Tavistock Regulatory News (TAVI)

30 Jun 2006 07:02

Bright Things plc30 June 2006 BRIGHT THINGS PLC ("Bright Things" or the "Company") 30 June 2006 Preliminary Results Bright Things today announces its preliminary results for the year ended 31March 2006. Business Overview: • Loss before tax of £5.2m for the year ended 31 March 2006, this is slightly more than we estimated in January • Further four games developed for Bubble • Lower Bubble pricing expected from distributor to assist in the sale of the remaining Bubbles this Christmas • Expenditure in line with expectations • Further Bubble development expenditure now largely finished and since the year end significant reduction in general and administrative overhead Strategic Developments: • Strategic shift towards generating revenues from interactive DVD games and the use of patented technology in products outside the initial target market of the pre-school sector • Opportunity to develop and market family games for DVD players, with no additional hardware requirements - Lara Croft Tomb Raider: Angel of Darkness Interactive DVD progressing well • Development of Bright Things' patented ASIC chip - potential uses by other consumer electronic or toy companies Dominic Wheatley, CEO, Bright Things, said: "As announced in January sales of 28,000 Bubbles were significantly lower thananticipated, Bright Things has identified other areas where it can generaterevenues using management's expertise in the home entertainment market as wellas the patented technology used in Bubble." "Bright Things is developing its first family interactive DVD Lara Croft as partof its strategy of developing simple, high quality DVD games that can be playedon any DVD player using the standard remote control. We are also excited aboutthe potential of using our patented electronic chips, developed for Bubble, inother applications." "These developments mark a potentially important strategic shift for BrightThings and we will update the market as and when there are more developments inthese areas." For further information please contact: Bright Things PLC 0870 351 7770Dominic Wheatley, CEOAdy Moores, CFOMatthew Tims, Publishing DirectorJonathan Glass / Mark Antelme, Brunswick 020 7404 5959 Bright Things Plc Chairman's statement________________________________________________________________________________ Background Bright Things was formed to introduce and market interactive DVD games for youngchildren. The company was one of the first to spot the abilities of ordinary DVDplayers to play simple but engaging software, with the added advantage of TVquality pictures. However, the company felt that normal remote controls thatoperated DVD players were too small and awkward for young fingers. In order toovercome this barrier and provide a more intuitive device for young children toplay with, the company invented Bubble. Bubble is a plastic console that emitsinfra red signals that control the interactive DVD games specially made to workin concert with the unit. Objectives At the outset, the company set itself three key goals: to obtain major TVlicences upon which to base the games; to develop and patent the technology thatwould create Bubble; to find a sales and distribution partner for the initiallaunch in the UK. All three of these goals were met. However, despite their best endeavours, thedistribution partner (Bandai) sold only 28,000 units into retailers as weannounced in January. Sales The business model adopted by Bright Things from the outset relied upon thewidespread consumer acceptance of the Bubble unit in order to provide a marketfor the games. Taking this approach, Bright Things hoped that a sufficientnumber of hardware units would be sold, thereby providing the critical masswhich would help to sell the games. Although the distributor received anenthusiastic response from retailers and purchased 112,000 units of Bubble fromBright Things, Bubble launched into a highly price competitive retail space,which undoubtedly impacted sales. The company has worked with the distributor to examine possible strategies toimprove sales this Christmas, including reducing the retail price of the Bubblehardware. Also, a further four games have now been completed (Bob the Builder,Pingu, Postman Pat and Angelina Ballerina) to add to the six already available,although we have not yet received an order for these titles from ourdistributor. No significant number of units have been sold since the early partof the year, which is typical in the toy industry which is very seasonal in thisproduct category. Future Strategy The management has identified potential opportunities within the interactive DVDgames business and also with the patented technology of the core element ofBubble. Last Christmas saw the emergence of a new wave of interactive DVD game software.Thirty games were introduced and over 1.8m units were sold in the UK. Many ofthe games were based on