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Brilliant Digital - Rapport annuel des comptes

Brilliant Digital, par sa filiale Altnet et son cheval de Troie Brilliant Digital Projector, prend nos ordinateurs pour les siens !

Brilliant Digital, par sa filiale Altnet et son Cheval de Troie "3D Brilliant Digital Projector", prend nos ordinateurs pour les siens !

Pour ceux qui sont à l'aise avec la langue de William Shakespeare, voici un extrait du rapport annuel des comptes de Brilliant Digital Entertainment - c'est édifiant car il est clairement annoncé aux actionnaires les intentions en matière de réseau et de vol des réserves de puissances de nos ordinateurs ainsi que l'angoisse qu'ils ont d'avoir la dissémination la plus totale possible de leur Cheval de Troie, la visionneuse 3D Brilliant Digital Projector.

La mise en exergue des parties les plus significatives du texte, en ce qui concerne la violation de la vie privée et la constitution de leur réseau à base de l'exploitation de nos ordinateurs sans notre consentement, est d'Assiste.com.

April 01, 2002



The following discussion and analysis should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-KSB.



Brilliant Digital Entertainment, Inc. is a developer of rich media advertising serving technologies, software authoring tools and content for three dimensional, or 3D, animation on the World Wide Web. During the third quarter of 2001, we began marketing and distributing our player, the "Digital Projector" (required for the playback of our rich media content and advertisements) through two large peer-to-peer, or P2P, networks, Sharman Networks, which operates the KaZaA network (formerly operated by Consumer Empowerment B.V.), and StreamCast Networks, which operates the Morpheus network. Previously, our primary method of distribution was through the bundling of the Digital Projector with our animation content which we syndicated to third party web sites. At December 31, 2001, we estimate that our Digital Projector had been distributed to tens of millions of users based on KaZaA's weekly downloads as reported on Download.com, as additional P2P connected computers and other users have accessed the KaZaA and Morpheus networks. Sharman Networks continues to distribute our player and StreamCast Networks has discontinued its distribution. We commercialize our technology in two primary ways. We license our rich media advertising server technologies to websites to enable the selling and serving of our proprietary rich media advertising format, and we license our rich media content authoring tools - "b3d Studio" and "b3d Studio Pro" - to production studios and content developers interested in creating content for the Internet.

We launched our rich media 3D advertising banners - Brilliant Banners - into the market to offer advertisers and web sites an alternative to the current Graphics Interchange Format, or GIF, banners that are prevalent on web sites today. With the decline of industry wide banner advertising revenues and click through rates, we believe that our animated 3D banner advertisements perform better than GIF banners and may help reinvigorate certain online advertising campaigns. We license our rich media ad serving technologies, through our wholly-owned subsidiary B3D, Inc., to high trafic websites, including the P2P network, Sharman Networks, for the serving of Brilliant Banners. We are also introducing our ad format to third party ad serving companies, making our technologies available for them to commence selling and serving this new rich media ad format. In November 2001, we became a Rich Media Silver Vendor of DoubleClick, Inc. This rich media certification was awarded after our technology passed the DoubleClick tests for functionality, impression tracking and click tracking.

In February 2002, we formed Brilliant P2P, Inc., later renamed Altnet, Inc., to create a private, peer-to-peer network utilizing existing, proven technology to leverage the processing, storage and distribution power of a peer-to-peer network comprised of tens of millions of users. Altnet intends to license commercially available digital rights management technology to protect against infringement of the proprietary rights of the owners of the content distributed over the Altnet network. Altnet licensed the peer-to-peer technology necessary to operate the network from Blastoise, Ltd. doing business as Joltid. Blastoise is owned and operated by the developers of the FastTrack P2P technology, the underlying technology which operates the KaZaA and Grokster P2P networks. Pursuant to our agreement, Blastoise acquired 49% of the outstanding common stock of Altnet.

Peer-to-peer computing is the sharing of computer resources and services by direct exchange between computer systems, and not through a central server. Peer-to-peer computing applications include the exchange of digital files and other information, processing cycles (the cycles by which data is processed in the central processing unit of a computer), cache storage (temporary storage of files in the central processing unit of a computer), and disk storage. Peer-to-peer computing takes advantage of existing desktop computing power and networking connectivity, allowing users to access the collective power of individual computers to benefit the entire enterprise. Millions of computers are logged onto the Internet at any given time, each with excess processing power, excess storage capacity and unused bandwidth. Through Altnet, we intend to create a private peer-to-peer network to enable our clients to access and utilize this excess processing power, storage capacity and unused bandwidth for multiple applications.

