Zoo Digital Regulatory News (ZOO)

30 Jul 2007 07:01

Zoo Digital Group PLC30 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 itsfinancial 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 andincreased focus on its unique productivity solutions for interactive DVD anddigital media production. I anticipate that the fundraising and acquisition ofthe assets of Scope Seven, a Los Angeles based facility, will accelerate theimplementation of the Group's broader strategy. I believe that the prospectsfor the Group are exciting and look forward to a period of rapid growth as wecapitalise on our range of innovative software products and services. I remainconfident and very excited about the prospects for the Group moving forward." Enquiries: ZOO Digital Group plc Tel: 0114 241 3700Stuart Green - Chief Executive OfficerHelen Gilder - Group Finance Director KBC Peel Hunt Ltd Tel: 020 7418 8900Richard Kauffer/James Bryce Weber Shandwick Financial Tel: 020 7067 0700Nick Dibden/ Charlie Hooper CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Introduction We are pleased to report a period of significant progress for the Group andincreased focus on its unique productivity solutions for interactive DVD anddigital media production. In these areas the Group has leading positions ingrowing markets: for interactive DVD we provide the market-leading technologyfor title production, and for digital media production we supply a growing rangeof innovative software-based solutions that deliver remarkable benefits tocontent producers. We now offer services as key components of our propositionalongside the licensing of our proprietary technologies, giving customers theflexibility to choose to insource or outsource. This broader and more flexibleoffering will, we believe, enable us to accelerate sales and business growth. In September 2006 we completed a fundraising of £4.2 million before expenses tounderpin the Group's business plan and provide working capital. Shortlythereafter we disposed of the assets of ZOO Interactive Video Limited (ZIV), ourconsumer interactive DVD product development business, to focus on our businessto business solutions. To accelerate the implementation of the Group's broader strategy we have todayannounced a further fundraising to fund the acquisition of the assets of a LosAngeles based facility that will become the Group's service provider for thestrategically important Hollywood market. We believe that the prospects for theGroup under its new structure are exciting and look forward to a period of rapidgrowth as we capitalise on our range of innovative software products andservices. Financial Review Following the reorganisation of the Group, turnover for the year to 31 March2007 fell, in line with expectations, to £3.75 million (2006: £9.16 million).The loss before interest, tax, depreciation and amortisation was reducedsignificantly 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: netcurrent 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 duringwhich a major new product - the Templated Authoring System - was released to themarket and a contract for its adoption was announced with a major Hollywoodstudio. ZOOtech's products were designed at the outset for use by professionals in thedigital media production market, and the company has been targeting the variousfacilities that provide studios with production services for DVD title creation.ZOOtech's products employ innovative algorithms that automate processes thathave been traditionally performed manually, and centralise functions that arenormally performed by multiple operators. The benefits these products bringinclude significant reductions in production time and greater reliability, whichin turn lead to savings in cost and shorter time to market. To strengthen the Group's proposition the Board has identified that broadeningits proprietary technology licensing offering to incorporate certain productionservices will provide a more appealing solution for studios and rights holders.The inclusion of these services as a key component of its offer will enableZOOtech to offer a complete service and thereby reduce the lead time in thesales process. ZOOtech now offers a DVD-Video testing service which has been engaged by anumber of customers and which complements well its unique software products.The service has been adopted by a major Hollywood studio for which ZOOtech isnow instrumental in ensuring the high standards of quality that are expected forworldwide DVD-Video products. ZOOtech has begun to establish exclusive relationships with certain productionfacilities in key territories through which the benefits afforded by itssoftware are delivered to studios and video publishers. A recent strengtheningof the commercial team has enabled ZOOtech to identify potential affiliatedpartner organisations in worldwide territories. We expect to have appointedaffiliates in the USA, Europe, Australia and Asia within a few months. The financial statements show a reduction in turnover for the ZOOtech businesswhich is due to the difference in how the revenue has been earned from thecontract for the regionalisation tool. In October 2005 we announced that we hadsigned a contract with a major Hollywood studio