Final Results

Zen Research PLC 23 January 2002 23 January 2002 Zen Research plc Report for the fourth quarter ended 31 December 2001 REVIEW OF BUSINESS ACTIVITIES Multibeam TM Following the reduction in workforce of the Multibeam TM division which Zen Research plc ('the Company') announced in its previous quarterly report, Zen has ceased support for all Multibeam TM projects with previous licensing partners. The Multibeam TM group's primary activities have been reduced to protecting patents, continuing to improve its intellectual property, and exploring opportunities and applications for the use of Multibeam TM. Zen currently has no active projects in MultibeamTM and at this stage has no revenue expectations from previous Multibeam TM projects. The Company continues to work with the video player licensee and nonrecurring engineering revenues are being recorded which cover Zen's development costs only. Completion of this project is expected before the end of 2002. New Silicon Value New Silicon Value ('NSV') employs proprietary full-custom design techniques in an automated fashion with a view to providing its customers with efficient and cost effective application specific integrated circuits ('ASICs'). Market conditions within the semi-conductor industry have become more challenging. Manufacturers remain hesitant to commission new ASIC designs. The business, and outlook for, New Silicon Value ('NSV') are accordingly adversely affected as existing customers have lowered their internal forecasts for ASIC production for the year ended 2002. NSV is progressing as planned with design work for its existing customers. Engineering fees will be received for designing these ASICs. Experience has been that a significant proportion of ASIC designs are either not incorporated into saleable products or do not result in volume shipments by customers so there can be no assurance that these customers will ever utilize these designs in production. Zen continues to believe in the long-term potential for NSV when the ASIC market recovers. Accordingly, while recognizing its need to continue to monitor progress and business performance, Zen expects to continue substantial funding of NSV during the market downturn. In 2002 this investment is likely to range from US$9 million to US$12 million depending upon market conditions. FINANCIAL COMMENTARY Turnover Un-audited Three months Audited ended Year ended 31 December 31 December US$ '000 US$ '000 2001 2000 Change 2001 2000 Change Group Turnover Continuing 300 110 190 826 271 555 Acquisitions 2,216 -- 2,216 5,020 -- 5,020 2,516 110 2,406 5,846 271 5,575 ===== ==== ===== ===== ==== ===== Turnover for the three and twelve months ended 31 December 2001 increased compared to the comparable periods ended 31 December 2000. This increase was mainly due to the turnover generated by New Silicon Value, which was acquired in April 2001, although turnover from continuing operations also increased in the periods. Turnover from continuing operations was generated from engineering fees for development work during 2001, whereas the turnover during the comparable three and twelve-month periods was generated from royalties and engineering fees. Sequential turnover from continuing operations increased from US$139,000 to US$300,000 at 31 December 2001 due to the timing of billable milestones for a certain development project during the period. Turnover from acquisitions was generated from shipments of ASICs and engineering fees for development work. Research and development Un-audited Three months Audited ended Year ended 31 December 31 December US$ '000 US$ '000 2001 2000 Change 2001 2000 Change Research and development Continuing 1,555 2,641 (1,086) 9,822 8,295 1,527 Acquisitions 2,308 -- 2,308 5,477 -- 5,477 3,863 2,641 1,222 15,299 8,295 7,004 ===== ===== ===== ====== ===== ==== For continuing operations, research and development expenses decreased during the three-month period ended 31 December 2001 compared to the corresponding period. This decrease reflects the reduction in headcount and related expenses and expenditures on outside engineering services. The increase in expenses for the twelve-month period ended 31 December 2001 was due to a higher rate of spending compared to the corresponding period prior to the restructuring activities detailed below. Spending was focused on the development and enhancement of Zen's intellectual property. During 2001, the Company made two restructurings of its research and development department due to market conditions. Sequential expenditures from continuing operations decreased during the three months ended 31 December 2001, due to a reduction in salary and related expenses, as a result of the restructuring taken during the prior quarter, third party engineering services and other expenses. Expenditures for research and development for New Silicon Value represent costs related to the ongoing development of software tools and technologies and include a charge for share options issued to NSV employees. Other operating expenses Un-audited Three months Audited ended Year ended 31 December 31 December US$ '000 US$ '000 2001 2000 Change 2001 2000 Change Other operating expenses Continuing 1,516 1,694 (178) 7,227 4,968 2,259 Acquisitions 4,007 -- 4,007 11,488 -- 11,488 5,523 1,694 3,829 18,715 4,968 13,747 ===== ===== ===== ====== ===== ===== Other operating expenses incurred by continuing operations for the three-month period ended 31 December 2001 decreased mainly due to decreased headcount and related expenses. Sequential expenditures from continuing operations