React Group Regulatory News (REAT)

31 Mar 2008 08:00

X-Phonics plc31 March 2008 31 March 2007 X-PHONICS PLC ("X-Phonics" or the "Company") Preliminary Results for the year ended 30 September 2007 CHAIRMAN'S STATEMENT I am pleased to announce the results of our trading activities for the yearended 30th September 2007. In our interim report for the six months period to 31 March 2007 I referred to anumber of bands and artists that were signed to the Group amongst them AtticLights, Maeve O'Boyle and The Poems. These acts have all continued to develop and are now showing significant promiseboth artistically and commercially. Of particular note are the Attic Lights whohave been signed to Universal Island and who are now being heavily promoted bythem as one of their acts for 2008. Financial Report Turnover for the year was £339,074 (18 months to 30 September 2006: £124,539)and has increased 172% over the previous 18 month period, primarily as a resultof the contract with Universal Island for the Attic Lights. This is a 5 albumdeal worth potentially £1,500,000 in advances over the contract period as wellas an ongoing royalty of up to 24% based upon net receipts from sales into theworldwide territories that will be exploited by Universal Island. We expectroyalties from the Attics Lights to be earned over a 6 to 8 year period startingin 2009. Additional revenues have been earned in this period from other record labelactivities as well as from our music publishing activities and our videoproduction activities. Cost of sales represents all the costs associated with the signing anddevelopment of the bands and artists and continue to be accounted for asincurred. Costs are matched with revenues only once the revenues are certain.Cost of sales in the year were £404,993 (18 month period 30 September 2006:£453,041) and includes costs derived from the production of the Attic Light'sfirst album as well as the band's share of the advance from Universal Island.Other costs incurred include video production costs. Administrative expenses for the year were £422,778 (18 month period 30 September2006: £604,127) and continue to reflect the reduction and control over costsnecessary whilst the Group is building the numbers of activities and revenuesduring its development phase. The Group has made a loss on ordinary activities before taxation of £483,584 (18month period 30 September 2006: £936,165). At the end of the year the Group held cash balances of £136,719 (2006:£752,473), had debtors of £139,913 (2006: £36,978) and creditors falling duewithin one year of £114,036 (2006: £202,505). Trading Update Record Label Activities The long term value for X-Phonics in the Attic Lights contract with UniversalIsland stems from the fact that Island Records have the resources to promote andthe experience and influence to break bands such as the Attic Lights into themainstream, as they have done in recent years with Amy Winehouse and TheFrattelis. Following the same, previously successful strategy, Island Records are buildingthe momentum for the Attic Lights: initially in Scotland where "Never Sick ofthe Sea" has enjoyed a soft release, encouraging plays on XFM radio and coveragein national press, to build a strong Scottish following. In addition the bandare touring throughout the UK and are active in the university and collegecampuses, building a broader fan base on which to release their next singlescheduled for 28 of April 2008, followed by a bigger release during the summerof their song "Bring You Down". It is expected that following the success ofthis promotion work, touring and single releases, Island will release the AtticsLights album later in the year. The Poems album was released as a download in February 2008 and is picking upsupport and plays most noticeably from BBC Radio One and 6Music. Given thisinitial success the main commercial strategy is to seek synchronisation dealswhereby the album tracks are selected for inclusion within television programmesand films for reasonably significant one off and repeat fees. The band has hadsome earlier success in this area with "syncs" on the Ghost Whisperer and GreysAnatomy which bodes well for the future. In parallel, revenues should begenerated over the longer term from sales of the album through i-Tunes and otherdigital media. Maeve O'Boyle continues to progress both musically and in terms of commercialopportunity. The feedback from the industry as she starts to become better knownthrough her shows, both inside and outside Scotland, is that she is a greatsinging and song writing talent. Recent shows have seen some interest fromsmaller labels and we expect momentum to keep building with Maeve. Since the last