Preliminary results for the year ended 31 December 2007

Forbidden Technologies plc (AIM: FBT, “Forbidden”, “the Company”) has developed and is marketing a powerful internet video platform, which is being used by broadcasters, citizen journalists and consumers. Forbiddens video post production platform, FORscene, is one of the worlds most advanced browser-based applications.

  • Sales of £70,848 (2006: £131,535)
  • Operating loss for the year £689,494 (2006: £842,349)
  • Drawdown from £1 million loan facility at year end: £335,000
  • Move from fixed to variable costs
  • Customers include BBC, ITV, CBC, production companies, charities, universities
  • Consumer version (Clesh) gaining business to business customers
  • Expansion into US underway

Vic Steel, Chairman, Forbidden Technologies , commented:

The companys enthusiasm for its technologies continues to be very high.

Forbidden has experienced the over-conservatism and risk-aversion which greets most disruptive, breakthrough technologies, particularly where changes in work-flow often accompany adoption of the new. But this same conservatism has allowed and prompted the pursuit of improvements and refinements, which, in the end help produce a reliable and proven product. The company believes that it is at a point where FORscene and Clesh are sufficiently powerful to persuade customers to come on board as they recognise the strong tidal flow to web-based video platforms.

Enquiries:

Forbidden Technologies plc (020 8879 7245)
Stephen Streater, Chief Executive
Greg Hirst, Business Development Director

Brewin Dolphin Investment Banking (0141 221 7733)
Nominated Advisor
Alan Stewart

Chairmans statement

It gives me great pleasure to present this, the 9th annual report to shareholders of Forbidden Technologies since its flotation on the AIM stock exchange in February 2000.

Profit and Loss Account and Balance Sheet

In the year to 31st December 2007, the company recorded sales of £70,848 compared to £131,535 in the previous year. Administrative expenses in the year to 31st December 2007, at £760,342 were £213,542 lower than the £973,884 in the previous year.  Consequently, the operating loss of £689,494 for the year to 31st December 2007 was £152,855 less than the £842,349 recorded for the year to 31st December 2006.

The Balance Sheet shows net assets reduced from £358,794 at 31st December 2006 to -£245,462 at 31st December 2007. The move to negative equity is the result of the retained loss of £648,324 in the year. The Company continues as a going concern following the creation, at the beginning of June 2007, of a £1 million loan facility by two of the directors (Stephen Streater and Vic Steel). At 31st December 2007 £335,000 of this facility had been drawn down.

In the second half of 2007 and continuing throughout the first half of 2008, Forbidden has progressively reduced its fixed cost base for the administration of the business through a combination of permanent cost savings and through converting a significant number of fixed costs into variable costs with the support and co-operation of the team of managers and staff. Also, as the lease on the office at 2-4 St Georges Road expired during the year, the company took the opportunity to relocate to a more cost-efficient site in Tuition House, approximately 300 yards further along St George’s Road. In total, the cost management initiatives have reduced the administrative costs from an average of £63,000 per month in 2007 to an expected running rate of £30,000 per month as at June 2008. This gives financing cover at least to the end of 2009 at modest turnover assumptions.

The directors believe that the recorded sales for 2007 when contrasted with the previous year should not be read as a meaningful trend nor an indication of the future potential of the company. The 2007 year saw major progress in the refinement of products and platform, much innovation and the introduction of a significant number of customisations in support of more pilots and trials by potential customers in a variety of countries. The details of many of these innovations and upgrades are contained in the Chief Executive report on the pages that follow.

Strategy and Marketplace

By focussing its strategy on perfecting a world-leading capability in web-based video editing and publishing, Forbidden believes that it has now created the worlds most advanced web-based video platform. The execution of this strategy has required an abundance of innovation, frequent upgrades and the customisation of features required by potential customers as they engage in pilots and trials in many different locations.

