Final Results

Zoo Digital Group PLC 30 July 2007 ZOO DIGITAL GROUP PLC ('ZOO', 'the Company' or 'the Group') PRELIMINARY RESULTS FOR THE YEAR ENDED 31ST MARCH 2007 ZOO Digital Group plc, the digital media technology company, today announces its financial results for the year ended 31 March 2007. Highlights • Successful placing and acquisition of Scope Seven • Group turnover reduced in line with expectations following restructure to £3.75m (2006: £9.16m). • Significant reduction in loss before Interest, Tax, Depreciation and Amortisation to £1.42m (2006: £3.61m restated). • Retained Loss after loss on disposal of discontinued operations and goodwill amortisation reduced to £1.88m (2006: £8.49m restated). • ZOOtech completed the development of the revolutionary software tool, Templated Authoring System (TAS). • ZOOtech signs first major contract for TAS. • ZOOtech signs a major contract for the Menu Regionalisation Tool with SDI Media, the World's leading provider of subtitle and dubbing services to the entertainment industry. • 17 patents granted to date out of a total of over 60 patents applied for. • Group restructured with sale of Interactive DVD production business. • Successful share placing and Loan note issue raising £4.2 million gross. Commenting on the results, Stuart Green, CEO of ZOO said: 'I am pleased to report a period of significant progress for the Group and increased focus on its unique productivity solutions for interactive DVD and digital media production. I anticipate that the fundraising and acquisition of the assets of Scope Seven, a Los Angeles based facility, will accelerate the implementation of the Group's broader strategy. I believe that the prospects for the Group are exciting and look forward to a period of rapid growth as we capitalise on our range of innovative software products and services. I remain confident and very excited about the prospects for the Group moving forward.' Enquiries: ZOO Digital Group plc Tel: 0114 241 3700 Stuart Green - Chief Executive Officer Helen Gilder - Group Finance Director KBC Peel Hunt Ltd Tel: 020 7418 8900 Richard Kauffer/James Bryce Weber Shandwick Financial Tel: 020 7067 0700 Nick Dibden/ Charlie Hooper CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Introduction We are pleased to report a period of significant progress for the Group and increased focus on its unique productivity solutions for interactive DVD and digital media production. In these areas the Group has leading positions in growing markets: for interactive DVD we provide the market-leading technology for title production, and for digital media production we supply a growing range of innovative software-based solutions that deliver remarkable benefits to content producers. We now offer services as key components of our proposition alongside the licensing of our proprietary technologies, giving customers the flexibility to choose to insource or outsource. This broader and more flexible offering will, we believe, enable us to accelerate sales and business growth. In September 2006 we completed a fundraising of £4.2 million before expenses to underpin the Group's business plan and provide working capital. Shortly thereafter we disposed of the assets of ZOO Interactive Video Limited (ZIV), our consumer interactive DVD product development business, to focus on our business to business solutions. To accelerate the implementation of the Group's broader strategy we have today announced a further fundraising to fund the acquisition of the assets of a Los Angeles based facility that will become the Group's service provider for the strategically important Hollywood market. We believe that the prospects for the Group under its new structure are exciting and look forward to a period of rapid growth as we capitalise on our range of innovative software products and services. Financial Review Following the reorganisation of the Group, turnover for the year to 31 March 2007 fell, in line with expectations, to £3.75 million (2006: £9.16 million). The loss before interest, tax, depreciation and amortisation was reduced significantly to £1.42 million (2006: £3.61 million as restated). As at 31 March 2007 the Group had net current assets of £1.94 million (2006: net current liabilities £415,000) including a bank balance of £2.03 million (2006: overdraft of £317,000) ZOOtech Ltd. ('ZOOtech') The past 12 months have been a period of continuing growth for ZOOtech during which a major new product - the Templated Authoring System - was released to the market and a contract for its adoption was announced with a major Hollywood studio. ZOOtech's products were designed at the outset for use by professionals in the digital media production market, and the company has been targeting the various facilities that provide studios with production services for DVD title creation. ZOOtech's products employ innovative algorithms that automate processes that have been traditionally performed manually, and centralise functions that are normally performed by multiple operators. The benefits these products bring include significant reductions in production time and greater reliability, which in turn lead to savings in cost and shorter time to market. To strengthen the Group's proposition