Interim Results

Zen Research PLC 6 September 2001 6 September, 2001 Zen Research plc announces unaudited results for the second quarter ended 30 June 2001 Zen Research plc ('Zen'), through its Multibeam technologies, enables high-performance DVD and CD drives and, through its subsidiary New Silicon Value, develops advanced ASIC solutions. Second Quarter Highlights MULTIBEAM: * Restructuring to produce cost savings and reduction in overhead in process * Zen received revenues from DVD video player company, upon achievement of design and development milestones * Sanyo pick-up moved closer to production stage NEW SILICON VALUE: * Management team of New Silicon Value now in place * Marketing of New Silicon Value's chip reduction skills under-way with appointment of two North American sales executives CURRENT PERIOD: * Second tape out of Raptor chip received from Infineon. Chip under-going testing and de-bugging Davidi Gilo, Chairman and Chief Executive, Zen Research plc, said: 'Whilst Zen and its partners are more convinced than ever in our technology, the downturn and resulting price war in the PC OEM market remains a challenge. Zen has moved to reduce overhead and is taking steps to reduce its development costs by working only with licensees who have an immediate and demonstrated intention to build Multibeam enabled products. We are taking steps to terminate licenses where applicable with inactive partners such as LG Electronics and AATEK. In addition current relationships with existing strategic partnerships are also under review. We continue to have no visibility into 2002 revenues for Multibeam products and do not expect any revenue from Multibeam products in 2001. 'With the management team at New Silicon Value now in place, it is in position to take advantage of the continued pressure on ASIC manufacturers to produce cheaper and smaller chips across a wide range of products and markets.' FURTHER INFORMATION: Zen Research plc Tel: +44 (0)207 382 0470 Davidi Gilo, Chairman and Chief Executive David Aber, Chief Finance Officer Mark Way, Vice President Investor Relations Bell Pottinger Financial Tel: +44 (0)207 353 9203 Matthew Moth / Oliver Jones www.zenresearch.com REVIEW OF BUSINESS ACTIVITIES PC DVD drives Progress continues to be made in the development of components for the first Zen-enabled DVD-ROM drive. During the current period an improved version of the Raptor chip was received from Infineon. Testing of this chip is being pursued in both Zen and Infineon laboratories. New Silicon Value New Silicon Value develops high-performance and high-density ASICs for communications and consumer electronics manufacturers. New Silicon Value's unique design technology delivers very small silicon areas in the ASIC industry resulting in substantial reductions in manufacturing costs along with higher performance and lower power consumption. The acquisition and integration of New Silicon Value has been completed. Existing contracts have yielded lower revenues than initially anticipated, due to a further tightening of those customers' markets. Two sales appointments, with responsibility for the North American market, were completed during the current period. MANAGEMENT CHANGES Emiko Higashi (aged 42) has joined the Board as Executive Vice President, with responsibility for Strategy and Business Development. Fluent in Japanese, Emiko will be providing extensive assistance with Zen's licensing partners in Japan. Ms Higashi also serves as a Director of Silicon Value and is assistant to the Chairman of Vyyo Inc. which is listed on Nasdaq in the US. Ms. Higashi joined the investment company, Gilo Ventures, in 2000, as CEO. Prior to this she was managing director at the Investment Banking Division of Merrill Lynch & Co., responsible for Mergers and Acquisitions in the technology industry in the West Coast of the US, from 1994 to 2000. From 1988 to 1994 Ms. Higashi was a Director of Wasserstein Parella & Company, and was one of the founding members of that firm. She started her career in investment banking at Lehman Brothers and Co. in 1985 upon graduation from Harvard business school. Ms. Higashi also worked as a consultant at Mckinsey & Co. in