TA DA !!!!! THE COMPLETE CC AND Q&A ENJOY !!!!!
ZI CORPORATION TELECONFERENCE - JULY 29, 1999 - 9:00 A.M. EDT.
GOOD MORNING LADIES AND GENTLEMEN AND WELCOME TO THE ZI CORPORATION CONFERENCE CALL. I WOULD LIKE TO THANK-YOU IN ADVANCE FOR TAKING THE TIME TO LISTEN THIS MORNING TO OUR COMPANY?S PROGRESS. I AM HERE TOGETHER WITH FRANK CHEN OUR EXECUTIVE VICE PRESIDENT OF PUBLIC RELATIONS AND INVESTOR RELATIONS.
I WOULD LIKE TO DIVIDE THE CONFERENCE CALL INTO FOUR TOPICS OF DISCUSSION FOLLOWED BY A SHORT QUESTIONS AND ANSWER PERIOD AT THE END.
IN MY ADDRESS I WILL TRY AND IDENTIFY AND ANSWER MOST OF THE QUESTIONS THAT HAVE BEEN ASKED US OVER THE LAST PERIOD OF TIME.
BEFORE I BEGIN, I WANT TO PAY PARTICULAR ATTENTION TO THE SHAREHOLDERS AND INVESTORS OF ZI CORPORATION. WE ARE A SIX YEAR OLD COMPANY AND HAVE WORKED VERY HARD AT TACKLING THE I.T. INDUSTRY FOR THE LARGEST TARKET MARKET IN THE WORLD NAMELY THE PEOPLES REPUBLIC OF CHINA. WE HAVE HAD MANY DISAPPOINTMENTS BUT HAVE NEVER STOPPED WORKING TOWARDS OUR GOALS. THE PATIENCE, THE UNDERSTANDING, THE ASSISTANCE AND THE GENUINE BELIEF IN WHAT WE ARE DOING THAT HAS BEEN DEMONSTRATED BY OUR INVESTORS AND BY OUR SHAREHOLDERS HAS BEEN UNBELIEVABLE. I WANT TO THANK THOSE PEOPLE THAT HAVE HAD THIS BELIEF IN US, IN OUR PRODUCT AND IN OUR PERSONNEL FOR WITHOUT YOUR PATIENCE AND ASSISTANCE WE WOULD NOT BE WHERE WE ARE TODAY.
THE FOUR TOPICS OF DISCUSSION I WANT TO TOUCH ON TODAY ARE AS FOLLOWS: THE FIRST SECTION WILL BE CURRENT OPPORTUNITIES ANNOUNCEMENTS AND PRODUCT LAUNCHES, THE SECOND SECTION WILL BE OUR CURRENT FINANCIAL POSITION, THE THIRD SECTION WILL BE OUR PATENT INFRINGEMENT LAWSUIT AND THE FOURTH SECTION ?FUTURE PROSPECTS?.
LET ME BEGIN MY DISCUSSION ON CURRENT OPPORTUNITIES.
AS YOU ARE ALL AWARE IN 1998 WE SIGNED A MAJOR DEVELOPMENT AGREEMENT WITH ERICSSON COMMUNICATIONS FOR THE IMPLEMENTATION OF ZI TECHNOLOGY ON THEIR GSM PHONE FOR CHINA. AFTER MUCH WORK, I CAN NOW ADVISE THAT THE TELEVISION COMMERCIALS, ANNOUNCING THEIR NEW CHINESE PHONE, WHICH UTILIZES ZI TECHNOLOGY, HAVE NOW BEGUN TO RUN IN HONG KONG AND YOU WILL SEE THE FIRST MAJOR ZI PRODUCT ON THE MARKET IN ASIA UTILIZING ZI8 ROLE OUT AUGUST 2, 1999. ERICSSON HAS COMMENTED THAT THEY ARE VERY POSITIVE ON THE PRODUCT LAUNCH AND THE REACTION THAT THEIR NEW PHONE WILL HAVE IN THE MARKETPLACE.
IN DECEMBER OF 1998, ZI ANNOUNCED A LICENCING AGREEMENT WITH NETWORK COMPUTER INC., NOW KNOWN AS LIBERATE TECHNOLOGIES. THIS LICENCING AGREEMENT WAS TO PROVIDE THE ZI8 INPUT SOFTWARE FOR INTEGRATION WITH LIBERATE TV NAVIGATOR SOFTWARE. LIBERATE TECHNOLOGY HAS SUCCESSFULLY LAUNCHED THEIR IPO TWO DAYS AGO, HAVING RISEN AS MUCH AS 41% ON THEIR FIRST DAY OF TRADING. LIBERATE WAS THE FIRST LICENCEE OF ZI8 INPUT SYSTEM FOR INFORMATION APPLIANCES SUCH AS TV SET-TOP BOXES WHERE CHINESE TEXT INPUT FROM EITHER THE KEYPAD REMOTE CONTROL OR A KEYBOARD ON A TV SET-TOP BOX CAN BE SUPPORTED. WE EXPECT THEIR PRODUCT IN THE MARKET PLACE THIS YEAR.
