DQ ENTERTAINMENT PLC

('DQE' or the 'Group')

Interim Results for Six Months ended 30 September 2009

DQE, the animation, gaming and entertainment production and distribution group is pleased to announce today its interim results for the six months ended 30 September 2009.

Financial Highlights

• Profit before tax up by 175% at US$ 1.1m (Previous period*: US$ 0.4m)

• Revenue at US$ 14.4m (Previous period*: US$ 14.4m)

• EBITDA at US$ 4.0m (Previous period*: US$ 4.1m).

• Adjusted EBITDA of US$ 4.3m (Previous period*: US$ 4.1m) after excluding the expenses towards forthcoming Indian IPO of US$ 0.3m 

• Order book currently at US$ 92.2m including amounts already billed in the current year

• Cash and cash equivalents of US$ 2.6m (Previous period*: US$ 8.5m)**

*    Previous period as referred to is the six months ended 30 September 2008

** Previous period had US $6.4m from the IPO proceeds included in the cash and cash equivalents.

Operating Highlights

Marquee projects in Production

• Mickey Mouse Clubhouse TV series for Disney TV, USA 

• Group's first international homegrown Jungle Book TV series and Tele-movie in collaboration with ZDF TV & ZDF Enterprises - Germany, TFI TV & TF1 International - France and MoonScoop-France. 

• Famous Little Prince - 52x26' in co-production with LPPTV - France, France Television and Method Films - France.

• Le Petit Nicolas (Little Nicolas) season-I 3D-CGI series in co-production with M6, France.

• Tara Duncan TV series in co-production with MoonScoop, France & M6 Television channel, France.

• 70 minute TV feature "Omkar" for Turner Entertainment (Cartoon Network, Pogo) 

• Penguins of Madagascar season-2 TV series after successful conclusion of season-1 TV series with Nickelodeon, USA.

Licensing and Distribution (L&D)

• Licensing and distribution deals signed for Jungle Book as under:

  • Home video distribution deal with NBC Universal, UK for the territories namely - UK, France, Japan, Australia and New Zealand.

  • Agreement with ABC Television, Australia for Free TV broadcasting of 3D-CGI TV series Jungle Book

  • Exclusive Pay TV licensing deal with Disney Channel across Indian Sub-continent and South East Asia including Japan

• Home grown TV features Balkand & Ravan premiered during this period with success on POGO and Cartoon Network channels for Turner Asia.  

• Limited period licensing deal for broadcasting Iron Man season- I TV series with Turner Entertainment, Asia.

• Free TV broadcasting deal with Metropolis TV Inc for South East Asia for the Iron Man TV series Season-1 

• Home video distribution deal with Sony Pictures Home Entertainment for various TV series including the Casper (Season 1), Twisted Whiskers (Season 1), Sandra (Season 1), Rat Man (Season 1), Todd World (Season 1 & 2), as well as DQE's own Indian IP's TV features - Balkand, Ravan and Omkar.

• TV licensing deal with JIMJAM TV group for EMMY nominated (Season 2) of Todd World series for South East Asia

• Broadcast deal of Twisted Whiskers (Season 1) TV series with Disney channel for South East Asia. This is already on air.

• Continued initiatives to commercially exploit character designs and artwork through merchandising agreements

Tapaas Chakravarti, Chairman & CEO of DQE, commented:

Despite challenging economic scenario globally, DQE's business continues to grow as majority of its deliveries and booking of orders happen during the peak season starting from September onwards until the beginning of summer as per the industry trends. DQE's pursuit for quality, timely delivery and innovation in creativity and technology has ensured several repeat orders and partnership including Mickey Mouse Clubhouse III season, Penguins of Madagascar Season 2. Our home grown hi-end 3D-CGI TV series and Tele-movie Jungle Book has attracted global interest with presales deal concluded with marquee TV & Home video distributors such as Disney channel, ZDF & TF1 as well as NBC Universal and negotiations on for merchandising, publishing, TV & Home entertainment distribution world-wide.