Japan (from 1981 to 1983.) Emil Jachmann has resigned from the Board of Directors of Zen Research plc with immediate effect. The Board would like to thank Mr Jachmann for his contribution to Zen Research plc and looks forward to receiving his continued consultancy support as an employee of the Company. FINANCIAL COMMENTARY Turnover Unaudited Unaudited Three months ended 30 Six months ended 30 June June 2001 2000 Change 2001 2000 Change US $ '000 US $ '000 Group Turnover Continuing 205 33 172 387 120 267 Acquisitions 1,111 - 1,111 1,111 - 1,111 ---------- -------- -------- ----------- --------- ------ 1,316 33 1,283 1,498 120 1,378 ====== ==== ===== ====== ===== ===== Turnover for the three and six months ended 30 June 2001 increased compared to the comparable periods ended 30 June 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 period. Turnover from continuing operations was generated from engineering fees for development work during fiscal 2001, whereas the turnover during the comparable three and six month period was generated from royalties. Sequential turnover from continuing operations increased from US$182,000 to US$205,000 at 30 June 2001 due to the increased percentage of completion on the development project during the period. Turnover from acquisitions were generated from shipments of ASIC's and engineering fees for development work. Research and development Unaudited Unaudited Three months ended 30 Six months ended 30 June June 2001 2000 Change 2001 2000 Change US $ '000 US $ '000 Research and developmment Continuing 2,900 1,982 918 6,010 3,577 2,433 Acquisitions 1,389 - 1,389 1,389 - 1,389 --------- -------- --------- --------- -------- ---- 4,289 1,982 2,307 7,399 3,577 3,822 ===== ===== ===== ===== ===== ===== Research and development expenses increased during the three and six-month periods ended 30 June 2001 compared to the corresponding period. For continuing operations, this increase reflects the increase in headcount and related expenses, expenditures on outside engineering services to develop and enhance Zen's intellectual property and increased facilities expenses. Sequential expenditures from continuing operations decreased during the three months ended 30 June 2001, due to a reduction in third party engineering expenses. Expenditures for research and development for New Silicon Value represent costs related to the ongoing development of software tools and technologies. Other operating expenses Unaudited Unaudited Three months ended Six months ended 30 30 June June 2001 2000 Change 2001 2000 Change US $ '000 US $ '000 Other operating expenses Continuing 2,167 1,085 1,082 4,116 1,973 2,143 Acquisitions 3,596 - 3,596 3,596 - 3,596 ----------- ---------- ----------- ----------- ---------- 5,763 1,085 4,678 7,712 1,973 5,739 ====== ===== ====== ====== ====== ====== Other operating expenses incurred by continuing operations for the three and six month periods ended 30 June 2001 increased mainly due to increased headcount and related expenses, professional fees, insurance, marketing programs and other costs arising from Zen's growth and status as a listed company. Additionally, a charge of US$228,000 was incurred due to a default on a loan note during the three months ended 30 June 2001. The loan note was for the exercise of share options and was secured by the shares, which were returned. 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. Goodwill on the acquisition of New Silicon Value amounted to US$18.6 million and is being amortized over 18 months. Restructuring charge In order to reduce the cost base of the group, certain actions have been taken that have resulted in a restructuring charge of US$1.6 million during the quarter. These charges consisted mainly of headcount reductions, and the consolidation of the US headquarters. In addition, management has taken steps to reduce discretionary spending. Consolidated Balance Sheet Cash on hand and short-term investments decreased at 30 June 2001 to US$66.6 million compared to US$92.6 million at 31 March 2001. This decrease mainly due to the payment made to Tioga for the acquisition of New Silicon Value, and cash used for the funding of the current