the Board has identified that broadening its proprietary technology licensing offering to incorporate certain production services will provide a more appealing solution for studios and rights holders. The inclusion of these services as a key component of its offer will enable ZOOtech to offer a complete service and thereby reduce the lead time in the sales process. ZOOtech now offers a DVD-Video testing service which has been engaged by a number of customers and which complements well its unique software products. The service has been adopted by a major Hollywood studio for which ZOOtech is now instrumental in ensuring the high standards of quality that are expected for worldwide DVD-Video products. ZOOtech has begun to establish exclusive relationships with certain production facilities in key territories through which the benefits afforded by its software are delivered to studios and video publishers. A recent strengthening of the commercial team has enabled ZOOtech to identify potential affiliated partner organisations in worldwide territories. We expect to have appointed affiliates in the USA, Europe, Australia and Asia within a few months. The financial statements show a reduction in turnover for the ZOOtech business which is due to the difference in how the revenue has been earned from the contract for the regionalisation tool. In October 2005 we announced that we had signed a contract with a major Hollywood studio for the use of our Regionalisation tool. In that first year we received a one off fee of $1.25 million for the usage of the tool. We are pleased to report that the tool is now fully integrated into the systems within the studio and is used for the production of the majority of their regionalised menus and the contract has changed such that we are paid on a usage basis. We are pleased with this contract as it gives us a recurring revenue stream for the future. The impact on the financial statements for the year to March 2007 is that the revenue is reduced as the usage fees did not begin until the final quarter of the financial year. If the revenues had been received on a usage basis from the start of this contract we would have shown an increase in turnover from the previous year. ZOOtech continues to identify significant opportunities in the field of digital media production to apply its existing technologies and develop new products and services that offer substantial benefits to its customers. The company continues to invest heavily in research and development to provide long term revenue and profit growth potential for the group. ZOOtech's product development and licensing initiatives are now focused in two distinct areas: Interactive DVD, for which it licenses its DVD-EXTRA STUDIO technology for title production, and Digital Media Technologies, for which it provides innovative software tools to enable the efficient production of digital media including DVD products and the constituent elements that make up such products. We continue to be active in protecting our intellectual property and now have 17 granted patents that relate to the proprietary algorithms used in our products. Our software product development team continues to innovate with the creation of new products as well as adaptation of existing software and intellectual property for new applications in current and adjacent markets. We anticipate further announcements in the coming year as we deploy new products and further adaptations that will increase the Group's revenue earning potential. Acquisition and Fundraising To accelerate the broadening of its offering by including premium production services, the Group has today announced its intent to acquire certain assets of Scope Seven Inc. ('Scope Seven'), a leading independent supplier of compression and authoring services to Hollywood studios and the DVD production market, located in Los Angeles, California. Scope Seven is a privately held media production and design company providing world class creative and technical services to select companies in the entertainment, games and education industries. Scope Seven has been a customer of ZOOtech since 2004 when it licensed the DVD-EXTRA STUDIO product and has since become one of the leading suppliers of iDVD production services in North America. Through its affiliation with Global Digital Media Xchange Inc. (GDMX), a Time Warner company, and other studios, Scope Seven has created thousands of DVD titles since the inception of the DVD format. Its customers include Warner Home Video, 20th Century Fox, New Line Entertainment and the BBC amongst many others. Following the acquisition Scope Seven will become the exclusive provider of services based on a number of ZOOtech's products into the lucrative Hollywood market. Initial market testing undertaken by the Group amongst Hollywood studios and other video publishers indicates strongly that the combination of ZOOtech's technologies and Scope Seven's service offering will enable sales opportunities to be converted more quickly than has previously been possible. To fund the acquisition, the Group has also announced today a fundraising by a placing of shares. The proceeds of the placing will be used to fund the acquisition and to provide working capital facilities