statement we have started to work with a number of new artistsincluding Emma Curran who is getting a lot of press and PR from the fact thatshe was discovered initially by Gary Lightbody, the lead singer of Snow Patroland who is a fan. Emma's album is currently in production and early discussionswith record labels are underway. Keith Jack came a close second in BBC television's "Any Dream Will Do", (TheSearch for Joseph) and has recorded an album with X-Phonics. As part of hispromotion Keith is to front this years' "Choices for Life", a major eventpromoting drugs awareness for teenagers; this entails a dozen concerts whereKeith will play in front of 60-70,000 school children across Scotland. During the late summer of 2007, X-Phonics was contracted by the Scottish Sun torun and manage a competition to find and record new musical talent. Part of theprize was a recording contract for the winner, a drummer and base player called"The Fire and I" who are already being supported by the Scottish Sun and XFM. Wewill be able to gauge support for the band from the single that we have producedbefore determining the opportunity for an album. Otherwise, in our A&R space, the Group continues to seek and work with a numberof other artists who are believed to have creative and commercial potential. In addition to the more traditional record label projects, the Group hasundertaken selective other projects where our marketing and promotionalcapabilities can generate revenues. The Zimmers, a band that was formed as partof the BBC television documentary "Power to the People", that went on to winBest Documentary at this years Royal Television Society Awards, is one ofX-Phonics successes in 2007. Consisting of 40 old aged pensioners the Zimmers produced their debut video "MyGeneration" that became a You Tube success almost overnight watched by over 4.4million people. Off the back of the video, the single was released and remainedin the UK charts for two weeks peaking at number 26. Since they were launched the band has appeared in numerous television showsincluding the Tonight Show with Jay Leno in the United States, the Graham NortonShow in the UK and many others. As a result of this initial success the band are in the middle of recordingtheir debut album with promotion scheduled to commence at the end of March 2008.Of particular interest is the fact that the album has been funded for X-Phonics'benefit by the American Association of Retired Persons ("AARP") which boasts amembership of 59 million. The AARP will assist in the launch in the band's albumlater in the year and the Group expects to see revenues generated from UK, USand other overseas markets with CD sales, sponsorship and merchandising. Music Publishing Publishing revenues continue to be developed and are expected to create arecurring revenue stream in due course. Part of the strategy to ensure this isto have strong relationships between the Group's bands and its writers so that,as the bands become successful through promotion and market development, therevenues from the writers increase. As an example Robert Hodgens' writing for The Poems will result in theGroup's share of revenues increasing as albums and "Syncs" are successfullysold. Urbnri have had success with their first top 40 hit and are scheduled to releasetheir second single for the end of April 2008. They are currently touring andsupporting one of the UK's leading rock bands, The Enemy which is broadeningtheir fan base and should help them gain a good chart position for the newrelease. In addition Urbnri's raised profile has led to interest in thepublishing rights currently owned by X-Phonics. I have previously mentioned Valentina, a talented singer and pianist fromAustin, Texas who is being groomed for success with help from our ManagingDirector, John McLaughlin. Having worked with Valentina and her management overthe last six months we are confident that a major record label contract will besigned from which the Group will benefit by way of a share of revenues from thefuture success of the album. The Group has made significant progress with our artists over the last 6 monthsand continues to benefit from the increased profile brought about by its initialsuccess with the Attic Lights and the Zimmers. With the revenues building the Directors remain conscious of the need to closelymonitor and control costs which they will continue to do. In addition the Boardare conscious of the opportunities that come as a result of the need forconsolidation in this part of the music industry. Many companies are sub-scaleand below critical mass. The Directors will seek and take advantage of anyopportunities to acquire businesses that represent