operations. See Consolidated cash flow statement for further details. Independent review report to Zen Research plc Introduction We have been instructed by the company to review the financial information set out on pages 7 to 11 and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999 /4 issued by the Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2001. PricewaterhouseCoopers Chartered Accountants and Registered Auditors London 5 September 2001 Results for the quarter and year ended 30 June 2001 Consolidated profit and loss accounts Unaudited Unaudited Six months Audited Three months ended Year ended ended 30 June 31 30 June December 2001 2000 2001 2000 2000 US$ '000 US$ '000 US$ '000 Group Turnover Continuing 205 33 387 120 271 Acquisitions 1,111 - 1,111 - - -------- ------- ------- ------- ------ 1,316 33 1,498 120 271 Cost of sales 884 - 884 - - -------- ------- ------- ------- ------ Gross profit 432 33 614 120 271 Research and development (4,289) (1,982) (7,399) (3,577) (8,295) Other operating expenses excluding exceptional items (5,763) (1,085) (7,712) (1,973) (4,968) Exceptional items: Costs in connection - - - - (5,806) with initial public offering Restructuring costs (1,590) - (1,590) - - -------- ------- ------- ------- ------ Total other operating expenses (7,353) (1,085) (9,302) (1,973) (10,774) -------- ------- ------- ------- ------ Total operating (11,642)(3,067) (16,701) (5,550) (19,069) expenses -------- ------- ------- ------- ------ Operating loss Continuing (6,452) (3,034) (11,329) (5,430) (18,798) Acquisitions (4,758) - (4,758) - - -------- ------- ------- ------- ------ (11,210)(3,034) (16,087) (5,430) (18,798) Net interest receivable/(payable) 742 (277) 1,804 (586) 1,647 -------- ------- ------- ------- ------ Loss on ordinary activities before taxation (10,468)(3,311) (14,283) (6,016) (17,151) Taxation on ordinary activities (129) (60) (251) (75) (354) -------- ------- ------- ------- ------ Loss on ordinary activities after taxation (10,597)(3,371) (14,534) (6,091) (17,505) ======= ======= ======= ======= ======== Basic loss per share (0.06) (0.03) (0.08) (0.05) (0.11) (US dollars) ======= ======= ======= ======= ======== Fully diluted loss per (0.06) (0.03) (0.08) (0.05) (0.11) share (US dollars) ======= ======= ======= ======= ======== Weighted Average 180,583,577 180,280,643 152,730,242 127,763,019 127,763,019 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. Consolidated balance sheet Unaudited Audited Unaudited 30 June 31 December 30 June 2001 2000 2000 US$ '000 US$ '000 US$ '000 Fixed assets Intangible assets 16,373 1,147 373 Tangible assets 5,965 1,745 1,398 ------------- -------------- ------------ 22,338 2,892 1,771 Current assets Stock 1,213 -- -- Debtors - due after more than one year 1,118 1,503 1,380 Debtors - due within one year 3,775 583 231 ------------- -------------- ------------ 6,106 2,086 1,611 Short-term investments 52,724 42,726 -- Cash in bank and in hand 13,899 54,192 5,573 ------------- -------------- ------------ 72,729 99,004 7,184 Creditors -Amounts Falling due within one (9,748) (4,958) (8,704) year ------------- -------------- ------------ Net current assets/ (liabilities) 62,981 94,046 (1,520) ------------- -------------- ------------ Total assets less current liabilities 85,319 96,938 251 Creditors - Amounts falling due after more (6,194) (4,050) (317) then one year ------------- -------------- ------------ Net assets/ (liabilities) 79,125 92,888 (66) ======= ======== ======== Capital and reserves 13,662 13,562 10,854 Called up share capital Share premium 101,116 100,529 -- Other reserves 37,832 37,832 36,701 Profit and loss account (73,485) (59,035) (47,621) ------------- -------------- ------------ Total equity shareholders' funds/ 79,125 92,88 (66) (deficit) ======= ======== ======= Consolidated cash flow statement Unaudited Unaudited Audited Three months ended Six months ended Year ended 30 June 30 June 31 December 2001 2000 2001 2000 2001 US$ '000 US$ '000 US$ '000 Net cash outflow from operating (8,771) (4,097) (14,999) (5,967) (13,052) activities before exceptional items Exceptional items - Costs in connection with -- -- -- -- (5,806) initial public