3rd Quarter & 9 Mths Results

Zen Research PLC 25 October 2000 Zen Research plc Third quarter results for the three months ended 30 September 2000 Zen Research plc, the developer and licensor of Multibeam and True X technologies for use in production of high-performance components for DVD and CD drives, today announces results for the third quarter ended 30 September 2000. Zen's objective is to establish its Multibeam and True X technologies as leading industry solutions for optical storage devices. HIGHLIGHTS * Research and development of multiple beam DVD technology and products continues to move ahead: - Pre-production Multibeam DVD optical detector elements shipped - DVD controller chip taped out in September * Two additional DVD drive manufacturers, Afreey and Actima of Taiwan, were licensed * Two further patents granted: one in optics and the other in software * US$5 million acquisition of optical write technology through a licensing arrangement * Successful IPO in July 2000 raising approximately US$98 million net of expenses Emil Jachmann, Chief Executive of Zen Research plc said: 'Following our successful IPO, we commenced a substantial increase in research and development in an effort to advance Zen technology as an industry solution for high performance DVD and CD drives. 'With our optic and drive license partners in Japan, Korea, and Taiwan, we now have a presence in the three largest centers for optical drive production. We remain confident that our strategy will continue to attract additional licensing partners.' For further information: Zen Research Emil Jachmann, David Aber Tel: 0044 20 7382 0470 Bell Pottinger Financial Jonathon Brill/Mark Way Tel: 0044 20 7353 9203 www.zenresearch.com ADDITIONAL INFORMATION Infineon Technologies successfully taped out their Raptor DVD chip last month, and plans to have the first pre-production chip samples fabricated before year-end. The Zen licensed chip will serve as the central controller in True X DVD-ROM drives. EM (US) Design, Inc., a subsidiary of the Swatch Group, who signed a Zen technology license earlier this year, has started delivering pre-production Multibeam detector elements for testing and integration into optical pick up assemblies for True X DVD-ROM drives. During October 2000, Zen executed a US$ 5 million licensing agreement to acquire rewrite technology rights from Calimetrics, a US company that has developed unique rewrite technology that is applicable to standard rewritable CD and DVD. Zen believes that this rewrite technology will complement its core technologies and supplement Zen's entry into the rewritable optical drive market segments. Zen was granted two additional patents during the 3rd quarter. One relates to the use of multiple beam optics and their interface with silicon and the other relates to software that processes data collected in parallel. The patents strengthen Zen's IP portfolio, which now totals 23 issued patents. FINANCIAL COMMENTARY During July 2000, Zen floated on the London Stock Exchange raising approximately US$98 million (£65 million) after expenses, which included the Underwriters' Option. TURNOVER Turnover for the three month and nine month periods ended 30 September 2000 represent royalty income received under a license agreement with a single licensee for CD ROM technology only. Turnover for the three month and nine month periods ended 30 September 1999 represents the sale of CD-ROM ASICs (Application Specific Integrated Circuits) which were made prior to the conversion of Zen's business model. During mid 1999, Zen converted from a business model which recognised turnover from the direct sale of CD-ROM ASIC's, to its current business model in which Zen is primarily engaged in product design and development of technology which is licensed for use in the production of high-performance components for CD and DVD optical storage devices. RESEARCH AND DEVELOPMENT Research and development expenses increased during the three month and nine month periods ended 30 September 2000 compared to the corresponding prior year period due to the increase in headcount and related expenses and expenditures on outside engineering services to develop and enhance Zen's intellectual property. Zen expects further increases in the future. COSTS IN CONNECTION WITH THE INITIAL PUBLIC OFFERING Zen incurred a total of US $15,872,000 of costs in relation to the Initial Public Offering 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 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 $5,806,000 to the Profit and Loss statement. OTHER OPERATING EXPENSES The increase in other net operating expenses for the three month period ended 30 September 2000, compared to the corresponding prior year three month period, was mainly due to higher costs related to being a public company, including increased insurance, the establishment of two additional corporate entities and other related costs. Zen expects such increases to continue. Other net operating costs for the nine month period ended 30 September 2000 compared to the corresponding prior year periods decreased due to Zen's change in business