News release

 Zi Corporation


Diversified customer base strengthens Zi Corporation revenues


Calgary, AB (August 15, 2001) - Zi Corporation's (NASDAQ: ZICA) (TSE: ZIC) second quarter revenues rose to $1.6 million, up from $1.2 million in the second quarter of 2000. During the first half of the year, Zi reported a 56 per cent increase in revenue over the same period last year. Zi continued to diversify their client base quarter over quarter and that client base delivered fifteen new eZiText™ enabled devices to the market compared to first quarter 2001.

"In the past twelve months we have realized significant advances in our strategy to expand our core embedded systems offering, capitalize on our investments and to grow our revenue streams," says Michael Lobsinger, chairman and chief executive officer, Zi Corporation. "As we diversify our customer base and technology portfolio, we become stronger and able to prosper in changing market conditions. We expect to continue and accelerate this growth in the second half of the year by continuing to monetize our investments and delivering on new eZiText™ contracts."

Second quarter highlights

Zi realized a 56 per cent increase in revenue for the six months ended June 30, 2001, compared to the same period in 2000. In the first six months of 2001, revenue was $2.9 million, up from $1.8 million in the year earlier period. Gross margin increased 47 per cent to $2.4 million for the six months ended June 30, 2001 compared to the same period a year earlier.

During the second quarter 2001, selling, general and administrative expenses (SG&A) amounted to $4.5 million, compared to 2.6 million for the second quarter 2000. In the first six months of 2001, SG&A was $9.7 million compared to $5.3 million in the first six months of 2000. The increases in overhead are attributed to legal fees related to patent litigation; new sales offices in London and Tokyo, established to expand relationships with customers; and the integration of Telecom Technology Centre as Zi Services. Compared to the first quarter 2001, expenses decreased by 13 per cent reflecting lower patent protection related litigation costs and organizational changes to increase efficiencies.

Zi recognized an increase in product research and development due to the addition of Zi Services in the second half of 2000. Product research and development was $2.8 million for the first six months of 2001, compared to $1.5 million for the six months ending June 30, 2000.

In the three months ended June 30, 2001, the net loss, adjusted for foreign exchange loss incurred this year, was $5.3 million, up from $2.6 million on a similar basis in the same period a year earlier. The net loss after foreign exchange loss for the second quarter 2001, was $7.2 million. Increases in overhead to diversify and expand Zi's technology resulted in a net loss of $0.19 per share for the three months ended June 30, 2001, compared to $0.05 per share in the same period in 2000. For the first six months of 2001, Zi incurred a net loss of $0.28 per share, compared to $0.10 per share for the first six months of 2000.

At June 30, 2001 Zi held $35.6 million in cash and liquid investments and had net working capital of $36.1 million. Zi still maintains a strong cash position to fund current operations and growth initiatives.

All figures presented are quoted in Canadian dollars.


Zi Corporation will host a teleconference and Webcast to discuss the second quarter results on Wednesday August 15, 2001, 9am eastern time. To participate, please make your connection 10 minutes prior to the start of the call.

Conference call

Toll free in North America: 1-888-571-5411
International: 1-416-646-3095

Web cast

The call can be accessed on the Internet at: http://webevents.broadcast.com/financecalls/event/index.asp?EarningsID=2101

Recording

A recording is available after 12 pm eastern (10 am mountain) on Wednesday, August 15. The recording will be available until 11:55 pm eastern (9:55 pm mountain) on Wednesday, August 22.
Toll free in North America 1-877-289-8525 and enter code 128520# (pound key)
International 1-416-640-1917 and enter code 128520# (pound key) Zi Corporation is a market-driven technology company delivering intelligent interface solutions to enhance the user experience of wireless and consumer technologies. The company's core technology product, eZiText™ connects people to short messaging, e-mail, e-commerce, Web browsing and similar applications in almost any written language. Zi Services provides market-leading engineering design in Bluetooth, VoIP and man-machine interface. Zi supports its strategic partners from offices in Calgary, Beijing, Hong Kong, San Francisco, Shenzhen, Stockholm and Tokyo. A publicly traded company, Zi Corporation is listed on the NASDAQ National Market (ZICA) and the Toronto Stock Exchange (ZIC).

Certain statements in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The information in this press release is based on Zi Corporation's current expectation 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 and competitive actions as well as the risks and uncertainties referred to in Zi Corporation's 20-F for the most recent calendar year.

