Zoo Digital Regulatory News (ZOO)

4 Sep 2006 09:00

Zoo Digital Group PLC04 September 2006 4 September 2006 ZOO DIGITAL GROUP PLC ("ZOO", "the Company" or "the Group") PLACING OF 110,000,000 NEW ORDINARY SHARES AT 0.65p AND ISSUE OF £3,496,000 LOAN NOTES PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 31ST MARCH 2006 ZOO Digital Group plc, the DVD and video technology company, today announces acapital raising of £3.9m (after expenses) and its unaudited results for the 12month period to 31 March 2006. Overview • £3.9m funding for continued development of the business • Placing of 110m new Ordinary Shares at 0.65p per share to raise £715,000 • Issue of £3,496,000 Convertible Unsecured Loan Notes • Preliminary announcement of unaudited results for the 12 month period to 31 March 2006 • Group turnover £9.16m (2005: £12.67 m - 15 months period) • Loss before Interest, Tax, Depreciation and Amortisation £3.37m (2005: £1.59 m - 15 months period) • Retained Loss after exceptional disposal costs and goodwill amortisation £8.25m (2005: £2.23 m - 15 months period) • Group restructured with disposal of computer games division • ZOOtech revenues up 322% to £1.9m (2005: £0.45m - 15 months period) with over 80 customers in 11 countries and signed first major contract for Menu Regionalisation product • 15 patents granted and 62 patents applied for Commenting, Stuart Green, Chief Executive of ZOO said: "We are undertaking a fundraising that will put the Group in a strong financialposition to execute its three-year business plan and I am delighted by theconfidence shown in the company's strategy by both new and established investors. I believe that the structural, strategic and financial changes put in placeprovide us with a strong foundation for growth, financial stability and profitability. "The Group has undergone significant restructuring and is now focused entirelyon building its leading position as the provider of software to the DVD andvideo production industry. We now have over 80 customers in 11 countries whilstcontinuing to develop new applications and markets for the technology." For further information, please contact: Stuart GreenChief Executive, ZOO Digital Group plc0114 241 3700 Helen ThomasWeber Shandwick/Square Mile020 7067 0700 John Llewellyn-LloydNoble & Company Limited020 7763 2200 The following information is an extract from the "circular" which will be postedto shareholders today. Introduction The Company has today announced proposals for a capital raising to provide theCompany with additional funds to further enhance the development of itsbusiness. The Company is seeking to raise £4.21 million (before expenses) as setout herein. The capital raising is to be effected by means of the ConvertibleLoan Stock Issue and the Placing of 110,000,000 new Ordinary Shares at thePlacing Price, which have been conditionally placed by Noble with certain newand existing investors. Foresight Venture Partners is a UK based technology venture capital investment manager and the FVP VCTs have conditionally agreed toinvest a total of £2.0 million in the Fundraising. The Fundraising is conditional upon the passing of certain resolutions by theCompany's Shareholders at an extraordinary general meeting of the Company. TheEGM is to be held at 11:00 a.m. on 27 September 2006 at the Company's offices at20 Furnival Street, Sheffield, S1 4QT, at which the Fundraising Resolutions willbe proposed. The Fundraising is also conditional on Admission of the PlacingShares to trading on AIM, a market regulated and operated by the London StockExchange, occurring on 28 September 2006, or such later date as the Company andNoble may agree. The Company has received irrevocable undertakings from Directors of the Companyholding a total of 80,337,863 Ordinary Shares to vote in favour of the Resolutions representing approximately 25.3 per cent. of the Existing Ordinary Shares. Under the terms of the Engagement Letter entered into between the Company andNoble in connection with the Placing, Noble has agreed to use its reasonableendeavours to procure placees for the Placing Shares at the Placing Price. ThePlacing is not being underwritten. Reasons for Fundraising The Company is proposing to raise £4.21 million (before expenses) by way of theissue of the CULS (excluding the Subscription CULS) at the Issue Price and theissue of the Placing Shares at the Placing Price, to institutional and otherinvestors. The Placing Shares will, when issued, be equivalent to