for the new Scope Seven division. Interactive DVD Following the disposal of ZIV, the Group's interest in the Interactive DVD market is now focused around the licensing of its DVD-EXTRA STUDIO technology. This is a professional software product that is used by multimedia developers, compression and authoring facilities and post production companies to create sophisticated iDVD products. ZOOtech receives revenues in the form of per-disc royalties and project-related fees. Of the approximately 150 iDVD titles in the UK market at Christmas 2006 around half were produced using DVD-EXTRA STUDIO. ZOOtech has around 100 customers, including both developers and publishers, in the iDVD market. In the past year we have agreed licensing terms with a number of companies in the education sector, including Scholastic Inc. and Robinette Resources Inc. Scholastic have used DVD-EXTRA STUDIO to create a range of new interactive DVD titles including 'Clifford Phonics' and two games based on the popular 'I Spy' series which are adaptations of existing CD-ROM products. Robinette has been using DVD-EXTRA STUDIO to create at least 26 new titles for the award-winning ' Know It All' interactive DVD education series. This represents a significant move in the US K-12 education market. Recently the Group announced a licence agreement with Mattel where DVD-EXTRA STUDIO will be used to create several high-profile DVD games, including 'High School Musical 2 DVD Board Game' and '1 vs. 100 DVD Game'. DVD-EXTRA STUDIO enables the development of complex interactivity in order to produce game-play true to each property at the highest possible levels of quality and compatibility. The product also provides the ability to localise game titles cost-effectively and was used on the production of the German, Italian, Spanish and French versions of Mattel's original High School Musical DVD Board Game. We were delighted to announce recently a licence agreement with Dicentia, Scandinavia's leading all-inclusive supplier of digital media. Dicentia has licensed DVD-EXTRA STUDIO to develop a series of interactive games that will be distributed in Sweden, Denmark, Norway, Finland and Germany. The Interactive DVD group within ZOOtech is continuing to pursue licensing agreements for iDVD products primarily in the UK, USA and Central Europe. The decisions taken by our customers to adopt DVD-EXTRA STUDIO for production of such titles hinge on the unique benefits the product offers for ease of creation of sophisticated interactive content and the efficiency of adapting titles for multiple territories and languages. Digital Media Technologies The majority of ZOOtech's research and development efforts in the past year have been focused around the adaptation and enhancement of existing and creation of new technologies for digital media production. These technologies provide remarkable benefits by simplifying hitherto complex and costly processes, enabling shorter time to market for video products and more cost effective production. The Menu Regionalisation Tool continues to be used within a major Hollywood studio for the production of all of its menus for worldwide DVD release, and we announced that this licence agreement had been renewed for a further year. More recently we announced that SDI Media, the world's leading provider of subtitling and language dubbing services to the entertainment industry, has licensed the Menu Regionalisation Tool and will be offering services based on the use of the tool to its clients which include many of the world's leading media and entertainment groups including Hollywood studios, international broadcasters and interactive game publishers. We are looking forward to working closely with SDI in the future as they deploy the technology on behalf of their existing and future customers. We completed the first release of our unique Templated Authoring System (TAS) and announced a first licensing deal to a major Hollywood studio where it is now being used for the production of a substantial proportion of the studio's worldwide DVD title releases. With this new automated software solution customers are able to realise significant efficiencies in the creation of titles for DVD-Video and other platforms. The product simplifies the DVD development process which can now be undertaken without the need for highly trained operators. TAS has been designed to accommodate current and future video-based technologies. By defining templates for different platforms, alternative versions of the titles - such as HD DVD, Blu-ray Disc, Video on Demand and Download to Own - can be quickly and easily created using the same system but different asset data. We have been in discussions with a number of leading studios and video publishers concerning the adoption of TAS as the basis of future video title production and anticipate a number of significant new customers in the near future. ZOO Interactive Video Ltd. ('ZIV') The ZIV division was established in 2003 as ZOO's consumer product development team with a focus on the creation of interactive DVD ('iDVD') titles using the Group's DVD-EXTRA STUDIO technology. Through its partnerships with leading publishers including Universal Pictures and 2Entertain Ltd, ZIV's efforts have been responsible for the establishment of the interactive DVD category at retail which, over the Christmas 2006 period, resulted in around 150 titles published into the UK market alone. Of these ZIV developed the award winning 'Who Wants to be a Millionaire? 