Zi Corporation Reports Second Quarter, First Six Months Results

Zi Technology Revenues Increase 11 Percent and 52 Percent, Respectively, from Comparable Prior Year Periods

CALGARY, AB, August 15, 2003 – Zi Corporation (Nasdaq: ZICA) (TSX: ZIC), a leading provider of intelligent interface solutions, today announced results for its second quarter and first six months ended June 30, 2003. (All monetary amounts in this release are expressed in Canadian dollars unless otherwise indicated.) Chief Executive Officer Michael Lobsinger said that even though the widespread impact of the SARS epidemic in Asia temporarily disrupted the Company’s growth rate, its core Zi Technology unit did report year-over year increases in revenue and gross margins in the 2003 second quarter and continued to make solid progress in building its business and expanding its base of strategic partners.

For this year’s second quarter and first six months, revenues from the Company’s core Zi Technology business increased 11 percent and 52 percent, respectively, to $2.3 million and $5.9 million. This compares to revenues of $2.0 million and $3.9 million for the respective 2002 periods.

On a company-wide basis, total revenues for this year’s second quarter and first six months were $2.4 million and $6.2 million, respectively. This compares to total company-wide revenue of $3.2 million and $5.3 million in the second quarter and first six months of last year, which included $1.1 million and $1.4 million, respectively from the Company’s e-Learning segment and its previously owned Magic Lantern operation. Excluding Magic Lantern, which was sold in November of last year, total revenues in the 2002 second quarter and first six months would have been $2.2 million and $4.2 million, respectively.

The net loss for the 2003 second quarter was reduced significantly to $2.1 million, or a loss per share of $0.06, from a net loss of $7.1 million, or a loss per share of $0.19, for the second quarter of 2002. For the first six months of 2003, the net loss declined sharply to $3.8 million, or a loss per share of $0.10, from a net loss of $12.7 million, or a loss per share of $0.34, for the comparable year-earlier period.

“The temporary interruption in the momentum of our business and the sequential decline in revenues from the first quarter of 2003 can be directly attributed to the SARS epidemic that swept large parts of Asia,” Lobsinger said. “SARS affected consumer spending on an unprecedented basis throughout Asia, significantly reducing the purchases of mobile handsets from many of our largest customers, which directly impacted our license fee revenues.

“Despite the impact of SARS, we made significant operational and marketing progress during this year’s second quarter,” Lobsinger added. “We added seven new Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) to our growing network of marketing partners, including UTStarcom, Fujitsu I-Network Systems, Vitelcom and Samyang, expanded our penetration of the North American market and took steps to reduce debt and strengthen our balance sheet. I believe we are well positioned to grow our Zi Technology business and we remain firmly committed to reaching profitability and positive cash flow by the end of this year.”

Gross margin as a percentage of revenue in this year’s second quarter was 92 percent compared to 82 percent in the second quarter of the prior year. The year-to-year increase in overall gross margin percentage was a result of higher license fee revenues, which carry a greater gross margin than revenues from the Company’s e-Learning operations.

A total of 39 new handset models embedded with eZiText® were released by OEMs and ODMs during the 2003 second quarter, bringing the total handsets released as of the end of the quarter to 288 compared to 110 at the end of the 2002 second quarter. As of June 30, 2003, the Company had signed a total of 79 licensees, compared to 58 licensees at the end of the 2002 second quarter. Royalties were earned royalties from 32 eZiText licensees during the second quarter of this year, up from 21 in the same period a year earlier.

During this year’s second quarter, Zi paid and discharged its US$3.3 million secured credit facility that was due May 7, 2003, and entered into a secured US$1.94 million short term credit facility that was due on June 30, 2003. On June 18, 2003, the Company completed a private placement with the sale of 1 million units at US$2.00 per unit and used the proceeds of that placement to repay the US$1.94 million according to the agreed upon terms of the short term credit facility. Continued operation of Zi depends on the Company achieving profitable operations in 2003 and satisfaction of remaining amounts due under a 2002 settlement agreement in respect to patent litigation. Extracts from the notes to financial statements for the period ended June 30, 2003 are included with this press release and provide detailed information respecting these qualifications and contingencies.

