The Sheffield-based group, which yesterday announced a £512,000 placing to boost its coffers, said it is seeing increasing interest from major studios.

Zoo's products include software for interactive DVDs and tools to allow rapid print and packaging in multiple languages.

Earlier this year Zoo announced it had signed a 15-year contract with Walt Disney, to work on DVD releases of its latest blockbusters.

The contract was helped by Zoo's acquisition of Los Angeles-based media production and design company Scope Seven.

"Based on what we have achieved with existing Hollywood studios there are all the signs that we can scale that up and replicate that with multiple studios," said chief executive Dr Stuart Green. "We are working on a lot of deals with a lot of studios."

The group, which employs about 30 in Sheffield and another 70 in Los Angeles, has also started working with Warner Bros and Sony Pictures.

After previously revealing losses increased by 46 per cent to £1.4m for the year ended March 31, the current financial year is showing the hallmarks of profitability, Zoo said. The loss, which came before interest, tax, depreciation and amortisation (EBITDA), compared with last year's loss of £940,000, but was in line with company expectations.

Turnover for the year, excluding the acquisition of Scope Seven, was up 28 per cent at £1.9m. Zoo said initial revenues from Scope were worse than expected, after ending a relationship with an intermediary, GDMX, but recovered at the year end. This resulted in overall turnover of £3.3m, down from £4.2m.

However, since the year end, turnover has increased by 73 per cent in the first four months, and Zoo said it generated a trading profit in the first five months.

Financial director Helen Gilder said: "With the acquisition it was quite a year of transition – there was quite a lot of bedding that acquisition in.

"There has been an awful lot of investment in production and now we are just reaching the point where we are starting to reap its rewards. The exciting thing is since the end of the financial year we are trading consistently positive."

Zoo said the placing of 3.4 million shares at 15p each – a premium of 25 per cent to Wednesday's closing share price of 12p – would add to working capital to allow it to develop "without undue constraint".

It will boost the group's cash balance, which as of March 31 stood at £675,000 compared to £2m last year. Dr Green now holds just under 20 per cent of Zoo, after subscribing to 1.3 million of the new shares.

Zoo said its Media Adaptation Tool (MAT), launched earlier this year, is proving popular with Hollywood studios and was instrumental in winning the Walt Disney contract. It lets customers vary print and packaging of DVDs through a fully-automated process and allows them to produce DVD covers in different languages at much faster rates and cheaply.

MAT speeds up the time between cinema release and DVD production. By reducing this time lag, Zoo said it can help cut DVD piracy, which is estimated to cost Hollywood studios about $6bn per year. The group has plans to market the product more widely.

Zoo has also won contracts with US games giants Hasbro and Mattel, working on DVD games including Harry Potter, High School Musical and Hannah Montana.


Dream deal with Disney

Zoo's 15-year contract with Walt Disney is worth at least £7.5m over its 15-year term.

Under its licensing terms, Zoo Digital makes recurring revenues every time its technology is used, similar to the royalties system.

Disney's recent titles include Hannah Montana, The Little Mermaid: Ariel's Beginning and College Road Trip.

Disney is using Zoo's software automation products which include its Media Adaptation Tool (MAT). This allows customers to produce DVD covers in different languages at a much faster rate and a lower cost.

MAT lets Disney vary the print and packaging through a fully-automated process.

Other Zoo tools also allow Disney far quicker creation of interactive DVDs, reducing the time between cinema screening and DVD release.