well known TV shows such as "Who Wants to be aMillionaire", "Telly Addicts" and "Bullseye". They utilise a normal remotecontrol and require no special hardware. The company realised that this phenomenon had two potential benefits for BrightThings - firstly it would help introduce the concept to consumers that their DVDplayers had the ability to play interactive games, this may also help sales ofBubble this Christmas. Secondly, Bright Things has developed ten interactive DVDgames and has built up considerable expertise, both creative and technical thatcould allow it to enter the family market, further broadening its productoffering and reducing its reliance on Bubble and a single distributor. After a great deal of research, the company felt that a new category of DVD gamecould be successful, and that it would focus away from the quiz based genre andmove to action/adventure games. These would be simple but fun to play and aimedat the family audience. New products Some technical tests proved the potential and the company decided to licencefrom Eidos the well known brand of Lara Croft - Tomb Raider to create theirfirst DVD game. The development of and plans for marketing of this game areproceeding well. The company hopes to announce further titles in the comingmonths as they build a range of similar DVD game entertainment. A key part of the future strategy on the Bubble technology was the creation ofthe patented ASIC chip - essentially the reduction of the many electroniccomponents that make Bubble onto a single, inexpensive chip. This would allowthe company to manufacture Bubble at a far lower price which would further helpreduce the retail price and improve margins. However, the chip also has thepotential to be used by other consumer electronic or toy companies for a varietyof purposes. Bright Things has engaged in discussions with a number of potentialpartners, and is hopeful that a positive return can be made on the investment inthe creation of the patented Bubble technology. Bright Things continues to operate in a new and developing market. Themanagement have considerable experience in publishing interactive games on avariety of formats and has broadened its strategy from children's games tofamily games, however the DVD format is still evolving as a platform forinteractive games. Our People It has been a very ambitious project to launch and I would like to thank thestaff and many contractors who worked hard to create Bubble and the Bubblegames. Ian LivingstoneChairman29 June 2006 Bright Things Plc Operational and financial review________________________________________________________________________________ Acquisition of PushPlay Interactive LLC Bright Things completed the acquisition of PushPlay Interactive LLC ("PPI") on28th June 2005. PPI is a limited liability company incorporated in the US. Theconsideration payable on this acquisition totalled £1,112,000 and this wassettled by the issue of 415,800 10p ordinary shares at £1.375 per share;US$500,000 of cash, and warrants to subscribe for 540,541 10p ordinary shares at£1.50 per share and 250,000 10p ordinary shares at £2.50 per share. The warrantshave been fair valued at £267,000 using the Black-Scholes valuation method. Postacquisition, the PPI team have been integrated into other group companies. Theresults of PPI from 28th June 2005 are included in the consolidated financialstatements. The combined Intangible assets as a result of the acquisition of PPI capitalisedon the balance sheet total £1,091,000 split between Goodwill of £899,000 andPatent applications of £192,000. 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 consolidatedaccounts. 2006 financial year and future product portfolio Bright Things launched the following products in the year: Bubble DVD games console bundled with Teletubbies Interactive DVD game (releasedAugust 2005)Bubble DVD games console bundled with Balamory Interactive DVD game (releasedAugust 2005)Teletubbies Bubble Interactive DVD game (released August 2005)Balamory Bubble Interactive DVD game (released August 2005)Tweenies Bubble Interactive DVD game (released September 2005)Fimbles Bubble Interactive DVD game (released October 2005)Thomas & Friends Bubble Interactive DVD game (released November 2005)Noddy Bubble Interactive DVD game (released December 2005) The following additional games have been completed since the year end: Bob the Builder Bubble Interactive DVD gamePostman Pat Bubble Interactive DVD gameAngelina Ballerina Bubble Interactive DVD gamePingu Bubble Interactive DVD game Management are in discussion with our distribution partner as to the releasedates for these completed games. This brings the bubble software portfolio toten titles based on a broad range of pre-school television programming. It isthe intention to monitor sales before any further Bubble software development iscommitted. The company is utilising its skills and experience in Interactive