Zi Corporation Reports 2003 Year-End, Fourth Quarter Results.Business Editors/High-Tech Writers CALGARY, Alberta--(BUSINESS WIRE)--March 19, 2004 Annual Revenues from Core Zi Technology Business Up 33 Percent; Sharp Reduction in Net Loss; Cash Flow Positive in Fourth Quarter Zi Corporation (Nasdaq:ZICA) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :ZIC ZIC Zinc Finger Protein ZIC Zurich Insurance Company ZIC Zhuhai International Circuit ZIC Zambia Investment Centre ), a leading provider of intelligent interface solutions, today released condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. financial results for its year and fourth quarter ended December 31, 2003. President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Michael D. Donnell said that 2003 was a watershed watershed, elevation or divide separating the catchment area, or drainage basin, of one river system or group of river systems from another system or group of systems. The term is also often used synonymously with drainage basin. year for Zi as it expanded its worldwide customer base and market presence, established key alliances, enhanced its product offerings and positioned the Company for sustainable growth and profitability going forward. Revenue from the Company's core Zi Technology business increased 33 percent in 2003 from prior year levels, net losses declined sharply and the Company generated positive cash flow in the 2003 fourth quarter. (All monetary amounts in this release are expressed in Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents unless otherwise indicated.) Financial Highlights -------------------------------------------------------------------- For the period ended December 31 Three Months Ended Year Ended (thousands except per ----------------------------------------- share amounts) 2003 2002 2003 2002 -------------------------------------------------------------------- Revenue $ 4,679 $ 4,392 $ 14,491 $ 13,204 -------------------------------------------------------------------- Net loss from continuing operations (80) (6,481) (4,392) (31,169) -------------------------------------------------------------------- Discontinued operations - 7 - (9,077) -------------------------------------------------------------------- Net loss $ (80) $ (6,474) $ (4,392) $ (40,247) -------------------------------------------------------------------- Net loss per share from continuing operations - basic and diluted $ (0.002) $ (0.17) $ (0.11) $ (0.83) -------------------------------------------------------------------- Net loss per share - basic and diluted $ (0.002) $ (0.17) $ (0.11) $ (1.07) -------------------------------------------------------------------- Zi's company wide revenues in 2003 increased to $14.5 million, up 10 percent from 2002 revenues of $13.2 million, which included $2.5 million of revenue from Magic Lantern magic lantern: see stereopticon. Corporation (MLC (MultiLevel Cell) A flash memory technology that stores more than one bit per cell. Traditional flash memory defines a 0 or 1 bit based on a single voltage threshold. ), a wholly-owned subsidiary that Zi sold in November 2002. Excluding the 2002 MLC revenue, the year-over-year increase in overall Company revenues in 2003 was 36 percent. Gross margins as a percentage of revenue in 2003 increased to 96 percent from 88 percent in the prior year as a much higher percentage of the Company's revenues in 2003 came from higher margin royalty fees. The net loss for 2003 declined sharply to $4.4 million, or a fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss of $0.11 per share, from a net loss of $40.2 million in 2002, or a fully diluted loss of $1.07 per share. The sharp decline in the 2003 net loss was due principally to the Company's continued focus on its core technology business, which resulted in increased revenue and improved overall gross margins; its stepped up emphasis on reducing and controlling operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. at all levels and the absence of non-recurring costs from 2002. The continued expansion of Zi's customer base in 2003 and growth in the number of handset The part of the telephone that contains the speaker and the microphone. On a desktop phone, the part you hold in your hand is the handset. On a cellphone, the entire phone is the handset. See multihandset cordless and headset. models delivered to market by its licensees resulted in an increase in revenue from the Company's core technology business to $13.6 million, up from $10.2 million in 2002. By the end of 2003, Zi's base of customers paying royalties in 2003 increased 50 percent to 45, up from 30 in the prior year. The Zi Technology business generated operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. in 2003 of approximately $2.3 million, up from an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. in the prior year of $1.6 million. During 2003, 182 new handset models embedded Inserted into. See embedded system. with eZiText(R) were released into the market, bringing the total at December 31, 2003 to 398 compared to 216 a year earlier. The increase in the number of new handset models in the market relative to the increase in revenue reflects an industry practice of initially shipping limited quantities of new models until they have gained market acceptance. In the 2003 fourth quarter, company wide revenues were $4.7 million, compared to revenues in the 2002 fourth quarter of $4.4 million, which included approximately $450,000 of revenue from the Company's sold MLC subsidiary. The net loss in the fourth quarter of 2003 declined sharply to approximately $80,000, or a fully diluted loss per share of $0.002, from a net loss of $6.5 million, or a fully diluted loss per share of $0.17, in the fourth quarter of 2002. Zi generated positive operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. in the 2003 fourth quarter, which follows breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations operating cash flow in the third quarter of 2003. Revenues from the Company's Zi Technology business in the 2003 fourth quarter increased to $4.2 million, from $3.8 million in the prior year's fourth quarter, as the unit generated operating income in the quarter of approximately $1.4 million, up from operating income of $119,000 in the 2002 fourth quarter. Zi continues to focus on maintaining stringent cost controls and the Company believes it has built an infrastructure and cost base that can support further growth in revenue without the need for significant cost increases. As a result, incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. revenues should have an increasingly positive impact on profitability going forward. "We have spent the past few years building