We intend to commercialize Altnet through licensing agreements for Altnet's three main services: Network Services, Distributed Storage and Distributed Processing.

We have licensed some of the world's best known characters for the production and web distribution of episodic animations, called MultipathTM Movies, that include SUPERMAN, XENA: WARRIOR PRINCESS, KISS, and ACE VENTURA, and have produced animated music videos of top selling artists including Ja Rule, Ludacris, DMX and Li'l Romeo. These full-screen productions, developed using our proprietary suite of b3d software tools, have small files for faster download relative to full video files. Currently we distribute our animated content through Internet syndication partners including Warner Bros. Online, Roadrunner and selected sites from the Universal Music Group.

In 2001, we substantially reduced our internal production and syndication of 3D animation, which we used primarily to distribute our Digital Projector, in order to reduce our costs and our cash burn rate. We have discontinued operations at Digital Hip Hop, the joint venture we formed to produce animated music videos for the World Wide Web, and have discontinued operations at, and placed into liquidation, Brilliant Interactive Ideas Pty. Ltd., our Australian-based production company. The reduction in our content production and syndication activities has allowed us to focus our efforts and allocate our resources to the further development and exploitation of our advertising serving and authoring tools businesses, and to pursue the development of a private, peer-to-peer network business through our Altnet subsidiary.

We entered into an agreement with Russell Simmons and Stan Lathan that provided for the formation of Los Angeles-based Digital Hip Hop, Inc., a joint venture production studio headed by Stan Lathan. Digital Hip Hop produced and distributed full screen animated music videos and other content primarily for Internet and broadband distribution. Digital Hip Hop produced animated music videos for top selling artists including JA RULE, SUM41, LUDACRIS, DMX, REDMAN/LADY LUCK and LI'L ROMEO pursuant to production agreements with the record labels (Island Def Jam, DreamWorks Records, Priority Records, and others). As our internal costs typically exceeded the agreed upon production fees, our strategy was to recapture the differential with our share of the ad revenue, as well as gain an additional means of distributing our Digital Projector. The distribution of our Digital Projector was only partially successful, and our portion of the ad revenue fell short of our projections.

During the fourth quarter of 2001, we discontinued operations at Digital Hip Hop based on the limited prospects of additional web video production work. Past clients, including the Universal Music Group and Priority Records, were reluctant to make future commitments for incremental web videos at prices which were higher than previously paid. We do not intend to actively market and promote the production of animated music videos for the Web. However, to the extent that previous partners request a quote for additional work or we are approached to produce additional web videos, we intend to outsource the production work to existing third party licensees of b3d Studio and b3d Studio Pro, many of whom are currently producing Brilliant Banners, and charge a fee for overseeing the project.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to reserves for bad debts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our use of estimates, however, is quite limited, as we have adequate time to process and record actual results from operations.


REVENUES. Production fees are paid by customers in exchange for our development of animated content, including banner ads, in accordance with customer specifications. The development agreements generally specify certain "milestones" which must be achieved throughout the production process. As these milestones are achieved, we recognize the portion of the development fee allocated to each milestone.

Revenues, which are earned from the sale or licensing of our software tools, are recognized when the sales or licensing agreements are entered into. If the agreement covers a period in excess of one year, the revenue associated with this agreement is recognized on a straight-line basis over the life of the agreement.

Advertising revenues, which are earned revenues from the placing of our content on third party web sites, are recognized when the third party accounts to us. Ad server licensing revenues are recognized when we invoice the licensee, which usually occurs after the terms of the advertising campaign insertion order are fulfilled.

We enter into distribution contracts under which we are entitled to fixed minimum guaranteed payments. The minimum guaranteed payments are recognized as revenue when the CD-ROM master is delivered to the distributor and the terms of the sale are considered fixed. We have derived our revenues from royalties, development fees and software sales. We license our traditional CD-ROM products to publishers and distributors in exchange for non-refundable advances and royalties based on product sales. Royalties based on product sales are due only to the extent they exceed any associated non-refundable royalty advance. Royalties related to non-refundable advances are recognized when the CD-ROM master is delivered to the licensees. Royalty revenues in excess of non-refundable advances are recognized upon notification by the distributor that a royalty has been earned.

Revenues increased 76% from $1,030,000 for the year ended December 31, 2000 to $1,816,000 for the year ended December 31, 2001. The increase is primarily due to (i) the increase in production fees related to the production of animated music videos by Digital Hip Hop, (ii) a full year of revenues recognized through our distribution and technology agreements with e-New Media, and (iii) an increase in advertising revenues. The increase was partially offset by a decrease in software and DVD sales. Revenues for 2001 include $917,000 earned under a technology and distribution agreement with e-New Media, advertising and other revenues of $518,000, and production revenues of $381,000 for digital animated music videos. Revenues for 2000 include $612,000 earned under an agreement with e-New-media, advertising and development revenues of $309,000, and software sales of $109,000.

