Final results for the year to 31 December 2012

Forbidden Technologies, the AIM quoted developer and marketer of a leading cloud based video platform, is pleased to announce its final results for the twelve months to 31 December 2012.

Financial Highlights

  • Sales increase of 74% to GBP812,744 (2011: GBP466,674)
  • Gross profit increase of 63% to GBP680,514 (2011: GBP417,769)
  • Net assets of GBP1,628,208 and debt free with a strong balance sheet
  • Loss per share of 0.25p (2011: 0.22p)
  • Net losses of GBP216,715 (2011: GBP186,218) reflect the Companys increasing investment in R&D, marketing and sales resources

Vic Steel, Chairman of Forbidden Technologies, commented:

"In Broadcast Post-Production, FORscene is gaining increased recognition for its time and cost saving benefits and for the value of its availability anytime, anyplace on any desktop or laptop that has broadband access. Sales in this sector grew by 61% in 2012 over the previous year, with an average of 69 productions using FORscene each month between September and December 2012. Our ambition over time is to extend our international penetration of this sector."

"This year in News and Sport, FORscene has demonstrated through its work on the Olympics for YouTube and NBC that it fulfils the key requirements of speed of delivery, cost efficiency and ability to operate from diverse and sometimes remote locations. Revenue from this sector grew by 88% in 2012 in comparison with the previous year. Post the Olympics, the Company is conducting an extensive number of discussions with global businesses. In the light of this strategy, we expect News and Sport to continue to be a major growth area for the Company, as Cloud-based technology becomes the standard platform internationally."

For further information please visit www.forbidden.co.uk or contact:

Forbidden Technologies plc
Stephen Streater, CEO
Tel: +44 (0)20 8879 7245

Cenkos Securities plc, Broker
Adrian Hargrave, Corporate Finance
Alex Aylen, Sales
Tel: +44 (0)20 7397 8900

Bishopsgate Communications
Nick Rome / Sam Allen/ Matthew Low
Tel: +44 (0)20 7562 3350
forbidden@bishopsgatecommunications.com

CHAIRMANS STATEMENT

I am pleased to present this, the thirteenth annual report to shareholders of Forbidden Technologies since its flotation on the AIM market of the London Stock Exchange in February 2000.

Statements of Comprehensive Income and Financial Position

In the year to 31(st) December 2012 the Company achieved sales of GBP812,744, an increase of 74% over the previous year. The Gross Profit was GBP680,514, GBP262,745 (63%) up on last year but at a lower margin (84%), influenced by the increased level of hardware sales at a more modest but still valuable margin of more than 60%. Administrative Expenses, at GBP963,237 were 42% higher than in 2011 and reflect the Companys policy of increasing investment in R&D, marketing and sales resources in order to accelerate growth. As a result, the loss for the year of GBP216,715 was 16% higher than the GBP186,218 loss recorded for 2011.

On the balance sheet the closing net assets were GBP1,628,208, GBP29,572 (2%) less than the opening position on 1(st) January 2012. The closing cash balance was GBP459,787, a reduction of GBP232,707 (34%) from the opening position of GBP692,494. The Company continues to be debt free with a strong balance sheet.

Strategy

The Company has recently completed a review of strategy and has reaffirmed its focus on the four primary sectors where our Cloud-based video platform has the opportunity to play a major role and to be a significant force in shaping new workflows that can save time and money for all our customers. Our focus is to develop leadership positions in the Broadcast Post-Production and News and Sport sectors.

1. Broadcast Post-Production

In the continuing tight economic conditions affecting the broadcast industry, FORscene is gaining increased recognition for its time and cost saving benefits and for the value of its availability anytime, anyplace on any desktop or laptop that has broadband access. Sales in 2012 grew by 61% over the previous year, with an average of 69 productions using FORscene each month between September and December 2012. Once it is used by a post-production facility, FORscene enjoys a high customer retention rate, with valuable repeat purchasing and regular extension further into the post-production process. Having achieved a modest share of the market to date we anticipate significant growth in the UK. 21 Post Houses have purchased FORscene servers. We plan to use FORscenes reputation in the UK to assist in post-production expansion in a number of the bigger markets across the world.

2. News and Sport

News and Sport share requirements for speed of delivery, cost efficiency and ability to operate from diverse and sometimes remote locations. The FORscene Cloud-based platform has demonstrated that it fulfils all of these needs.

News and Sport is a high growth sector as more consumers view web-video on mobile devices and PCs.