DVD games bybroadening its catalogue into the family genre of Interactive DVD. Bright Thingshas secured worldwide rights from Eidos Interactive Ltd to develop and publishan Interactive DVD game based on the iconic video game character Lara Croft,Tomb Raider. Further revenue streams The strength of the Group's Patent and Intellectual Property portfolio combinedwith the continuing growth of the Interactive DVD industry are increasinglypresenting opportunities to generate revenue from the use of our technology inproducts 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 andsubcontract game development to external studios with appropriate expertise inDVD authoring and DVD game development. Manufacturing capabilities Bubble is manufactured by our contract manufacturer located in Zhongshan, China.Significant investment has been made in tooling costs and quality assuranceprocesses. Commercialisation of underlying patented technology Bright Things have made significant progress in the engineering of its corebubble technology into an Application Specific Integrated Circuit 'ASIC' chipset. This enables the core 'Bubble' functionality, which received US Patentapproval during the year to be made available as a one chip solution for otherperipheral devices interacting with a DVD player or set top box. Strategy for the future The management has identified potential opportunities within the interactive DVDgames business and also with the patented technology of the core element ofBubble. Last year saw the emergence of interactive DVD game software which utilise anormal remote control and require no special hardware. The company realised that interactive DVD games software had two potentialbenefits for Bright Things - firstly it would help introduce the concept toconsumers that their DVD players had the ability to play interactive games, thismay also help sales of Bubble this Christmas. Secondly, Bright Things hasdeveloped ten interactive DVD games and has built up considerable expertise,both creative and technical that could allow it to enter the family market,further broadening its product offering and reducing its reliance on Bubble anda single distributor. Following research, the company felt that a new category of DVD game could besuccessful, and that it would focus away from the quiz based genre and move toaction/adventure games. These would be simple but fun to play and aimed at thefamily audience. The company has licenced from Eidos the well known brand of Lara Croft - TombRaider to create their first DVD game. The development of and plans formarketing of this game are proceeding well. A key part of the future strategy on the Bubble technology was the creation ofthe patented ASIC chip. This would allow the company to manufacture Bubble at afar lower price which would further help reduce the retail price and improvemargins. However, the chip also has the potential to be used by other consumerelectronic or toy companies for a variety of purposes. Bright Things continues to operate in a new and developing market. Themanagement have considerable experience in publishing interactive games on avariety of formats and has broadened its strategy from children's games tofamily games. Results for operations The Group made an operating loss of £5,349,000 (2005 - £3,576,000) aftergoodwill charges of £67,000 (2005 -£Nil). Research and development and administrative expenses were the main components ofthe loss on ordinary activities during the year ended 31 March 2006. Key figures: Period from Year 1 January Ended 2004 to 31 March 31 March 2006 2005 Turnover 3,110 - ________ ________ Gross Loss (103) - ________ ________ Research and Development 2,708 2,266 ________ ________ Other administrative expenses 2,538 1,310 ________ ________ Net assets 2,780 6,810 ________ ________ Increase/(decrease) in cash (5,216) 6,988 ________ ________ Basic and diluted loss per share (25.6)p (25.1)p ________ _______ Turnover, £3,110,000 (2005 - £Nil) Turnover for the year primarily consists of product sales to our distributor(Bandai) and royalties receivable on goods sold into the channel by Bandai.Turnover is split between: Bubble hardware bundles £2,354,000; Bubble software£753,000; and consultancy revenue of £3,000. Cost of sales, £3,213,000 (2005 - £Nil) Direct costs of manufacturing the products were £2,971,000. Freight anddistribution costs were £169,000 and royalties payable to rights holders were£73,000. Gross loss, £103,000 (2005 - £Nil) The overall gross loss for the year is £103,000. This is split between: GrossLoss on Bubble hardware bundles of £321,000 achieving a negative gross margin of13.6%; Gross Profit on Bubble software of £215,000 achieving a gross margin of28.6%; and gross margin of £3,000 on consultancy revenue. The loss is primarily due to the following reasons: i) higher cost of goodsassociated with the first bubble units and Interactive DVD games being produced(which