To continue its current and long-term growth aspirations DQE is proposing to list on Bombay Stock Exchange, India and has filed the necessary documents with the regulator for clearances. We believe that combined strength of London and Bombay listing will not only attract global investors but will fuel our growth further with large players in our market for Feature Films and TV productions alike as well as distribution of our iconic properties.

Chairman and CEO's Statement

Overview

I am pleased to present the interim results for the six months ended 30 September 2009. 

The demand for entertainment content remains strong and continues to present a number of opportunities for our industry, even as the world economy continues to recover from the global financial crisis. The Group's strategic and timely move into its own intellectual property (IP) has provided a robust response to the economic conditions. The Group's passion for quality and timely delivery has further strengthened the order book. Our unique positioning and relationship with our high profile international partners - producers, broadcasters, distributors and licensors as well as iconic brand owners - has enabled DQE to create a niche for itself in the global media and entertainment sector.

Financial Review 

The Group has continued to post growth in its operations with profit before tax up by 175% at US$ 1.1m (H1 2008: US$ 0.4m). During the period, the Indian Rupee depreciated significantly against the US dollar, less significantly against the euro and appreciated against sterling. Consequently, while the growth of sales in the local currency (Indian Rupee) was at 14%, the growth in terms of the reporting currency (US dollar) was flat. 

EBITDA was at US$4.0m (being 'operating result before financing costs of US$ 1.4m and 'depreciation/amortization costs' of US$ 2.6m) included the expenses of US$ 0.3m relating to the forthcoming IPO of our Indian subsidiary and the adjusted EBITDA was US$ 4.5m (H1 2008: US$ 4.1m). 

The Group has been investing in its own IP and is planning to raise money through the IPO of its Indian subsidiary, with part of the funds raised proposed to be invested in this area. Until such time that the funds are raised, the group will be funding through its own resources. The pre-sale of a large part of this IP is already contracted for with various broadcasters and distributors. Revenues from the Licensing & Distribution division during the six month period ended 30 September 2009 was US$ 0.9m (H1 2008: US$ 0.01m), demonstrating the strength of the division and justifying the Group's strategy to move into co-production. 

Raising of funds

DQE is proceeding with plans for the IPO of its wholly-owned Indian subsidiary company, DQ Entertainment (International) Limited. DQ Entertainment (International) Limited filed a Draft Red Herring Prospectus with the Securities and Exchange Board of India on 30 September 2009 for a potential IPO on the Bombay Stock Exchange. It is hoped that this will be completed before the end of February 2010. 

Operations Review

DQE aims to bring internationally recognized brands from film, television and publications to life in animation and live action assisted by capitalising on the strengths of international partners, telecasters, distributors and international producers. 

In line with the Group's strategy to move up the value chain, DQE continues to produce its own IP including "The Jungle Book", "Toomai", "Lassie", "Balkand", "Ravan" and others. DQE signed the following deals during the period:

Global IP Division

The Jungle Book (52 x 11 minute episode 3D CGI television series) - 100% home grown IP

The new 52 episode 3D CGI TV series "The Jungle Book" and a 60 minute TV feature being developed and produced by DQE, with a global budget of euro 9.2m, is to be launched world-wide by Q3 2010. The first episode of The Jungle Book was premiered in Cannes with resounding success, initiating third party world-wide TV and video pre-sale and merchandising discussions.

DQE signed the following co-production and distribution deals for The Jungle Book during the six-month period ended 30 September 2009: 

• Co-production agreement with German broadcaster and distributor ZDF Group  

• Co-production agreement with MoonScoop of France together with French broadcaster TF-1 

• Deal with NBC Universal, UK for home video distribution of The Jungle Book in the UK, France, Japan, Australia and New Zealand.

Lassie (52 x 11 minute episode 3D CGI television series)

DQE, in association with Classic Media, the original owners of the rights to Lassie, will bring to life the famous Lassie in an animated 52 x 11 minute episode 3D CGI television series. Pre-sale negotiations with leading broadcasters, distributors, producers and licensors are in progress.

Balkand - 100% home grown IP

Balkand, a 70 minute TV feature, adapted from the childhood of Ramayana, was premiered on Turner Entertainment's children's channel "POGO" in India on 9 August 2009 and is currently on re-run on the Cartoon Network. Considering the success of the show Turner Entertainment has requested DQE to produce Balkand 2 and Balkand 3 as a sequel to Balkand 1. 

