Zi Corporation
NASDAQ : ZICA
TSX : ZIC

Zi Corporation

August 14, 2008 08:30 ET

Zi Corporation Reports Second Quarter 2008 Results of Operations

Company Reports Qix Trials Completed - Compelling ARPU Data Push Contract Discussions Forward

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2008) - Zi Corporation (TSX:ZIC) (NASDAQ:ZICA), a leading innovator of mobile discovery and advertising solutions, today announced the financial results for their second quarter ended June 30, 2008. The Company reported a contract extension with Lenovo Mobile to 2011 and the integration of eZiText onto selected HP LaserJet multi-function printers shipping across the globe. The Company also completed its European Qix trials which showed compelling data results.

Total revenue for the second quarter decreased to approximately $2.7 million compared to $3.5 million for the same quarter of 2007. Net loss from continuing operations was approximately $1.5 million or ($0.03) per basic and diluted share, compared to $1.2 million or ($0.02) for the same period in 2007. The second quarter of 2007 included $.4 million of one-time revenue, as previously reported.

Cash and equivalents at June 30, 2008 totaled $2.6 million as compared to $4.9 million at December 31, 2007. Company reports no long term debt. The Canada Revenue Agency completed its audit of the Company's cross border transactions with no adjustments to previously-filed tax returns.

Commenting on the results of the quarter, Milos Djokovic, President and Chief Executive Officer of Zi Corporation, stated, "While we continued to do a good job containing our operating costs, the second quarter was disappointing from a revenue perspective. Due to phone model changeovers, two of our larger customers reported lower royalties than in previous quarters. Occasionally, model changeovers occur and have a temporary impact on revenues as legacy inventory is exhausted and new model sales ramp. Additionally, due to revenue recognition rules, we were required to push the recognition of revenue from two other significant customers into the third quarter. We believe that we will resume our upward quarterly revenue trend with a solid revenue rebound in the third quarter."

Djokovic continued, "During the quarter we continued to make very positive progress in developing new revenue producing deals from each of our product categories. This is particularly highlighted by our expanding pipeline of potential seven figure deals in our Qix product category with both OEMs and carriers. The very compelling ARPU results from our previously reported Qix trials in Europe have played a key supporting component of our sales process and we look forward to reporting further on these sales initiatives in the coming quarters. Additionally, during the third quarter, we fully expect to begin realizing revenues from our inaugural North American deal with Telus as they ramp up new model sales efforts heading into the holiday season. We expect that the Telus relationship will lead to the installation of Qix on multiple OEM models going forward, as they are incorporated into the Telus mobile product line up. All in all we're expecting a very exciting second half of 2008."

All dollar amounts referenced herein are in US dollars.

Conference Call Information:

Zi Corporation will hold a conference call to review its second quarter results on Thursday, August 14, 2008 at 11:00 a.m. Eastern. Milos Djokovic, President and Chief Executive Officer will host the call. Interested parties may access the conference call by dialing 800-762-8932 (domestic) or 480-629-9572 (international) using conference ID 3912058. Participants are advised to dial-in at least five minutes before the scheduled start time.

A replay of the conference call will be accessible two hours after its completion until 11:59 pm ET on Thursday, August 21, 2008 by dialing 800-406-7325 (domestic) or 303-590-3030 (international) using pin number 3912058. A live webcast and 10-day archive of the call can be accessed at http://www.zicorp.com.

About Zi Corporation:

Zi Corporation is a leading provider of discovery and usability solutions for Mobile Search, Input and Advertising. Zi Corporation's suite of award-winning products offers innovative ways for mobile operators to showcase new services and content to their subscribers, while encouraging users to get the most out of their communication devices. Increased device usage can help mobile operators drive additional revenues and lead to improved customer retention.

Zi products are featured on more than 1000 handset models and implemented across most technology platforms in the market today.

Zi is a software company committed exclusively to evolving its innovative product family in support of its licensees worldwide. A publicly traded company, Zi Corporation is listed on NASDAQ (ZICA) and the Toronto Stock Exchange (ZIC). For more information, please visit www.zicorp.com.