model as discussed above. The reduction in costs during this period reflects the decrease in headcount and related expenses deployed in field operations, which had been important to support the prior business model. CONSOLIDATED BALANCE SHEET Cash on hand increased at 30 September 2000 compared to 31 December 1999 due to the successful public offering on the London Stock Exchange, issuance of pre-IPO preferred stock to several investors (which was converted to ordinary shares in the IPO) and the exercise of options for Ordinary shares. Proceeds from these issuances were partially used to reduce the outstanding amount due to creditors falling due within one year. Zen Research plc Results for the quarter and nine months ended 30 September 2000 Consolidated profit and loss accounts Quarter ended 9 months ended 30 September 30 September 2000 1999 2000 1999 Unaudited Unaudited US$ '000 US$ '000 Turnover 41 94 161 100 Cost of sales -- (69) -- (74) --------- --------- --------- --------- Gross profit 41 25 161 26 Research and development (2,077) (1,434) (5,654) (4,028) Costs in connection with the Initial Public Offering (5,806) -- (5,806) -- Other net operating expenses (1,301) (1,248) (3,274) (4,506) --------- --------- --------- --------- Operating expenses (9,184) (2,682) (14,734) (8,534) Loss on ordinary activities before interest and taxation (9,143) (2,657) (14,573) (8,508) Net interest receivable/ (payable) 1,195 (77) 609 (314) --------- --------- --------- --------- Loss on ordinary activities before taxation (7,948) (2,734) (13,964) (8,822) Taxation on ordinary activities (384) (55) (459) (127) --------- --------- --------- --------- Loss on ordinary activities after taxation (8,332) (2,789) (14,423) (8,949) ========= ========= ========= ========= Basic loss per share(US dollars) (0.05) (0.03) (0.11) (0.12) ========= ========= ========= ========= Weighted Average Ordinary Shares 175,403,592 82,007,891 127,246,614 73,179,390 ============ ========== ============ ========== Zen 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 Consolidated balance sheet 30 September 31 December 30 September 2000 1999 1999 Unaudited Audited Unaudited US$ '000 US$ '000 US$ '000 Fixed assets Intangible assets 285 548 635 Tangible assets 1,348 1,522 1,787 --------- --------- --------- 1,633 2,070 2,422 Current assets Debtors - due after more than one year 1,572 2,244 2,235 Debtors - due within one year 581 157 525 --------- --------- --------- 2,153 2,401 2,760 Cash at bank and in hand 100,507 90 679 --------- --------- --------- 102,660 2,491 3,439 Creditors - Amounts falling due within one year (4,432) (10,490) (11,171) --------- --------- --------- Net current liabilities 98,228 (7,999) (7,732) --------- --------- --------- Total assets less current liabilities 99,861 (5,929) (5,310) Creditors - Amounts falling due after more than one year (3,962) (384) (364) --------- --------- --------- Net assets/(liabilities) 95,899 (6,313) (5,674) --------- --------- --------- Capital and reserves Called up share capital 13,397 642 482 Share premium 110,628 33,843 31,575 Other reserves 27,827 732 732 Profit and loss account (55,953) (41,530) (38,463) --------- --------- --------- Total shareholders' funds 95,899 (6,313) (5,674) ========= ========= ========= Zen Research plc Consolidated cash flow statement Quarter ended 9 months ended 30 September 30 September Unaudited Unaudited US$ '000 US$ '000 2000 1999 2000 1999 Net cash outflow from operating activities (12,277) (1,455) (18,244) (5,086) Returns on investments and servicing of finance Interest received 1,603 5 1,660 22 Interest paid (65) (82) (323) (336) ------- ------- ------- ------- Net inflows/(outflows) from returns on investments and servicing of finance 1,538 (77) 1,337 (314) Capital expenditure Purchase of fixed assets (96) (335) (385) (548) Sale of tangible fixed assets -- -- -- -- ------- ------- ------- ------- Net cash outflow for capital expenditure (96) (335) (270) (548) Increase in short-term deposits with banks (43,431) -- (43,431) -- Financing Proceeds from advances in respect of royalties -- -- 3,000 -- Proceeds from initial public offering 114,364 -- 114,364 -- Issue costs in respect of initial public offering (10,066) -- (10,066) -- Proceeds from issuance of common and preferred stock -- 2,001 9,366 2,030 Repayment of loan notes due from shareholders 3,693 -- 4,197 -- -------- ------- -------- ------- Net cash inflow from financing 107,991 2,001 120,861 2,030 -------- ------- -------- ------- Increase/(decrease) in cash 53,725 134 60,253 (3,918) ======== ======= ======== ======= Notes to the Interim Financial Statements of Zen Research plc 1. Basis of preparation The interim financial statements have been prepared on the accounting policies set out in the accountants' report included within Zen'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. The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Zen was incorporated on 30 December 1999, and no statutory accounts have yet been required to be prepared and delivered to the Registrar of Companies by Zen.

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