IN APRIL OF THIS YEAR, ZI EXECUTED A LICENCING AND ROYALTY AGREEMENT WITH PLANET WEB INC., TO PROVIDE ZI INPUT SOFTWARE FOR INTEGRATION WITH PLANET WEB?S INTERNET SOFTWARE PRODUCTS FOR CONSUMER ELECTRONIC DEVICES SUCH AS SCREEN PHONES, VIDEO GAME CONSOLES, VIDEO PHONES, WIRELESS HOME NETWORKING SYSTEMS, SET-TOP BOXES AND IMBEDDED REFERENCE DESIGNS FOR DIGITAL TV AND DVD. PLANET WEB INC., IS A CALIFORNIA BASED LEADING DEVELOPER OF INTERNET SOFTWARE PRODUCTS AND SERVICES FOR CONSUMER ELECTRONIC DEVICES. AT THE TIME JAN GULLET , CEO AND PRESIDENT OF PLANET WEB INC., SAID ?WITHIN THE ASIA PACIFIC REGION GREATER CHINA REPRESENTS A SIGNIFICANT MARKET OPPORTUNITY FOR INTERNET APPLIANCES. PLANET WEB AND ZI HAVE THE COMMON VISION THAT DELIVERING MASS MARKET SOFTWARE THAT?S SIMPLE TO LEARN AND EASY TO USE FOR A GROWING NUMBER OF CHINESE CONSUMERS THAT WANT PART OF THE ONLINE COMMUNITY?.
ON JULY 14, 1999 ZI ANNOUNCED A LICENCING AND ROYALTY AGREEMENT WITH XIAMEN OVERSEAS CHINESE ELECTRONIC COMPANY LIMITED., (XOCECO) TO PROVIDE ZI INPUT SOFTWARE FOR INTEGRATION WITH XOCECO?S LINEUP OF GSM DIGITAL CELLULAR PHONES SOLD IN CHINA AND EXPORT MARKETS. THIS LICENCE WAS FOR CHINESE AND ENGLISH SMART TEXT INPUT SOFTWARE. THE VICE PRESIDENT OF XOCECO?S OPERATIONS, MR. WONG, SAID ?XOCECO HAS A TRADITION TO SATISFY ITS CUSTOMERS WITH QUALITY GOODS AND SERVICES. ZI?S INPUT TECHNOLOGY NOW OPENS UP NEW OPPORTUNITIES FOR XOCECO?S CUSTOMERS BOTH INSIDE AND OUTSIDE CHINA AND REINFORCES XOCECO?S REPUTATION AS THE INDUSTRY?S TECHNOLOGICAL LEADER?. XOCECO IS A PUBLICLY TRADED COMPANY ON THE SHANHAI STOCK EXHANGE AND IS NOW XIAMEN?S LARGEST ENTEPRISE HAVING SALES IN 1998 IN EXCESS OF $230 MILLION U.S. THE COMPANY IS CONSTANTLY RANKED AMONG CHINA?S TOP FIVE MARKET SHAREHOLDERS IN CONSUMER ELECTRONIC APPLICANCES AND WAS THE FIRST ELECTRONICS COMPANY IN CHINA TO BE GRANTED THE I.S.O., 9002 CERTIFICATE. THIS AGREEMENT FOR ZI WAS A MAJOR ENDORSEMENT BY CHINESE ELECTRONICS DEVELOPERS WHO HAVE BOTH THE CHINESE MARKET AND OVERSEAS MARKET AS TARGETS. THIS ALSO REPRESENTS A MAJOR DIVERSIFICATION FOR ZI CORPORATION. THE SMART TEXT INPUT SOFTWARE LICENCE TO XIAMEN (OR XOCECO), NOT ONLY INCLUDES THE CHINESE INPUT BUT THE SMART TEXT INPUT SOFTWARE FOR OTHER LANGUAGES TO INCLUDE ENGLISH, GERMAN, FRENCH, ITALIAN, SPANISH AND THIRTEEN OTHER LANGUAGES.
ZI BEGAN WORKING WITH THE MAJOR MINISTRIES OF THE PEOPLE?S REPUBLIC OF CHINA FIVE YEARS AGO. THE RELATIONSHIP WITH THE DIFFERENT MINISTRIES STARTED TO BEAR FRUIT IN MARCH 1998 WITH THE LETTER RECEIVED BY THE STATE LINGUISTIC COMMISSION A DEPARTMENT OF THE MINISTRY OF EDUCATION WHEREIN THE STATE LINGUISTIC COMMISSION ISSUED THE FIRST LETTER OF ITS KIND TO A COMPANY THAT SAID AMONG OTHER THINGS:
1. THE STROKE ORDER IN THE ZI CHINESE SYSTEM CONFORM TO THE STROKE ORDER STANDARD OF COMMONLY USED CHARACTERS IN MODERN CHINESE AND
2. THE COMPONENTS IN THE ZI/CHINESE SYSTEM CONFORM TO CHINESE CHARACTER COMPONENT STANDARD FOR INFORMATION PROCESSING?.
OUR SYSTEM WAS FURTHER EVALUATED BY THE HENAN PROVINCE EDUCATION AND RESEARCH ASSOCIATION AND AMONG OTHER THINGS, THE EVALUATION AND TEST REPORT SAID OF THE ZI INPUT SYSTEM
?1. ZI INPUT SYSTEM IS CULTURALLY PRESERVING THE CHINESE LANGUAGE
2. IT EMBODIES THE PRINCIPALS OF THE INTERNAL STRUCTURES OF CHINESE CHARACTERS AND ACCORDS WITH PEOPLE?S WRITING HABITS OF CHINESE CHARACTERS. ZI INPUT SYSTEM ALLOWS THE USER WHO CAN WRITE CHINESE TO BE ABLE TO TYPE CHINESE AND CAN MEET THE NEEDS OF VARIOUS TYPES OF USERS.