are fully expensed) before any cost reductions were implemented into theproduction line; ii) We have written down a surplus supply of electroniccomponents which were purchased on long lead times in line with peak seasonproduction demand requirements by a total of £396,000 due to the uncertainty ofthe level of future sales; iii) the first batch of 5,000 Bubble consoles was airfreighted into the UK to meet retailer deadlines, these units would normally beshipped by sea at lower cost. Administrative expenses Administrative expenses for the year ended 31 March 2006 are the main componentof the loss on ordinary activities during the year. Comparative figures areshown for the fifteen months ended 31 March 2005 which are comparable to thecurrent year as the results for January to March 2004 were insignificant.Administrative expenses are in line with expectation and are analysed into twocategories: Research and Development, £2,708,000 (2005 - £2,266,000) All research and development expenditure has been charged to the profit and lossaccount as incurred per the accounting policy in the full financial statements.This includes all hardware development expenditure, software developmentexpenditure on individual titles and advance royalties paid under licensingarrangements. Hardware, £1,408,000 (2005 - £782,000) Hardware development spend includes the following; £467,000 relates to designand engineering spend. £301,000 relates to Factory bring up costs includingquality assurance processes, tooling and pilot build costs. £159,000 relates tophase one factory cost reductions. £319,000 relates to the ASIC chipdevelopment. £87,000 relates to new business activities. £75,000 relates to thehardware management process. Software, £1,238,000 (2005 - £756,000) Software development spend includes the following; £452,000 relates to thecompletion of the 6 software titles launched in the year. £675,000 relates tosoftware projects now completed yet to be released. £82,000 relates to a projectthat has been put on hold since the year end. £29,000 relates to work onspeculative development for new business activities. All products are developed through outsource contracts with third partydevelopers and managed via our internal production team. Management have taken the decision to write off all of these costs in theseaccounts due to the uncertainty of the level of future sales. Licensing expenditure, £62,000 (2005 - £728,000) Licensing expenditure includes £101,000 relating to advances paid which arerecoupable against future royalties payable. Licensing expenditure also includesa credit of £39,000 which relates to amounts recouped against royalties payableon sales during the year in respect of titles whose advances were charged to theprevious period's accounts. Licence fees payable to organisations for use of their Intellectual Propertyover a number of years are charged to the profit and loss account on the basisof actual product sales. Management relies on forecasts of sales to determinethe relevant amortisation rate of the licence fee. Management regularly reviewsthe carrying value of such licences. Due to the uncertainty of the level of future sales, management have taken thedecision to amortise all licence fee expenditure and write off all advancespaid. Other administrative expenses, £2,538,000 (2005 - £1,310,000) Other administrative costs comprise all the costs of running Bright Things'operating and corporate functions. This includes the staff, contractors andagencies together with associated costs employed in sales, marketing, PR,design, project management, production, IT, quality assurance, finance, legaland licensing. The main component of general and administrative expenditure relates to humanresource costs, totalling £1,150,000 (2005 - £580,000). Additional staff wererecruited into both the UK and US offices during the period as the Groupexpanded operationally. The company seeks to outsource as many administrative overheads as possible.External agencies and contractors have been used to assist in sales, marketingand PR roles. Office and administration costs totalled £380,000 (2005 - £218,000). The largestcomponent being office costs of £280,000 (2005 - £163,000). The company continued to operate offices in London and Palo Alto, California,USA for the year and also through the purchase of PushPlay Interactive LLC ran asmall office in Connecticut from June 2005. Travel and subsistence costs increased in the year to £288,000 (2005 -£138,000). This increase is primarily due to the increase in staff and thetravel between the UK & US for new business development activities and managingsoftware development projects. There was also travel between USA & China tomanage the manufacturing process. Marketing costs totalled £291,000 (2005 - £123,000). These costs primarilyrelate to retained agencies and consultants. Our distributor Bandai have thefinancial responsibility in regard to the