2012 was a highly successful year for FORscene in News and Sport where revenue grew by 88% in comparison with 2011. The role played in the Olympic Games through YouTube and NBC in North America increased the visibility, reputation and credibility of FORscene to an extent that should not be under estimated. As a single, but valuable contract, it has led to a number of current discussions with global companies who were involved with or observed the qualities of FORscene in the Olympics project. The Company is devoting significant resources to bring as many of these discussions as possible to a successful conclusion during 2013.

In the light of our strategy of investing in partnerships in this sector, we expect News and Sport to continue to be a major growth area for the Company over coming years, as Cloud-based technology becomes the standard platform internationally.

3. Education

The value of this sector to the Company is not primarily in its contribution to turnover but, instead, in raising awareness of FORscene among the next generation of video editors and on-line entrepreneurs. The Company will continue to encourage education institutions to use and teach the FORscene platform.

4. The Social Media Consumer

The Company has marketed consumer-orientated forms of the platform for some years as Clesh, a consumer version of the browser-based interface. The launch of our Android app in February 2011 brought new visibility of the Companys depth of video editing functionality to consumers and has kick started a revenue stream with significant potential.

There are around 300 million Android-based portable devices (smartphones and tablets) currently in use around the world and this is forecast to grow at an annual rate of 250% (source: Google, February 2012). Penetration to only 1% of these devices with a version of the product would generate significant sales. Furthermore, the product fits well with the increasing trend towards crowd-sourced, Internet published news and entertainment, and with the increasing drive on social media sites to increase the quality of their video offerings.

True penetration will only be achieved with a collaborating partner, who has a broad existing customer base either as a mobile manufacturer, a mobile service provider or a major consumer social media site. The Company places high priority in the long term development of this sector.

Corporate Activities

In 2012 Forbidden has played an active role at the key broadcast conventions: NAB in Las Vegas where some 100,000 individuals register, and Europes IBC in Amsterdam which attracts a footfal
l of over 40,000. Our stands attract many visitors and produce useful contacts and sales leads. We also have participated in smaller UK events such as Master Investor and BVE where individual investors can discuss progress with the Forbidden team.

Early in 2012 we appointed Cenkos as our Company Broker and have recently added the role of Nominated Advisor to the Cenkos agreement. Having increased our number of customers and our level of sales, we believe that Forbidden is becoming institution-friendly and appreciate the reputation of Cenkos, particularly in the technology sector.

Press and Internet coverage have continued to grow, reflecting both the Companys efforts to publicise its successes and the readiness of journalists to write about Forbiddens state-of-the-art video platform.

Since the 2012 year end the Company has announced a pan-African agreement with systems integrator ATOS. This is the first agreement which involves a partner in setting up, managing and maintaining for itself a FORscene Cloud and therefore an important milestone in the development of the Company.

Outlook

With our enhanced reputation in Broadcast Post-Production, our ambition over time is to extend our international penetration of this sector. Post the Olympics the Company is conducting an extensive number of on-going discussions with global businesses in News and Sports. Not all discussions lead to firm partnership agreements but with the current pipeline we are confident that our opportunities for growth are real, exciting and will continue to add significant value to the Forbidden business.

Vic Steel
Chairman

CHIEF EXECUTIVES REVIEW

The year 2012 in review

Forbiddens stature grew again in 2012.

Our increased marketing spend resulted directly in more exposure, with a steady stream of trade shows and events throughout the year. In professional markets, where being visible and demonstrating success are major factors in establishing reputation, Forbiddens presence has contributed to the companys long term value.

The Olympic Games is a phenomenal event. Even large broadcasters struggle to provide perfect coverage. So Forbiddens successful integration into YouTubes Olympics 2012 video solutions, as used by NBC and elsewhere, was an unrivalled opportunity for Forbidden to show off its FORscene Cloud video platform – both to broadcasters, who could see NBCs use, and to the professional Internet side, who could appreciate YouTubes connection.

With Forbiddens business model focused on selling through partners who are already established in each market, Forbidden has taken the opportunity created by the Olympics to forge new partnerships in both News and Sport. These are in addition to the growth in post houses who offer the FORscene service. All these clients use Forbiddens FORscene Cloud.

The adoption by Atos, the systems integrator, in South Africa as a partner marks a significant step. It is set to be the first organisation outside Forbidden to build and operate its own FORscene Cloud, illustrating a route for scaling up FORscene globally.

Technical achievements have continued in abundance. New features for our biggest clients, such as support for closed captioning in the US, have been combined with ever higher efficiency, driving increases in capacity.

Heavy duty broadcasters use Forbiddens Linux-based FORscene Server to ingest their material. The launch of PC Server Lite, a Windows application, fills the gap caused by the growth of more lightweight opportunities in corporate videos and news.