3. AND MOST IMPORTANT ZI INPUT SYSTEM IS THUS BENEFICIAL TO COMPUTER EDUCATION AND COMPUTER ADOPTION IN CHINA.
WORK CONTINUED WITH THE MINISTRY OF EDUCATION AND IN JULY OF THIS YEAR ZI EXECUTED AN AGREEMENT WITH CHINA HAUYU HONG KONG LIMITED WHEREIN A NEW COMPANY HAS BEEN CREATED NAMELY ?HAUYU ZI SOFTWARE TECHNOLOGY LIMITED?.
CHINA HAUYU HONG KONG LIMITED IS A WHOLLY OWNED SUBSIDIARY OF CHINA HAUYU DEVELOPMENT CORPORATION, A WHOLLY OWNED SUBSIDIARY OF THE MINISTRY OF EDUCATION OF THE PEOPLE?S REPUBLIC OF CHINA. CHINA HAUYU DEVELOPMENT CORPORATION IS ENGAGED IN THE DEVELOPMENT AND DISTRIBUTION OF TECHNOLOGY APPLICABLE TO THE EDUCATION SECTOR IN CHINA. THE HAUYU BRAND NAME IS WELL RECOGNIZED IN CHINA AS A HIGH PROFILE SUBSIDIARY OF THE MINISTRY OF EDUCATION. THE ENGLISH TRANSLATION FOR HAUYU IS ?EDUCATION FOR CHINA?. IN EFFECT NOW, ZI CORPORATION IS PARTNERED WITH THE MINISTRY OF EDUCATION IN CHINA. TO PUT THIS IN PERSPECTIVE, THE MINISTRY OF EDUCATION CONTROLS OVER 975,000 SCHOOLS AND CURRENTLY OVER 240 MILLION STUDENTS, MAKING IT THE LARGEST MINISTRY OF EDUCATION IN THE WORLD. THE NEW COMPANY, HAUYU ZI SOFTWARE TECHNOLOGY LIMITED, IS NOW INVOLVED IN THE FOLLOWING:
?TO ENHANCE THE ECONOMIC QUALITYOF EDUCATION AND THE USE OF THE INTERNET FOR ALL CHINESE PEOPLE BY PROVIDING AN INTUITIVE AND EASY TO USE INPUT SYSTEM KNOWN AS HAUYU ZI INPUT SO THAT ALL CHINESE PEOPLE CAN USE ALL PRODUCTS THAT ACCEPT CHINESE CHARACTER INPUT INCLUDING PERSONAL COMPUTER, HAND-HELD COMPUTER, SET-TOP BOX, NOTEBOOK COMPUTERS, MICRO-COMPUTER AND PALM TOP COMPUTERS AND ACCESS THE INTERNET IN CHINESE IN THE SAME MANNER AS THEY WRITE CHINESE CHARACTERS.
THIS HAS BEEN THE GOAL OF ZI SINCE ITS INCEPTION AND WE ARE NOW PARTNERED WITH THE MINISTRY OF EDUCATION IN CHINA. .
AS AN EXTENSION OF THE DILIGENT WORK THAT Zi CORPORATION HAS BEEN DOING WITH THE DIFFERENT GOVERNMENT MINISTRIES IN CHINA, EARLIER THIS WEEK ZI ANNOUNCED A LICENCING AGREEMENT WITH THE RESEARCH INSTITUTE OF TV AND ELECTRO ACCOUSTICS OF THE MINISTRY OF INFORMATION INDUSTRIES, ALSO KNOWN AS M.I.I. OF THE PEOPLE?S REPUBLIC OF CHINA. ZI HAS LICENCED ITS MULTI-LANGUAGE, NOT JUST CHINESE, SMART TEXT INPUT SOFTWARE TO THE MINISTRY OF INFORMATION INDUSTRIES, M.I.I.
M.I.I. IS THE COMBINATION OF THE MINISTRY OF POST AND TELECOMS AND THE MINISTRY OF ELECTRONICS AND INDUSTRY. THIS NEW SUPER MINISTRY, KNOWN AS M.I.I., GOVERNS THE TELECOMMUNICATIONS BUSINESS IN CHINA AS WELL AS THE ELECTRONICS, COMPUTER, INTERNET, TELEVISION AND RADIO.
ZI CORPORATION?S LICENCE WITH M.I.I. ESTABLISHES A PREFERRED INPUT SOLUTION FOR THE DESIGN MANUFACTURER OF SET-TOP BOXES IN CHINA . THE INSTITUTE, WHOLLY OWNED BY M.I.I. ADAPTS SET-TOP BOX DESIGNS TO SUIT THE SPECIFIC NEEDS OF THE CHINESE CONSUMER AND IS CURRENTLY WORKING WITH SEVERAL SET-TOP BOX SOLUTIONS FROM LEADING INTERNATIONAL SEMI-CONDUCTER MANUFACTURERS. THE INSTITUTE ALSO PLAYS A MAJOR ROLE IN QUALITY ASSURANCE AND APPROVAL OF TELEVISION AND BROADCASTING PRODUCTS INCLUDING SET-TOP BOXES SOLD IN THE DOMESTIC MARKET.