a foundation for Zi to grow on, in terms of licensing our technology and establishing our royalty base, and it is definitely beginning to pay off," Donnell said. "Zi solutions now lie at the heart of more than 400 different mobile phone models around the world and as we continue to win business from key customers in competitive situations and expand our product opportunities, that number will continue to grow. "Predictive text Predictive text is an input technology designed for mobile phones. The technology allows words to be entered by a single keypress for each letter, as opposed to the multiple keypress approach used in the older generation of mobile phones. technology is an integral part of the rapidly expanding wireless telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. industry and we are positioned like no other company to expand along with it," Donnell added. "We have the distribution, the customer relationships, the market presence and the breadth of product to capture an increasing share of this global market." The 33 percent year-over-year revenue growth in the Company's Zi Technology business reflects its ongoing increases in market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" and the continued and consistent implementation of its strategy to grow its core business in key markets worldwide. "Even though we are continuing to expand our presence in the Asian wireless market and leveraging additional opportunities with existing customers in that region," Donnell said, "we are seeing increased interest and expanding penetration of the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. , North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. and Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. markets, as well." Last month the unveiling of Zi's new and unique dual language predictive text capability at the international 3GSM (Global System for Mobile Communications) A digital cellular phone technology based on TDMA that is the predominant system in Europe, but also used worldwide. Developed in the 1980s, GSM was first deployed in seven European countries in 1992. World Congress in France was well received and generated considerable interest. Dual language allows users to compose com·pose v. com·posed, com·pos·ing, com·pos·es v.tr. 1. To make up the constituent parts of; constitute or form: messages in a combination of two languages using simultaneous text entry and prediction without the need to change menus. With dual language capability, individual messages can be done in separate languages or one message can contain a mixture of two languages. As of December 31, 2003, the Company had signed a total of 98 licensees, compared to 63 licensees at the end of the 2002. Zi's customers are predominately original equipment manufacturers (OEMs) and original design manufacturers (ODMs) and include licensees such as Sony Ericsson For an arrangement of Sony Ericsson products, see list of Sony Ericsson products Sony Ericsson is a joint venture established in 2001 by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. , Samsung, Alcatel, Kyocera, Fujitsu, UTStarcom, LG Electronics, Ningo Bird, TCL See Tcl/Tk. Tcl - Tool Command Language and DBTel. To provide information on a more comparable basis with a majority of the industry and to better assist with the understanding of the financial statements to the majority of their users, who are in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , effective December 31, 2003, the Company initiated its financial reporting in conformity with U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). . The financial measures and disclosures and the financial statements presented herein are, therefore, in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with U.S. GAAP. Conference Call As previously announced, Zi is conducting a conference call to review its financial results today at 9:00 AM EST EST electroshock therapy. EST abbr. electroshock therapy (Eastern). The dial-in number for the call in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. is 1-800-475-3716 and 1-719-457-2728 for overseas callers. A live audio webcast and replay of the call can be accessed for one year at the Company's website at www.zicorp.com. About Zi Corporation Zi Corporation (www.zicorp.com) is a technology company that delivers intelligent interface solutions to enhance the user experience of wireless and consumer technologies. The company's intelligent predictive text interfaces, eZiTap(TM) and eZiText(R), allow users to personalize per·son·al·ize tr.v. per·son·al·ized, per·son·al·iz·ing, per·son·al·iz·es 1. To take (a general remark or characterization) in a personal manner. 2. To attribute human or personal qualities to; personify. the device and simplify text entry providing consumers with easy interaction for short messaging See SMS. , e-mail, ecommerce, Web browsing See browse. and similar applications in almost any written language. eZiNet(TM), Zi's new client/network based data indexing and retrieval solution, increases the usability How easy something is to use. Both software and Web sites can be tested for usability. Considering how difficult applications are to use and Web sites are to navigate, one would wish that more designers took this seriously. See user interface and usability lab. for data-centric devices by reducing the number of key strokes required to access multiple types of data resident on a device, a network or both. Zi supports its strategic partners and customers from offices in Asia, Europe and North America. A publicly traded company publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. , Zi Corporation is listed on the Nasdaq National Market (ZICA) and the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. (ZIC). Certain statements in this press release that involve expectations or intentions (such as those relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc future deployments or planned cooperation) may constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The information in this press release is based on Zi Corporation's current expectations and assumptions, and is subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks include, among others, general business and economic conditions, competitive actions, continued acceptance of Zi Corporation's products and services and dependence on third party performance as well as the risks and uncertainties referred to in Zi Corporation's 20-F for the most recent calendar year that is filed with the Securities and Exchange Commission. The reader should not place undue reliance on such forward looking statements. Zi Corporation does not assume any obligation to update such forward looking statements.
