Final Results

Zen Research PLC 13 February 2001 Zen Research plc announces unaudited results for the three months and year ended 31 December 2000 Zen Research plc ('Zen' or the 'Company'), the developer and licensor of MultibeamT and True XT technologies for use in production of high-performance components for DVD and CD drives, today announces unaudited results for the fourth quarter ended 31 December 2000. Zen's objective is to establish its MultibeamT and True XT technologies as leading industry solutions in optical storage devices. Fourth Quarter Highlights * Development of multiple beam DVD technology and products continues to move ahead * Two additional DVD drive manufacturers signed licence agreements * Consumer products company signs with Zen. Emil Jachmann, Chief Executive of Zen Research plc said: 'With the recent addition of two more drive makers, Lite-On and BTC, we are pleased to report that three of the world's top seven manufacturers of optical drives for PCs now hold Zen licences. We remain the only company offering simultaneous multiple track reading technology and the growing number of our licencees attests to the value of our technology.' For further information: Zen Research Emil Jachmann, David Aber Tel: 0044 20 7353 9203 Bell Pottinger Financial Matthew Moth/Mark Way Tel: 0044 20 7353 9203 www.zenresearch.com Additional Information Development of multiple beam DVD technology and products continues to move ahead. Samples of Infineon's first 'Powered by Zen' DVD-ROM drive controller chip - branded 'Raptor' - were fabricated during the month of November, and testing of these pre-production chips is underway. Also, a limited number of pre-production 'Multibeam' optical pickups have been manufactured for installation and testing in DVD-ROM drive prototypes. Two additional optical drive manufacturers signed licence agreements during the fourth quarter. Lite-On IT Corporation, a Taiwanese optical drive manufacturer ranked third* in the world, signed a Zen licence agreement for the manufacture of DVD-ROM drives, as did Behavior Tech Computer Corporation (BTC), another Taiwanese optical drive manufacturer ranked seventh* in the world in the production of CD-ROM and DVD-ROM drives. A licence was also signed with a global consumer electronics manufacturer for the application of Zen technology in a consumer product. Details of the licence cannot yet be disclosed. The Company commenced experimentation with a variation of Zen technology specifically for the DVD video player market. * International Data Corporation (IDC) September 3Q 2000 Report Financial Commentary Turnover Turnover for the three months ended 31 December 2000 increased to US$110,000 compared to US$9,000 for the comparable period ended 31 December 1999. Turnover for the three month period ended 31 December 2000 represents both royalty income received under a licence agreement with a single licencee for CD ROM technology and engineering fees. Turnover for the three month period ended 31 December 1999 represents only royalties earned during the period. Turnover for the twelve month period ended 31 December 2000 increased 149% to US$271,000 compared to the prior twelve month period. Turnover for the twelve month period ended 31 December 1999 included the sale of US$100,000 of CD-ROM ASICs (Application Specific Integrated Circuits) which were sold prior to the conversion of the Company's business model, and US$9,000 of royalty. During mid-1999, the Company converted from a business model which recognised turnover from the direct sale of CD-ROM ASICs, to its current business model in which the Company is primarily engaged in product design and development of technology which is licenced for use in the production of high-performance components for CD and DVD optical storage devices. Research and development Research and development expenses increased to US$2.6 million and US$8.3 million for the three and twelve month period's ended 31 December 2000 compared to the corresponding period's amounts of US$1.4 million and US$5.5 million respectively. These increases reflect the increase in headcount and related expenses, expenditures on outside engineering services to develop and enhance the Company's intellectual property and increased facilities expenses. Zen expects such increases to continue. Costs in connection with the Initial Public Offering and Offering of New Shares The Company incurred a total of US$15,872,000 of costs in relation to the Initial Public Offering, related restructuring and offering of new shares. Expenses, which were incurred directly in connection with the issue of new shares, including an apportionment of costs relating to the offering of both new shares and the existing shares in the Initial Public Offering, have been charged to the share premium account. The costs related to the