Ravan - 100% home grown IP

Ravan, a 70 minute TV feature about the childhood of Ravan, was premiered on Turner Entertainment's leading children's channel POGO on 30 August 2009 in India with weekly repeat broadcasts continuing. DQE is in advance negotiations to sign a deal on a sequel of this feature. 

Omkar - 100% home grown IP

Omkar, a 70 minute TV feature about the tales of Shiva and his greatness currently in production is expected to be aired in May 2010 on the Turner Entertainment Network, Asia (TENA).

Children's Detective TV movie - 100% home grown IP

DQE concluded a deal with Disney Channel and production started for children's detective movie for the broadcast of the movie on the Disney channels in India and South East Asian countries, expected to be delivered in mid 2010.

Several other international iconic brands are currently under initial development. Discussions with global broadcasters and distributors are progressing to bring these properties to life in 2010 and 2011.

Co-production projects in production:

• "Little Nick" with M6, France and Method Animation, France

• "Little Prince" with France 3, France and LLP TV, France

• "Tara Duncan" with M6, France and Moonscoop, France

• "Galactic Football" season 3 with Gaumont-Alphanim, France

•  "And Yet It Moves" season 4 with Gruppo Alcuni, Italy

Service projects in production

• "Mickey Mouse Club House" season 3 for Walt Disney Television Animation

• "Fanboy & Chum Chum" for Nickelodeon, USA

• "The Madagascar Penguins" season 1 for Nickelodeon, USA

• "The Madagascar Penguins" season 2 for Nickelodeon, USA

Licensing and Distribution (L&D) 

DQE currently has over 350 hours of animated production content for revenue exploitation. 

The L&D division has been aggressively negotiating deals with leading global broadcasters and distributors. Aside from the broadcasting deals for DQE's own global and Indian IPs, the L&D division has successfully concluded the following deals in the current year of operations:

• Broadcasting deal for Little Nick, season 1, a 52 episode animated series, with Buena Vista International Inc. (a Disney Group company)

• Exclusive broadcasting deal with TENA for Iron Man, a 3D animated series for the whole of Asia, excluding China, Korea and Japan

• Non-exclusive distribution rights to season 1 of the animated TV series ToddWorld (26 x 22 minute episodes) sold to JIM JAM TV via Taffy Entertainment LLC.

• Broadcasting deal for Twisted Whiskers, a 52 x 11 minute episode CGI animated TV series, co-produced with American Greetings Corp., USA and Mike Young productions, USA acquired by Disney, Singapore and Disney Channel, India for South East Asian countries and the Indian sub-continent respectively 

• Broadcasting deal for Ratman, a 52 x 11 minute episode animated TV series in traditional 2D animation, co-produced by DQE with Stranemani, Italy acquired by Disney Channel India for the Indian sub-continent

• Broadcasting deal for Sandra, a 52 x 11 minute episode animated TV series in Digital animation format, co-produced with Imira Entertainment, Spain acquired by Disney Channel India for the Indian sub-continent

• Broadcasting deal for Casper's Scare School, an animated TV series co-produced with Classic Media Inc., USA and MoonScoop SAS, France acquired by Nickelodeon (a part of Viacom 18 group) for broadcast in the Indian sub-continent

Since the half year end DQE has announced the following

• Negotiations with leading broadcasters across the globe for Toomai - The Elephant Boy, DQE's first live action TV series, for which it owns 100% of the IP rights

• Agreement with Gaumont-Alphanim, France for co-production of TV series Galactic Football season 3, production of which has commenced

• Free-to-air TV broadcasting deal with Metropolois TV Inc for South East Asia for Iron Man TV series season 1

• Exclusive broadcasting agreement with USA based Buena Vista International Inc, the distribution arm of Walt Disney Company, for The Jungle Book for broadcast in 29 countries across the Indian sub-continent and South East Asia (including South Korea, Hong Kong & Japan

• Home video distribution deal with Sony Pictures Home Entertainment for TV series including Casper (season 1), Twisted Whiskers (season 1), Sandra (season 1), Rat Man (season 1), Emmy Award nominated Todd World (seasons 1 and 2), and wholly owned Indian IP TV series, Balkand, Ravan and Omkar

• Agreement with ABC Television, Australia for free-to-air TV broadcasting of 3D CGI TV series The Jungle Book

Merchandising

The need to recognise the value of intellectual property rights in order to maximize revenue generation is increasingly important. Licensing & Merchandising is therefore fundamental to DQE's business model. 