decreased during the three months ended 31 December 2001, due mainly to a reduction in salary and related expenses. Other operating expenses incurred by continuing operations increased for the twelve-month period due to higher levels of headcount and spending for the twelve-month period compared to the prior year. Other operating expenses related to New Silicon Value consists mainly of payroll and related costs and marketing programs. Also included is goodwill amortization of US$3.1 million and US$9.2 million for the three and twelve months ended 31 December 2001. Goodwill on the acquisition of New Silicon Value amounted to US$18.6 million and is being amortized over eighteen months. Restructuring costs In relation to the postponement of development of MultibeamTM products, the Company took a charge of US$800,000 in the previous quarter related to the write-off of certain intellectual property assets. The Company incurred an additional charge of approximately US$1.1 million in the fourth quarter of 2001 related to headcount reductions and other items mainly related to MultibeamTM. The Company had taken a charge of US$1.6 million in the second quarter of 2001 related to a restructuring of the Company based on market conditions at that time. Consolidated Balance Sheet Cash on hand and short-term investments decreased at 31 December 2001 to US$59.8 million compared to US$63.3 million at 30 September 2001. This decrease was mainly due to cash used for the funding of the current operations. See Consolidated cash flow statement for further details. The increase in creditors compared to 31 December 2000 was mainly due to the liabilities acquired as the result of the acquisition of New Silicon Value, and the re-structuring accruals incurred during the year. Net current assets decreased from US$94.0 million at 31 December 2000 to US$51.9 million at 31 December 2001. This decrease was mainly due to the US$22.25 million acquisition of New Silicon Value and cash used to fund current operations. ENQUIRIES: Zen Research plc Tel: +44 (0)207 382 0470 Mark Way, Vice President Investor Relations www.zenresearch.com Zen Research plc Results for the quarter and year ended 31 December Consolidated profit and loss accounts Un-audited Three months Audited ended Year ended 31 December 31 December US$ '000 US$ '000 2001 2000 2001 2000 Group Turnover Continuing 300 110 826 271 Acquisitions 2,216 - 5,020 - 2,516 110 5,846 271 Cost of sales (1,743) - (3,839) - Gross profit 773 110 2,007 271 Research and development (3,863) (2,641) (15,299) (8,295) Other operating expenses excluding (5,523) (1,694) (18,715) (4,968) exceptional items Exceptional items: Costs in - - - (5,806) connection with initial public offering Restructuring costs (1,100) - (3,490) - Total other operating expenses (6,623) (1,694) (22,205) (10,774) Total operating expenses (10,486) (4,335) (37,504) (19,069) Operating loss Continuing (3,871) (4,225) (19,713) (18,798) Acquisitions (5,842) - (15,784) - (9,713) (4,225) (35,497) (18,798) Net interest receivable 560 1,038 3,055 1,647 Loss on ordinary activities before taxation (9,153) (3,187) (32,442) (17,151) Taxation on ordinary activities - 105 (335) (354) Loss on ordinary activities after taxation (9,153) (3,082) (32,777) (17,505) Basic loss per share (US dollars) (0.05) (0.02) (0.18) (0.11) Fully diluted loss per share (US dollars) (0.05) (0.02) (0.18) (0.11) Weighted Average 181,195,352 178,679,830 180,512,655 152,730,242 Ordinary Shares The Company has no recognised gains and losses in any of the periods shown above other than the loss for the period shown in the relevant profit and loss account. Accordingly, no separate statement of total recognised gains and losses has been presented. Zen Research plc Consolidated balance sheet at 31 December Audited Audited 31 December 31 December 2001 2000 US$ '000 US$ '000 Fixed assets Intangible assets 9,277 1,147 Tangible assets 5,055 1,745 14,332 2,892 Current assets Stock 295 - Debtors - due after more 276 1,503 than one year Debtors - due within one year 2,987 583 3,263 2,086 Short-term investments 49,443 42,726 Cash at bank and in hand 10,334 54,192 59,777 96,918 Creditors - Amounts falling due within one year (11,458) (4,958) Net current assets 51,877 94,046 Total assets less current liabilities 66,209 96,938 Creditors - Amounts falling due after more than one year (5,291) (4,050) Net assets 60,918 92,888 Capital and reserves Called up share capital 13,709 13,562 Share premium 101,105 100,529 Other reserves 37,832 37,832 Profit and loss account (91,728) (59,035) Total equity shareholders' funds 60,918 92,888 Zen Research plc Consolidated cash flow statement for the quarter and year ended 31 December Un-audited Three months Audited ended Year ended 31 December 31 December US$ ' 000 US$ '000 2001 2000 2001 2000 Net cash outflow from operating activities before exceptional items (2,860) (2,600) (19,867) (13,052) Exceptional items - Costs in connection with initial public offering - - - (5,806) Net cash outflow from operating activities (2,860) (2,600) (19,867) (18,858) Returns on investments and servicing of finance Interest received 769 1,408 4,077 3,195 Interest paid - - - (635) Net inflows/(outflows) from returns on 769 1,408 4,077 2,560 investments and servicing of finance Taxation - (116) - (116) Purchase of intangible fixed assets - (914) - (1,000) Capital expenditure and financial investments Purchase of fixed assets (56) (1,000) (1,054) (1,299) Sale of tangible fixed assets - 4 - 119 Net cash outflow for capital expenditure (56) (1,910) (1,054) (2,180) Acquisitions