offering of both new shares and existing shares in the Initial Public Offering, have been apportioned on the basis of the new number of new shares offered against the total of new and existing shares at the time of the Initial Public Offering. Of the total costs, US$10,066,000 has been charged against the share premium account and US$5,806,000 charged to the Profit and Loss statement. Other operating expenses Other operating expenses for the three month period ended 31 December 2000 increased to US$1.7 million, compared to US$1.5 million for the corresponding prior year three month period. This increase was mainly due to higher costs related to, being a public company, increased professional fees, insurance, the addition of two corporate entities and other related costs. Zen expects such increases to continue. Other operating expenses for the twelve month period ended 31 December 2000 were $5.0 million compared to US$6.0 million for the corresponding prior year period reflecting the Company's change in business model as discussed above. The reduction in costs during this period reflects the decrease in headcount and related expenses deployed in field operations, which had been important to support the prior business model. Consolidated Balance Sheet Cash on hand and short-term investments increased at 31 December 2000 to US$96.9 million compared to US$90,000 at 31 December 1999. This increase was mainly due to the successful public offering on the London Stock Exchange, advance royalty receipts, issuance of preferred shares to several investors prior to the public offering and the exercise of options for Ordinary shares. Proceeds from these issues were partially used to reduce the outstanding amount due to creditors falling due within one year. Zen Research plc Results for the quarter and year ended 31 December 2000 Unaudited consolidated profit and loss accounts Quarter ended Year ended 31 December 31 December 2000 1999 2000 1999 US$ '000 US$ '000 Turnover 110 9 271 109 Cost of sales -- -- -- (74) ---------- --------- ---------- --------- Gross profit 110 9 271 35 Research and development (2,641) (1,447) (8,295) (5,475) Other operating expenses excluding exceptional items (1,694) (1,453) (4,968) (5,959) Exceptional items: Costs in connection with Initial Public Offering -- -- (5,806) -- ---------- --------- ---------- --------- Total other operating expenses (1,694) (1,453) (10,774) (5,959) ---------- --------- ---------- --------- Total operating expenses (4,335) (2,900) (19,069) (11,434) ---------- --------- ---------- --------- Loss on ordinary activities before interest and taxation (4,225) (2,891) (18,798) (11,399) Net interest receivable/(payable) 1,038 (133) 1,647 (447) ---------- --------- ---------- --------- Loss on ordinary activities before taxation (3,187) (3,024) (17,151) (11,846) Taxation on ordinary activities 105 (43) (354) (170) ---------- --------- ---------- --------- Loss on ordinary activities after taxation (3,082) (3,067) (17,505) (12,016) ========== ========= ========== ========== Basic loss per share (0.02) (0.04) (0.12) (0.16) (US dollars) ========== ========= ========== ========== Adjusted EPS (excluding IPO costs) (US dollars) (0.02) (0.04) (0.08) (0.16) ========== ========= ========== ========== Weighted Average Ordinary Shares 178,679,830 83,284,038 140,302,345 75,800,844 ========== ========= ========== ========== The Company has no recognised gains and losses in any of the periods shown above other than the loss for the period shown in the relevant profit and loss account. Accordingly, no separate statement of total recognised gains and losses has been presented. Zen Research plc Unaudited consolidated balance sheet 31 December 31 December 2000 1999 US$ '000 US$ '000 Fixed assets Intangible assets 1,147 548 Tangible assets 1,745 1,522 --------- --------- 2,892 2,070 Current assets Short-term investments 42,726 -- Debtors - due after more than one year 1,503 2,244 Debtors - due within one year 583 157 ---------- ---------- 44,812 2,401 Cash at bank and in hand 54,192 90 ---------- ---------- 99,004 2,491 Creditors - Amounts falling due within one year (4,958) (10,490) ---------- ---------- Net current assets/(liabilities) 94,046 (7,999) ---------- ---------- Total assets less current liabilities 96,938 (5,929) Creditors - Amounts falling due after more than one year (4,050) (384) ---------- ---------- Net assets/(liabilities) 92,888 (6,313) ---------- ---------- Capital and reserves Called up share capital 13,562 9,723 Share premium 100,529 -- Other reserves 37,832 25,494 Profit and loss account (59,035) (41,530) ---------- ---------- Total equity shareholders' funds/(deficit) 92,888 (6,313) ========== ========== Zen Research plc Unaudited consolidated cash flow statement Quarter ended Year ended 31 December 31 December 2000 1999 2000 1999 