approximately24.80 per cent. of the Company's enlarged ordinary share capital followingAdmission (before the conversion of any Convertible Loan Stock). The PlacingPrice represents a discount of approximately 35 per cent. to the closingmidmarket price of an existing issued Ordinary Share of 1p on 1 September 2006,the latest date practicable prior to the production of this document. Under the Fundraising, Dr. Stuart Green (Chief Executive Officer) has conditionally subscribed for 5,846,154 Placing Shares at the Placing Price and£342,000 of the CULS at the Issue Price, Ian Stewart (Non-Executive Director)has conditionally subscribed for 4,615,385 Placing Shares at the Placing Priceand £270,000 of the CULS at the Issue Price, Robert Deri (Chief FinancialOfficer) and his spouse have conditionally subscribed for 8,461,538 PlacingShares at the Placing Price in aggregate and Brockhill Limited, a company whollyowned by Dr. Christopher Honeyborne (Non-Executive Director), has conditionallysubscribed for £4,000 of the CULS at the Issue Price. On completion of theFundraising, Stuart Green will hold 15,487,654 Ordinary Shares representingapproximately 3.49 per cent. of the Company's enlarged issued ordinary sharecapital following Admission, Ian Stewart will hold 65,152,540 Ordinary Sharesrepresenting approximately 14.69 per cent. of the Company's enlarged issuedordinary share capital following Admission and Robert Deri (along with connectedparties) will hold 8,593,538 Ordinary Shares representing approximately 1.94 percent. of the Company's enlarged issued ordinary share capital followingAdmission (in all cases before the conversion of any Convertible Loan Stock). The Fundraising is expected to raise approximately £3.98 million (afterexpenses) for ZOO. The Directors intend to use the net proceeds of theFundraising to: • provide additional working capital to continue the development of the business; • complete the development of ZOOtech's templated authoring system for DVD-Video title production; • invest in sales and sales support to capitalise on revenue opportunities of current and future ZOOtech products and services; • continue to invest in patent protection and filing of additional patents; and • invest in further new product development of unique technologies for the video post production market. The Directors believe that, given the Company's requirements for additionalfinancing, the Fundraising is the most appropriate way to raise additional fundsfor ZOO. The Board has therefore decided to raise these monies by way of theFundraising following a limited and targeted marketing exercise, rather than byoffering all shareholders the opportunity to acquire further shares. The Directors believe that the additional cost and delay incurred in the production of aprospectus in connection with any such offer would not have been in the best interests of the Company. Shareholders should be aware that if the Resolutions are not approved byShareholders at the Extraordinary General Meeting then the Company will berequired to seek alternative sources of finance which may or may not be forthcoming. Board Changes With effect from the completion of the Fundraising, John Barnes has decided to step down from the Board as Chairman and a non-executive director of the Companyin order that he can pursue other business interests. Dr. ChristopherHoneyborne, presently a non-executive director of the Company, will assume therole of Chairman of the Company with effect from the completion of theFundraising. The Board would like to thank John for his significant contributionto the Company over the past five years and for his advice and wise counsel overthe course of his chairmanship. Particulars of terms and conditions of Convertible Loan Stock The Convertible Loan Stock will be issued in multiples of £1 by a resolution ofthe Board and will be constituted as unsecured obligations of the Company by theLoan Stock Instrument which has been conditionally entered into by the Company.A copy of the Loan Stock Instrument will be available for inspection by Loan Stock Holders and any person authorised by any of them at all reasonable timesduring office hours at the registered office of the Company. Further particularsof the terms and conditions of the Convertible Loan Stock are set out in theCircular. Taxation On 15 August 2006, confirmation was sought from Her Majesty's Revenue and Customs ("HMRC") that: • the Company is a qualifying company for the purposes the Enterprise