THE POTENTIAL MARKET IS EXPLOSIVE. THE CHINESE GOVERNMENT ESTIMATES SHOW THAT CHINESE FAMILIES CURRENTLY OWN 317 MILLION TELEVISION SETS, 40 MILLION VCD MACHINES AND ALMOST 20 MILLION TELEVISION GAME CONSOLES. TELEPHONE LINE PENETRATION HAS ONLY REACHED 50% IN THE CITIES. THERE ARE 70 MILLION CABLE TELEVISION SUBSCRIBERS IN CHINA AND THE GOVERNMENT PLANS TO LINK ALL CITIES AND TOWNS TO CABLE TELEVISION BY THE END OF THIS YEAR. PRESENTLY ABOUT 2,000 CITIES AND COUNTRIES ARE ALREADY COVERED. THE OBJECT IS TO MAKE AVAILABLE TO THE CHINESE CONSUMER ELECTRONIC CONTENT SUCH AS INTERNET SERVICES, VIDEO ON DEMAND, MUSIC ON DEMAND AND ON-LINE SHOPPING. THE CHIEF ENGINEER OF THE RESEARCH INSTITUTE, MR CHEN, SAID ?WE HAVE BEEN A PIONEER IN PROMOTING THE BEST IN SET-TOP BOX TECHNOLOGY FOR THE CHINA MARKET. ZI?S STATE-OF-THE-ART INPUT TECHNOLOGY NOW OPENS UP NEW OPPORTUNITIES FOR OUR PARTNERS BOTH INSIDE AND OUTSIDE CHINA TO MAKE SET-TOP BOX TECHNOLOGY MORE INTERACTIVE AND USER FRIENDLY IN BOTH CHINESE AND OTHER LANGUAGES?.
THE RECENT ANNOUNCEMENTS OF OUR RELATIONSHIP AND PARTNERSHIP WITH THE MINISTRY OF EDUCATION AND NOW WITH THE MINISTRY OF INFORMATION INDUSTRIES IS ONLY THE BEGINNING OF OUR RELATIONSHIPS WITH THE CHINESE GOVERNMENT AND THE CHINESE MANUFACTURERS. AS A RESULT OF JUST THESE ANNOUNCEMENTS YOU WILL SEE MANY PRODUCTS IN THE MARKET SPACE INCORPORATING ZI TECHNOLOGY. IN ADDITION WE CONTINUE TO WORK ON THE DEVELOPMENT OF NEW PRODUCTS THAT ARE NOT IN THE MARKET PLACE TODAY THAT WILL INCORPORATE ZI TECHNOLOGY IN THE FUTURE.
THE SECOND SECTION I WOULD LIKE TO DISCUSS IS ZI?S CURRENT FINANCIAL POSITION. AS AT THE END OF THE FIRST QUARTER ZI HAD $3,281,000 CANADIAN DOLLARS IN CASH. WE HAVE BEEN OPERATING ON A CANADIAN DOLLAR BURN RATE OF BETWEEN $350-450,000 PER MONTH. WE HAVE RECEIVABLES OF APPROXIMATELY $1.7 MILLION CANADIAN DOLLARS OTHER THAN CURRENT PAYABLES THAT ARE UP-TO-DATE, ZI HAS DEBT OF $500,000 CDN WHICH IS REPRESENTED BY CONVERTIBLE NOTES AND THOSE NOTES ARE ALL NOW IN THE MONEY AND WE DO NOT EXPECT TO BE RETIRING THOSE CONVERTIBLE NOTES WITH CAPITAL.
IN ADDITION, OUR RECENT RISE IN STOCK PRICE HAS GIVEN RISE TO WARRANTS AND OPTIONS BEING EXERCISED WHICH WE EXPECT TO HAVE NET PROCEEDS IN EXCESS OF $2.2 MILLION FLOWING INTO THE COMPANY BETWEEN NOW AND THE END OF SEPTEMBER.
THERE ARE NO IMMEDIATE URGENCIES FOR CAPITAL OTHER THAN OUR EXPANSION DESIRES AND INCREASE IN DEVELOPMENT DESIRES BOTH IN THE U.S. AND CHINA. WE ANTICIPATE PRODUCT LAUNCH FEES AND ROYALTIES TO FLOW TO THE COMPANY IN QUARTER THREE AND QUARTER FOUR AS OUR PRODUCTS FIND THEIR WAY INTO THE MARKET PLACE.
AS A RESULT OF OUR RECENT ANNOUNCEMENTS WITH MINISTRY OF EDUCATION, XIAMEN OVERSEAS ELECTRONIC COMPANY LIMITED, AND THE MINISTRY OF INDUSTRY AND INFORMATION, WE HAVE HAD A LOT OF ATTENTION PAID TO OUR COMPANY AS WELL AS OUR STOCK.
AS A RESULT, WE NOW FIT ON THE RADAR SCREENS OF MANY INSTITUTIONAL INVESTORS, INVESTMENT BANKS AND MONEY MANAGEMENT FIRMS. WE HAVE BEEN CONTACTED ON NUMEROUS OCCASIONS TO SEE IF WE NEED ASSISTANCE WITH ANY CAPITAL REQUIREMENTS THAT WE MAY HAVE AS THERE HAVE BEEN NO COMMITMENTS ON EITHER SIDE, ZI MAY CONSIDER A FINANCING AT A PRICE WHICH IS CURRENTLY AHEAD OF THE MARKET.