4' - the latest iDVD edition in the best selling franchise which has sold over a million copies in the UK alone. Other ZIV titles produced for Christmas 2006 included 'Telly Addicts 2', 'A Question of Sport', 'Smash Hits', 'Time Tunnel' and 'TMF starDANCER'. With such a sizeable array of titles in the market, ZIV succeeded in establishing the iDVD category at retail and the Board concluded that it was no longer imperative to maintain the division. Consequently, in October 2006 the decision was taken to discontinue the acquisition of intellectual property rights for the creation of iDVD products and to divest the Group of the ZIV division. Andy Scrivener, previously Chief Operating Officer, resigned his position on the Board with effect from 3 October 2006 and established his own independent iDVD development business with the full support of the Group. Eleven staff transferred from ZOO to this new company together with some associated licences for a deferred consideration of £200,000 payable to ZOO in March 2008. All current and future revenues relating to products created prior to October 2006 are retained by the Group. The Board would like to thank Andy for his contribution to the business and for his pioneering work to establish a viable and growing interactive DVD market in the UK. We have subsequently welcomed him as a new licensee and have been working closely with him in his new venture where DVD-EXTRA STUDIO is being used under a commercial licence to create new products, including further editions in the 'Who Wants to be a Millionaire?' franchise. ZOO now has a wide range of customers using DVD-EXTRA STUDIO and our focus is on development of our unique video production technologies where significant opportunities exist, rather than development of consumer products. As a consequence of the disposal of the ZIV business the Group has focused on providing market-leading professional products and services to support those customers from which ZOOtech earns royalties and fees. People The quality of our staff and management is key to the continuing success and growth of the Group. We employ a multi-disciplinary team of highly talented individuals who have been responsible for the innovations and product developments that we expect to yield significant revenues and profits in the years ahead. Our excellent commercial team continues to make good progress in developing relationships with studios and other customers across multiple territories. We experience low staff turnover and offer share-based incentives to management and staff to ensure that rewards are linked to the success of the Group. We are delighted to be augmenting the team with the management and staff of Scope Seven, who have established an excellent reputation in the industry for first class services. We look forward to working with the team in the exciting period ahead as we broaden our offering to augment our revolutionary technologies with first class services, and strengthen relationships with studio clients. On behalf of the Directors we would like to thank all staff for their continuing dedication and support for the business. Outlook The Board remains confident about the prospects for the Group and we look forward to an exciting year and continued development of the business. The acquisition of Scope Seven will provide a platform for us to increase our penetration of the Hollywood market at a pace that is significantly faster than has been possible with a pure technology licensing proposition. We believe that ZOO offers an attractive opportunity for investors and anticipate further growth in our interactive DVD division in the coming year as well as a substantial increase in revenues due to our Digital Media Technologies and Scope Seven divisions as we consolidate our position regarding existing products and launch a number of new products and services. The business continues to attract new customers and the international affiliates that we are in the process of appointing will play an increasingly important role in securing relationships with key multi-national companies. Our product plans are well founded; we undertake market testing in relation to each new product and base our developments on the requirements provided by existing and prospective customers. We anticipate that ZOO's technologies will play an increasingly significant role in the digital media production market. Christopher H B Honeyborne Chairman Stuart A Green CEO 30 July 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT YEAR ENDED 31 MARCH 2007 Restated 2007 2006 £'000 £'000 Turnover Continuing operations 1,399 1,696 Discontinued operations 2,350 7,468 ________ ________ 3,749 9,164 Cost of sales (1,404) (6,183) ________ ________ Gross profit 2,345 2,981 Other operating income 117 - Other operating expenses - other (3,883) (6,589) Loss before interest, tax, depreciation and amortisation (1,421) (3,608) - depreciation (144) (173) - amortisation of intangible fixed assets (402) (682) ________ ________ Total operating expenses (4,429) (7,444) ________ ________ Operating loss Continuing operations (1,876) (1,798) Discontinued operations (91) (2,665) ________ ________ (1,967) (4,463) Profit/(loss) on disposal of discontinued operation 310 (3,698) Group restructuring (94) - Other interest receivable and similar income 53 25 Amounts written off investment - (240) Interest payable and similar charges (185) (109) ________ ________ Loss on ordinary activities before taxation (1,883) (8,485) Tax on loss on ordinary activities - - ________ ________ Loss for the financial year (1,883) (8,485) ________ ________ Restated 2007 2006 £'000 £'000 Loss per share Basic 12 (36.97p) (206.00p) Diluted 12 (36.97p) (206.00p) ________ ________ Loss per share - continuing operations Basic 12 (39.43p) (51.52p) Diluted 12 (39.43p) (51.52p) ________ ________ CONSOLIDATED BALANCE SHEET YEAR ENDED 31 MARCH 2007 Restated 2007 2006 £'000 £'000 Fixed assets Intangible assets 1,993 2,007 Tangible assets 170 342 ________ ________ 2,163 2,349 ________ ________ Current assets Stock - 48 Debtors 1,817 2,499 Cash at Bank and in hand 2,026 - ________ ________ 3,843 2,547 Creditors: Amounts falling due within one year (1,903) (2,962) ________ ________ Net current assets/(liabilities) 1,940 (415) ________ ________ Total assets less current liabilities 4,103 1,934 ________ ________ Creditors: Amounts falling due after one year (3,013) - ________ ________ Net assets 1,090 1,934 ________ ________ Capital and reserves Called-up share capital 887 635 Share premium account 22,102 21,648 Other reserves 8,598 8,598 Share option reserve 326 418 Convertible loan note reserve 266 - Profit and loss account (31,013) (29,276) ________ ________ Shareholders' funds (all equity) 1,166 2,023 Interest in own shares (76) (89) ________ ________ 1,090 1,934 ________ ________ CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 MARCH 2007 Restated 2007 2006 £'000 £'000 Net cash outflow from operating activities (875) (2,004) Exceptional items (338) (35) Returns on investments and servicing of finance (474) (251) Capital expenditure and financial investment (412) (470) ________ ________ Cash outflow before financing (2,099) (2,760) Financing 4,361 3,172 ________ ________ Increase in cash in the year 2,262 412 ________ ________ Reconciliation of net cash flow to movement in net (debt)/funds Increase in cash in year 2,262 412 Cash inflow from increase in debt and lease financing (3,013) - ________ ________ Change in net (debt)/funds resulting from cash flows (751) 412 Net debt at 1 April 2006 (317) (729) Foreign exchange translation adjustment 81 - ________ ________ Net debt at 31 March 2007 (987) (317) ________ ________ NOTES: Basis of Preparation and Accounting The financial statements have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. The financial information set out in this announcement does not constitute full accounts within the meaning of section 240 of the Companies Act 1985. The balance sheet at 31 March 2007 and the profit and loss account, cash flow statement and associated notes to the year then ended have been extracted from the Group's financial statements. These financial statements have not yet been delivered to the Registrar of Companies. Dividends The directors do not recommend the payment of a dividend for the year. Exceptional items Restated 2007 2006 £'000 £'000 (Profit)/Loss on disposal of discontinued operation comprises: - (profit)/loss on disposal of games publishing business (271) 2,737 - loss on disposal of iDVD production business 25 - - credit in respect of lapsed share options (64) - - disposal of goodwill - 961 ________ ________ (310) 3,698 ________ ________ Group restructuring - redundancy costs 165 - - credit in respect of lapsed share options (71) - ________ ________ 94 - ________ ________ The profit on the disposal of the games publishing business is an adjustment to overprovided expenses included in the previous year's loss on the sale. The group restructuring costs have arisen as a direct consequence of the disposal of the games publishing and iDVD production businesses. Loss per share The calculations of loss per share are based on the following losses and numbers of shares. Basic and Diluted Restated 2007 2006 £'000 £'000 Loss/(Profit) for the financial year Continuing operations 2,008 2,122 Discontinued operations (125) 6,363 ________ ________ 1,883 8,485 ________ ________ 2007 2006 Number Number of shares of shares Weighted average number of shares for basic & diluted loss per share 5,092,801 4,118,939 _________ ________ The weighted average number of shares in issue at 31 March 2006 has been restated following the share consolidation. No adjustment has been made for 'in the money' share options as this would decrease the loss per share, which is not dilutive. No adjustment has been made for 'out of the money' share options based on the assumption that shareholders would not exercise these options. The Profit/(loss) per share on discontinued activities is as follows: 2007 2006 Basic 2.45p (154.48p) Diluted 2.45p (154.48p) ________ ________ This information is provided by RNS The company news service from the London Stock Exchange

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