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Full Year Results, December 2001

Full Year Results for the year ended 31st December 2001

Chairman’s statement

In the twelve months to 31st December 2001, the company had sales of £2,672 (2000: £0) and a loss after tax of £230,854 (2000: £145,429).

The year-end balance sheet demonstrates a continuing strong
position with cash resources of £3,021,750 (31st December 2000:
£3,311,838). This cash availability gives comfortable cover for
the anticipated expansion of commercial development. We do not
envisage requiring additional financial resources.

The Market Place

The slow progress in the introduction of broadband links in both
fixed line and wireless devices continues to provide a favourable
climate for the establishment of Forbidden Technologies’ video
compression. As our own proprietary technology continues to develop and improve, our market opportunity expands. It is now clear that the installed base of broadband links will still be a minority of the market beyond the middle of this decade. The Forbidden product, not being dependent upon the installation of a player, will be a significantly more up to date solution than any system based on a rigid standard, such as MPEG.

Additionally, the increasing average power of computers further
widens the market opportunity of providing exciting video through
narrowband modem links.

Technology Progress

Our technical goal is to create a video compression/decompression
technology system (Codec), which will enable video to be added to web pages in a similar way to text and graphics, without the need for
broadband. When we started development in the year 2000, we were testing and developing our Mark 1 Codec. This was shown to the market in February 2001, less than a year after our flotation. Mark 1 showed that we could successfully meet a number of technical goals. It allowed people who visited our website to see large, high frame rate video on their own computers. Our use of Java means that all of this is possible without the installation of a player or the need for up-grade procedures.

Development continues rapidly, reducing data rate, increasing
picture quality and improving player speed. New features implemented in this year include:

  • subtitles for foreign languages;
  • playback with much larger pictures;
  • playback with high resolution small pictures;
  • slideshows for corporate presentations;
  • data rate limiting code for more difficult content;
  • a player for the Compaq iPAQ PDA.

Throughout the summer and autumn, we worked on our ambitious Mark 2 Codec. Making use of customer feedback and our internal business development expertise, we defined a series of simple design targets: lower data rate, better picture quality, faster compression and the ability to deliver a much wider range of moving content. To achieve these goals, a new technological strategy has been employed. Whereas our Mark 1 Codec was focused mostly on pixel based processing, Mark 2 Codec is largely model based. By designing the Codec to understand the content of the image, a much better balance between quality and data rate is possible. This results in better clarity, and the availability of new features such as pans and zooms.

The ever-increasing speed of the installed base of machines is
allowing us to increase our reach. Most machines now exceed the
minimum specification we set 18 months ago of 500 MHz, with 2 GHz machines now widely available. In addition, the static nature of
standards such as MPEG4, means that they are being surpassed
technologically by more dynamic and flexible software solutions.

Commercial Development

The past year has seen the commencement of commercial development of the business. Following an analysis and review of the numerous market opportunities open to the company, we are focusing our development on five market sectors:

  1. advertising;
  2. entertainment;
  3. global corporate communications;
  4. educational publishing;
  5. healthcare.

We are addressing these sectors either by forming distribution
partnerships with experienced industry participants or by selling
directly, whichever is more appropriate.

Advertising and Entertainment

In these sectors we have the opportunity to provide new compelling
net-based formats. Advertisers will be able to extend their brand
presence by channelling on the web the same material originally
developed for TV. Entertainment companies can benefit from new methods of online promotion and delivery. In both these sectors our efficient compression and low data rates will allow us to offer access to a mobile audience using GPRS or 2.5G before the introduction of 3G devices.

Global Corporate Communications

Global companies need simple and effective means to communicate
with customers, investors and staff. Narrowband delivery of up-to-date pre-recorded video messages over the internet can reach a wide audience with a consistent message, regularly, at modest cost. The convenience of being able to view the content at a time that suits the listener is a real advantage over broadcast content.

Educational Publishing

Electronic publishing of education and training materials is
greatly enhanced by the inclusion of good quality video. We are
pursuing the potential of using our video to enhance subscription
based language teaching and the web promotion of print and other

Health Care

Health care providers and drug companies already make use of video in their day-to-day activities. A move to web-delivery will enable them to reach a wider audience with up-to-the-minute material more regularly.

Future Outlook

In each of our chosen market sectors we are actively developing
relationships with one or more industry participants, and anticipate
that we will achieve a growing revenue stream in a number of these
during the coming year. Each relationship takes time to develop as we mutually explore the potential for using a new technology to provide enhanced communication solutions, but the pace of this development is accelerating and we are confident of turning development into revenue over the coming year.

We fully expect that our ability to deliver video to hand held
devices places us ahead of those of our competitors who are using MPEG and/or are reliant on next generation mobile phone technology for high resolution video.

The continuous improvement of our technology and the increasing
receptiveness of potential customers, coupled with the improving
market-place conditions, give us confidence that we are building
Forbidden Technologies into a successful and valuable business.

Victor Steel

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