THE THIRD SECTION TO BE DISCUSSED IS OUR PATENT INFRINGEMENT LAWSUIT. ON MARCH 26TH, ZI CORPORATION FILED A LAWSUIT FOR PATENT INFRINGEMENT AGAINST TEGIC COMMUNICATIONS INC., A SEATTLE, WASHINGTON COMPANY. THIS LAWSUIT WAS FILED IN THE U.S. DISTRICT COURT IN SEATTLE, WASHINGTON AND STATES THAT TEGIC AND TEGIC?S CUSTOMERS AND LICENCEES INFRINGED A PATENT OWNED BY ZI. TEGIC HAS FILED AN ANSWER MERELY DENYING INFRINGEMENT. TEGIC HAS ALSO FILED FOR A SUMMARY DISMISSAL ON GROUNDS WHICH ZI BELIEVES, AFTER CAREFUL ANALYSIS, AND ON THE ADVISE OF ITS U.S. PATENT ATTORNEYS, WILL NOT PREVAIL. ZI HAS ALREADY FILED A VERY STRONG RESPONSE IN OPPOSITION TO THIS TEGIC?S SUMMARY DISMISSAL APPLICATION. THE SUMMARY DISMISSAL APPLICATION BY TEGIC IS STILL PENDING BEFORE THE SEATTLE, WASHINGTON COURT.
ZI DOES NOT CONSIDER THE TEGIC PATENTS TO REPRESENT ANY SIGNIFICANT RISK IN EITHER THE CHINESE OR ALPHABETIC AREAS. ZI?S OPINION IS BASED ON A CAREFUL AND CONSIDERED TECHNICAL AND LEGAL ANALYSIS. IN PARTICULAR, ZI BASES ITS OPINION ON THE WRITTEN PATENT INFRINGEMENT OPINIONS OF EXPERIENCED U.S. AND UNITED KINGDOM PATENT LITIGATION LAWYERS. ZI?S EXTREMELY CONFIDENT THAT ZI?S PATENT POSITION IS DOMINANT TO TEGIC?S. AS THESE MATTERS ARE BEFORE THE COURTS AND IN THE HANDS OF OUR ATTORNEYS, IN THE U.S., I WOULD APPRECIATE THAT NO QUESTIONS, IN THIS REGARD, BE ASKED AS THIS IS OUR COMPANY STATEMENT AND POLICY.
THIS LAWSUIT IS PART OF AN ACT OF ONGOING PROCESS WHERE ZI IS PROTECTING THE INTEGRITY OF IT?S INTELLECTUAL PROPERTY AGAINST UNAUTHORIZED USE AND INFRINGEMENT.
THE FOURTH SECTION - FUTURE OPPORTUNITES FOR ZI CORPORATION.
AS INDICATED IN THE ABOVE, WE BELIEVE THE FUTURE FOR ZI CORPORATION IS EXTREMELY BRIGHT.
FOR THE FIRST TIME IN SIX YEARS YOU WILL SEE THE NEW EMBEDDED TECHNOLOGY, MAINLY ZI8 MULTI LANGUAGE SMART TEXT INPUT SOFTWARE, CHINESE SMART TEXT INPUT SOFTWARE BEING LICENCED BY INTERNATIONAL O.E.M.?S AND BEING BROUGHT TO THE MARKET PLACE.
IN ADDITION, OUR RELATIONSHIPS HAVE MOVED SIGNIFICANTLY WITH THE TWO LARGEST I.T. MINISTRIES IN ALL OF CHINA, NAMELY THE MINISTRY OF EDUCATION AND THE MINISTRY OF INFORMATION INDUSTRIES. OUR JOINT VENTURE COMPANY WITH THE MINISTRY OF EDUCATION, THROUGH CHINA HAUYU DEVELOPMENT CORPORATION, IS SIGNIFICANT AS OUR TECHNOLOGY NOW WILL BE RENAMED HAUYU/ZI SOFTWARE TECHNOLOGY FOR CHINA. WE HAVE NOW ELEVATED OUR POSITION IN CHINA TO BE PARTNERED WITH THE LARGEST EDUCATIONAL MINISTRY IN THE WORLD. WE EXPECT THAT RELATIONSHIP TO PRODUCE A NEW SERIES OF RELATIONSHIPS WHERE HAUYU/ZI TECHNOLOGY IS UTILIZED IN VARIOUS PLATFORMS THROUGHOUT THE EDUCATION SYSTEM IN ALL OF CHINA, ZI?S USE WILL GROW EXPONENTIALLY ON BOTH PRODUCTS AND USERS.
OUR RELATIONSHIP WITH THE MINISTRY OF INFORMATION INDUSTRIES IS SIGNIFICANT BOTH IN THE SET-TOP BOX ARENA AND OTHER PLATFORMS AND PRODUCTS THAT YOU WILL SEE IN THE NEW FUTURE IN THE WORLD. OUR LICENCE WITH XIAMEN OVERSEAS IS SIGNIFICANT AS THAT CHINESE O.E.M., WHO IS A MAJOR EXPORTER AS WELL, IS NOW LICENCING NOT JUST THE CHINESE SMART INPUT TECHNOLOGY BUT THE ZI TECHNOLOGY IN MULTI LANGUAGES.
