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Brainpower Experiences Strong Revenue Growth

· Revenues of €1.7 million up 19% from the year ago period
· Major deal signed with HSBC in wealth management space
· Collaboration with third parties including Sungard and Cap Gemini
· Operating expenses down 32% from the year ago period
· EBITDA losses reduced by over €1.2 million from the year ago period

Brainpower N.V. (Deutsche Börse, Prime Standard: BPW), provider of analytic applications, technology and data management solutions to the investment management community, announces results for the Second Quarter ended June 30, 2004.

Revenues equaled €1.73 million, up 19% from the second quarter 2003 results and 17% higher than revenues recognized in the period ended March 31, 2004. EBITDA (earnings before interest, taxes, depreciation and amortization) losses before restructuring costs reduced to €258,000 from an EBITDA loss of €1.46 million in the year ago period.

“We saw the momentum continue to grow in the wealth management space”, stated Rocco Pellegrinelli, Chairman and Chief Executive Officer of Brainpower. “Our new business for the quarter included a three-year global deal with HSBC Private Bank and also a three-year deal with Banque Cantonale de Geneve. In addition, there was also interest from integrators now recommending our products as part of their overall wealth management solution.

We continued our collaboration with third parties by creating a “best practices” laboratory for the Italian asset management community with Sungard and CapGemini. The company also signed a further agreement with a third party service provider, who will utilize our technology within one of their new products. Overall we are happy to see that the recently expanded product range has translated into increased visibility for our company in the market place, resulting in a significantly expanded new business pipeline for the second half of the year.”

Bill Holwell, Chief Financial Officer of Brainpower, added, “As previously stated, the shift by some clients from term to perpetual licenses with upfront fees is causing some revenue variability on a quarterly basis. We anticipate this trend to continue moving forward but still expect to see quarterly revenue expansion due to the strength of our product portfolio. The trend toward perpetual licenses has also had an impact on Brainpower’s total backlog of booked revenue to be recognized over the next two to three years. At the end of the second quarter this backlog equaled €6.8 million, down slightly from €6.9 million at March 31, 2004.

As expected, cash used in operations during the quarter of €649,000 was higher than the previous quarter but down from €1.6 million used in the second quarter of 2003. As previously mentioned, this is principally due to our six-monthly invoicing pattern, which results in cash collections from customers being higher in the first and third quarters of the year. The company increased its access to short-term credit facilities in the quarter and has sufficient funding to cover expected future cash outflows.”

REVENUES

Recognized revenue in the quarter ended June 30, 2004 equaled €1.73 million, up 19% from €1.46 million recognized in the year-ago period. In addition, revenues were 17% higher than the €1.48 million recognized in the quarter ended March 31, 2004.

Gross profit in the second quarter was €1.48 million or 86% of revenue, versus €1.14 million (78% of revenue) in the year-ago period and €1.18 million (80% of revenue) in the previous quarter.

OPERATING EXPENSES

For the quarter ended June 30, 2004, Brainpower’s operating expenses excluding restructuring costs and before depreciation and amortisation were €1.74 million; a substantial reduction from the €2.6 million incurred in the second quarter 2003 and slightly below the €1.77 million incurred in the previous quarter.

Sales & Marketing
Total sales and marketing costs decreased substantially from €1.06 million in the second quarter 2003 to €725,000 for the quarter ended June 30, 2004. These costs were below the €786,000 incurred during the previous quarter. There were a total of 22 employees in sales and marketing functions at June 30, 2004, a reduction of 2 compared to March 31, 2004.

Research & Development
R&D costs decreased from €809,000 in the year-ago period and €543,000 in the quarter ended March 31, 2004 to €537,000. There were a total of 28 employees in R&D at June 30, 2004, 2 lower than at March 31, 2004.

General & Administrative
G&A costs decreased from €735,000 in the second quarter 2003 to €478,000 for the period ended June 30, 2004. These costs were slightly higher than the €442,000 incurred in the previous quarter. There were 13 employees in general and administrative roles at June 30, 2004, no change from the previous quarter.

Restructuring
Restructuring charges for the quarter ended June 30, 2004 totaled €120,000.

OTHER PROFIT & LOSS ITEMS

Total depreciation and amortization expense for the period ended June 30, 2004 was €149,000 versus €195,000 incurred during the second quarter 2003.

EBITDA losses before restructuring costs reduced to €258,000 from an EBITDA loss of €1.46 million in the year ago period.

The net loss for the second quarter was €511,000, a reduction of €1.3 million from the second quarter 2003, and a reduction of €375,000 from the net loss in the previous quarter.

BALANCE SHEET

Brainpower’s cash position as at June 30, 2004 was €279,000 compared to €2.2 million at the end of the second quarter 2003. The cash used in operations for the quarter was €988,000 lower than the €1.64 million used in the year-ago period.

During the quarter, the company increased its short-term credit facilities by €650,000, bringing the aggregate balance of credit facilities to €2.05 million, of which €700,000 is non-cancelable. As of June 30, 2004, the company had drawn down €972,000 against its credit facilities. The company also has credit facilities available of up to €950,000 based on a percentage of its qualifying accounts receivable balances. As of June 30, 2004, the company had no balances outstanding against the facility. Given the company’s sales projections, management believes Brainpower has sufficient funding to achieve EBITDA breakeven during 2004.

As at June 30, 2004 the accumulated deficit was €33.9 million compared to the accumulated deficit of €30.3 million at the end of the second quarter 2003. Shareholders equity ended the quarter at €(387,000).

HEADCOUNT

Brainpower employed a total of 68 people at June 30, 2004, a decrease of 5 from the total as at March 31, 2004.