Experience has taught us that the success of a television series can depend on carefully thought out and well-structured licensing. Expertise in the licensing arena, coupled with an unrivalled knowledge of the retail and manufacturing landscape has been a major differentiator against competition in the marketplace.  

Our portfolio includes a wide range of classic entertainment characters ,and it is our aim is to exploit these to produce a range of consumer products to benefit the licensees and the consumer, while capitalising on an additional revenue stream.. 

Business Strategy

• Capitalise on the growth of the animation industry across the globe, including India.

At an estimated size of US$494m in 2008, the Indian animation industry is insignificant as compared to the global animation industry, which realized estimated revenues of US$68bn in 2008. However, the Indian animation industry has been growing at an estimated compound annual growth rate of 25.4% during 2006-08 and is estimated to reach a size of more than US$ 1bn by 2012. DQE intends to capitalise on such growth prospects by leveraging our international experience and expertise in the sector in the domestic animation industry.

• Continued efforts to develop our presence in the market for animation services

DQE will continue to focus on expanding our footprint in the animation production services and enlarging our client base globally.

• Continued focus on a co-production business model

DQE is committed to a sustainable and low risk business model. We will continue to move along the animation value chain, into IP creation and distribution of animation content. DQE aims to continue:

• entering into co-production agreements with a select number of existing clients to obtain larger percentages of the global, cross platform intellectual property and distribution rights of its productions;

• consolidating our portfolio of co-productions and productions of our own IP content in certain 2D and 3D animated productions by collaborating with well known and award winning storytellers from the US and Europe; and

• to forge strategic relationships with our existing clients by leveraging on respective strengths to bring greater value to the customers;

• Backward and forward integration

DQE intends to diversify the range of offerings to include pre-production and post-production services that will add value to our service offerings and will earn us a larger share of the revenues collected from the IPs we produce/co-produce.

Outlook 

By continuing to expand our co-production portfolio we anticipate our Licensing and Distribution division will begin to generate greater sales growth in the near future. We have established excellent relationships with distributors, broadcasters and producers worldwide and believe increased participation and partnering will underpin our long term growth prospects. Our relationships with these key partners continue to create opportunities for generating increased revenue for the Group. DQE's order book as of 30 September 2009 stood at US$ 92.2m to be expected over twenty months.

Maximizing high quality content remains at the heart of our business and is also a key competitive advantage. DQE aims to continue to capitalize on the rapidly growing global media and entertainment industry. The Group's strong order book visibility, coupled with the expected growth of the global and Indian media and entertainment market, leave us confident that 2010 will be another year of continued overall growth and progress. We now aim to leverage on the increased demand for digitized content and will focus on multi-platform distribution such as Mobile, Internet, IPTV, VoD and L&M, in addition to TV and home video. Looking forward to 2010 and beyond, the Group sees potential growth across 5 major verticals of TV broadcast, music, merchandising, publishing and gaming.

Condensed Consolidated Statement of Income 

Condensed Consolidated Statement of Comprehensive Income 

  Condensed Consolidated Balance Sheet 

Condensed Consolidated Balance Sheet

These financial statements were approved by the Board of Directors and authorised for use on    21 December 2009.

Signed on behalf of the Board of Directors by:

Director                                

Condensed Consolidated Statement of Changes in Equity for the 

period ended 30 September 2009

  Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows for the period ended 30 September 2009

Condensed Consolidated Statement of Cash Flows

  Notes to Condensed Consolidated Financial Statements

NOTE A - BASIS OF PREPARATION

1. General information

DQ Entertainment plc (the 'Company' or "DQplc") is a company domiciled and incorporated in the Isle of Man on 19 April 2007 and was admitted to the Alternative Investment Market of London Stock Exchange on 18 December 2007. The Company raised approximately USD 54 million (£26.83 million) at listing (before Admission costs).