COST OF REVENUES. Cost of revenues consists primarily of the amortization and write-down of capitalized movie software costs for previously released titles, royalties to third parties and the direct costs, including salaries and benefits, and manufacturing overhead required to produce content, including MultipathTM Movies, animated music videos and banner ads, reproduce and package software products. Cost of revenues increased from $268,000 for the year ended December 31, 2000 to $463,000 for the year ended December 31, 2001. This represents an increase of $195,000, or 73%, which is primarily due to the development of animated music videos during 2001, at a cost of $352,000. This increase is offset by a reduction in software and motion capture costs in 2001 as compared to the prior year. Also adding to this increase, in 2001, we amortized $105,000 of royalty expense in connexion with our licensing rights compared to $53,000 in 2000. In 2000, we fully amortized the remaining capitalized movie software costs of $158,000, for previously released titles, and incurred direct costs of $44,000 for software sales, and other development costs of $41,000.

SALES AND MARKETING. Sales and marketing expenses include primarily costs for salaries and benefits, advertising, promotions, and travel. Sales and marketing expenses decreased $812,000 or 49% from $1,651,000 for the year ended December 31, 2000 to $839,000 for the year ended December 31, 2001. The decrease is primarily attributable to the reduction in outside sales and marketing consultants who had been retained to market the b3d tools. Also in 2001, we elected not to participate in the Siggraph trade show, which cost $264,000 in 2000. In 2001, we incurred $426,000 expense for warrants issued in connexion with our agreement with Yahoo!, while incurring $596,000 in 2000.

GENERAL AND ADMINISTRATIVE. General and administrative expenses include primarily salaries and benefits of management and administrative personnel, rent, insurance costs and professional fees. General and administrative expenses increased $86,000 or 2% from $4,324,000 for the year ended December 31, 2000 to $4,410,000 for the year ended December 31, 2001. Although there were cuts in some areas, overall expenses increased due to the addition of Digital Hip Hop, which contributed $572,000 to our general and administrative expenses.

RESEARCH AND DEVELOPMENT. Research and development expenses include salaries and benefits of personnel conducting research and development of software products. Research and development costs also include costs associated with creating our software tools used to develop MultipathTM Movies and other 3D animated content. The costs decreased 51% from $3,855,000 for the year ended December 31, 2000 to $1,892,000 for the year ended December 31, 2001 primarily due to a decrease in web development costs, research and development personal and overhead costs associated with research and development. We decreased the headcount in Sydney from 53 employees at December 31, 2000 to 7 at December 31, 2001.

DEPRECIATION AND AMORTIZATION. Depreciation expense relates to depreciation of fixed assets such as computer equipment and cabling, furniture and fixtures and leasehold improvements. These fixed assets are depreciated over their estimated useful lives (up to five years) using the straight-line method. Depreciation expense decreased 11% from $319,000 for the year ended December 31, 2000 to $284,000 for the year ended December 31, 2001. The decrease is attributable to some fixed assets being fully depreciated and the disposal of other fixed assets.

OTHER INCOME AND EXPENSE. Other income and expense includes interest income and interest expense, gains and losses on foreign exchange transactions, and export development grants paid to our subsidiary, Brilliant Interactive Ideas Pty. Ltd., by the Australian Trade Commission for its participation in certain export activities. Other income and expense decreased from income of $179,000 in 2000 to a loss of $563,000 in 2001. The decrease is primarily due to a non-cash debt discount expense of $467,000 and interest expense of $118,000 in association with the financing agreement. Additionally, we wrote off $264,000 recorded as a loss on investment for the joint venture in Digital Hip Hop. This expense is partially offset by the increase in the trade export grant of $69,000.

NET LOSS ON DISCONTINUED OPERATIONS. The Auction Channel has been accounted for as a discontinued operation pursuant to Management's formal adoption on December 31, 2000 of a plan to dissolve the business unit. Net liabilities to be disposed of, at their expected realizable values, have been separately classified in the accompanying balance sheet at December 31, 2000.

The Company recognized a gain of $327,000 in 2001 due to the sale of substantially all of the assets of The Auction Channel in April 2001.

Brilliant Digital - Rapport annuel des comptes - Brilliant Digital - Rapport annuel 2002 des comptes 2001 - Part 2
Brilliant Digital - Rapport annuel des comptes - Brilliant Digital - Rapport annuel 2002 des comptes 2001 - Part 1