Interim Results

Bright Things plc 15 November 2005 BRIGHT THINGS PLC ('Bright Things' or the 'Company') 15 November 2005 Interim Results Bright Things PLC, the developer of the educational games console, Bubble, and associated software for the pre-school market, today announces interim results for the six months ended 30 September 2005. Highlights â€¢ Bubble now available in stores across UK and Eire following launch in August â€¢ Five leading software titles now available â€¢ Initial sales data showing encouraging take-up although majority of sell-through not expected until 2006 â€¢ Letter of intent signed with Eidos for distribution in France and Spain â€¢ Positive industry and consumer feedback â€¢ Additional content licensing agreements signed with Nickleodeon, Nelvana and Spellbound â€¢ Further six games due to be released in 2006, including Bob the Builder, Postman Pat, Dora the Explorer, Angelina Ballerina, Pingu and Koala Brothers â€¢ PushPlay acquisition gives opportunity to develop enhanced product range and to plan for second generation products. Dominic Wheatley, CEO, Bright Things, said: 'With the launch of Bubble and our first suite of games, we have come a long way since the company was founded last year. However, this is just the beginning for Bright Things. I am pleased to announce today our agreement with Eidos for distribution in France and Spain. These markets have great potential for us and with our exciting pipeline of software releases, we remain confident about the future development of our business through the rest of 2005 and beyond.' For further information please contact: Bright Things PLC 0870 351 7770 Dominic Wheatley, CEO Ady Moores, CFO Matthew Tims, Publishing Director Giles Croot / Mark Antelme, Brunswick 020 7404 5959 About Bright Things plc Bright Things plc is an innovative interactive entertainment company created by former senior executives of video game publisher Eidos. Initially focused on the pre-school market, Bright Things has created 'Bubble', an interactive DVD games console that enables young children to learn and interact with their favourite television characters and brands. More information, including the Bubble TV advertisement and recent media reviews of Bubble, is available at www.worldofbubble.com Chairman's Statement Introduction The Bright Things team has made significant progress in the period to 30 September 2005. The Bubble console made its debut along with the first software titles, representing a major milestone in our business plan. From now on the focus is on sales and marketing, the extension of the title library and the reduction of our cost of goods in order to achieve long term profitability. Product summary Bubble is an interactive games console and learning platform that integrates wirelessly with DVD players. Using colourful lights, sounds, buttons and interactive activity books, Bubble allows children to play and learn with real TV characters just as they appear on TV. Content titles include a DVD, game cartridge and interactive activity book. These, combined with the Bubble console, provide CD-ROM like interactivity not possible with a DVD player alone. Instead of the usual graphics associated with games consoles, Bubble iDVDs display real TV images. A further feature, 'Away Play', lets children play with Bubble even when they are not in front of the TV. Pressing the flashing buttons or the touchpad allows children to answer questions and explore games using just the booklet and accompanying cartridge. Bubble launched in UK and Eire Bubble was launched in August 2005 with a choice of either a 'Balamory' or a 'Teletubbies' Interactive DVD game. In late September we introduced 'Tweenies', followed by 'Fimbles' in October 2005. In November 2005 'Thomas & Friends' was released and we anticipate the arrival of 'Noddy' at the end of this month. The launch is being supported by a TV campaign across terrestrial and satellite channels. Our PR campaign is targeted to create publicity across the mainstream newspapers and magazines. A print advertising campaign will be seen across a range of media to help inform parents and grandparents when making their Christmas gift decision. We recently received a prestigious award from the toy industry for Top Ten Pre-school Toy of the Year. Significant investment in research and development We continue to invest in the development of games that we believe we need to drive the sales of the Bubble console. We have a further 6 games in development (Bob the Builder, Postman Pat, Dora the Explorer, Angelina Ballerina, Pingu and Koala Brothers) due for launch in the calendar year 2006. Strong portfolio of protected intellectual property The acquisition of Pushplay Interactive LLC in June 2005 combined two complimentary interactive DVD controller patent portfolios. The Group now has over 20 US and international patent applications. The patent portfolio defensively tries to cover Bubble product and offensively tries to cover alternative implementations of intelligent interactive DVD consoles. The patent applications cover core Bubble product, peripherals and additional categories. The Company has received its first Notice of Allowance from the United States Patent and Trademark Office for its patent application entitled 'Remote Control for Providing Interactive DVD Navigation Based on User Response'. The technology is an integral part of Bright Things' interactive DVD product, Bubble, and