offering ----------- ------------ ----------- ----------- ----------- Net cash outflow from (8,771) (4,097) (14,999) (5,967) (18,858) operating activities Returns on investments and servicing of finance Interest received 934 55 2,417 57 3,195 Interest paid -- (18) -- (258) (635) ----------- ------------ ----------- ----------- ----------- Net inflows/ (outflows) from returns on 934 37 2,417 (201) 2,560 investments and servicing of finance Taxation -- (5) -- -- (116) Capital expenditure and financial investments Purchase of intangible -- -- -- -- (1,000) fixed assets Purchase of fixed (183) (217) (580) (289) (1,299) assets Sale of tangible fixed -- 115 -- 115 119 assets ----------- ------------ ----------- ----------- ----------- Net Cash outflow for (183) (102) (580) (174) (2,180) capital expenditure Acquisitions and disposals Purchase of New Silicon (18,000) -- (18,000) -- -- Value Management of liquid 30,644 100 (9,998) -- (42,726) resources Financing Repayment of -- -- -- -- (1,800) borrowings Proceeds from advances -- 1,500 -- 3,000 3,000 in respect of royalties Net proceeds from issuances of ordinary 90 -- 687 -- 104,368 shares Proceeds from issue of shares of Zen -- 7,310 -- 9,366 9,348 Research NV Loan notes due from shareholders -- (46) 180 504 3,773 ----------- ------------ ----------- ----------- ----------- Net cash inflow from 90 8,764 867 12,870 118,689 financing ----------- ------------ ----------- ----------- ----------- Increase/ (decrease) in 4,714 4,697 (40,293) 6,528 57,369 cash ======== ========= ======== ========= ======= Notes to the Preliminary Announcement of Zen Research plc 1. Basis of preparation The financial information for the quarter ended 30 June 2001 has been prepared on the basis of the accounting policies set out in 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) Six months ended 30 June 2001 2000 US$ '000 Loss for the period (14,534) (6,091) Cost of reissuance of warrants 84 -- Proceeds of issue of ordinary shares 687 -- Proceeds of shares by Zen Research NV -- 12,338 ---------------- --------------- Net reduction in shareholders' funds / (13,763) 6,247 (deficit) Opening shareholders' funds / (deficit) 92,888 (6,313) ---------------- --------------- Closing shareholders' funds / (deficit) 79,125 (66) ========== ========== 4. Notes to the consolidated cash flow statements Six months ended 30 June 2001 2000 US$ '000 Operating loss (16,087) (5,430) Depreciation of tangible fixed assets 754 298 Amortisation of intangible fixed assets 296 175 Amortisation of goodwill 3,105 -- Increase in stock (458) (Increase)/decrease in debtors (2,434) 790 Decrease in creditors (175) (1,800) ---------------- --------------- (14,999) (5,967) ========== ========== 5. Reconciliation of net cash flow to movements in net funds / (debt) Six months ended 30 June 2001 2000 US$ '000 (Decrease) / increase in cash (40,293) 6,528 Movement in liquid resources 9,998 - Borrowings - (1,045) Exchange differences - (119) ------------------ ------------------ Movement in net funds / (debt) (30,295) 5,364 Net funds / (debt) 1 January 96,918 (4,977) ------------------ ------------------ Net funds 30 June 66,623 387 =========== =========== 6. Profit and loss account reconciliation Six months ended 30 June 2001 2000 US$ '000 Beginning balance (59,035) (41,530) Loss for the period (14,534) (6,091) Reissuance of warrants 84 - ------------------ ------------------ Ending balance (73,485) (47,621) =========== =========== 7. Acquisition of New Silicon Value Ltd. In April 2001, Zen acquired most of the assets of Jerusalem-based Silicon Value 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 plc. 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 2001 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. This press release contains forward-looking statements regarding among other things the future success of the Zen technology and the potential cost reduction of future Zen-enabled chips using 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 achievement of cost reduction of Zen enabled chips by New Silicon Value, 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.

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