Safe Harbor Statement:

This release may be deemed to contain forward-looking statements, which are subject to the safe harbour provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events and the future financial performance of Zi Corporation ("Zi"), including its bottom line, Zi's future withholding tax liability related to the repatriation of cash from its Chinese subsidiary; the potential for Zi to generate advertising revenues, Zi's overall revenue growth opportunities related to mobile handset sales worldwide, the revenue growth opportunity related to Zi's Qix product with new carrier accounts, the ability of Zi to enter into new licensing agreements related to its eZitext, eZiType and Decuma products, and, the impact of Zi's cost-cutting initiatives and its ability to achieve profitable operations. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: competition; the growth trends in the input technology industry; new product development and services offerings; global economic conditions and uncertainties in the geopolitical environment; financial and operating performance of OEM customers and variations in their customer demand for products and services; dependence on the introduction and market acceptance of new product offerings and standards, in particular Zi's Qix product offering; rapid technological and market change; matters affecting Zi Corporation's significant shareholder; litigation involving patents, intellectual property, and other matters; the ability to recruit and retain key personnel; Zi's ability to manage financial risk; Zi's ability to successfully perform its license agreements and ability to successfully enter into new license agreements with new and existing customers; Zi's ability to raise capital on terms favourable to it, if at all; the compliance with the terms of the settlement by the court-appointed receiver of the Lancer Management Group and by Zi Corporation; currency fluctuations and other international factors; potential volatility in operating results, Zi's current and future operating expense levels and R&D expense levels; Zi's ability to repatriate cash from its Chinese subsidiary in the future and the manner in which such repatriation is permitted to occur under applicable regulation and other factors listed in Zi Corporation's filings with the Securities and Exchange Commission. Any projections in this release are based on limited information currently available to Zi Corporation, which is subject to change. Although any such projections and the factors influencing them will likely change, except to the extent required by law, Zi Corporation will not necessarily update the information. Such information speaks only as of the date of this release.

Zi, Decuma, Qix, eZiText and eZiType are either trademarks or registered trademarks of the Zi Group of Companies. All other trademarks are the property of their respective owners.

Financial Tables Follow



Consolidated Balance Sheets

June 30, 2008 December 31, 2007
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(All amounts in United States
of America dollars except
share amounts) (unaudited)


Assets

Current assets

Cash and cash equivalents $ 2,617,541 $ 4,979,193

Restricted cash - 2,740,702

Accounts receivable, net of
allowance of $454,070
(December 31, 2007 -- $454,070) 1,670,927 2,644,413

Prepayments and deposits 495,217 677,262
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Total current assets 4,783,685 11,041,570

Capital assets - net 981,453 931,921

Intangible assets - net 3,870,023 3,721,623
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$ 9,635,161 $ 15,695,114
----------------------------------------------------------------------------

Liabilities and shareholders' equity

Current liabilities

Accounts payable and accrued liabilities $ 2,853,584 $ 4,677,007

Deferred revenue 2,150,780 4,500,044

Deferred tax 14,497 14,636
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Total current liabilities 5,018,861 9,191,687
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Shareholders' equity

Share capital

Unlimited number of Class A, 9%
convertible, preferred shares authorized
and no shares issued or outstanding - -

Unlimited number of common shares,
no par value, authorized,
50,607,957 (December 31, 2007 -
- 50,557,957) issued and
outstanding 115,000,476 114,991,895

Additional paid-in capital 4,349,228 3,860,022

Warrants 1,403,160 1,403,160

Accumulated deficit (116,255,324) (113,702,097)

Accumulated other comprehensive
income (loss) 118,760 (49,553)
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4,616,300 6,503,427
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$ 9,635,161 $ 15,695,114
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Consolidated Statements of Loss

Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------------------------------------------------
(All amounts in United
States of America
dollars except
share amounts)
(unaudited) 2008 2007 2008 2007
---------------------------------------------------------------------------

Revenue $ 2,725,402 $ 3,489,416 $ 5,759,065 $ 6,120,426

Cost of sales (79,293) (65,906) (149,285) (103,236)
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Gross margin 2,646,109 3,423,510 5,609,780 6,017,190
---------------------------------------------------------------------------

Operating expenses

Selling general and
administrative (2,674,485) (2,735,189) (5,452,273) (5,270,424)

Business taxes (177,957) (322,179) (209,627) (469,064)

Litigation and legal (289,030) (437,078) (503,260) (871,538)

Product research and
development (787,066) (551,964) (1,453,345) (1,067,856)

Depreciation and
amortization (368,223) (439,937) (748,406) (912,970)
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Operating loss before
undernoted (1,650,652) (1,062,837) (2,757,131) (2,574,662)

Interest on capital
lease obligation - - - (43)

Other interest
expense (167) (538) (599) (2,814)

Interest and other
income 6,582 79,980 28,060 112,215
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Loss before
undernoted (1,644,237) (983,395) (2,729,670) (2,465,304)