product marketing and public relationscampaign. Legal and professional fees relating to the portfolio of patent applicationswere £129,000 (2005 - £25,000). The main reason for the increase being the postacquisition amalgamation of the PushPlay portfolio of patents. Taxation No tax charge arises on the profit for the financial year. At 31 March 2006 theGroup has approximately £8.8 million of losses available to carry forward to setagainst future taxable profits, subject to agreement with the UK and USA taxauthorities. Loss per share Basic loss per share of 25.6p (2005 loss of 25.1p) has increased due to thescaling up of the Group's research and development activities. Working Capital The Group's operational cash position has been reduced by the continuedinvestment in research and development during the year together with increasedoperational overheads and lower than anticipated sell through at retail of ourproducts. At 31 March 2006, the Group had cash of £1,775,000 (2005 £6,991,000).The Group has no debt. At the end of the financial year the group had netcurrent assets of £1,659,000 (2005 net current assets of £6,732,000). Net assets have decreased to £2,780,000 (2005 - £6,810,000), this is primarilydue to spend associated with significantly increasing activities in readinessfor the launch of Bubble in August 2005 and continued investment in research anddevelopment (including a significant amount on development of the ASIC chip toenable significant future manufacturing cost savings and enabling the potentialof utilising the Bubble technology in other business opportunities). The Group has made progress in significantly reducing the monthly cash burnfollowing the completion of the Bubble software titles enabling a reduction inhead count and down sizing of the serviced office space in all locations. The board continues to monitor the organisation's general overheads and to makesavings where appropriate. The board constantly seeks cost efficiencies asappropriate given the current level of cash resources. Financial Instruments During the period, the Group's financial instruments, comprised cash and variousitems such as trade creditors that arise directly from operations. The mainpurpose of these financial instruments is to finance the Group's operations. TheGroup has continued to enter into derivative transactions in the form of foreigncurrency contracts in order to manage the currency risk arising from the Group'soperations. 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'sfinancial instruments are liquidity risk and foreign currency risk. The Boardreviews and agrees policies for managing each of these risks on a regular basis. Liquidity risk The Group continually monitors the operational working capital requirements ofthe business. The Group continues to assess appropriate financing opportunitiesbased on future business plans and working capital requirements. Adrian MooresFinance Director29 June 2006 Bright Things Plc Consolidated profit and loss account for the year ended 31 March 2006________________________________________________________________________________ Note Year ended Period from 31 March 2006 1 January £'000 2004 to 31 March 2005 £'000 ------------ ------------Turnover - acquisitions 3 -Turnover - continuing operations 3,107 - ------------ ------------ Turnover 3,110 - Cost of sales (3,213) - _______ _______ Gross loss (103) - ------------ ------------Research and development costs (2,708) (2,266)Other administrative expenses (2,538) (1,310) ------------ ------------ Administrative expenses (5,246) (3,576) ------------ ------------Operating loss - acquisitions (4) -Operating loss - continuing operations (5,345) (3,576) ------------ ------------ Operating loss (5,349) (3,576) Interest receivable 184 74 _______ _______Loss on ordinary activities before (5,165) (3,502)and after taxation and retained loss 3 _______ _______Loss per shareBasic and diluted 4 (25.6)p (25.1)p _______ _______ All amounts relate to continuing activities. All recognised gains and losses are included in the profit and loss account. Bright Things Plc Consolidated balance sheet at 31 March 2006________________________________________________________________________________ Note 31 March 31 March 31 March 31 March 2006 2006 2005 2005 £'000 £'000 £'000 £'000 Fixed assetsIntangible assets 1,034 7Tangible assets 87 71 ________ ________ 1,121 78 Current assetsDebtors 431 182Cash at bank and in hand 1,775 6,991 ________ ________ 2,206 7,173 Creditors: amounts falling duewithin one year (547) (441) ________ ________ Net current assets 1,659 6,732 ________ ________ Total assets less currentliabilities 2,780 6,810 ________ ________ Capital and reservesCalled up share capital 2,045 1,968Share premium account 9,559 9,342Warrant reserve 267 -Merger reserve (286) (858)Profit and loss account (8,805) (3,642) ________ ________ Shareholders' funds 2,780 6,810 ________ ________ The financial