Conference Call

As previously announced, Zi is conducting a conference call to review its financial results today at 9:00 AM EDT (Eastern). The dial-in number for the call in North America is 1-(800) 500-0311 and 1-(719) 457-2698 for overseas callers. A live webcast and 10-day archive of the call can be accessed 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™ and eZiText, allow users to personalize the device and simplify text entry providing consumers with easy interaction for short messaging, e-mail, e-commerce, Web browsing and similar applications in almost any written language. eZiNet™, Zi's new client/network based data indexing and retrieval solution, increases the usability 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, Zi Corporation is listed on the Nasdaq National Market (ZICA) and the Toronto Stock Exchange (ZIC).

Certain statements in this press release that involve expectations or intentions (such as those relating to future deployments or planned cooperation) may 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 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 Balance Sheets

		June 30, 2003		December 31, 2002		June 30, 2002
		(unaudited)		(audited)		(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,100,196	$	5,342,771	$	14,696,467
Accounts receivable		3,486,698		4,480,800		3,146,737
Work-in-progress and inventory		86,684		153,975		300,981
Prepayments and deposits		875,767		1,110,492		1,534,689
		6,549,345		11,088,038		19,678,874

Notes receivable		2,695,000		3,155,200		-
Capital assets ‑ net		1,739,589		2,033,738		4,954,999
Intangible assets ‑ net		1,226,590		1,986,937		13,683,924
Investment in significantly influenced company		-		-		-
	$	12,210,524	$	18,263,913	$	38,317,797

Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities	$	4,914,036	$	6,706,687	$	3,624,210
Deferred revenue		1,123,035		798,268		703,643
Note payable		-		5,206,080		844,641
Current portion of capital lease obligations		74,794		158,952		196,117
		6,111,865		12,869,987		5,368,611

Capital lease obligations		15,065		32,977		86,673
		6,126,930		12,902,964		5,455,284

Contingent liabilities and going concern (notes 1 & 2)

Shareholders’ equity
Share capital		100,277,865		96,502,449		96,588,274
Contributed surplus		974,454		240,573		-
Deficit		(95,168,725)		(91,382,073)		(63,725,761)
		6,083,594		5,360,949		32,862,513
	$	12,210,524	$	18,263,913	$	38,317,797

See accompanying selected notes to consolidated financial statements.

Zi Corporation
Consolidated Statements of Loss and Deficit

(unaudited)		Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2003		2002
Revenue
License and implementation fees	$	2,269,335	$	2,038,515	$	5,905,613	$	3,888,805
Other product revenue		127,037		1,155,853		266,017		1,455,535
		2,396,372		3,194,368		6,171,630		5,344,340

Cost of sales
License and implementation fees		188,983		67,052		280,990		120,709
Other		6,260		505,741		26,754		584,463
		195,243		572,793		307,744		705,172

Gross margin		2,201,129		2,621,575		5,863,886		4,639,168

Operating expenses

Selling general and administrative		(2,735,325)		(4,053,719)		(5,938,733)		(7,663,079)
Litigation and legal (note 2)		(257,587)		(1,202,323)		(413,635)		(1,628,778)
Product research and development		(596,919)		(1,131,750)		(1,413,518)		(2,350,079)
Depreciation and amortization		(502,798)		(802,952)		(1,138,485)		(2,050,891)
Foreign exchange gain		22,713		178,261		53,555		175,639
Operating loss before undernoted		(1,868,787)		(4,390,908)		(2,986,930)		(8,878,020)
Interest on long term debt		(4,117)		(3,668)		(9,959)		(37,896)
Other interest		(255,510)		(5,347)		(814,766)		(6,665)
Interest income and other income		10,853		113,349		25,003		175,563
Equity interest in loss of significantly influenced company		-		-		-		-
Loss from continuing operations before income taxes		(2,117,561)		(4,286,574)		(3,786,652)		(8,747,018)
Income taxes		-		-		-		-
Loss from continuing operations		(2,117,561)		(4,286,574)		(3,786,652)		(8,747,018)

Discontinued operations
Loss from discontinued operations		-		(2,774,287)		-		(3,983,770)
Net loss		(2,117,561)		(7,060,861)		(3,786,652)		(12,730,788)
Deficit, beginning of period		(93,051,164)		(56,664,900)		(91,382,073)		(50,994,973)
Deficit, end of period	$	(95,168,725)	$	(63,725,761)	$	(95,168,725)	$	(63,725,761)

Basic and diluted loss from continuing operations per share	$	(0.06)	$	(0.11)	$	(0.10)	$	(0.23)
Loss from discontinued operations per share		-		(0.07)		-		(0.11)
Basic and diluted loss per share