we believe protects the core technology of the company. Content development and production of Interactive DVD games Additional content licensing agreements have been signed with Nickelodeon (Dora the Explorer), Nelvana (Babar, Franklin and The Fairly Odd Parents) and Spellbound (Koala Brothers). Manufacturing process established Bubble is manufactured by our contracted manufacturer in China. We have made significant investment in manufacturing technologies for the platform including: â€¢ Tooling costs; â€¢ Quality Assurance process and systems on all software and hardware integrated into a manufacturing line, and â€¢ Digital monitoring and control of factory outputs. Having created Bubble both in terms of hardware electronics and the firmware to run the electronics, we are now progressing with the cost reduction phase of the business plan, which includes making significant engineering investments (including an ASIC chip set) that substantially reduce the cost of goods. We expect to make significant progress on this in time for volume production for our main selling season in the calendar year 2006. Distribution outside UK The original business plan called for a 'soft' launch in the UK to establish the Bubble platform and allow time to adjust the product and the marketing. We have already learnt a great deal which will benefit us for next year, in particular the importance of presenting the consumer with an attractive range of game titles. North America remains an important opportunity and the product development process and refinement of the software have to be executed with that market in mind. Having made preliminary presentations to several major US retailers and having received a favourable reaction, we are in the process of finalising our strategy there. Bright Things has an office and an experienced team in the US. Bright Things today announces that a letter of intent has been signed with Eidos, one of the leading distributors of entertainment software, for the distribution rights for Bubble and associated software in both France and Spain. Prospects We continue to make progress in launching this platform into the UK marketplace. As with any new product and brand introduction, it takes time getting the product offering across to the consumer. Comparative data, supplied by NPD, for product introductions into the pre-school category show that year 2 and year 3 sales usually increase substantially. As previously stated, margins on the first 100,000 Bubbles are necessarily tight, but are expected to improve next year with the introduction of the ASIC chip and with the reduction of the cost of goods. A broader catalogue of games will also promote greater sales. From the data available we are seeing sales of our hardware and software increasing each week, which is encouraging. By Easter we expect to have 'Bob the Builder', 'Pingu', 'Postman Pat' and 'Angelina Ballerina', taking our total number of games to ten. In the late summer we hope to introduce 'Dora the Explorer' and 'The Koala Brothers'. We believe that Bubble is a product that can sell throughout the year especially if aided by the introduction of key titles. To build the sales levels we need improved packaging, a bigger library of games, in-store demonstrations and wider distribution. We have started discussions with key retailers to broaden the number of stores taking Bubble next year and execute major promotions. Our distributor, Bandai, has ordered 112,000 units of the hardware, of which 86,000 have now shipped from the factory in China, the balance arriving in the first quarter 2006. Given present data we believe this stock will take Bandai through the next year. As ever, a note of caution must be sounded in this competitive market as the drivers for success can be as varied as a 'must have' new game or a major promotion. We will be attempting to create these drivers in the course of 2006 and have already started work on this. As we move the company's focus from R & D to sales and marketing we expect to continue to build our business during the course of next year. We are all extremely proud of the product we have produced and firmly believe that we have a strong consumer product offering in the pre-school market place. Crucially, early consumer feedback has been positive and press reviews have been favourable. Ian Livingstone Chairman 15 November 2005 Acquisition of PushPlay Interactive LLC Bright Things completed the acquisition of PushPlay Interactive LLC ('PPI') on 28th June 2005. PPI is a limited liability company incorporated in the US. The consideration payable on this acquisition totalled Â£1,112,000 and this was settled by the issue of 415,800 10p ordinary shares at Â£1.375 per share; US$500,000 of cash, and warrants to subscribe for 540,541 10p ordinary shares at Â£1.50 per share and 250,000 10p ordinary shares at Â£2.50 per share. The warrants have been fair valued at Â£267,000 using the Black-Scholes valuation method. Post acquisition, the PPI team have been integrated into other group companies. The results of PPI from 28th June 2005 are included in the consolidated financial statements. Bright Things, Inc. Bright Things, Inc. was incorporated on 6 April 2005 in the state of California, USA. The results of Bright Things, Inc. are included in these consolidated accounts. 