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For further information, please contact:

Dale Kearns
Zi Corporation
Chief Financial Officer
Phone: (403) 233-8875
Email: investor@zicorp.com
Web site: www.zicorp.com
  

ZI CORPORATION
CONSOLIDATED BALANCE SHEETS

  (unaudited) (audited) (unaudited)
  30-Jun-01
 31-Dec-00
 30-Jun-00
Assets
Current assets
  Cash and cash equivalents $ 35,626,299 $ 46,891,866 $ 55,638,879
  Short-term investments - - 2,780,997
  Accounts receivable 1,998,755 3,265,301 1,412,082
  Prepayments and deposits 1,455,696 1,244,111 1,200,475
 
  39,080,750 51,401,278 61,032,433
Capital assets - net 3,332,204 2,984,978 1,370,233
Intangible assets - net 10,652,575 8,467,096 5,692,212
 
  $ 53,065,529 $ 62,853,352 $ 68,094,878
 

 
Liabilities and shareholders' equity
Current liabilities
  Accounts payable and accrued liabilities $ 2,789,117 $ 2,658,223 $ 1,634,003
  Deferred revenue 73,039 140,975 -
  Current portion of capital lease obligations 158,441 152,948 -
 
  3,020,597 2,952,146 1,634,003
 
Capital lease obligations 198,621 238,066 -
 
  3,219,218 3,190,212 1,634,003
 

 
Shareholders' equity
Share capital 92,394,448 91,975,823 90,508,710
Deficit (42,548,137) (32,312,683) (24,047,835)
 
  49,846,311 59,663,140 66,460,875
 
  $ 53,065,529 $ 62,853,352 $ 68,094,878
 

 

ZI CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

  3 months ended 6 months ended
 
(unaudited) 30-Jun-01 30-Jun-00 30-Jun-01 30-Jun-00
Revenue
  License & implementation fees $ 1,294,311 $ 927,979 $ 2,445,474 $ 1,565,669
  Engineering services 214,301 243,279 308,569 277,497
  Other product revenue 51,961 5,068 129,075 5,615
 
   1,560,573 1,176,326 2,883,118 1,848,781

Cost of sales
 License & implementation fees 176,853 34,067 400,061 148,971
 Engineering services 72,823 49,481 111,358 84,788
 
  249,676 83,548 511,419 233,759
 
 
Gross margin 1,310,897 1,092,778 2,371,699 1,615,022
 

Selling, general and administrative (4,529,583) (2,612,404) (9,734,571) (5,282,441)
Product research and development (1,578,589) (1,216,795) (2,830,515) (1,508,049)
Depreciation and amortization (935,504) (756,384) (1,712,959) (1,304,397)
Foreign exchange (loss) gain (1,898,374) 873,951 500,570 1,167,286
Interest income and other income 438,136 934,239 1,170,322 1,619,361

 
Net loss (7,193,017) (1,684,615) (10,235,454) (3,693,218)
 
 Deficit, beginning of period (35,355,120) (22,363,220) (32,312,683) (20,354,617)
 
Deficit, end of period $(42,548,137) $(24,047,835) $(42,548,137) $(24,047,835)
 
 
Loss per share $(0.19) $(0.05) $(0.28) $(0.10)
 
 
Weighted average common shares 37,035,967 36,357,543 37,034,481 36,357,543
 
 
Common shares outstanding 37,023,467 36,794,967 37,023,467 36,794,967
 
 

ZI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW




  3 months ended 6 months ended
 
(unaudited) 30-Jun-01 30-Jun-00 30-Jun-01 30-Jun-00
Operating activities:
  Net loss $(7,193,017) $(1,684,615) $(10,235,454) $(3,693,218)
  Add items not affecting cash:
   Loss (gain) on dispositions of capital assets - 1,531 (20,983) 6,315
   Depreciation and amortization 935,504 756,384 1,712,959 1,304,397
 
 Funds applied to operations (6,257,513) (926,700) (8,543,478) (2,382,506)
 Decrease (increase) in non-cash working capital 340,020 (357,852) 1,117,919 751,443
 
 Cash flow applied to operations (5,917,493) (1,284,552) (7,425,559) (1,631,063)
 
Financing activities:
  Proceeds from issuance of common shares 400,624 185,625 418,625 36,022,030
  Payment of capital lease obligations (13,303) - (50,303) -
 
  387,321 185,625 368,322 36,022,030
 
 
Investing activities:
  Short-term investments - 4,578,346 - 3,330,991
  Purchase of capital assets (423,046) (500,611) (718,026) (879,143)
  Acquisition of subsidiaries net of cash acquired - (331,214) - (331,214)
  Proceeds from capital dispositions - 2,286 - 9,328
  Deferred development costs (1,896,210) (1,469,228) (3,249,757) (2,356,032)
  Other deferred costs (239,754) (45,755) (240,547) (45,755)
 
   (2,559,010) 2,233,824 (4,208,330) (271,825)
 
  
 
Net cash (outflow) inflow (8,089,182) 1,134,897 (11,265,567) 34,119,142
Cash and cash equivalents, at the beginning of period 43,715,481 54,503,982 46,891,866 21,519,737
 
Cash and cash equivalents, at the end of period $ 35,626,299 $ 55,638,879 $ 35,626,299 $ 55,638,879
 
 
Non cash financing activity
  Equipment acquired under capital lease $    - $    - $ 16,351 $    -
 
Components of cash and cash equivalents
  Cash     $ 5,625,461 $ 2,238,902
  Short-term investments     30,000,838 53,399,977

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