US$ '000 US$ '000 Net cash outflow from operating activities before exceptional items (2,600) (2,857) (13,052) (7,760) Exceptional items - Costs in connection with initial public offering -- -- (5,806) -- --------- -------- --------- ------- Net cash outflow from operating activities (2,600) (2,857) (18,858) (7,760) Returns on investments and servicing of finance Interest received 1,408 41 3,195 63 Interest paid -- (59) (635) (395) --------- -------- --------- ------- Net inflows/(outflows) from returns on investments and servicing of finance 1,408 (18) 2,560 (332) Taxation (116) -- (116) (183) Capital expenditure and financial investments Acquisition of intangible property (1,000) -- (1,000) -- Purchase of fixed assets (914) (32) (1,299) (580) Sale of tangible fixed 4 2 119 2 assets --------- -------- --------- ------- Net cash outflow for capital expenditure (1,910) (30) (2,180) (578) Management of liquid resources (628) -- (42,726) -- Financing Proceeds from advances in respect of royalties -- -- 3,000 -- Repayment of borrowings -- -- (1,800) -- Net, proceeds from issuances of ordinary shares 70 -- 104,368 -- Proceeds from issue of shares of Zen Research NV -- 2,030 9,348 2,060 Proceeds from issue of loan notes to shareholders -- -- -- 2,000 Repayment of loan notes due from shareholders 225 150 3,773 150 --------- -------- --------- ------- Net cash inflow from financing 295 2,180 118,689 4,210 --------- -------- --------- ------- Increase/(decrease) in cash (3,551) (725) 57,369 (4,643) ========= ======== ========= ======= Notes to the Preliminary Announcement of Zen Research plc 1. Basis of preparation The financial statements forming the basis for the preliminary announcement have been prepared on the basis of the accounting policies set out in the accountants' report included within the Company's listing particulars dated 26 June 2000. The financial information has been prepared under the historical cost convention and in accordance with accounting standards applicable in the United Kingdom. 2. Loss per share Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. Convertible preferred shares have been included for all periods in the calculation of basic loss per share on the basis that all the convertible preferred shares were converted to ordinary shares and are outstanding for all periods presented. In calculating loss per share, no adjustment has been made for share options granted and warrants for purchase of ordinary shares, as the effect would be to reduce the loss per Ordinary Share. 3. Reconciliation of movements in shareholders funds/(deficit) Year ended 31 December 2000 1999 US$'000 Loss for the year (17,505) (12,016) Proceeds of issue of ordinary shares 114,434 -- Expenses of share issue charged to share premium account (10,066) -- Issue of shares by Zen Research NV 12,338 4,383 (see below) Other movements in capital -- 381 --------- -------- Net addition to / (reduction in) shareholders' funds / (deficit) 99,201 (7,252) Opening shareholders' funds / (deficit) (6,313) 939 --------- -------- Closing shareholders' funds / (deficit) 92,888 (6,313) ========= ======== On 19 June 2000 the Company acquired the entire issued share capital of Zen Research NV. The consideration for this acquisition was the issue of 9,582,228 ordinary shares of 5p. This transaction has been accounted for as a group reconstruction and the principles of merger accounting have been adopted. Accordingly, the shares issued as consideration are treated as if they have been in issue throughout the current and prior accounting period. Shares issued by Zen Research NV prior to the acquisition are reflected as movements in the merger reserve. 4. Notes to the consolidated cash flow statements Year ended 31 December 2000 1999 US$'000 Operating loss (18,798) (11,399) Depreciation of tangible fixed assets 948 843 Amortisation of intangible fixed assets 401 350 (Increase)/decrease in debtors (551) 53 Increase/(decrease) in creditors (858) 2,012 Other non-cash movements -- 381 --------- -------- (18,858) (7,760) ========= ======== Reconciliation of net cash flow to movement in net funds/(debt) At 1 Cash At 31 January flows December 2000 2000 US$'000 US$'000 US$'000 Cash at bank and in hand 90 54,102 54,192 Bank loans and overdrafts (3,267) 3,267 0 --------- -------- --------- Total cash and overdrafts (3,177) 57,369 54,192 Short-term investments 0 42,726 42,726 Borrowings (1,800) 1,800 0 --------- -------- --------- Net debt/funds (4,977) 101,895 96,918 ========= ======== ========== The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Company was incorporated on 30 December 1999, and the financial statements for the year ended 31 December 2000 have not yet been delivered to the Registrar of Companies, nor have the auditors reported on them.

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