The condensed consolidated financial statements of the Company for the six months period ended 30 September 2009, comprises the financial statements of the Company, its subsidiaries and associate (together referred to as the 'Group').

As on 30 September 2009 the following companies formed part of the Group:

The Company's registered address is 15-19, Athol Street, Douglas, Isle of Man.

The Group is primarily engaged in the business of providing Traditional and Digital Animation for Television, Home Video, Feature Films and the like, and game art development. The Group also is engaged in exploitation of its Distribution Rights to broadcasters, television channels, home video distributors and others.

The functional currencies of the respective Group companies are:

.

2. Significant accounting policies

The accompanying condensed consolidated financial statements of the Company have been presented for the six months ended 30 September 2009 along with comparatives for the six months ended 30 September 2008 and the year ended 31 March 2009. These condensed consolidated interim financial statements have been prepared on accrual basis of accounting using accounting policies consistent with IAS-34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB'). In preparing this information management have used the accounting policies set out in the Group's 2008-09 financial statements.

In the opinion of management, all adjustments, which are of a normal recurring nature and necessary for a fair presentation, have been included. The Company has chosen to present the condensed consolidated financial position, condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of cash flows and condensed consolidated statement of changes in shareholders' equity along with selected explanatory notes. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with IFRS have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These condensed consolidated financial statements have been prepared using the same accounting policies that were applied in the preparation of the Company's annual financial statements for the year ended 31 March 2009. 

That the directors have had regard to the 12 month period from the date of approval of the interim financial statements and have reviewed the forecast cash flows. The company has been cash generative in the interim period and has sufficient resources to meet its ongoing liabilities as they fall due.  Consequently the directors confirm the appropriateness of the going concern basis of preparation of these condensed consolidated financial statements.

IAS 1 (Revised) - Presentation of financial statements.

The revised IAS 1 was issued by the IASB in September 2007, IAS I (Revised) mandates the presentation of the income (expenses) recognised directly in equity to be presented in a separate statement " Statement of Other Comprehensive Income" which is a part of the financial statements for the six month period ended 30 September, 2009.

NOTE B - STANDARDS AND INTERPRETATIONS NOT YET APPLIED

The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the Company's Financial Statements.

Based on the Company's current business model and accounting policies, management does not expect any material impact on the Company's financial statements when any of the other standards or interpretations becomes effective.

The Company does not intend to apply any of these pronouncements early.

NOTE C - SEGMENT REPORTING

Segment information is presented in respect of the Company's business segments, the primary format, which is based on the Company's management and internal reporting structure. Segment revenue and results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate expenses.

The IASB issued IFRS 8 - Operating segments in November 2006. IFRS 8 replaces IAS 14 Segment Reporting (IAS14) upon its effective date. The Group concluded that the segments determined in accordance with IFRS 8 are identical to the business segments previously identified under IAS 14. 

Business segments

The Company comprises the following main business segments:    

Animation:

The production services rendered to production houses and training rendered for acquiring skills for production services in relation to the production of animation television series and movies.    

Gaming:

The services provided for the contents in Console / Mobile / other platforms.

Distribution: 

The revenue generated from the exploitation of the distribution rights of animated television series and movies acquired by the Company.

The following is an analysis of the Company's revenue and results by operating segment for the periods under review:

NOTE D - CASH AND BANK BALANCES

NOTE E - FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at fair value through profit or loss comprise of foreign exchange option contracts held by the Group. The fair value of these derivative instruments is as follows:

NOTE F - INTANGIBLE ASSETS 

The amortisation and impairment is recognised as cost of sales in the income statement.

NOTE G - ADVANCE PAID FOR DISTRIBUTION RIGHTS

Advances paid for distribution rights include amounts paid to the producers for acquisition of the distribution rights. These advances are transferred to intangible assets on completion of the entire production activities and when the asset is ready for exploitation. No amortisation is charged on these advances until they are transferred to the distribution rights. Up to that point, they are assessed annually for impairment.

