ZOOtech the rebirth....

RNS Number:5247O
Zoo Digital Group PLC
22 December 2006

ZOO DIGITAL GROUP PLC
("ZOO" or "the Group")



INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2006

ZOO Digital Group plc, the DVD and video technology company, ("ZOO" or "the
Group") today announces its results for the six months ended 30 September 2006.


Financial Highlights

* Group loss before interest, tax, depreciation and amortisation reduced
to #1.1 million (six months to 30 September 2005: Loss of #2.2 million)

* Group turnover of #2.1 million following the restructure of the Group
(six months to 30 September 2005: #4.4 million)

* Turnover of the continuing business, ZOOtech, increased by 67% to
#736,000 (six months to 30 September 2005: #440,000)

* ZOOtech's loss before interest, tax, depreciation and amortisation
reduced by 67% to #396,000 (six months to 30 September 2005: loss of #1.2
million)

* Successful fundraising of #3.9 million (net of expenses) through a
placing of new ordinary shares and issue of convertible loan notes


Operational Highlights



* The Group strategy has been restructured and is now focussed on its
higher margin video technology business; both ZOO's games publishing
division and interactive DVD development operation have been closed and
their assets sold in two separate transactions

* A contract has been signed with a major Hollywood studio for the use
of the Group's new and unique Templated Authoring System which automates
production of video titles on DVD and other formats

* The renewal for a second year of a 'Menu Regionalisation' contract
with a major Hollywood studio

* Continued growth in the adoption of the Group's DVD-EXTRA STUDIO
product in businesses across the UK, Europe and USA. This product is now
used by over 100 customers and products released across the education,
entertainment and corporate markets

* New editions of 'Who Wants to be a Millionaire?' and 'Telly Addicts',
together with a range of new UK interactive DVD products including 'Test
the Nation', 'Time Tunnel', 'Smash Hits' and 'Stardancer' developed for
and published by Universal Pictures Video. 'Question of Sport'
interactive DVD title developed for 2 Entertain Video

* 15 patents granted with a further 53 patents pending





Commenting on the results, Stuart Green, CEO of ZOO Digital Group plc, said:



"During the first six months of this year the Group has been restructured and
refocused around its video technology development and licensing operations, and
its finances underpinned by a successful fundraising that has provided the
working capital to develop the business.



"We are expecting to release shortly our latest professional software product -
the Templated Authoring System - for which we have already secured our first
licensing deal with a major Hollywood studio. It is the latest addition to a
suite of products, with our Regionalisation Tool and DVD-EXTRA STUDIO software,
that delivers significant benefits for the video title production industry. We
expect these to generate a growing revenue stream.



"We are very excited by the new opportunities available to the Group and look
forward to a year of growth in 2007."



Enquiries



Stuart Green Chris Lynch/ Helen Thomas/Charlie Hooper
CEO, ZOO Digital Group plc Weber Shandwick
0114 241 3700 020 7067 0700

Alasdair Robinson
Noble & Company Limited
0131 225 9677



Notes to Editors



ZOO Digital Group ("ZOO") is an innovative software solutions company that helps
video publishers and rights owners maximise revenues and profits by exploiting
their content across multiple platforms, languages and territories. ZOO has a
portfolio of 60 patents (granted or pending) and a depth of knowledge in digital
media processes which has few rivals.



ZOO's key products include:



Interactive DVD software - world leading tool for creating interactive DVDs.
Most of the computer games played on any household DVD player are made with
ZOO's software. Notable titles include "Who Wants to be a Millionaire?", "
Question of Sport" and "Madagasgar - Animal Trivia Game".



Linear DVD production software - technology to automate the production of linear
(movies & TV shows) digital media. With this automation comes a significant
reduction in time-to-value for the intellectual property, as well as radically
changing the economies of publishing back catalogues.



Multi-language production software - technology to 'localise' text that appears
in digital media. This software revolutionises the localisation process for
video publishers. Previously, highly-skilled technicians were required to
manipulate graphical data. Now, with ZOO's software, text that needs translation
is extracted and replaced with corresponding translations - reducing time,
errors and labour costs.




CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT



Introduction



The first half of this year has represented a step change in ZOO's development.
A strategic review announced in February 2006 prompted the Board to focus Group
activities on the continuing development of its unique video technology and exit
its games publishing and development activities.



During the first half of the year the core ZOOtech division secured the first
contract for its new unique Templated Authoring System. This system enables the
automated production of video titles. The customer is a major Hollywood studio,
which has also renewed its licence for the use of ZOOtech's Menu Regionalisation
Tool for a further year. Detailed discussions are ongoing with other large
entertainment companies and management is focused on securing new customers for
these tools.



The interactive DVD games ("iDVD") market has grown significantly in 2006 with
over 100 new iDVD titles being released to the UK market this season, up from
around 30 last year. Over half have been developed using ZOOtech's DVD-EXTRA
STUDIO system.





Financial Review



As a result of the closure of the Group's publishing and development activities,
Group turnover decreased to #2.1 million for the six months to 30 September 2006
(six months to 30 September 2005: #4.4 million). The loss before interest, tax,
depreciation and amortisation was reduced by 50% to #1.1 million (six months to
30 September 2005: loss of #2.2 million).



The continuing business, ZOOtech, increased its turnover by 67% to #736,000 (six
months to 30 September 2005: #440,000) and reduced its loss before interest,
tax, depreciation and amortisation by 67% to #396,000 (six months to 30
September 2005: loss of #1.2 million).