The evolving marketplace divides into four overlapping sectors:

  • The Broadcast market
  • The Education market
  • The user-generated video (UGV) market
  • The consumer market

In each of these sectors Forbidden can now provide an advanced and competitively superior solution for the editing, publishing and hosting of video in a wide range of formats.

As each sector comes to recognise the huge potential of web-based video and seeks the most appropriate solution, Forbidden believes that it has available a tested and most fitting platform with the ability to be flexible and creative in fulfilling individual customer needs.

Over the past months, Forbiddens senior management has spent an increasing amount of time in contact with North American organisations where scale and imagination have produced many of the worlds biggest web-based businesses, such as Google, Yahoo, YouTube, eBay and Amazon. In anticipation that North America will provide the highest number of early adopters and the fastest expansion of mass users in our target markets, Forbidden is in the process of creating a presence on the West Coast USA, in addition to its active Canadian Distributor (Formidable Technologies). The company is finding increasingly that it is able to meet with senior members of appropriate North American organisations.

Outlook

The companys enthusiasm for its technologies continues to be very high.

Forbidden has experienced the over-conservatism and risk-aversion which greets most disruptive, breakthrough technologies, particularly where changes in work-flow often accompany adoption of the new. But this same conservatism has allowed and prompted the pursuit of improvements and refinements, which, in the end help produce a reliable and proven product. The company believes that it is at a point where FORscene and Clesh are sufficiently powerful to persuade customers to come on board as they recognise the strong tidal flow to web-based video platforms.

Vic J Steel

Chairman

Chief Executives review

Introduction

Forbidden Technologies green field flotation was founded on its vision of video on the web, which lies at the nexus of the three areas of exuberance at the time: Technology, Media and Telecoms.

Moving forward eight years we can, with the luxury of hindsight, see what has happened in these areas. Forbiddens web video platform still lies at this nexus, but all three areas have matured. Technology has moved on with the arrival of mass market camcorders and camera phones providing the essential raw material for Forbiddens web-based video editing platform. On the media side, sites such as YouTube demonstrate the consumer appetite for video on the web. And telecoms is now the Internet where the arrival of mass market broadband completes the picture.

Forbiddens FORscene video platform covers everything after video has been shot: reviewing material; logging material to add metadata; search using the built in content management system; assembly editing; rough cuts; fine cuts; publishing in a wide range of formats includin
g our own web formats; storing the published material; and distributing through FORscenes own server infrastructure.

We are in the middle of a sweeping move of computer applications to the web. Web-based applications such as Google, Facebook and Amazon are used every day by millions. We believe that FORscene is the natural video editing, publishing and hosting counterpart to these sites.

The FORscene platform has now been validated by an impressive list of customers around the world. Clever design has enabled many improvements in functionality without cluttering the interface, giving easy access to new users. The systems underlying technology has continued its rapid progress, ensuring that the platform maintains its leading technological position in the sector it pioneered. In our view, this lead is brought into focus by the emergence of less sophisticated competitors.

FORscene and Clesh are applicable in a wide range of markets as the following examples show. We believe that in each of these areas demand for web-based video services such as FORscene and Clesh is set to grow to a substantial value, albeit (as can be seen from our current sales) from a low base.

Broadcast

We entered this market first, as our services fit well into existing television workflows and budgets. Demanding requirements make this technologically the hardest market. The need for high reliability also makes this market very conservative: all programmes have to be delivered on time and news has rapidly diminishing value if it arrives late.

With advertising revenue moving to the web, companies are being forced to adapt. FORscene, which according to industry sources “is beneficial in terms of both time and money”, should be the solution of choice.

Programmes made using FORscene have been broadcast on the BBC, ITV, Channel 4, E4 and CBC in Canada.

Education

The growth in Media Studies has led to a major problem for universities: buildings they built ten years ago to house edit suites for their students are not big enough for the new intake. The solution is simple: requiring low investment whilst delivering high functionality, FORscene allows students to work over the web from their rooms and even in their holidays. Lecturers can check students work and give feedback when convenient. Students can even continue to use the system after they graduate.