NOTE H - INTEREST BEARING LOANS AND BORROWINGS

Interest bearing loans and borrowings comprise the following:

NOTE I - PROVISION FOR RETAKES

Retakes include creative changes to the final product delivered to the customer, performed on the specific request of the customer at the Group's own cost. Requests for retakes from customers are expected to be received by the Group within a period of 3 months from the final delivery and hence the provision is not discounted.

NOTE J - PERSONNEL EXPENSES

Details of personnel expenses included under cost of sales and administrative expenses are as follows:

NOTE K - NET FINANCING COSTS

NOTE L - EARNINGS PER SHARE

Profit attributable to ordinary shareholders    

The Group does not have any dilutive instruments for the period ended 30 September 2009 and as such Diluted EPS equals Basic EPS

NOTE M - CAPITAL AND RESERVES

    a)  Ordinary shares

DQplc presently has only one class of ordinary shares. For all matters submitted to vote in the shareholders' meeting, every holder of ordinary shares, as reflected in the records of the Company on the date of the shareholders' meeting, has one vote in respect of each share held. All shares are equally eligible to receive dividends and the repayment of capital in the event of liquidation of the Company.

The Company has an authorized share capital of 50,000,000 equity shares of 0.1 pence aggregating to USD 99.755 Thousand.

Issue of ordinary shares

b)  Reserves

Share premium - The amount received by the company over and above the par value of shares issued is shown under this head.

Reverse acquisition reserve

Equity component of convertible instruments    

Translation reserve - Assets, liabilities, income, expenses and cash flows are translated into USD (presentation currency) from Indian Rupees (functional currency of DQ Entertainment (International) Limited, India) and Great British Pounds (functional currency of the Company). The exchange difference arising out of the period-end translation is being debited or credited to Foreign Currency Translation Reserve, which is amounting to USD (9,856) Thousand (30 September 2008: USD (7,900) Thousand and 31 March 2009: USD (13,290) Thousand).

Accumulated earnings - Accumulated earnings include all current and prior period results as disclosed in the income statement.

NOTE N - CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES

*Claims against DQ India not acknowledged as debts amounting to US$199 Thousand comprise of demand from Indian Income Tax authorities on account of non-deduction of withholding tax relating to certain overseas payments. DQ India is contesting the demand and has gone on appeal with the relevant appellate authorities.

NOTE 0 - RELATED PARTIES    

Identity of related parties

The Company has a related party relationship with its directors, executive officers, subsidiaries and associate.

Related parties and their relationships

     a) Subsidiaries

    DQ Entertainment (Mauritius) Limited 

    DQ Entertainment (International) Limited

    DQ Entertainment (Ireland) Limited ( with effect from 12 November 2008)

b) Associate

Method Animation SAS 

RELATED PARTIES - continued

   c)    Key management personnel

    Mr. Tapaas Chakravarti - Director

    Mr. K. Balasubramanian - Director

    Late . Rusi Brij - Director (passed away on 20 May 2009)

    Mr. Sanjay Saxena - Director (with effect from 08 June 2009).

          Ms. Theresa Plummer - Director

    Mr. Anthony BM Good - Director 

d) Relatives of Key Management Personnel with whom DQ India had transactions during the year - 
    Mrs. Rashmi Chakravarti (wife of Mr. Tapaas Chakravarti)

Trading transactions    

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

Revenue from production from related parties were at prices arising out of the Group's usual trade practices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.

Compensation of key management personnel

Directors of the company and their immediate relatives control 14.47 per cent of the voting shares of the company.

The remuneration of directors and other members of key management during the year was as follows:

Other related party transactions

Remuneration paid to relatives of key management personnel during the period was USD 29 Thousand (30 September 2008: USD 33 Thousand; 31 March 2009: USD 61 Thousand) and the outstanding balance as at 

30 September 2009 was USD 3 Thousand (30 September 2008: USD 3, 31 March 2009: USD 3 Thousand).

RNS news service provided by Hemscott Group Limited.