Investment Scheme ("EIS") and for investment by a VCT; • the ordinary shares of the Company are eligible shares pursuant to section 842AA(14) ICTA 1988; • the Convertible Loan Stock will be capable of being regarded as a qualifying loan pursuant to section 842AA(12) ICTA 1988; and • the ordinary shares issued on conversion of the Convertible Loan Stock will be, if converted in accordance with the conversion provisions, eligible shares pursuant to section 842AA(14) ICTA 1988. On 18 August 2006, the Company received confirmation of all the above pointsfrom HMRC. This authorises the Company to issue certificates under section 306(2) ICTA 1988 in respect of the shares to be issued, confirming the eligibilityof the ordinary shares for the purposes of the EIS scheme. Detailed legislation exists in respect of qualifying investments by both VCTsand under the EIS scheme, which sets out the conditions that must be met by boththe Company and the investors in it. Investors should seek advice from their ownadvisers to ensure that their circumstances comply as required by the legislation. Related Party Transactions Stuart Green has agreed that he will subscribe for 5,846,154 Placing Shares and£342,000 of the CULS at an aggregate subscription of £380,000. Stuart Green is aDirector and is therefore a related party for the purposes of the AIM Rules. Thesubscription by Stuart Green for 5,846,154 Placing Shares and £342,000 of theCULS constitutes a related party transaction for the purposes of the AIM Rules. Ian Stewart has agreed that he will subscribe for 4,615,385 Placing Shares and£270,000 of the CULS at an aggregate subscription of £300,000. Ian Stewart is aDirector and is therefore a related party for the purposes of the AIM Rules. Thesubscription by Ian Stewart for 4,615,385 Placing Shares and £270,000 of theCULS constitutes a related party transaction for the purposes of the AIM Rules. The Directors (with the exception of Stuart Green in respect of his subscriptionfor 5,846,154 Placing Shares and £342,000 of the CULS and Ian Stewart in respectof his subscription for 4,615,385 Placing Shares and £270,000 of the CULS)consider, having consulted with Noble, the terms of Stuart Green's and Ian Stewart's subscriptions under the Fundraising to be fair and reasonable insofar as Shareholders are concerned. EGM Notice has been given in the Circular posted today of an EGM of the Company tobe held at the Company's offices at 20 Furnival Street, Sheffield, S1 4QT at 11:00 a.m. on 27 September 2006, at which the resolutions set out in such noticewill be proposed. Resolution 1 to be considered at the EGM proposes the following: (a) to grant the Directors authority to allot the Placing Shares, the Convertible Loan Stock and the Subscription Shares pursuant to section 80 of the Companies Act 1985; and (b) to disapply statutory pre-emption rights in respect of the Placing Shares, the Convertible Loan Stock and the Subscription Shares. Section 89 of the Companies Act 1985 requires that any equity securities (including any rights to convert securities into shares) allotted wholly for cash must be offered to existing shareholders in proportion to their existing holdings. This requirement was disapplied to a limited extent by a resolution passed at the annual general meeting held on 26 July 2005. However the extent of the disapplication is insufficient to enable full take up of the Placing Shares and the Convertible Loan Stock in aggregate under the Fundraising together with the issue of the Subscription Shares. Accordingly, the disapplication of statutory pre-emption rights proposed in paragraph (b) of Resolution 1 is necessary in order to effect the Fundraising and the Subscription. Resolution 2 is to increase the Company's authorised share capital, inter alia,to give the Company sufficient authorised share capital to enable the issue ofOrdinary Shares in the event that conversion of the Convertible Loan Stock takesplace. Resolutions 3 and 4 (which are conditional on the passing of the FundraisingResolutions) are to authorise the Directors to allot further relevant securitiesand to disapply statutory pre-emption rights. It is normal for companies to maintain (and the Company has previously always maintained) the ability to allot further shares up to a maximum of 33 per cent. of its issued share capital and tobe able to allot up to 5 per cent. of its securities on a non pre-emptive basis.These limits are in line with the maximum amounts permitted under