2006 financial year and future product portfolio Bright Things launched the following products in the six month period to 30 September 2005: Bubble DVD games console bundled with Teletubbies Interactive DVD game (released August 2005) Bubble DVD games console bundled with Balamory Interactive DVD game (released August 2005) Teletubbies Interactive DVD game (released August 2005) Balamory Interactive DVD game (released August 2005) Tweenies Interactive DVD game (released September 2005) Our release schedule for the remainder of the financial year to 31 March 2006 is strong. We are continuing to build our product line-up for financial year to 31 March 2007. Our portfolio of Interactive DVD games currently in development includes the following titles: Fimbles Interactive DVD game (released October 2005) Thomas & Friends Interactive DVD game (released November 2005) Noddy Interactive DVD game Bob the Builder Interactive DVD game Postman Pat Interactive DVD game Angelina Ballerina Interactive DVD game Pingu Interactive DVD game Dora the Explorer Interactive DVD game Koala Brothers Interactive DVD game Further revenue streams The strength of the Group's Patent and Intellectual Property portfolio combined with the continuing growth of the Interactive DVD industry are increasingly presenting opportunities to generate revenue from the use of our technology in products outside of our initial target market of the pre-school sector. 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 Bubble is manufactured by our contracted manufacturer with the factory located in Zhongshan, China. We currently have capacity to produce 90,000 bubble units per month. This is based on one production line and is scaleable accordingly. Significant investment has been made in tooling costs and quality assurance processes. We are progressing with the cost reduction phase of the business plan which includes making significant engineering investments (including an ASIC chip set) that will substantially reduce the cost of goods of the console on an ongoing basis. We expect to make significant progress on this in time for volume production for the peak selling season in the calendar year 2006. Turnover Turnover for the period consist of product sales to our distributor (Bandai) and royalties receivable on goods sold into the channel by Bandai. These total Â£674,000 for the period. Cost of sales Costs of manufacturing and shipping products totalled Â£685,000. Of this, Â£571,000 relates to direct costs of manufacturing the products, Â£64,000 relates to freight and distribution of the products and Â£50,000 relates to royalties payable to rights holders. Gross loss The overall gross loss for the period to 30 September 2005 is Â£11,000. This is primarily due to the higher Cost of Goods associated with the first bubble units and Interactive DVD games being produced. Further we air freighted the first batch of 5,000 Bubble consoles into the UK to meet retailer deadlines, these units would normally be shipped by sea at lower cost. Administrative expenses Administrative expenses for the six months ended 30 September 2005 are the main component of the loss on ordinary activities during the period. Comparative figures are shown for the nine months ended 30 September 2004 which are comparable to the current six month period as the results for January to March 2004 were insignificant. Administrative expenses are in line with expectation and are analysed into two categories: Research & development expenditure and impairment of licences - Â£1,461,000 (2004 - Â£994,000) Research and development expenditure incurred on hardware and software has been written off to the profit and loss account. We continue to second staff from BBC Worldwide and have taken on additional internal head count in the period to support the internal management and technical support of software development projects. Hardware development is managed out of our US office employing the services of specialised engineering firms primarily based in California, US. We continue to write off all licensing costs on the basis of an ongoing lack of certainty over there recoverability, given that the platform is not yet established. General & administrative expenditure - Â£1,185,000 (2004 - Â£616,000) The main component of general and administrative expenditure relates to human resource costs, totalling Â£504,000 for the period. Headcount has risen to 21 at 30 September 2005 (2004 - 6). With an average of 14 heads for the six months ended 30 September 2005 (2004 - 6). Additional staff were recruited into both the UK and US offices during the period as the Group expanded operationally. Office and administration costs totalled Â£178,000 (2004 - Â£109,000) for the period, the largest component of which was office rent of Â£98,000 (2004 - Â£47,000). Travel and subsistence costs increased in the period to Â£124,000 (2004 - Â£47,000). This increase is primarily due to the increase in staff and the travel between the UK & US to oversee software development projects and between US & China to oversee the manufacturing process. Marketing costs totalled Â£118,000 (2004 - Â£52,000) in the period. These costs primarily relate to retained agencies and consultants. Our distributor Bandai have the financial responsibility in regard to the product marketing and public relations campaign. Legal and professional fees relating to the portfolio of patent applications were Â£78,000 (2004 - Â£7,000) for the period. The main reason for the increase being the post acquisition amalgamation of the PushPlay