Forbidden Technologies plc: NEWS: Full Year Results, December 2006

Full Year Results, December 2006

13th June, 2007

Preliminary Results for the year ended 31 December 2006

Chairman's statement

In the year to 31st December 2006, the seventh year of our development, the Company recorded sales of £131,535 compared to £59,705 in the previous year. Administrative expenses were £872,000 (£874,637) and the loss for the year was £785,188 (£826,578).

At the year end the balance sheet showed £358,794 of net current assets (£967,098) comprising primarily cash and liquid assets.

The movement in net funds for the year was an outflow of £516,293 (£729,984).

The higher sales level achieved in the year reflects, in part, the increased number of pilot projects undertaken with the BBC in the first half and repeat business from BBC and other broadcasters in the second half.

Strategy

We have continued with our strategy of focusing upon professional post production in the broadcast market and on editing and publishing in the growing consumer video market.

Our intention of developing a product in the intruder and fire security market remains in our strategy but has not been pursued in the past year as the Company has focused entirely on the broadcast and consumer market.

Progress

Part way through the year, at one of our regular strategy review meetings we concluded that, if we are to achieve adequate scale in our chosen strategic sectors, we would be unable to do so quickly enough within our existing resources.

To achieve scale we need the reach and customer base that international companies can provide. Therefore, we are seeking strategic relationships in each of our two market sectors. To support this effort we have also widened our geographic coverage, particularly in North America where we have appointed a distributor, Formidable Technologies, based in Toronto, Canada.

We have actively been promoting awareness of the Company at major gatherings; in Europe at IBC (Europe's biggest broadcaster convention) and at London's Broadcast Live; in the USA at Video on the Net in San Jose, California and at NAB (the biggest broadcaster convention in the world) in Las Vegas.

Being seen and being active at these functions has raised awareness of Forbidden and its products and has enabled us to meet and discuss opportunities with some world-scale players.

On a smaller note, a number of universities in North America have begun to teach FORscene in their media schools thus turning out graduates who can take their knowledge of FORscene into their working lives in post production.

In Canada, through our distributor, we are in discussion with two major broadcasters and FORscene is being trialed by 9 Story Entertainment, a major animation studio.

Following the Company's decision to simplify the FORscene pricing model we have begun to convince more independent production companies in the UK to use the product, particularly since the product benefits are now clearer and the economic advantages are more easily understood.

Recently (June 2007) Mr Paparazzi, the world's largest celebrity picture agency has chosen to use Clesh on its newly designed website. Consumers taking video shots of celebrities are invited to upload footage onto their own Clesh accounts, edit the shots and submit them to Mr. Paparazzi for saleability. Mr Paparazzi then sells the user-generated videos to a variety of media and part of the proceeds goes back to the consumer. That is the first wide-scale monetised use of Clesh.

Corporate Finance

Loan Facility

At the end of the first quarter of 2007 the net assets of the Company fell below half of the nominal value of the issued share capital. Under section 142 of the Companies Act 1985, in this circumstance an Extraordinary General Meeting (EGM) has to be called to consider what action, if any, should be taken to deal with the situation.

Accordingly, an EGM was held on 22 May 2007 and it was concluded that no further immediate action would be required, since the directors intended to make a loan facility of up to £1 million available to the Company. A second resolution, to increase the borrowing powers of the board up to a limit of £2 million was agreed.

As you may have read from our press releases a loan agreement was completed on 5 June 2007 between the Company, Stephen Streater and myself providing a facility of up to £1 million. This secures sufficient working capital for the foreseeable future.

IFRS

The Board has recently considered whether or not to adopt International Financial Reporting Standards (IFRS) for future accounting periods, being optional to AIM listed companies which do not have to present group accounts.

The Board concluded that the UK GAAP remains appropriate to Forbidden as a Company with a very transparent balance sheet and an absence of subjective valuations of intangible assets.

Share placing

In December 2006 one of the founding shareholders of our Canadian distributor, Formidable Technologies, purchased 500,000 new ordinary shares for 15p each from the Company. The purchase was a welcome confirmation of confidence from our active and energetic Canadian partner.