the InvestorProtection Committee's guidelines and Resolutions 3 and 4 seek to restore theseamounts by reference to the Company's expected enlarged issued share capitalfollowing the Placing and the Subscription. Recommendation The Directors consider the Fundraising and the approval of the Resolutions,including the Fundraising Resolutions upon which the Fundraising is conditional,to be in the best interests of the Company and its shareholders as a whole andunanimously recommend that shareholders vote in favour of the Resolutions, as the Directors have irrevocably undertaken to do or procure to be done in respectof their beneficial holdings of Ordinary Shares amounting to, in aggregate,80,337,863 Ordinary Shares, representing approximately 25.3 per cent. of theExisting Ordinary Shares. John BarnesNon-Executive Chairman Christopher HoneyborneNon-Executive Director PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 31ST MARCH 2006 CHAIRMAN'S STATEMENT The Financial Year 2005/06 presented ZOO with a number of challenges which resulted in the Group making fundamental changes under a comprehensive strategicreview. As part of this review Dr. Stuart Green, previously Chief TechnologyOfficer and the driving force behind the ZOOtech division, was appointed ChiefExecutive with Ian Stewart stepping down and becoming a Non Executive Director.The strategic review has led the Company to focus its resources and capabilityon its core technology business of developing and licensing unique productivitysolutions for DVD and video post production; a business characterized by highmargins and outstanding opportunities for growth. In 'ZOOtech', the R&D and software licensing division, our DVD development system DVD-EXTRA STUDIO is now proven as the leading solution for interactive DVD title production and the associated revenues have increased significantly in theyear. A new product - the Regionalization Tool - has provided the first entryfor ZOO into the lucrative video post production market and our Hollywood basedcustomers are now enjoying the benefits of significantly reduced costs andaccelerated time to market of regionalized DVD titles. ZOO's DVD productiondivision 'ZOO Interactive Video' ("ZIV") has produced some of the bestperforming interactive DVD titles in 2005 and received a number of industryawards for product excellence and retail performance. As part of a strategic review following an increasingly difficult computer gamesmarket, the Group decided to close its traditional games publishing arm ZOO Digital Publishing and sold the remaining assets for a cash consideration of£250,000. ZOO's business now focuses solely on the development and licensing ofDVD and video production software and the creation and publication of interactive DVD-Video ("iDVD") titles. Today's fundraising of £4.2m gross will underpin the Group's business plan andprovide working capital to take the Group forward and move into profit. Webelieve that prospects for the Group under its new structure and focus are soundand look forward to a period of growth as we capitalise on our range of innovative software products. John BarnesNon-Executive Chairman Christopher HoneyborneNon-Executive Director CHIEF EXECUTIVE'S REVIEW From an operational point of view the year to March 2006 saw ZOOtech gainsignificant traction in the market across eleven countries with a number of bluechip customers and ZOO Interactive Video established as one of the leadingproducers of interactive DVD titles. The well-documented difficulties in thecomputer games market had a profound effect on our Games Publishing division,which became apparent over the Christmas period. After careful consideration ofmarket conditions, the Board concluded that the risks associated with thisnon-core part of the business had increased following the Christmas tradingperiod and took the decision to close it. We believe that the restructuring of the business allows investors to appreciatefully the value we have in our DVD-EXTRA software and the potential for growthdriven by our patented technology. We have reduced our operating costssignificantly and now have 66 full time equivalent employees compared with 115in January 2006. Financial Review Following the trading update announced on 23 January 2006, turnover for the twelve month period to 31 March 2006 fell to £9.16 million (2005: £12.67 million- 15 months period). Loss before interest, tax, depreciation and amortisationwas £3.37 million (2005: Loss before