Historically, the Group's revenue stream has been weighted towards the second
half of the year, the Christmas season is a major part of the selling season for
PC games and iDVD's. In the current year ZOO's revenues continue to have a
strong seasonal component due to its royalty income stream on sell-through of
consumer iDVD titles. However, in future years, the Group expects the revenue
profile to become progressively more even as the less seasonal revenue streams
from Regionalisation and Templated Authoring become better established.



The prospects for the second half of the financial year are encouraging with a
base of continuing revenues from the Regionalisation Tool and the Templated
Authoring System. Revenue from DVD-EXTRA STUDIO is dependent on the level of
sell-through of the numerous consumer iDVD titles produced using the tool,
particularly over the Christmas period.





ZOOtech Ltd



ZOOtech, the technology division of the Group, and now its sole business,
continues to focus its activities on licensing its innovative proprietary
software. The Board believes these products can establish dominant positions in
the video production industry. ZOOtech's current products deliver substantial
time and cost savings for DVD title producers, in some cases enabling customers
to access incremental revenue streams. Its market focus over the period has
continued in two areas:





Home Video Market

This market consists of those companies involved in the production and
publishing of home video titles, currently on DVD-Video, with a range of new
platforms, such as HD DVD, Blu-ray and video on demand, growing in popularity.



The Home Video Market is in a state of transition, with publishers facing
increasing pressures due to factors such as declining margins, the effects of
piracy, shortening release windows and the emergence of new platforms. ZOO
addresses this market with the Regionalisation Tool for the efficient production
of localised DVD menus, and the Templated Authoring System for the automated
production of video titles. Using ZOOtech's unique production tools, customers
can generate additional revenue streams by publishing DVD titles in previously
uneconomic territories.



Interactive DVD

ZOOtech licenses its DVD-EXTRA STUDIO product to companies involved in the
production and publishing of iDVD titles.



The number of companies involved in the development and commercialisation of
iDVD titles has increased significantly this year, in line with a far higher
number of consumer products released into the Christmas 2006 market. The UK
remains ahead of other territories, and publishers of iDVD titles created using
ZOO's technology this year include Universal Pictures Video, 2 Entertain Video,
ITV DVD, EMI, Warner Vision International, Lace International, Dreamworks Home
Entertainment, Sony BMG, Scholastic Media, Circle Studios, Britannia Games,
Fremantle Media, Pinnacle Vision, and TWI.



Including products released in previous years that are still being sold at
retail, the number of iDVD titles in the UK market is around 150, of which more
than half are created using ZOO's technology.



New titles developed by the Company's licensees for the season include 'Now
That's What I Call a Music Quiz', 'Blockbusters', 'Catchphrase', 'Top Trumps', '
The Price is Right', 'Blankety Blank', 'Play Your Cards Right' and 'Sale of the
Century'. In the first half of the year ZOO Interactive Video developed a
selection of iDVD games including 'Who Wants to be a Millionaire?', 'Telly
Addicts', 'Question of Sport', 'Test the Nation', 'Time Tunnel', 'Smash Hits'
and 'Stardancer'.





ZOO Interactive Video Limited ("ZIV")



ZIV's activities have led to the creation of a new game genre - the interactive
DVD and DVD Game. In the UK, retailers such as HMV, Virgin, WHSmith and Borders
are displaying iDVD titles prominently with dedicated display sections and, in
some cases, an iDVD chart. The Official UK Charts Company - the market research
company that compiles UK chart information for music and DVD - has this year for
the first time produced a chart of iDVD products. These developments reflect
the growing popularity of this new home entertainment genre. ZIV has pioneered
this development and completed eight titles during the period, up from four last
year, which are being published by Universal Pictures Video and 2 Entertain
Video, all supported by television advertising campaigns.



ZOOtech now has over 100 development and publishing licensees of its technology
who are active in producing and releasing iDVD titles across a number of
territories. Consequently it is no longer appropriate for ZOO to produce
consumer titles in-house and the Board decided to dispose of this activity. In
October ZOO announced that Andy Scrivener, Chief Operating Officer, would be
leaving the Group to establish his own DVD games development business. Andy's
company is a new DVD-EXTRA STUDIO licensee, and his first title - 'Terry
Venables Football Quiz' - has been published by Universal Pictures Video. ZOO
has retained the benefit of all iDVD titles developed prior to disposal.



In a separate transaction we announced in April 2006 that the assets of ZOO's
traditional games publishing business had been sold. Following these disposals,
the Group consists solely of ZOOtech.





Board Changes



The final part of our reorganisation involved a restructuring of the Board.
John Barnes stepped down as Non-Executive Chairman of the Group to be replaced
by Dr. Christopher Honeyborne (previously a Non-Executive Director of the
Group).



Helen Gilder was appointed Group Finance Director and Company Secretary
replacing Robert Deri who previously held these positions. Helen qualified as a
Chartered Accountant with PKF in September 1991 and has worked as Group
Financial Controller for the Company since 2000. Robert remains on the Board as
Executive Director, responsible for corporate strategy.



Matt Taylor was appointed as a Non-Executive Director of the Company. Matt is a
partner in Foresight Venture Partners and a Non-Executive Director of several
AIM-quoted and private companies. Funds managed by Foresight Venture Partners
invested a total of #2 million in the Group's recently announced fundraising.





Outlook



After a period of restructuring, ZOO has established a sound platform for
growth. The Board is currently considering strategic options to maximise this
growth. Trading in the short term is heavily reliant on iDVD sales over the
Christmas period, but recurring revenue streams are increasing, providing
greater predictability for future years.



ZOO's success hinges on the talent of its employees and managers responsible for
the creation and exploitation of its world class intellectual properties. The
Directors would like to extend their thanks and appreciation to all staff for
their contribution and commitment.