for the use of ourRegionalisation tool. In that first year we received a one off fee of $1.25million for the usage of the tool. We are pleased to report that the tool isnow fully integrated into the systems within the studio and is used for theproduction of the majority of their regionalised menus and the contract haschanged such that we are paid on a usage basis. We are pleased with thiscontract as it gives us a recurring revenue stream for the future. The impacton the financial statements for the year to March 2007 is that the revenue isreduced as the usage fees did not begin until the final quarter of the financialyear. If the revenues had been received on a usage basis from the start of thiscontract we would have shown an increase in turnover from the previous year. ZOOtech continues to identify significant opportunities in the field of digitalmedia production to apply its existing technologies and develop new products andservices that offer substantial benefits to its customers. The companycontinues to invest heavily in research and development to provide long termrevenue and profit growth potential for the group. ZOOtech's product development and licensing initiatives are now focused in twodistinct areas: Interactive DVD, for which it licenses its DVD-EXTRA STUDIOtechnology for title production, and Digital Media Technologies, for which itprovides innovative software tools to enable the efficient production of digitalmedia including DVD products and the constituent elements that make up suchproducts. We continue to be active in protecting our intellectual property and now have 17granted patents that relate to the proprietary algorithms used in our products.Our software product development team continues to innovate with the creation ofnew products as well as adaptation of existing software and intellectualproperty for new applications in current and adjacent markets. We anticipatefurther announcements in the coming year as we deploy new products and furtheradaptations that will increase the Group's revenue earning potential. Acquisition and Fundraising To accelerate the broadening of its offering by including premium productionservices, the Group has today announced its intent to acquire certain assets ofScope Seven Inc. ("Scope Seven"), a leading independent supplier of compressionand 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 providingworld class creative and technical services to select companies in theentertainment, games and education industries. Scope Seven has been a customerof ZOOtech since 2004 when it licensed the DVD-EXTRA STUDIO product and hassince become one of the leading suppliers of iDVD production services in NorthAmerica. Through its affiliation with Global Digital Media Xchange Inc. (GDMX),a Time Warner company, and other studios, Scope Seven has created thousands ofDVD titles since the inception of the DVD format. Its customers include WarnerHome Video, 20th Century Fox, New Line Entertainment and the BBC amongst manyothers. Following the acquisition Scope Seven will become the exclusive provider ofservices based on a number of ZOOtech's products into the lucrative Hollywoodmarket. Initial market testing undertaken by the Group amongst Hollywoodstudios and other video publishers indicates strongly that the combination ofZOOtech's technologies and Scope Seven's service offering will enable salesopportunities to be converted more quickly than has previously been possible. To fund the acquisition, the Group has also announced today a fundraising by aplacing of shares. The proceeds of the placing will be used to fund theacquisition and to provide working capital facilities for the new Scope Sevendivision. Interactive DVD Following the disposal of ZIV, the Group's interest in the Interactive DVDmarket 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 createsophisticated iDVD products. ZOOtech receives revenues in the form of per-discroyalties and project-related fees. Of the approximately 150 iDVD titles in the UK market at Christmas 2006 aroundhalf 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 inthe education sector, including Scholastic Inc. and Robinette Resources Inc.Scholastic have used DVD-EXTRA STUDIO to create a range of new interactive DVDtitles including "Clifford Phonics" and two games based on the popular "I Spy"series which are adaptations of existing CD-ROM products. Robinette has beenusing DVD-EXTRA STUDIO to create at least 26 new titles for the award-winning "Know It All" interactive DVD education series. This represents a significantmove in the US K-12 education market. Recently the Group announced a licence agreement with Mattel where DVD-EXTRASTUDIO will be used to create several high-profile DVD games, including "HighSchool Musical 2 DVD Board Game" and "1 vs. 100 DVD Game". DVD-EXTRA STUDIOenables the development of complex interactivity in order to produce game-playtrue to each property at the highest possible levels of quality andcompatibility. The product also provides the ability to localise game titlescost-effectively and was used on the production of the German, Italian, Spanishand 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 haslicensed DVD-EXTRA STUDIO to develop a series of