ________ ________ ________ 127 127 Current assets Inventories 7 7 Trade and other receivables 165 165 Prepayments and accrued income 16 16 Cash and cash equivalents 864 864 ________ ________ ________ 1,052 1,052 ________ ________ ________ Total assets 1,179 1,179 Current liabilities Trade and other payables (194) (194) Tax and social security (11) (11) Accruals and deferred income (347) (347) ________ ________ ________ Total liabilities (552) (552) ________ ________ ________ Net assets 627 627 ________ ________ ________ Capital and reserves attributable to equity shareholders Called-up share capital 3,045 3,045 Share premium account 9,589 9,589 Warrant reserve 267 267 Merger reserve (286) (286) Share based compensation 220 220 Retained losses (12,208) (12,208) ________ ________ ________ Capital and reserves 627 627 ________ ________ ________ IFRS restatement of Balance sheet as at 1 April 2006 ==================================================== UK GAAP Adjustment IFRS 1 April 1 April 1 April 2006 2006 2006 £'000 £'000 £'000 Non-current assets Property, plant and equipment 87 87 Intangible assets 1,034 1,034 ________ ________ ________ 1,121 1,121 Current assets Inventories - - Trade and other receivables 347 347 Prepayments and accrued income 84 84 Cash and cash equivalents 1,775 1,775 ________ ________ ________ 2,206 2,206 ________ ________ ________ Total assets 3,327 3,327 Current liabilities Trade and other payables (227) (227) Tax and social security (32) (32) Accruals and deferred income (288) (288) ________ ________ ________ Total liabilities (547) (547) ________ ________ ________ Net assets 2,780 2,780 ________ ________ ________ Capital and reserves attributable to equity shareholders Called-up share capital 2,045 2,045 Share premium account 9,559 9,559 Warrant reserve 267 267 Merger reserve (286) (286) Share based compensation 113 113 Retained losses (8,918) (8,918) ________ ________ ________ Capital and reserves 2,780 2,780 ________ ________ ________ IFRS restatement of Balance sheet as at 30 September 2006 ========================================================= UK GAAP Adjustment IFRS 30 Sept 30 Sept 30 Sept 2006 2006 2006 (as restated) £'000 £'000 £'000 Non-current assets Property, plant and equipment 61 61 Intangible assets 978 45 1,023 ________ ________ ________ 1,039 45 1,084 Current assets Inventories - - Trade and other receivables 29 29 Prepayments and accrued income 48 48 Cash and cash equivalents 765 765 ________ ________ ________ 842 842 ________ ________ ________ Total assets 1,881 45 1,926 Current liabilities Trade and other payables (190) (190) Tax and social security (16) (16) Accruals and deferred income (291) (291) ________ ________ ________ Total liabilities (497) (497) ________ ________ ________ Net assets 1,384 45 1,429 ________ ________ ________ Capital and reserves attributable to equity shareholders Called-up share capital 2,045 2,045 Share premium account 9,559 9,559 Warrant reserve 267 267 Merger reserve (286) (286) Share based compensation 163 163 Retained losses (10,364) 45 (10,319) ________ ________ ________ Capital and reserves 1,384 45 1,429 ________ ________ ________ The interim report and financial statements is available in full on the Company's website www.brightthings.com This information is provided by RNS The company news service from the London Stock Exchange

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