interest, tax, depreciation and amortisation £1.59 million - 15 month period), which largely resulted from the decisionnot to publish games from the Group's now redundant games publishing business inthe final quarter and disappointing revenues from own developed games. Exceptional one off closure costs of £2.74 million (2005: nil) and an exceptionalgoodwill amortisation of £0.96 million (2005: nil) were incurred from this restructuring. As at 31 March 2006 the Group had net assets of £1.93 million (2005: £6.94million) with a bank overdraft of £316,605. Part of the fundraising announced today will be used to repay the Group's debt position and provide sufficientworking capital. ZOOtech Ltd The past 12 months have been a period of rapid growth for ZOOtech, during whichrevenues increased to £1.9m from £452,000 in the 15 month period to 31 March2005. Following the successful launch of the DVD development system DVD-EXTRASTUDIO, the Group introduced a second product focusing on 'regionalisation'which enables DVD publishers to produce versions of their titles for multiplelanguages more quickly and less expensively. Following extensive trials, the system has now been in use for around seven months in the production of mainstreamDVD-Video titles in Hollywood. The Regionalization Tool represents ZOOtech's first offering for conventionalDVD production and marks its entry into the video post production market. TheBoard believes that the post production market, especially in North America,represents a significant opportunity and the Group has therefore placed a greater emphasis on commercial operations in this territory. We continue to pursue our intellectual property programme and protect our innovations through the filing of patents in multiple territories. Our portfolio has reached over 60 applications across 21 patent families, of which 14 have beengranted in the UK and one in New Zealand. ZOOtech, its products and several third party DVD-EXTRA titles have been therecipients of a number of prestigious awards. ZOOtech was one of 20 winners of the European IST Prize - the most distinguished prize for innovative products andservices in the field of Information Society Technologies. In March 2006 at theDVD Association's annual DVD Excellence Awards ceremony, a total of eight awardswere given to products created with DVD-EXTRA STUDIO. ZOOtech was awarded a DTIgrant for R&D to the value of £200k for research and development of its Templated Authoring System. The market focus of ZOOtech now lies in two distinct areas: the video postproduction market into which we provide productivity tools, and the interactiveDVD market for which ZOOtech licenses the only product available designedspecifically for interactive DVD title development. The Company's strategy is todevelop unique, innovative technology products based upon patented methods thatcan be used to enable video content owners and their vendors to simplify thecreation of titles for multiple territories across multiple platforms. Video Post Production Video post production is a well established industry within which annual spendis considerable. ZOOtech's aim within this industry is to provide technologies that simplify the creation of video products for multiple platforms and territories and is developing a suite of application programs for this purpose. ZOOtech's first such product, the Regionalization Tool, and the forthcoming Templated Authoring System both automate a considerable proportion of work that has traditionally been performed manually, usually by post production facilities onbehalf of studios and other DVD publishers. These tools are attractive to content owners because they can dramatically cut the cost of producing each new DVD title since they significantly reduce labour related to production. Importantly there are no other commercial products available with this capability. During the last year we launched the Regionalization Tool and announced our first major contract with a Hollywood studio. The product has now been independentlybenchmarked by a number of organizations, with measured productivity improvements of 75% or more. In some cases this can equate to savings for our customers ofmultiple millions of dollars annually. We have recently licensed the Regionalization Tool to Elektrofilm, a global digital media services facility with studiosin Los Angeles, Berlin, Cologne, Leipzig, Munich, Potsdam and Stuttgart. Elektrofilm will use the system as part of its high end DVD