interactive games that will bedistributed in Sweden, Denmark, Norway, Finland and Germany. The Interactive DVD group within ZOOtech is continuing to pursue licensingagreements for iDVD products primarily in the UK, USA and Central Europe. Thedecisions taken by our customers to adopt DVD-EXTRA STUDIO for production ofsuch titles hinge on the unique benefits the product offers for ease of creationof sophisticated interactive content and the efficiency of adapting titles formultiple territories and languages. Digital Media Technologies The majority of ZOOtech's research and development efforts in the past year havebeen focused around the adaptation and enhancement of existing and creation ofnew technologies for digital media production. These technologies provideremarkable benefits by simplifying hitherto complex and costly processes,enabling shorter time to market for video products and more cost effectiveproduction. The Menu Regionalisation Tool continues to be used within a major Hollywoodstudio for the production of all of its menus for worldwide DVD release, and weannounced that this licence agreement had been renewed for a further year. Morerecently we announced that SDI Media, the world's leading provider of subtitlingand language dubbing services to the entertainment industry, has licensed theMenu Regionalisation Tool and will be offering services based on the use of thetool to its clients which include many of the world's leading media andentertainment groups including Hollywood studios, international broadcasters andinteractive game publishers. We are looking forward to working closely with SDIin the future as they deploy the technology on behalf of their existing andfuture 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 nowbeing used for the production of a substantial proportion of the studio'sworldwide DVD title releases. With this new automated software solutioncustomers are able to realise significant efficiencies in the creation of titlesfor DVD-Video and other platforms. The product simplifies the DVD developmentprocess which can now be undertaken without the need for highly trainedoperators. TAS has been designed to accommodate current and future video-basedtechnologies. By defining templates for different platforms, alternativeversions of the titles - such as HD DVD, Blu-ray Disc, Video on Demand andDownload to Own - can be quickly and easily created using the same system butdifferent asset data. We have been in discussions with a number of leading studios and videopublishers concerning the adoption of TAS as the basis of future video titleproduction and anticipate a number of significant new customers in the nearfuture. ZOO Interactive Video Ltd. ("ZIV") The ZIV division was established in 2003 as ZOO's consumer product developmentteam with a focus on the creation of interactive DVD ("iDVD") titles using theGroup's DVD-EXTRA STUDIO technology. Through its partnerships with leadingpublishers including Universal Pictures and 2Entertain Ltd, ZIV's efforts havebeen responsible for the establishment of the interactive DVD category at retailwhich, over the Christmas 2006 period, resulted in around 150 titles publishedinto the UK market alone. Of these ZIV developed the award winning "Who Wantsto be a Millionaire? 4" - the latest iDVD edition in the best selling franchisewhich has sold over a million copies in the UK alone. Other ZIV titles producedfor Christmas 2006 included "Telly Addicts 2", "A Question of Sport", "SmashHits", "Time Tunnel" and "TMF starDANCER". With such a sizeable array of titles in the market, ZIV succeeded inestablishing the iDVD category at retail and the Board concluded that it was nolonger imperative to maintain the division. Consequently, in October 2006 thedecision was taken to discontinue the acquisition of intellectual propertyrights for the creation of iDVD products and to divest the Group of the ZIVdivision. Andy Scrivener, previously Chief Operating Officer, resigned hisposition on the Board with effect from 3 October 2006 and established his ownindependent iDVD development business with the full support of the Group.Eleven staff transferred from ZOO to this new company together with someassociated licences for a deferred consideration of £200,000 payable to ZOO inMarch 2008. All current and future revenues relating to products created priorto October 2006 are retained by the Group. The Board would like to thank Andy for his contribution to the business and forhis pioneering work to establish a viable and growing interactive DVD market inthe UK. We have subsequently welcomed him as a new licensee and have beenworking closely with him in his new venture where DVD-EXTRA STUDIO is being usedunder a commercial licence to create new products, including further editions inthe "Who Wants to be a Millionaire?" franchise. ZOO now has a wide range of customers using DVD-EXTRA STUDIO and our focus is ondevelopment of our unique video production technologies where significantopportunities exist, rather than development of consumer products. As aconsequence of the disposal of the ZIV business the Group has focused onproviding market-leading professional products and services to support thosecustomers from which ZOOtech earns