statements were approved and authorised by the Board on 29 June2006. Adrian MooresDirector Bright Things Plc Consolidated cash flow statement for the year ended 31 March 2006________________________________________________________________________________ Period from Period from Year ended Year ended 1 January 1 January 2004 to 2004 to 31 March 31 March 31 March 31 March Note 2006 2006 2005 2005 £'000 £'000 £'000 £'000Net cash outflow fromoperating activities 7 (5,375) (2,578) Returns on investmentsand servicing of financeInterest received 184 74 ________ ________Net cash inflow fromreturns on investment and servicingof finance 184 74 Capital expenditure andfinancial investmentPurchase of tangiblefixed assets (58) (90)Purchase of intangiblefixed assets (19) (428) ________ ________Cash outflow from capitalexpenditureand financial investment (77) (518) AcquisitionsPurchase of subsidiaryundertaking (273) -Cash acquired withsubsidiary undertaking 10 - ________ ________ Cash outflow fromacquisitions (263) - ________ ________ Cash outflow beforemanagementof liquid resources andfinancing (5,531) (3,022) Management of liquidresourcesIncrease in fixed termdeposits 6,250 (6,250)Increase in blockeddeposits (500) - ________ ________Net cash inflow/(outflow)from management of liquidresources 5,750 (6,250) FinancingNet proceeds from issueof new share capital - 9,694Exercise of share options 315 316 ________ ________Net cash inflow fromfinancing 315 10,010 ________ ________ Increase in cash in theyear 8 534 738 ________ ________ Bright Things Plc Notes forming part of the financial statements for the year ended 31 March 2006________________________________________________________________________________ 1 Accounting policies Basis of preparation The preliminary announcement has been prepared under the accounting policiesthat applied to the financial statements for the period ended 31 March 2005except for the implementation of FRS 21 Events after the balance sheet date, FRS22 Earnings per share, FRS 28 Corresponding amounts and the presentationalrequirements of FRS 25 Financial instruments (Disclosure and presentation). Noneof these standards had any impact on the net assets of the group nor on its lossfor the current or prior year. 2 Segment information Period from Year ended 1 January 2004 31 March to 31 March 2006 2005 £'000 £'000 Turnover by activity: Bubble hardware bundles 2,354-Bubble software 753Consultancy 3 ________ ________ 3,110 - ________ ________ Gross profit/(loss) by activity: Bubble hardware (321)bundlesBubble software 215Consultancy 3 ________ ________ (103) - ________ ________ All of the Group's turnover, profit and net assets relate to the Group's mainactivities, which are principally in the United Kingdom. SEGMENTAL INFORMATION ANALYSIS Continuing Acquisitions Total Operations £'000 £'000 £'000 Turnover 3,107 3 3,110Cost of sales (3,213) - (3,213) ___________ _____________ _____________ Gross profit/(loss) (106) 3 (103) ___________ _____________ _____________ Administartive expenses 5,239 7 5,246 ___________ _____________ _____________ Operatingprofit/(loss) (5,345) (4) (5,349) ___________ _____________ _____________ 3 Taxation on profit from ordinary activities Period from Year ended 1 January 2004 31 March to 31 March 2006 2005 £'000 £'000 Loss on ordinary activities before tax (5,165) (3,502) ________ ________ The differences are explained below: Period from Year ended 1 January 2004 31 March to 31 March 2006 2005 £'000 £'000 Loss on ordinary activities at the standard rate of corporation tax in the UK of 30% (2005 - 30%) (1,549) (1,051) Effects of:Unutilised losses carried forward 1,524 1,051Capital allowances for the year indeficit of depreciation 13 - Expenses not deductible for tax purposes 12 - ________ ________Current tax charge for year - - ________ ________ Deferred Tax At 31 March 2006 the Group had £8.8 million (2005 - £3.6 million) carriedforward as losses, subject to the agreement of the Inland Revenue and US taxauthorities. After assessing the prospects for the 2007 financial year the boardhas decided to not recognise any deferred tax asset as it is prudent to estimatethat no losses will be utilised in that period. The value of the unprovideddeferred tax asset is calculated at £2.58 million (2005 - £0.68 million). 4 Loss per share Loss per share has been calculated using the following: Loss Weighted Loss Weighted average average number of number of shares shares Period from Period from 1 January 1 January Year ended Year ended 2004 to 2004 to 31 March 31 March 31 March 31 March 2006 2006 2005 2005 £'000 '000s £'000 '000s Basic and diluted (5,165) 20,154 (3,502) 13,964 ________ ________ ________ ________ Loss per ordinary share have been calculated using the weighted average numberof shares in issue during the relevant financial periods. The weighted averagenumber of equity shares in issue, is 20,154,033 (2005 - 13,963,607) and theearnings, being loss after tax is £5,165,000 (2005 - £3,502,000). There are nopotentially dilutive shares in issue. 