Clesh, Forbiddens cloud video editing solution for the interested consumer, continued to benefit from progress of the FORscene platform as a whole, supplemented by a number of mobile specific upgrades. The rapid improvements in smartphones and tablets are creating a major platform for Forbiddens Internet services. Despite the minimal marketing resources applied to Clesh, sales growth for the year of 74% matched the professional markets which still dominate Forbiddens turnover. The role of Clesh in Forbiddens mobile and consumer strategies is discussed further below.

Forbiddens growth has allowed it to engage its own full time in house professional video producer. A constant stream of FORscene training videos to support our growing user base has been spiced up with regular promos for Shows and upgrades.

Long term success in a dynamic world

Every day, millions pay to go by train, when they can walk for free. They pay because it is better.

When I entered the broadcast video market in 1991, a tape offline edit suite cost around GBP30k. But a few months later, liquidators couldnt give them away. Despite the apparent bargain price of these systems, customers were happy to pay GBP6,000 for my modern replacement. People paid for it because it was better.

More recently, some have asked why people will pay to use the FORscene video platform when there is "free" editing software available. The answer is because it is better. The cost of FORscene in a modern TV workflow today is not dissimilar to the cost of my much more primitive system twenty years ago.

There are many reasons why companies and individuals pay to use FORscene. One objective of Forbiddens technology programme is to ensure that this continues to be the case.

Hunters and farmers

Forbiddens roadmap covers two distinct types of progress.

The hunting side grabs headlines: integration into the YouTube / NBC Olympic Games solution, multicam logging and editing, major codec upgrades, the mobile capability. Hunting opens up new opportunities directly. FORscene Multicam has opened up many high volume workflows by allowing multiple cameras to be worked on at the same time. HD publishing allows professional programmes to be finished in FORscene without the need to move to another system.

The farming side continuously nurtures the platform, improving reliability, efficiency, capacity, features – and reducing the cost of delivering the platform. Farming upgrades are often individually barely noticeable, but cumulatively over years they contribute to an unrivalled enduser experience.

Competition

Intel uses its world leading manufacturing technology to make "industry standard" CPUs. But the market is moving on, with volume shifting from desktops and laptops to tablets and smartphones. The new devices generally use CPU designs from the UK company ARM. By CPUs shipped, the ARM design vastly outsells Intel.

So why doesnt Intel just makes chips like ARM? Apart from the technology issues about making power efficient chips, the problem for Intel is that the ARM chips simply dont cost very much. If Intel made chips like ARM, and charged similarly, they simply wouldnt be the size of Intel.

I mention Intel vs ARM because there are many parallels in Forbiddens world. FORscene has an extremely efficient architecture, has a low price and a high gross margin (typically 85-90%). If the large traditional suppliers of Forbiddens broadcast markets made and sold what Forbidden does, at Forbiddens prices, they could destroy their business models.

But just as ARM are designing faster chips, Forbidden is transforming the video market by making better cloud post-production software. Just as with ARM, the new technology is seeding new markets.

Although low cost, Forbidden does not compete on price. Instead, through continual Innovation based on a strong and flexible technology base, Forbidden strives for ever higher performance.

Forbidden has maintained FORscenes pricing power over the last eight years by encouraging demand too. Building FORscenes reputation and customer awareness of the platform has taken time, marketing and user experience. Several new markets value FORscenes advantages highly. Specialist partners eager to add the benefits of FOR
scene to their existing offerings provide new and more efficient routes to market.

Looking forward

The majority of Forbiddens turnover comes from editing / finishing in FORscene in the high value area of News and Sports. Looking forward in this sector, we are targeting live and near live events, more efficient HD export and further integration with established systems.

Growth in Broadcast Post continues as we add customers and embrace more of the value chain. With review, logging, sync pulls and rough cut editing well established, we are increasingly pushing into offline editing in Broadcast Post.

In mobile, Forbidden is using its Android app to prepare its mobile technology for future needs. Adapting the interface for touch screen devices, aligning the video codec technology for ARM CPUs, working reliably on mobile networks and making an Android software-only version of the $20,000 FORscene Server all take time to settle.

There is little doubt that the rapid improvements in smartphone and tablet technology will lead to its widespread adoption in both the consumer and professional worlds. Tablet devices already have 2560×1600 pixel colour displays, and 8 core ARM chips from Samsung have been demonstrated.

Forbiddens technology continues to develop to meet the needs of its growing user base. Our strategic developments are positioning us to benefit from the platforms and markets which will be prevalent in the future.

SB Streater
Chief Executive