ONE YEAR AGO, ZI CORPORATION WAS WORKING DILIGENTLY WITH ERICSSON COMMUNICATIONS. WE WERE MANAGED FROM CALGARY WITH OUR SALES AND MARKETING EFFORT FROM CALGARY. ONE YEAR LATER, WE ARE SUBSTANTIALLY A DIFFERENT COMPANY. AS INDICATED PREVIOUSLY, WE HAVE SIGNED NUMEROUS OTHER O.E.M. AGREEMENTS ON VARIOUS PLATFORMS, IN VARIOUS LANGUAGES. WE HAVE BEGUN TO CHANGE THE STRUCTURE OF OUR BOARD OF DIRECTORS TO MORE ADEQUATELY REFLECT OUR BUSINESS OPERATIONS IN ASIA AND THE GLOBAL MARKET. WE HAVE SUBSTANTIALLY CHANGED OUR MANAGEMENT TEAM, WHEREIN OUR KEY MANAGEMENT STAFF IN SALES AND MARKETING AND IN DEVELOPMENT ARE NOW HEADQUARTERED IN BEIJING AND HONG KONG. WE HAVE KEY TECHNICAL STAFF NOW INTERFACING WITH THE MAJOR O.E.M.?S ON A REGULAR BASIS IN ASIA.
NOT LONG AGO, WE WERE NOT UNLIKE ANY OTHER COMPANY THAT LOOKS AT ASIA AND TRYS TO FIND A WAY TO SELL OR MARKET THEIR PRODUCTS IN ASIA. WE ALL LOOK FOR A DISTRIBUTION CHANNEL, MARKETING OPPORTUNITIES AND A WAY TO ACCESS THE LARGEST CONSUMER MARKET IN THE WORLD.
TODAY, ZI HAS CONCRETE RELATIONSHIPS WITH TWO OF THE LARGEST MINISTRIES IN CHINA THAT HAVE EXISTING PRODUCTS, EXISTING DISTRIBUTION CHANNELS, EXISTING CONTRACTS AND NOW A VESTED INTEREST TO SEE THAT ZI TECHNOLOGY BE ADOPTED ON ALL PLATFORMS IN CHINA.
WE ARE NOT A MANUFACTURING COMPANY. WE ARE A COMPANY THAT DEVELOPS PRODUCT FOR LICENCING FEES, ROYALTIES AND ONGOING SUPPORT AND MAINTENANCE AND THEREFORE DO NOT HAVE THE HUGE CAPITAL REQUIREMENTS TO SET UP MANUFACTURING PLANTS.
IN AN EFFORT TO QUANTIFY AND QUALIFY OUR PROJECTED EARNINGS, IT HAS ALWAYS BEEN VERY DIFFICULT FOR ZI. UP UNTIL NOW WE HAVE BEEN A DEVELOPMENT COMPANY WITH AN INCREDIBLE PRODUCT THAT WAS LOOKING FOR MARKET ADOPTION. WITHIN TWO MONTHS, OR BY THE END OF THE THIRD QUARTER, WE SHOULD BE ABLE TO START TO PREDICT THE ERICSSON ROYALTY STREAM AS THEIR GSM WILL BE IN THE MARKET PLACE FOR 60 DAYS. WE EXPECT TO BE ABLE TO QUANTIFY THE XIAMEN OVERSAES ROYALTY STREAM AS THEIR PRODUCTS WILL BE IN THE MARKET PLACE THIS YEAR.
MOST IMPORTANT, IS THE ANNOUNCEMENTS THAT WE HAVE JUST MADE WITH THE MINISTRY OF EDUCATION AND THE MINITRY OF INFORMATION INDUSTRIES. WE CANNOT QUANTIFY THAT TODAY, BUT WE CAN DEFINITELY QUALIFY IT. HAUY/ZI SOFTWARE TECHNOLOGY LIMITED HAS A GOAL AND A TOTAL FOCUS OF BRINGING PROUDCT TO THE EDUCATION SYSTEM IN CHINA. THAT EDUCATION SYSTEM IS COMPRISED OF 975,000 SCHOOLS AND 240 MILLION STUDENTS.
IT IS IN THE VESTED INTEREST OF THE MINISTRY OF EDUCATION THROUGH ITS WHOLLY OWNED SUBSIDIARY CHINA HAUYU DEVELOPMENT CORPORATION TO SEE THAT PRODUCTS DO GET IN TO THE MINISTRY OF EDUCATION STREAM. THOSE PRODUCTS MAY TAKE THE FORM OF COMPUTERS, SET-TOP BOXES, OR OTHER PRODUCTS PLANNED FOR THE EDUCATION SYSTEM. THOSE PRODUCTS MAY INCLUDE INTERNET ACCESS APPLICANCES THAT ALLOW INTERNET ACCESS. THE MINISTRY OF INFORMATION INDUSTRIES WHICH GOVERNS TELECOMMUNICATIONS AND TELEVISION AND RADIO BROADCASTING NOW HAS A VESTED INTEREST TO SEE THAT ZI TECHNOLOGY IS PORTED INTO AS MANY APPLICATIONS AS POSSIBLE.
TODAY, I CANNOT QUANTIFY THOSE NUMBERS. I CAN QUALIFY THEM BUT WITHIN 60 - 90 DAYS WE SHOULD BE ABLE TO START TO QUANTIFY EACH ONE OF THESE RELATIONSHIPS AND THOSE RELATIONSHIPS YET TO COME. WE BELIEVE THAT THE YEAR 2000 AND 2001 WILL BE SIGNIFICANT BREAKTHROUGH YEARS FOR ZI CORPORATION BASED ON JUST THE ANNOUNCEMENTS THAT WE HAVE MADE TODAY.