portfolio of patents. Earnings per share Basic loss per share of 12.7p (2004 loss of 12.1p) has increased due to the scaling up of the companies research and development activities and production activities. Net assets Net assets have decreased to Â£5,099,000 as at 30 September 2005 from Â£6,810,000 at 31 March 2005. This is due to the operating loss for the period. Cash at bank at 30 September 2005 is Â£3,960,000. This comprises Â£2,578,000 in a Special Interest Bearing Account (SIBA) and Â£129,000 on Money Market Call Deposit. A further Â£500,000 is held in a blocked account by our bankers (RBS) in support of our financial market trading position (these funds accrue interest at SIBA rates). The remainder of the funds are held in current accounts. In April 2005 the company entered into forward currency option agreements to purchase US dollars. This has substantially reduced the exposure to US Dollar/Sterling currency fluctuations in the period to June 2006. Adrian Moores Finance Director 15 November 2005 Consolidated profit and loss account for the period ended 30 September 2005 Note Period from 6 months ended 9 months ended 1 January 2004 30 September 30 September to 31 March 2005 2004 2005 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Turnover 674 - - Cost of sales (685) - - _______ _______ _______ Gross loss (11) - - ------------ ------------ ---------- Research and development costs (1,461) (994) (2,266) Other administrative expenses (1,185) (616) (1,310) ------------ ------------ ---------- Administrative expenses (2,646) (1,610) (3,576) _______ _______ _______ Operating loss (2,657) (1,610) (3,576) Interest receivable 128 42 74 _______ _______ _______ Loss on ordinary activities before (2,529) (1,568) (3,502) and after taxation Deficit brought forward 6 (3,642) (140) (140) _______ _______ _______ Deficit carried forward 6 (6,171) (1,708) (3,642) _______ _______ _______ === === === Basic and diluted loss per share 2 (12.7)p (12.1)p (25.1)p ========== =========== ========== _______ _______ _______ All amounts relate to continuing activities. All recognised gains and losses are included in the profit and loss account. Consolidated balance sheet at 30 September 2005 Note 30 September 30 September 31 March 2005 2004 2005 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Fixed assets Intangible assets 4 1,079 8 7 Tangible assets 100 65 71 _______ _______ _______ 1,179 73 78 _______ _______ _______ Current assets Stock 543 - - Debtors 679 289 182 Cash at bank and in hand 3,960 2,596 6,991 _______ _______ _______ 5,182 2,885 7,173 Creditors: amounts falling due (1,262) (267) (441) within one year _______ _______ _______ Net current assets 3,920 2,618 6,732 _______ _______ _______ Total assets less current liabilities 5,099 2,691 6,810 _______ _______ _______ Capital & Reserves Called up share capital 5 2,010 1,533 1,968 Share premium 6 9,851 3,724 9,342 Merger reserve 6 (858) (858) (858) Other reserves 6 267 - - Profit and loss account 6 (6,171) (1,708) (3,642) _______ _______ _______ Equity shareholders'funds 7 5,099 2,691 6,810 _______ _______ _______ Consolidated cash flow statement for the period ended 30 September 2005 Note Period from 6 months ended 9 months ended 1 January 2004 30 September 30 September to 31 March 2005 2004 2005 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Net cash outflow from operating 8 (2,820) (964) (2,578) activities _______ _______ _______ Returns on investments and servicing of finance Interest received 128 7 74 _______ _______ _______ Net cash inflow from returns on 128 7 74 investments and servicing of finance Capital expenditure and financial investment Purchase of tangible fixed assets (45) (71) (90) Purchase of intangible fixed assets - (336) (428) _______ _______ _______ Cash outflow from capital expenditure and financial investment (45) (407) (518) Acquisitions Purchase of subsidiary undertaking (273) - - Cash acquired with subsidiary undertaking 10 - - Acquisition expenses (31) - - _______ _______ _______ Cash Outflow from acquisitions (294) - - Cash outflow before management of (3,031) (1,364) (3,022) liquid resources and financing Management of liquid resources Decrease/(incr ease) in fixed term deposits 9 6,250 - (6,250) Increase in blocked deposits 9 (500) - - _______ _______ _______ Decrease/(Increase) of liquid resources 5,750 - (6,250) Financing Net proceeds from issue of - 3,957 9,694 new share capital Exercise of share options - - 316 _______ _______ _______ Increase in cash 9 2,719 2,593 738 _______ _______ _______ Notes forming part of the interim financial statements for the period ended 30 September 2005 Copies of the interim report and accounts will be available for members of the public at the Company's registered office, 7 Pilgrim Street, London, EC4V 6LB. Loss per share Basic loss per share is calculated as follows (the effect of all potential ordinary shares is antidilutive): 6 months ended 9 months ended Period from 1 January 2004 to 31 March 30 September 30 September 2005 2005 2004 (audited) (unaudited) (unaudited) Loss after taxation for the period Â£2,529,000 Â£1,568,000 Â£3,502,000 Weighted average number of shares 19,900,130 12,980,535 13,963,607 _______ _______ _______ Basic and diluted loss per share 12.7p 12.1p 25.1p _______ _______ _______ This information is provided by RNS The company news service from the London Stock Exchange

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