and disposals Purchase of New Silicon Value (1,327) - (21,200) - Increase in management of liquid resources (5,127) (628) (6,717) (42,726) Financing Repayment of borrowings - - - (1,800) Proceeds from advances in respect of royalties - - - 3,000 Net proceeds from issuances of ordinary shares - 70 723 104,368 Proceeds from issue of shares of Zen Research NV - - - 9,348 Repayment of loan notes due from shareholders - 225 180 3,773 Net cash inflow from financing - 295 903 118,689 Increase/(decrease) in cash (8,601) (3,551) (43,858) 57,369 Notes to the Preliminary Announcement of Zen Research plc 1. Basis of preparation The financial information for the quarter and year ended 31 December 2001 has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2000, 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. Diluted loss per share is adjusted for the effect of potential ordinary shares, such as share options and warrants. 3. Reconciliation of movements in shareholders funds/(deficit) Year ended 31 December US$'000 2001 2000 Loss for the period (32,777) (17,505) Cost on reissuance of warrants 84 -- Proceeds of issue of ordinary shares 723 114,434 Expenses of share issue charged to share premium account -- (10,066) Proceeds of shares by Zen Research NV -- 12,338 Net reduction in shareholders' (31,970) 99,201 funds / (deficit) Opening shareholders' funds / (deficit) 92,888 (6,313) Closing shareholders' funds 60,918 92,888 ======= ======= 4. Notes to cash outflow from operating activities Year ended 31 December US$'000 2001 2000 Operating loss (35,497) (18,798) Depreciation of tangible fixed assets 2,138 948 Amortisation of intangible fixed assets 1,219 401 Amortisation of goodwill 9,278 -- Decrease in stock 460 -- Increase in debtors (804) (551) Increase (decrease) in creditors 3,339 (858) (19,867) (18,858) ======= ======= 5. Reconciliation of net cash flow to movements in net funds / (debt) Year ended 31 December US$'000 2001 2000 (Decrease) / increase in cash (43,858) 98,628 Movement in liquid resources 6,717 -- Borrowings -- 3,267 Movement in net funds / (debt) (37,141) 101,895 Net funds / (debt) 1 January 96,918 (4,977) Net funds 31 December 59,777 96,918 ====== ====== 6. Profit and loss account reconciliation Year ended 31 December US$'000 2001 2000 Beginning balance (59,035) (41,530) Loss for the period (32,777) (17,505) Reissuance of warrants 84 -- Ending balance (91,728) (59,035) ======= ======= 7. Acquisition of New Silicon Value Ltd. In April 2001, Zen acquired most of the assets of Jerusalem-based Silicon Value (S.V.) Ltd. ('Silicon Value'), a subsidiary of the NASDAQ-listed Tioga Technologies, for a total of US$22.25 million in cash and debt assumption. The assets were acquired by a wholly owned subsidiary of Zen Research plc, New Silicon Value Ltd. 8. Contingent liabilities If the company decides to exit the development of MultibeamTM products entirely, management is aware of the possibility that the Company would incur costs to wind down its business, including but not limited to, the possible payment to third party contractors on the various projects. On the acquisition of New Silicon Value (NSV), share options in NSV were granted to certain employees. These options included a 'put' clause whereby employees can require the company to purchase the shares. The options vest over 4 years on the anniversary of the acquisition, one year after the date of grant. The first options vest on 1 April 2002. Management is aware of the possibility that these options may be exercised in future periods. The cost of the options will be recognised to the profit and loss over the vesting period taking into account the likelihood of vesting and exercise of the put option. Consequently a charge of $500,000 has been taken at 31 December 2001. The estimated remaining potential cost amounts to approximately $2.2 million at year-end 2001. The Company is aware of a financial dispute between NSV's previous owner and a key silicon foundry company which may impact NSV's ability either to utilize that foundry's services or require NSV to expend significant funds in the future. The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Company was incorporated on 30 December 1999, and the financial statements for the year ended 31 December 2000 have been delivered to the Registrar of Companies. The auditors' report was unqualified and did not contain a statement either under Section 237(2) or Section 237 (3) of the Companies Act 1985. The financial statements for the year ended 31 December 2001 have not yet been delivered to the Registrar of Companies, nor have the auditors reported on them. The audit report on the full set of financial statements has yet to be signed. This press release contains forward-looking statements regarding among other things the future success of ZenO technology and New Silicon Value technology. These forward looking statements are based on current expectations and are subject to risks and uncertainties. Actual events and results may differ materially from those described in these forward-looking statements, as a result of several factors, including the successful implementation of Zen technology, the successful integration of New Silicon Value into Zen, the ability of Zen and New Silicon Value to successfully market and sell their products under current market conditions, and other risk factors as set forth in the Zen Offering Circular dated June 26, 2000. This information is provided by RNS The company news service from the London Stock Exchange
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