Board and Staff

There were no changes to the Board in 2006 and we welcomed one new staff member, Peter Burns.

Our thanks are owed to the dedication and enthusiasm of our team in continuing the development of our technology and the pursuit of commercial opportunities.

Prospects

Following good sales growth in 2006 and the visibility of the Company and products being created this year, we are hopeful of a breakthrough to new partnerships and customers in 2007 which can lead to the desired scale for the Company.

Chief Executive's Review

Introduction

In 2006, Forbidden consolidated its strong offering in the broadcast market and equipped its technology with appropriate interfaces for the consumer market and the emerging market of Citizen Journalism.

Forbidden's customers worldwide include major broadcasters, with products being acknowledged as providing practical solutions. This is reflected in the tone of press and internet coverage. The market is starting to understand FORscene.

Video on the web is catching on. As broadband continues to expand in coverage and speed, video looks set to dominate its new medium.

The World's infrastructure

FORscene is a service. It has minimal cost of capital or distribution as it runs in a web browser. The world's infrastructure it depends on continues to improve in leaps and bounds.

On the client side, broadband is getting faster and more common, and people's computers are better than ever. We now use client computers for demonstrations.

On the server side, we are benefiting from the falling cost of disk storage: a 5,000 hour server now costs us around £2,500 in components.

In the wider market, modern camera phones provide high quality video - ideal for consumers and citizen journalists. And there are many website outlets for web video.

The gap is in the middle. How to get from the original video content to the 5% which is actually interesting - and to tell a story. FORscene for citizen journalists, and Clesh for consumers, fill this gap.

FORscene

Forbidden's focus on FORscene paying off. We have been able to let our product mature, making the refinements which can only come with real-life use. We have not just added more features, we have also improved ease of learning and ease of use, while maintaining the high degree of reliability which comes from a well maintained web system.

Commercially, the new FORscene pricing model is a major advance. Our understanding of usage patterns has enabled us to offer an "all you can eat" pricing which encourages new users within an organisation.

FORscene's main professional uses are reviewing, logging and editing. Our end-to-end ingest once solution minimises wear and tear on source tapes - FORscene outputs a broadcast quality rough cut for finishing on a high-end machine. Integration with the Avid and Apple systems led to the first prime time TV broadcasts of programmes made with FORscene.

Where mobile phones are used for filming, FORscene provides a complete post production solution, including podcasting, web delivery and output for TV broadcasts.

Forbidden's customers now extend from the BBC and ITV to charities, corporates and universities.

Working as a Team

Making videos is a team effort. Producers, directors, editors, loggers, camera men and clients all contribute. FORscene's foundation in the internet helps team working considerably by being so accessible. The chat system, which includes private chat rooms and technical support, also aids communication, making post production more efficient.

The FORscene collaborative post production system offers to improve both price and quality.

Clesh

The mass acceptance of internet video has left a gap for a high-end web-based consumer product. To explore this market, in 2006 Forbidden launched Clesh (Clip Load Edit Share), a storyboard version of FORscene for consumers.

Consumers edit their video for sharing with friends and family. There is a wide variety of web services on the internet.

The Forbidden tool has many advantages. Its compression works well over variable speed connections. Its intuitive interface is the result of many years of experience, while its professional pedigree allows a depth which consumers will appreciate as they build up more content and experience.

The advantages of the web-based approach are coming into focus: people can - and do - log on from anywhere. Chat helps build a community, allowing sharing of content and getting tips on how to make better videos.

Companies providing Clesh will also find relevant features, such as moderation, are provided as standard.

Put simply, Clesh is the best tool around. It is a live system and is available for licence for use in consumer websites around the world.

Promotion

Forbidden's main targets have been in Europe and North America. Forbidden directors have given talks at shows both in the UK and abroad, including Broadcast Live, IBC (who used it for news and citizen journalism) and IVCA.

These speaking opportunities have continued into 2007 with presentations at Video on the Net, NAB and Broadcast Live.

Press coverage has continued as the FORscene product has become more established.

Shareholder offer

Forbidden offers shareholders free accounts on FORscene. This allows users to try out Forbidden's latest versions, and of course to make the odd internet video for themselves.