THE RELATIONSHIP WITH ERICSSON AND THEIR IMMINENT PRODUCT LAUNCH; THE RELATIONSHIP WITH PLANET WEB AND THEIR NUMEROUS CUSTOMERS, THE RELATIONSHIP WITH LIBERATE TECHNOLOGIES AND THEIR PRODUCTS ARE SIGNIFICANT TO ZI AS ALL OF THOSE PRODUCTS ARE EXPECTED TO BE IN THE MARKET PLACE IN THE VERY NEAR FUTURE.
ZI CORPORATION WILL CONTINUE ITS STRONG R & D FOCUS AS OUR RELATIONSHIPS WITH THE MINISTRIES IN CHINA, AS WELL AS THE MULTI NATIONAL O.E.M.?S, WHO ARE PLANNING PRODUCTS BOTH FOR TODAY AND FOR THE FUTURE, WHICH INCLUDE BOTH THE CHINESE MARKET AS WELL AS THE GLOBAL MARKET.
I WANT TO THANK THE INVESTORS AND SHAREHOLDERS OF ZI CORPORATION FOR THE PATIENCE, UNDERSTANDING, AND THE UNDAUNTING CONFIDENCE TO STAY WITH ZI IN WHAT WE BELIEVE IS NOW AN EXTREMELY DYNAMIC COMPANY THAT HAS A VERY, VERY BRIGHT FUTURE.
I WOULD LIKE TO TURN THIS CONFERENCE CALL OVER TO THE CHAIRPERSON TO RECEIVE QUESTIONS.
IF BY CHANCE YOU WERE UNABLE TO ASK A QUESTION, PLEASE FEEL FREE TO CONTACT US VIA OUR WEBSITE.
EMAIL ADDRESS: INVESTOR@ZICORP.COM OR TELEPHONE (403) 233-8875. YOU MAY WISH TO SPEAK TO FRANK CHEN OR MYSELF.
Question 1:
Michael Lauer, Lancer Group: Michael, first of all congratulations. Obviously a lot to talk about, let?s focus on I think the most important issues which I think are the announcements with the two Chinese ministries. First of all, in reference to the preferred input solution, what does that mean from the point of view of MII? Do they in fact have the power to standardize the system? If not legally at least defacto. Secondly you talk about vested interest, are you referring to the 15% Chinese ownership of the joint venture?
Michael Lobsinger: Thank you Michael. The MII announcement in fact says that that the Zi input system and our technology is the preferred system. Now,it?s very difficult for me to indicate whether or not MII will impose a standard but what they are now suggesting is that this is the preferred input system for the government for the existing manufacturing that MII has a role in. But as I indicated earlier, they are the Ministry that governs television, GSM?s, CDMA, telecommunications, content on the airways both television and radio, cable. They are the monitoring system. They are the Ministry that applies the policies. So that?s why our relationship now with MII is so important to Zi because they have chosen our input system over all kinds of other technology
Michael Lauer: Let me put it another way, is anyone else who wants any other company wanting to participate in the Chinese market going to be at a disadvantage in not having the Zi system in their equipment
Michael Lobsinger: That?s a great question Michael, I can tell you that MII chose our system over others and will be recommending it to existing Chinese OEM?s as well as multi-nationals that are trying to do business in China they will be recommending our system because they now have a vested interest through licensing and royalties that Zi has used on all systems.
Lauer: So they may in fact create a certain standard for the Chinese market which would be based on Zi.
Lobsinger: I can?t speak for MII Michael but they have a vested interest, I don?t know how else to word it, they have a vested interest to see that Zi technology is out there, everywhere as does the MII. If we look at the MII and their relationship, they own China Huayu Development Corporation. This is their wholly owned subsidiary, this subsidiary is responsible for getting products from the smallest item that goes into a school the largest IT item that goes into a school, so China Huayu is involved in 27 different opportunities in china to bring products to the school system. We now have that joint venture with China Huayu to put our product, to put this Input System into the school system and onto as many products as physically possible and that includes all of the ones I mentioned in the conference call from personal computers right through to the internet appliance and you know through many of the different programs that are set up now in China that the education system is now, they want to bring themselves into the 21st Centrury. They want to bring these schools into the computer age, they want to bring kids up to an age where they are using the computer like the North American or Western kids are. There is a very interesting fact, and I think maybe this is the opportune time to name it, one of the most compelling reasons why the MII, the Hunan province advisory group that investigated Zi and other input systems, right now in China the average age for a student to be computer literate is sixteen years old. In North America, a child is using computer at five and a half years, that is a huge discrepancy. And the Chinese government knows that, and the Ministry of Education knows that, and why is that? The difference is what Zi is all about. The difference is that if you want to become computer literate in China you have to learn English first, and five and a half year old kid is not going to be bilingual in English and be able to use an English keyboard. Now for many of you that I have been talking to for six years, I have been saying that for six years, well suddenly we have a technology that the same way you write the characters you can input it and you can input it on anything. You can input it now on an Ericsson GSM phone. You can put it on a Xiamen Overseas GSM phone, you can put it on a Planet Web set-top box and now a MII set top box. So in other words, you don?t have to learn English anymore to be able to be connected to technology. That was the breakthrough. That?s what the Ministry of Education and China Huayu said we can now reduce the average age of the person using technology, accessing the Internet, being educated over the Internet through their television. The opportunities now with these two Ministries are absolutely endless. Because the Chinese population, the 97% of the population that don?t speak English, can now have the same opportunities that you and I have over in North America because we can access technology. We can use a computer, we can use a phone, we can send messages in Chinese we can get into the internet . And now there is going to be a whole host of other businesses putting content onto the Internet in Chinese because it can be accessed in Chinese now. So that is why I find it difficult to quantify what are earnings are going to be, but I can sure qualify the two ministries that have a vested interest to see Zi technology go forward. So to answer your question Michael, I can only tell you that the two ministries have a vested interest, an economic vested interest to see Zi technology go through. But I like to think that it?s a philosophical interest as well because now they see a technology that will allow the five year old and the seventy year old that were always afraid to touch a computer, would only buy a TV, they can now access technology because they know Chinese, they are not afraid of touching it, because it?s the strokes that they know and they write with everyday.