Recovery of impaired
note receivable - 130,931 - 130,931

Income taxes
recovery
(expense) 146,396 (334,829) 176,443 (473,774)
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Net loss from
continuing
operations $ (1,497,841) $ (1,187,293) $ (2,553,227) $ (2,808,147)

Gain on disposal
of discontinued
operations - - - 632,601
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Net loss $ (1,497,841) $ (1,187,293) $ (2,553,227) $ (2,175,546)
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Basic and diluted
loss per share
from continuing
operations $ (0.03) $ (0.02) $ (0.05) $ (0.06)

Basic and diluted
income per share
from discontinued
operations $ - $ (0.00) $ - $ 0.01

Basic and diluted
loss per share $ (0.03) $ (0.02) $ (0.05) $ (0.05)
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Weighted average
number of common
shares outstanding
- basic and
diluted 50,576,089 50,542,579 50,567,023 47,358,258

Common shares
outstanding,
end of period 50,607,957 50,557,957 50,607,957 50,557,957
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Consolidated Statements of Cash Flow

Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------------------------------------------------

(All amounts in United
States of America
dollars except
share amounts)
(unaudited) 2008 2007 2008 2007
---------------------------------------------------------------------------

Net cash flow from
(used in)
operating
activities:

Net loss from
continuing
operations $ (1,497,841) $ (1,187,293) $ (2,553,227) $ (2,808,147)

Items not
affecting
cash:

Depreciation
and
amortization 376,709 448,000 764,307 926,118

Stock compensation
expense 272,830 163,757 497,788 272,630

Recovery of impaired
note receivable - (130,931) - (130,931)

Decrease (increase)
in non-cash
working capital

Accounts receivable 1,020,927 (938,673) 973,486 3,046,337

Prepayments and
deposits 36,378 (141,173) 182,045 126,988

Accounts payable
and accrued
liabilities (1,099,269) (379,747) (1,823,423) (241,211)

Deferred revenue (1,037,036) (555,372) (2,349,264) (1,636,306)

Deferred tax (3,690) 138,884 (139) 103,429
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Cash flow used in
operating
activities (1,930,992) (2,582,548) (4,308,427) (341,093)
---------------------------------------------------------------------------

Cash flow from
(used in)
financing
activities:

Proceeds from
issuance of
common shares
and warrants
net of
issuance cost - - - 5,533,644

Proceeds from exercise
of stock options - - - 94,083

Payment of bank
indebtedness - - - (1,000,000)

Payment of capital
lease obligations - - - (1,833)
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Cash flow from
financing
activities - - - 4,625,894
---------------------------------------------------------------------------

Cash flow from
(used in)
investing
activities:

Purchase of
capital assets (133,564) (53,046) (197,858) (120,755)

Software
development
costs (331,781) (347,003) (801,346) (761,771)

Other deferred
costs - (14,451) - (28,634)

Recovery of
impaired note
receivable - 130,931 - 130,931

Changes in
restricted
cash - (65,212) 2,740,702 (388,871)
---------------------------------------------------------------------------

Cash flow from
(used in)
investing
activities (465,345) (348,781) 1,741,498 (1,169,100)
---------------------------------------------------------------------------

Cash flow from
(used in)
discontinued
operations:

Operating
activities - - - -

Financing activities - - - -

Investing activities - 326,347 - 632,601
---------------------------------------------------------------------------

Cash flow from
discontinued
operations - 326,347 - 632,601
---------------------------------------------------------------------------

Effect of foreign
exchange rate
changes on cash
and cash
equivalents 22,136 46,664 205,277 71,580
---------------------------------------------------------------------------

Net cash inflow
(outflow) (2,374,201) (2,558,318) (2,361,652) 3,819,882

Cash and cash
equivalents,
beginning
of period 4,991,742 8,051,047 4,979,193 1,672,847
---------------------------------------------------------------------------

Cash and cash
equivalents,
end of period $ 2,617,541 $ 5,492,729 $ 2,617,541 $ 5,492,729
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Components of cash
and cash
equivalents

Cash $ 2,617,541 $ 2,404,661 $ 2,617,541 $ 2,404,661

Cash equivalents - 3,088,068 - 3,088,068
---------------------------------------------------------

Total cash and
cash equivalents $ 2,617,541 $ 5,492,729 $ 2,617,541 $ 5,492,729

Supplemental cash
flow information

Cash paid for
interest $ 167 $ 538 $ 599 $ 2,857

Cash paid for
income taxes $ - $ 400,646 $ 5,171 $ 460,167
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Contact Information