a good fit with the currentbusinesses within the Group. Name R DaviesChairman Date 28 March 2008 X-PHONICS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the year ended 30 September 2007 Notes Year ended 30 18 month period September 2007 ended 30 September 2006 £ £Turnover 1 339,074 124,539Cost of Sales (404,993) (453,041) GROSS LOSS (65,919) (328,502)Administrative expenses (422,778) (604,127) OPERATING LOSS (488,697) (932,629)Interest receivable 6,826 1,459Interest payable (1,713) (4,995) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (483,584) (936,165) Tax on loss on ordinary activities 1,257 -LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (482,327) (936,165) All amounts relate to continuing operations. There were no recognised gains and losses for 2007 or 2006 other than thoseincluded in the Profit and loss Account. EARNING PER SHARE 2007 2006 pence pence Basic (0.73) (2.92) Diluted (0.73) (3.48) X-PHONICS PLC CONSOLIDATED BALANCE SHEETas at 30 September 2007 2007 2006 £ £ £ £FIXED ASSETSIntangible fixed assets 311,188 327,639Tangible fixed assets 65,440 78,642 376,628 406,281 CURRENT ASSETSDebtors 139,913 36,978Cash at bank and in hand 136,719 752,473 276,632 789,451 CREDITORS:amounts falling due within one year (114,036) (202,505)NET CURRENT ASSETS 162,596 586,946 TOTAL ASSETS LESS CURRENTS 539,224 993,227LIABILITIES CREDITORS: amounts failing due after (6,768) (2,440)more than one yearNET ASSETS 532,456 990,787 CAPITAL AND RESERVESCalled up share capital 2,803,119 2,798,320Share premium account 743,474 724,277Other reserves (738,578) (738,578)Profit and loss account (2,275,559) (1,793,232)SHAREHOLDERS' FUNDS 532,456 990,787 The financial statements were approved and authorised for issue by the board andwere signed on its behalf on 28 March 2008. X-PHONICS PLC CASH FLOW STATEMENTFor the year ended 30 September 2007 18 month period Year ended ended 30 September 2007 30 September 2006 £ £ Net cash from operating activities (617,426) (898,637)Returns on investments and servicing of finance 5,113 (3,536)Taxation (3,762) 3,762Capital expenditure and financial investment (27,607) (393,843) CASH OUTFLOW BEFORE FINANCING (643,682) (1,292,254)Financing 27,928 2,057,710 (DECREASE)/INCREASE IN CASH IN THE YEAR (615,754) 765,456 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/DEBTfor the year ended 30 September 2007 18 month period Year ended ended 30 September 2007 30 September 2006 £ £ (Decrease)/Increase in cash in the year (615,754) 765,456Cash (inflow)/outflow from (increase)/decrease indebt and lease financing (3,932) 6,930 MOVEMENT IN NET DEBT IN THE YEAR (619,686) 772,386 Net funds/(debt) at 1 October 2006 745,413 (26,973) NET FUNDS AT 30 SEPTEMBER 2007 125,727 745,413 X-PHONICS PLC NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2007 1. ACCOUNTING POLICIES 1.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost conventionand in accordance with applicable accounting standards. 1.2 BASIS OF CONSOLIDATION The financial statements consolidate the accounts of X-Phonics plc and all ofits subsidiary undertakings ('subsidiaries'). The results of subsidiaries acquired during the year are included from theeffective date of acquisition with the exception of X-Phonics Music Limited (seebelow). X-Phonics plc was incorporated on 17 May 2005 and on 1 July 2005 the companyacquired the entire share capital of X-Phonics Music Limited (formerly DiabloMusic Limited) by way of a share for share exchange. In accordance with theprinciples set out in Financial Reporting Standards ("FRS") 6 "Acquisitionsand Mergers", 100% of the shares acquired have been accounted for under mergeraccounting. Consequently, although X-Phonics plc was not incorporated until 17May 2005 and the combination did not take place until 1 July 2005, the financialinformation is presented as though the merged businesses had always been asingle group. 1.3 TURNOVER Turnover comprises revenue recognised by the company in respect of goods andservices supplied, exclusive of Value Added Tax and trade discounts. 1.4 ADVANCES TO ARTISTES Advances to artists and expenses incurred in supporting new acts are assessedand the value of the un-recouped portion to be included in debtors is determinedby the prospects of future recoupement, based on past sales performance, currentpopularity and projected sales. As at 30th September 2007, £15,000 (2006: £nil) is being carried forward inrespect of such expenditure within debtors. 