production services offered to Hollywood studios and other publishers and we expect other organizations to take up the product. The Templated Authoring System which automates the preparation of video contentfor titles on multiple platforms and in multiple territories is due for releasein the autumn. The initial version of the Templated Authoring System is designedfor production of DVD-Video titles, but we are already exploring opportunitiesfor other video delivery platforms, including next generation optical discs andTV deployment. While we remain focused in our product development and commercialization effortsto secure revenues in the short to medium term, we continue to identifysignificant opportunities for new product development in the future, which willprovide incremental revenue streams. Interactive DVD The interactive DVD market in the UK, pioneered by ZOO, has demonstratedsignificant growth in the past year. Around 30 titles in the category were introduced prompting retailers including HMV, Virgin, WHSmith and Borders to dedicate in-store shelf space to the genre for the first time. Collectively interactive DVD titles sold around 3 million units over the Christmas 2005 period, ofwhich we estimate around 70% were produced using DVD-EXTRA STUDIO. According to data reported in the British Video Association (BVA) Yearbook 2006,interactive DVDs were responsible for a significant market share gain of the"special interest" genre, up from 2.3% of volume in 2004 to 3.8% in 2005. Of thetop 20 special interest titles, 17 were interactive DVDs and of these 13 werecreated using DVD-EXTRA STUDIO. These titles were hugely popular over Christmas2005 and companies produced a whole range of products to meet demand, growing the sub-genre by 100% in the year. The best seller in the special interest category was "Who Wants to be a Millionaire? 3" developed by ZOO Interactive Videoand published by Universal with 344,000 units sold, making it the 14th bestselling UK DVD overall in December 2005. In the first half of 2006 this producthas sold through a further 71,000 units bringing its total volume sales to415,000. A particularly impressive performance was shown by the title "Now That's What ICall a Music Quiz" published by EMI/Universal, selling over 410,000 units inDecember 2005 and making this title the best seller in the "music" category forthe year demonstrating the significant revenue and profit potential of interactive DVD to music publishers. The UK interactive DVD market is showing further significant growth in 2006 in terms of the number of new titles in development. We expect there to be over ahundred titles available over the Christmas period of which we estimate aroundhalf will be created using DVD-EXTRA STUDIO. New licensees are being added on an on-going basis; in North America newagreements with Scholastic Media, Brighter Minds Media and Endless Games forproducts that use ZOOtech's technology for new interactive DVDs will produce abroad range of new titles based on popular television, film and book properties.In Europe further licenses have been agreed with Vivid Imaginations Ltd, Big RedFrog, Silenn and Compedia. ZOOtech has also signed its first developer andpublisher contracts in Italy with Cinehollywood, demonstrating the continuedexpansion and growth in the market for interactive DVDs across multiple territories. These additions contribute to a robust publishing schedule for 2006 and 2007 across a number of DVD game categories. ZOO Interactive Video Ltd ("ZIV") ZIV is focused on the development of interactive DVD titles and partners withpublishers to provide the channel for its products in the market. ZIV's effortshave been responsible for the establishment of the interactive DVD category atretail, with dedicated point-of-sale areas appearing for the first time inDecember 2005. In the year four new titles were developed by ZIV: "Who Wants tobe a Millionaire? 3", "Wallace & Gromit DVD Game", "Telly Addicts" and "Interactive Championship Challenge 2", which were published by Universal Pictures across eight territories including UK, France, Germany and Japan. At the DVD Association Excellence Awards held in May 2006, ZIV received sixawards including two for technical achievement and one for children's DVDexcellence. The British Video Association presented ZIV with three RetailPerformance Awards for "Who Wants to be a Millionaire? 