ZI CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
Years ended December 31 2003 2002 2001
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(All amounts in Canadian
dollars except share amounts)
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Revenue
License and
implementation fees $ 13,557,330 $ 10,166,562 $ 5,130,553
Other product revenue 934,058 3,037,035 248,351
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14,491,388 13,203,597 5,378,904
Cost of sales
License and implementation
fees 485,581 394,749 1,412,123
Other 117,310 1,233,312 227,287
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602,891 1,628,061 1,639,410
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Gross margin 13,888,497 11,575,536 3,739,494
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Operating expenses
Selling general and
administrative (11,395,883) (17,849,562) (10,226,620)
Litigation and legal (1,206,421) (11,794,981) (3,052,701)
Product research and
development (2,940,322) (4,365,803) (1,000,614)
Depreciation and
amortization (1,865,648) (3,833,991) (3,045,997)
Impairment of goodwill - (1,976,908) -
Impairment of intangible assets - (2,287,949) -
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Operating loss before
undernoted (3,519,777) (30,533,658) (13,586,438)
Interest on capital
lease obligation (13,922) (139,046) (50,744)
Other interest (892,268) (439,765) (6,676)
Interest income and
other income 33,685 286,429 1,553,973
Equity interest in loss
of significantly
influenced company - (343,402) -
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Loss from continuing operations
before income taxes (4,392,282) (31,169,442) (12,089,885)
Income taxes - - (174,286)
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Loss from continuing
operations (4,392,282) (31,169,442) (12,264,171)
Discontinued operations
Loss from discontinued
operations - (9,077,079) (7,957,967)
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Net loss $ (4,392,282) $ (40,246,521) $ (20,222,138)
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Basic and diluted loss
from continuing
operations per share $ (0.11) $ (0.83) $ (0.33)
Loss from discontinued
operations per share - (0.24) (0.21)
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Basic and diluted loss
per share $ (0.11) $ (1.07) $ (0.54)
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Weighted average common
shares 38,719,786 37,767,000 37,190,905
Common shares outstanding,
end of period 39,371,560 37,914,250 37,544,650
ZI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 2003 2002 2001
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(All amounts in Canadian dollars)
Net cash flow used in
operating activities:
Net loss from continuing
operations $ (4,392,282) $ (31,169,442) $ (12,264,171)
Items not affecting cash:
Loss (gain) on dispositions
of capital assets 3,384 330,194 (20,983)
Depreciation and
amortization 1,865,648 3,833,991 3,045,997
Impairment of goodwill - 1,976,908 -
Impairment of intangible
assets - 2,287,949
Interest expense 135,079 240,573 -
Compensation expense 713,005 - -
Equity in net loss of
significantly influenced
company - 343,402 -
Decrease in non-cash
working capital (790,001) 1,896,595 1,410,072
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Cash flow used in
operating activities (2,465,167) (20,259,830) (7,829,085)
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Cash flow from (used in)
financing activities:
Proceeds from issuance
of common shares, net of
issuance costs 3,983,873 1,117,446 2,645,680
Settlement of note payable (5,206,080) - -
Issuance of note payable 1,296,500 5,127,910 -
Payment of capital lease
obligations (158,952) (143,080) (139,700)
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Cash flow from (used in)
financing activities (84,659) 6,102,276 2,505,980
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Cash flow from (used in)
investing activities:
Short-term investments - 8,577,503 (8,577,503)
Purchase of capital assets (1,410) (1,060,012) (642,137)
Proceeds from capital
dispositions 3,594 50,964 118,321
Software development costs (67,451) (978,161) (4,318,840)
Other deferred costs - (60,000) (142,636)
Acquisition of subsidiaries
net of bank indebtedness - (1,884,433) -
Sale of subsidiary net
of cash given up 562,200 (548,461) -
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Cash flow from (used in)
investing activities 496,933 4,097,400 (13,562,795)
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Cash flow used by
discontinued operations - (3,730,127) (10,516,575)
Effect of foreign exchange
rate changes on cash and
cash equivalents (224,273) 42,088 1,601,573
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Net cash outflow (2,277,166) (13,748,193) (27,800,902)
Cash and cash equivalents,
beginning of year 5,342,771 19,090,964 46,891,866
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Cash and cash equivalents,
end of year $ 3,065,605 $ 5,342,771 $ 19,090,964
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Non cash financing activity
Equipment acquired under
capital lease $ - $ 34,200 $ 83,695
Patent acquired through
share issuance $ - $ - $ 250,000
Acquisition of subsidiary $ - $ 513,500 $ -
Components of cash and
cash equivalents
Cash $ 3,065,605 $ 5,342,771 $ 4,971,376
Cash equivalents $ - $ - $ 14,119,588
Supplemental cash flow
information
Cash paid for interest $ 771,111 $ 136,888 $ 57,420
Cash paid for income taxes $ - $ - $ 174,286
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