You can see the results of a State University of New York (SUNY) video project here:

User Generated Video (UGV)

Broadcasters and newspaper publishers are finding that internet advertising is displacing traditional forms; improving their websites is a priority. But web users are demanding more interesting content, and these days that means video. Their users are a convenient source of up to date and relevant material, possibly with some moderation and fine tuning. Forbiddens web-based systems are a perfect fit. The demand for UGV leads us to believe that this area has great potential.

This exclusive interview with Boris Johnson, now Mayor of London, was shot on a mobile phone and demonstrates the reach of UGV:

We also made around 50 video interviews at the Master Investor 2008 show:

Consumer

YouTube set the consumer video market alight alexa.com shows over 15% of each days global internet visitors visit YouTube. It has around 30% of US views; total US views topped 10,000,000,000 in December 2007.

Modern camera phones put the means of production in everyones pocket. But with even professionally shot content being edited to 1/20 of its original length, the days of popular unedited material are numbered. With advertisers showing an interest in consumer video, the next big step is to improve its quality. Forbiddens Clesh web-based video editing system is well placed for this task.

Forbidden sees this market as having the biggest potential.

A successful video portal is expected to be advertiser funded. Advertisers require viewers. Viewers require good content. Good content is made by good editors. And good editors will follow the best tools – and that is where Forbidden comes in. We provide the engine for driving the growth of a successful consumer video portal.

Our main approach is to follow the precedent set by the mobile phone operators: increase Average Revenue Per User (ARPU). With so many internet users watching video, the trick is to maximise revenue from those users. We are looking to piggy back on existing high volumes websites, adding significant value to their visitors.

We are also looking into creating a video portal ourselves. Backed by the worlds best web-based editing system, we could recruit the best editors, the best content, the most viewers, and the most advertising revenue. This project would require investment from a significant fund raising.

Here is a typical consumer video – 1/20 the length of the original mobile source video:

Here is our prototype Showreel:

Trends

There has been a clear trend in video: the cost of making and distributing it has fallen steadily. As it falls, the market size increases. In the 1990s, tape based editing machines were replaced by computer video editing suites, running initially with the aid of hardware cards and then later running entirely in software. FORscene, the worlds most advanced professional web-based video platform, continues this trend.

Features now include many you would expect in a traditional desktop based system: a range of special effects; video and audio levels; colour control; titling as well as input from a wide range of sources from mobile phone to high definition, and output to the web, podcasting, and multiple formats for broadcast and consumer use. FORscene editing is at lower resolution than broadcast TV, but the launch of FORscene DV allows even broadcast programmes to be made on FORscene, over the web. Full HD support is on our Roadmap.

So we can see that Forbidden Technologies plc, floated at the conjunction of Technology, Media and Telecoms has now placed itself at another critical junction linking the web-based revolution, the video revolution, and the consumer mobile phone revolution.

This market evolution has been reflected in our press coverage. Broadcast, a leading UK broadcast magazine, included us in their top 10 technologies for the future. AV Interactive quotes us on the Web revolution. Speaking slots at the Broadcast Live conference in London, at IBC2007 in Amsterdam, at the Video on the Net conference in San Jose, and another at NAB in Las Vegas show the interest generated globally. The potential of Clesh is now attracting comment worldwide. Meanwhile, our University customers around the world continue to extoll the virtues of FORscene in their own publications, and to arrange speaking opportunities at major conferences.

Conclusion

As FORscene and Clesh become more established, we are generating interest in larger deals. It is here that the benefits of a web-based solution show up most clearly. The easy scalability, wide area access and integration costs amortised over a large number of users all play to our strengths.

By floating at such an early stage in its platform development, Forbidden has been able to punch above its weight in terms of exposure and profile. Now we have created and own this unique combination of video technologies, products and services, the market at last seems ready for us to capitalise on this investment. We fully intend to meet the challenge of exploiting this exciting opportunity.

Stephen B Streater
Chief Executive