3", "Telly Addicts" and"Wallace & Gromit DVD Game". ZIV is increasing its output for Christmas 2006 to seven titles which will bepublished by Universal Pictures and 2 Entertain Ltd. ZIV's strategy is to grow the interactive DVD market through the development of premium branded titles fortrivia as well as non-quiz genres, and its products rank amongst the most sophisticated in the market. Outlook The Board has taken decisive measures to focus the business as a technologycompany. It is clear that we have unique technologies supported by patents and,following the successful completion of the proposed fundraising, the Boardremains confident about the prospects for the Group. We believe that ZOO offers an attractive opportunity for investors and expect the interactive DVD market to grow across a number of territories in the comingyear with revenues increasing accordingly. We believe that revenues generated byour video post production tools will increase significantly as we further deployinstallations of the Regionalization Tool and introduce the Templated AuthoringSystem into the market. The Group has clear objectives and an effective platform for growth and thebusiness continues to attract new customers as well as developing relationshipswith key multi national companies. Our future product development plans are welldefined and are being driven by customer requirements and we expect ZOO's technology to play an increasingly important role in the video post productionmarket. We anticipate that the restructured group will provide a sound base for thebusiness. The fundraising allows the Group to eliminate debt completely andprovide working capital to take the business forward. I would like to take the opportunity to express the Boards' deep gratitude toall our employees for their unstinting dedication and enormous contributionduring the year. Stuart Green, Chief Executive ZOO Digital Group plc PROFIT AND LOSS ACCOUNTFor the year ended 31 March 2006 Unaudited Audited Year ended 15 months 31 March to 31 2006 March 2005 £'000 £'000 Turnover 9,164 12,669 Cost of sales (6,183) (7,611) --------- ---------Gross profit 2,981 5,058Other operating income 20 260Other operating expenses - other (6,373) (6,907) Loss before interest, tax, depreciation and amortisation (3,372) (1,589) - depreciation (173) (155) - amortisation of goodwill (682) (593) --------- --------- (7,228) (7,655) --------- --------- Operating loss (4,227) (2,337) Loss on disposal of discontinued operation (3,698) -Other interest receivable and similar income 25 99Amounts written off investment (240) -Interest payable and similar charges (109) (42) --------- ---------Loss on ordinary activities before taxation (8,248) (2,280)Tax on loss on ordinary activities - 53 --------- ---------Retained loss for the financial year (8,248) (2,227) --------- --------- BALANCE SHEETAs at 31 March 2006 Unaudited Audited 31 March 2006 31 March 2005 £'000 £'000 Fixed assetsIntangible assets 2,007 3,351Tangible assets 342 377 --------- --------- 2,350 3,728 --------- --------- Current assetsStock 48 903Debtors 2,499 5,937Cash at bank and in hand - - --------- --------- 2,547 6,840 Creditors: amounts falling due within one year (2,962) (3,630) --------- ---------Net current liabilities/assets (415) 3,210 --------- --------- Total assets less current liabilities 1,934 6,938Creditors: Amounts falling due after more than one year - - --------- ---------Net assets 1,934 6,938 --------- --------- Capital and reservesCalled-up share capital 635 559Share premium account 21,648 18,719Other reserves 8,598 8,598Profit and loss account (28,858) (20,609) --------- ---------Shareholders' funds 2,023 7,267Interest in own shares (89) (329) --------- --------- 1,934 6,938 --------- --------- CASH FLOW STATEMENTFor the year ended 31 March 2006 Unaudited Audited Year ended 15 months 31 March to 31 2006 March 2005 £'000 £'000 Net cash outflow from operating activities (2,005) (4,302)Exceptional items (35) -Returns on investments and servicing of finance (84) 57Tax refund - -Capital expenditure and financial investment (470) (1,107)Acquisitions and disposals - - --------- ---------Cash outflow before financing (2,594) (5,352) Financing 3,004 (828) --------- ---------Increase / (decrease) in cash in the year 410 (6,180) --------- --------- Reconciliation of net cash flow to movement in net (debt)/funds 2006 2005 £'000 £'000 Increase / (decrease) in cash in year 410 (6,180)Cash inflow from increase in debt and lease financing - 858 --------- ---------Change in net (debt)/funds resulting from cash flows 410 (5,322) --------- --------- Net (debt)/funds at 1 April 2005 (729) 4,593 --------- ---------Net funds/(debt) at 31 March 2006 (319) (729) --------- --------- 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 2006 and the profit and loss account, cash flow statement and associated notes to the year then ended have been extracted from theGroup's financial statements. These financial statements have not yet beendelivered to the Registrar of Companies. DEFINITIONS The following definitions apply throughout this announcement unless the contextrequires otherwise: "Admission" the admission of the Placing Shares and the Subscription Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules "AIM" AIM, an exchange regulated market regulated by the London Stock Exchange "AIM Rules" the rules for AIM companies and their nominated advisers published by the London Stock Exchange from time to time, in relation to AIM traded securities "Circular" the circular posted to Shareholders (and, for information only, to the holders of options over Ordinary Shares) today "Company" or "ZOO" ZOO Digital Group plc "Convertible Loan Stock Issue" the conditional subscription for the Convertible Loan Stock (excluding the Subscription CULS) by certain institutional and other investors, including the FVP VCTs "CULS" or "Convertible Loan Stock" £3,541,000 6 per cent. Unsecured Convertible Redeemable Loan Stock 2011 of the Company proposed to be issued for cash at the Issue Price "Directors" or "Board" the directors of the Company whose names are set out on page 4 of the Circular "EGM"or the "Extraordinary General Meeting" extraordinary general meeting of the Company to be held at the Company's offices at 1 St. Paul's Place, Sheffield, S1 2JX at 11.00 a.m. on 27 September 2006 (or any adjournment thereof), notice of which is set out at the end of the Circular "Engagement Letter" an engagement letter dated 31 August 2006 between (1) Noble and (2) the Company relating to the Fundraising "Existing Ordinary Shares" the 317,327,828 Ordinary Shares in issue as at the date of the Circular "Foresight" or "FVP" VCF LLP (trading as Foresight Venture Partners) "Fundraising" the proposed fundraising by the Company by way of the Convertible Loan Stock Issue and Placing "Fundraising Resolutions" resolutions 1 and 2 as set out in the Notice of EGM "FVP VCTs" Foresight 2 VCT plc, Foresight 3 VCT plc and Foresight 4 VCT plc "Group" the Company and its subsidiaries "HMRC" Her Majesty's Revenue and Customs "Issue Price" £1 payable for each £1 nominal of Convertible Loan Stock to be issued "KBC Peel Hunt" KBC Peel Hunt Ltd "Loan Stock Holder" any person whose name is, at the relevant time, entered as holder of Convertible Loan Stock in the register following the Fundraising "Loan Stock Instrument" the conditional deed constituting the Convertible Loan Stock which has been executed by the Company "London Stock Exchange" London Stock Exchange plc "Noble" Noble & Company Limited, the Company's nominated adviser and broker, which is authorised and regulated by the Financial Services Authority and has its registered address at 76 George Street, Edinburgh, EH2 3BU "Notice of EGM" the notice of the EGM set out at the end of the Circular "Ordinary Shares" ordinary shares of 0.2p each in the capital of the Company "Placing Price" 0.65p per Placing Share "Placing Shares" 110,000,000 new Ordinary Shares to be allotted and issued to certain institutional and other investors, including the FVP VCTs, pursuant to the Placing "Placing" the proposed placing by Noble, on behalf of the Company, of the Placing Shares at the Placing Price details of which are set out in the Circular "Resolutions" the resolutions to be proposed at the EGM "Shareholders" the persons who are registered as holders of Ordinary Shares from time to time "Subscription" the proposed subscription by Noble for 15,384,615 new Ordinary Shares at the Placing Price and the proposed subscription by KBC Peel Hunt for 769,231 new ordinary shares at the Placing Price and £45,000 of the CULS at the Issue Price "Subscription CULS" the £45,000 of the CULS at the Issue Price proposed to be subscribed for by KBC Peel Hunt pursuant to the Subscription "Subscription Shares" the 16,153,846 new Ordinary Shares subject to the Subscription "UK" the United Kingdom of Great Britain and Northern Ireland "VCT" Venture Capital Trust "ZOOtech" ZOOtech Limited This information is provided by RNS The company news service from the London Stock Exchange