Lauer: Michael, given this huge potential apparently among the consumer, the Chinese consumer what is your perception, the awareness of this company is in China, public awareness? And have you considered actually listing on the Hong Kong or the Shanghai exchanges?
Lobsinger: We have been approached in the lst 3 weeks, to list, to be sponsored on the Gem, in Hong Kong, we are looking at that and considering it, we have also been dealing with the Ministry that is responsible for the Shanghai stock exchange, and have a great relationship with that Ministry, now that we have signed relationships and agreements with the two largest ministries for IT, the Ministry responsible for the securities and finance for China, is very interested in having our stock trade in Shanghai. To probably preamble to that, we are going to have a very large awareness in China, not just withstanding the Ericsson product launch which is now happening, but through the other ministries, through the education system and the MII, both very hih profile ministries in China Zi, HuayuZi will become, we hope, a household name in the next 2-3 years in China. So it?s natural that we would then start to look overseas for a listing.
Lauer: Michael once again Congratulations and good luck.
Lobsinger: Than you very much Michael.
Question 2:
Matt Campbell, DMN Knott Partners:
Campbell: Good Morning, first I would like to Congratulate you for keeping you head down for the last six years and penetrating the two largest Ministry of IT. It took AIG about twenty years to penetrate the market, and you?ve successfully done it in six, so I want to congratulate you for that. But my second question is with these two relationships with these ministries are you starting to get approached by other OEM?s? Albeit, US OEM?s or International OEM?s as a partner to go into the Chinese market place?
Lobsinger: Matthew that is a very interesting question, the short answer is yes, we have been dealing as many of you know with OEM?s all over the world to try and tell our story, and to introduce our technology which would allow other companies to sell their products in China. By penetrating and having the relationships we now do, just in the last week, that had sped up a lot of the relationships that we have been doing, its caught a lot of OEM?s by surprise. The calls that our development group are getting in Asia are truly amazing, but we expect that we will be able to extrapolate other relationships as a result of these. That was the whole intention of the HuayuZi Software Technology, that company, for the Ministry of Education we want to be a gateway. We want other companies to be able to sell their products through HuayuZu, whether it be Internet content or coursewear or appliances or products that people, and there?s hundreds of companies that have been trying to sell products to the Ministry of Education for years and years and years and we know that through our relationship with Huayu because they have been a gateway for MOE. But we expect that company, HuayuZi to be a gateway to the education system, and you know the potential market. That?s almost the entire population of the United States, just going to school right now in China, so the amrket is huge but the reality of it, this isn?t pie in the sky anymore, this is a Ministry, a wholly owned subsidiary thing we want to bring products to the education system and speed up technology, so how do we do that? So your answer is yes, we think that this will create other relationships and speed up existing ones for bringing products to market because we do have a great relationship now with two ministries. And they are the ministries that control IT in China.
Campbell: Michael, last question: Your balance sheets are starting to firm up nicely, but you did suggest that you would do a financing if you had some other opportunities out there. Is there anything right now that you are looking at that could expand or diversify your product offering into China that gets you excited?
Lobsinger: There is Matthew, as you know I have spent since January of this year, I have spent, much to the grief of my wife and children, I have been in China for almost four and a half months, and we have changed the way Zi does business, we have built these two relationships with the ministries, we have numerous OEM opportunities in China, but now that we?ve targeted, we?ve focused how we are going to deliver our product in China, there are all kinds of opportunities that we can bring along other companies, and as our partner Huayu has said, some of those companies we want to have a relationship with and we want to have ownership in. Whether it be a majority share or 100% control, there are numerous opportunities in front of us. IN the last three weeks, as I said in my preamble, there has been a lot of interest in our stock, a lot of interest by companies that I have been talking to and that I haven?t been talking to that have approached us now. We fit on their radar screen, we now have a market cap that they can start to look at and invest in so we?re going to try and see some of those opportunities, but Matthew, I want to make this clear, we don?t need capital to exist anymore. We need capital to grow. And if we want to grow faster, we?re going to take some capital. But it will be at a price that is higher than today, because we think that the very near future is extremely positive for Zi, so were going to be careful now going forward.
Campbell: Michael, thanks again and congratulations!
Lobsinger: Thanks a lot for your interest Matthew. I appreciate it.
Question 3:
Alex Pavlov, Private Investor:
Pavlov: My question is regarding your technology and known issues of piracy in China. What kind of efforts do you engage in to prevent it from being pirated? Thank you.
Lobsinger: Thanks Alex. I haven?t spoken to you before. Piracy is an issue in China, it is changing as you know the negotiations by China to get into the WTO, that?s a big issue between the World Trade Organization and China. It is being addressed but as a small company, |