5 Dividends No dividend is to be paid. 6 Acquisition of subsidiaries On 28 June 2005 Bright Things Plc purchased 100% of PushPlay Interactive LLC("PPI"). The consideration for the purchase totalled £1,112,000. This wassettled by the issue of 415,800 10p ordinary shares at £1.375 per share:US$500,000 of cash and warrants to subscribe for 540,541 10p ordinary shares at£1.50 per share and 250,000 10p ordinary shares at £2.50 per share. The fairvalue of the warrants has been calculated as £267,000 using the Black-Scholesvaluation method. The fair value of the warrants is determined under theBlack-Scholes valuation method which requires inputs of variables based onmanagements' best estimates of future outcomes. The acquisition has beenaccounted for in the consolidated accounts using the acquisition method ofaccounting. Bright Things Plc has taken advantage of the merger reliefprovisions under s.131 Companies Act 1985. £'000 Equity - 415,800 ordinary shares 572Cash 273Fair value of warrants 790,541 ordinary shares 267 _______ Fair value of consideration 1,112 _______ Fair Value Adjustments Book values on Accounting Revaluation Fair value Fair value acquisition Policy adjustment Alignment US$000's US$000's US$000's US$000's £000's Debtors 13 - - 13 7Tangible assets 6 - - 6 4Intangible assets -Patents 90 - 260 350 192NBV Start Upcosts 523 (523) - - - --------- --------- ---------- -------- -------Net assets(non cash) 632 (523) 260 369 203 Bank balances 19 - - 19 10 --------- --------- ---------- -------- -------Net assets 651 (523) 260 388 213 Fair value ofconsideration 1,545 1,112 -------Goodwill created at acquisition 899 Fair value adjustments All assets and liabilities have initially been recognised in the Group accountsat their fair value. Fair value is defined as the amount at which an asset orliability could be exchanged in an arm's length transaction between informed andwilling parties, other than in a forced or liquidation sale. The following fair value adjustments were performed: • Capitalised start up costs in PushPlay Interactive have been written off. This represented a difference between US and UK GAAP. • Patent applications have been valued at the total costs directly attributable to developing the patented technology. Pre acquisition results of PushPlay Interactive LLC In the period 1 April 2005 to 28 June 2005 the results for PushPlay InteractiveLLC were as follows: US$'000 Turnover 20Administrative expenses (152) _______ Retained loss (132) _______ During the year a new 100% owned subsidiary was incorporated in the US namedBright Things Inc. The results of this company have been included in theconsolidated accounts on the acquisition accounting basis. There were no other recognised gains and losses relating to the acquisition. 7 Reconciliation of operating loss to net cash outflow from operating activities Period from 1 January Year ended 2004 to 31 March 31 March 2006 2005 £'000 £'000 Operating loss (5,349) (3,576)Amortisation of intangibles 83 730Depreciation 46 20Increase in debtors (239) (182)Increase in creditors 84 430 ________ ________ Net cash outflow from operating activities (5,375) (2,578) ________ ________ All cash flows relate to continuing activities 8 Analysis of cash balances and liquid resources At At 1 April Cash 31 March 2005 2006 £'000 £'000 £'000 Cash 741 534 1,275Liquid resources 6,250 (5,750) 500 ________ ________ ________ Total cash and liquid resources 6,991 (5,216) 1,775 ________ ________ ________ 9 Reconciliation of net cash flow to movement in net funds Period from 1 January Year ended 2004 to 31 March 31 March 2006 2005 £'000 £'000 Increase in cash in the period 534 738Cash inflow/ (outflow) from increase/ (decrease) inliquid resources (5,750) 6,250 ________ ________ Movement in net funds during the period (5,216) 6,988 ________ _______Net funds at 1 April 2005 6,991 3 ________ ________ Net funds at 31 March 2006 1,775 6,991 ________ ________ 10 Non statutory information The financial information set out above does not constitute the Company'sstatutory accounts within the meaning of s.240 of the Companies Act 1985 for theyear ended 31 March 2006 or the period ended 31 March 2005, but is derived fromthose accounts. Statutory accounts for 2005 have been delivered to the Registrarof Companies and those for 2006 will be delivered following the Company's annualgeneral meeting. The auditors have reported on those accounts; their reportswere unqualified and did not contain statements under the Companies Act 1985,s.237(2) or (3). The full annual report will be posted to shareholders on 30 June 2006. Copies ofthis report are available from Bright Things plc, Building 3 - Chiswick Park,566 Chiswick High Road, London, W4 5YA. This information is provided by RNS The company news service from the London Stock Exchange