royalties and fees. People The quality of our staff and management is key to the continuing success andgrowth of the Group. We employ a multi-disciplinary team of highly talentedindividuals who have been responsible for the innovations and productdevelopments that we expect to yield significant revenues and profits in theyears ahead. Our excellent commercial team continues to make good progress indeveloping relationships with studios and other customers across multipleterritories. We experience low staff turnover and offer share-based incentivesto management and staff to ensure that rewards are linked to the success of theGroup. We are delighted to be augmenting the team with the management and staff ofScope Seven, who have established an excellent reputation in the industry forfirst class services. We look forward to working with the team in the excitingperiod ahead as we broaden our offering to augment our revolutionarytechnologies with first class services, and strengthen relationships with studioclients. On behalf of the Directors we would like to thank all staff for their continuingdedication and support for the business. Outlook The Board remains confident about the prospects for the Group and we lookforward to an exciting year and continued development of the business. Theacquisition of Scope Seven will provide a platform for us to increase ourpenetration of the Hollywood market at a pace that is significantly faster thanhas been possible with a pure technology licensing proposition. We believe that ZOO offers an attractive opportunity for investors andanticipate further growth in our interactive DVD division in the coming year aswell as a substantial increase in revenues due to our Digital Media Technologiesand Scope Seven divisions as we consolidate our position regarding existingproducts and launch a number of new products and services. The business continues to attract new customers and the international affiliatesthat we are in the process of appointing will play an increasingly importantrole in securing relationships with key multi-national companies. Our productplans are well founded; we undertake market testing in relation to each newproduct and base our developments on the requirements provided by existing andprospective customers. We anticipate that ZOO's technologies will play anincreasingly significant role in the digital media production market. Christopher H B HoneyborneChairman Stuart A GreenCEO 30 July 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNTYEAR ENDED 31 MARCH 2007 Restated 2007 2006 £'000 £'000 TurnoverContinuing operations 1,399 1,696Discontinued operations 2,350 7,468 ________ ________ 3,749 9,164Cost of sales (1,404) (6,183) ________ ________ Gross profit 2,345 2,981Other 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 lossContinuing 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 25Amounts 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 shareBasic 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 SHEETYEAR ENDED 31 MARCH 2007 Restated 2007 2006 £'000 £'000 Fixed assetsIntangible assets 1,993 2,007Tangible assets 170 342 ________ ________ 2,163 2,349 ________ ________ Current assetsStock - 48Debtors 1,817 2,499Cash 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 reservesCalled-up share capital 887 635Share premium account 22,102 21,648Other reserves 8,598 8,598Share option reserve 326 418Convertible loan note reserve 266 -Profit and loss account (31,013) (29,276) ________ ________ Shareholders' funds (all equity) 1,166 2,023Interest in own shares (76) (89) ________ ________ 1,090 1,934 ________ ________ CONSOLIDATED CASH FLOW STATEMENTYEAR 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)/fundsIncrease in cash in year 2,262 412Cash inflow from increase in debt and lease financing (3,013) - ________ ________ Change in net (debt)/funds resulting from cash flows (751) 412Net 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 conventionand in accordance with applicable United Kingdom accounting standards. The financial information set out in this announcement does not constitute fullaccounts 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 flowstatement and associated notes to the year then ended have been extracted fromthe Group's financial statements. These financial statements have not yet beendelivered 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 tooverprovided expenses included in the previous year's loss on the sale. The group restructuring costs have arisen as a direct consequence of thedisposal of the games publishing and iDVD production businesses. Loss per share The calculations of loss per share are based on the following losses and numbersof shares. Basic and Diluted Restated 2007 2006 £'000 £'000 Loss/(Profit) for the financial yearContinuing operations 2,008 2,122Discontinued 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 beenrestated following the share consolidation. No adjustment has been made for 'in the money' share options as this woulddecrease the loss per share, which is not dilutive. No adjustment has been madefor 'out of the money' share options based on the assumption that shareholderswould 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