1.5 MUSIC PUBLISHING AND RECORD ROYALTIES AND RECORD PRODUCER SERVICES Music publishing and record royalties are accounted for on a notified earningsbasis, with any advances, if any, carried forward until the end of the relevantcontract period. Royalties received for record producer services are accountedfor on a cash basis. Royalties payable are expensed on an accruals basis exceptthat music publishing advances are carried forward and recognised as an asset,where such advances relate to proven artistes or songwriters and where it isestimated that sufficient future royalties will be recouped against thoseadvances. 1.6 INTANGIBLE FIXED ASSETS AND AMORTISATION Goodwill is the difference between amounts paid on the acquisition of a businessand the fair value of the identifiable assets and liabilities. It is amortisedto the profit and loss account over its estimated economic life. Amortisation is provided at the following rates: Goodwill - 5% straight line 1.7 TANGIBLE FIXED ASSETS AND DEPRECIATION Tangible fixed assets are stated at cost less depreciation. Depreciation isprovided at rates calculated to write off the cost of fixed assets, less their estimated residual value, over theirexpected useful lives on the following bases: Short Term Leasehold Property - over the period of the leaseEquipment - 20% straight lineMotor vehicles - 25% straight lineFixtures & fittings - 20% straight line 1.8 INVESTMENTS Investments in subsidiaries are valued at cost less provision for impairment. 1.9 LEASING AND HIRE PURCHASE Assets obtained under hire purchase contracts and finance leases are capitalisedas tangible fixed assets. Assets acquired by finance lease are depreciated overthe shorter of the lease term and their useful lives. Assets acquired by hirepurchase are depreciated over their useful lives. Finance leases are those wheresubstantially all of the benefits and risks of ownership are assumed by thecompany. Obligations under such agreements are included in creditors net of thefinance charge allocated to future periods. The finance element of the rentalpayment is charged to the Profit and loss Account so as to produce a constantperiodic rate of charge on the net obligation outstanding in each period. 1.10 OPERATING LEASES Rentals under operating leases are charged on a straight line basis over thelease term. Benefits received and receivable as an incentive to sign an operating lease arerecognised on a straight line basis over the period until the date the rent isexpected to be adjusted to the prevailing market rate. 1.11 DEFERRED TAXATION Full provision is made for deferred tax assets and liabilities arising from alltiming differences between the recognition of gains and losses in the financialstatements and recognition in the tax computation. A net deferred tax asset is recognised only if it can be regarded as more likelythan not that there will be suitable taxable profits from which the futurereversal of the underlying timing differences can be deducted. Deferred tax assets and liabilities are calculated at the tax rates expected tobe effective at the time the timing differences are expected to reverse. Deferred tax assets and liabilities are not discounted 1.12 FOREIGN CURRENCIES Monetary assets and liabilities denominated in foreign currencies are translatedinto sterling at rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rateruling on the date of the transaction. Exchange gains and losses are recognisedin the profit and loss account 1.13 FINANCIAL INSTRUMENTS Financial instruments are classified and accounted for, according tothe substance of the contractual arrangement, as either financial assets,financial liabilities or equity instruments. An equity instrument is anycontract that evidences a residual interest in the assets of the company afterdeducting all of its liabilities. Investments All investments are initially recorded at cost, being the fair value of theconsideration given and including acquisition costs associated with theinvestment. Trade and other debtors Trade and other debtors are recognised and carried forward at invoices amountsless provisions for any doubtful debts. Bad debts are written off whenidentified. Cash and cash equivalents Cash and cash equivalents are included in the balance sheet at cost. Cash andcash equivalents comprise cash at bank and in hand and short term deposits withan original maturity of three months or less. 2. Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The accounts for the year ended 30 September 2007 will be posted to shareholdersshortly and laid before the Annual General Meeting to be held at the Company'sregistered office: Grand Prix House, 126-129 Power Road, Chiswick, London, W45PY on 28th April 2008 at 10.30 a.m. Copies will also be available via the website (www.x-phonics.com) in accordancewith AIM Rule 26. This information is provided by RNS The company news service from the London Stock Exchange