Thruvision Grp Regulatory News (THRU)

29 May 2012

Digital Barriers plc

('Digital Barriers' or the 'Group')

Preliminary Results for the year ended 31 March 2012

Digital Barriers (LSE AIM: DGB), the specialist provider of advanced surveillance technologies to the international homeland security and defence markets, announces audited results for the year ended 31 March 2012.

The Board is pleased to report that it has made significant progress during the year, the highlights of which are:

Key Highlights

Increasing revenue by 129% from £6.6 million to £15.0 million and delivering organic revenue growth of 24%.

Loss before tax of £4.1 million (2011: £4.6 million) and adjusted loss before tax* of £6.0 million (2011: £2.7 million).

Extending our highly differentiated portfolio of world-class technology to include next generation video transmission, unattended ground sensors, and standoff passive screening technologies.

Achieving good international sales progress with key military and homeland security customers across North America, Europe, the Middle East and Asia-Pacific.

Completing seven further acquisitions since 31 March 2011 (bringing the total to twelve) and integrating all of these fully into the Group.

Establishing a Dubai office to add to those in London, Singapore and Washington DC.

* Adjusted loss before tax is calculated after adding back amortisation of intangibles initially acquired on acquisition, acquisition costs, reorganisation costs, and deducting adjustments to deferred consideration and the gain on a bargain purchase.

Commenting on the results Dr Tom Black, Executive Chairman of Digital Barriers said:

''We continue to see the opportunity for Digital Barriers as very compelling over the medium to long term. The international sales traction we have already achieved, combined with the very positive feedback from customers and partners that our IP can outperform that offered by competitors, gives us high levels of confidence in our ability to grow revenue significantly in the coming year and in the longer-term prospects of the Group''.

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About Digital Barriers

Digital Barriers provides advanced surveillance technologies to the international homeland security and defence markets, specialising in 'edge-intelligent' solutions that are designed for remote, hostile or complex operating environments. We work with governments, multinational corporations and system integrators in the defence, law enforcement, critical infrastructure, transportation and natural resources sectors. Our surveillance technologies have been successfully proven on some of the most demanding operational and environmental deployments around the world.

 www.digitalbarriers.com

Chairman's Statement

Introduction and Highlights

Digital Barriers has made significant progress since its IPO two years ago. We now have established a broad international platform to engage with key customers in each of our target regions. We have an exceptional portfolio of genuinely world-class IP under ownership and we have successfully integrated twelve acquisitions under the Digital Barriers brand.

Our aim is to work with governments, multinational corporations and system integrators in the defence, law enforcement, critical infrastructure, transportation and natural resources sectors, providing them with advanced surveillance solutions that can be deployed across remote, hostile or complex operating environments. We can now offer a full suite of differentiated cutting-edge technologies to meet a wide range of surveillance requirements for customers across the globe.

We have expanded our international reach significantly through targeted investments in regions offering high potential and we are establishing a strong reputation as an important provider of advanced surveillance technologies to the homeland security and defence sectors. As a result, we have already been able to achieve sales across four continents and are now in a position to build significantly on that achievement in the coming period.

The major highlights are as follows:

·; Extending a highly differentiated portfolio of world class IP under our ownership, enabling us to offer an unrivalled range of products and solutions. This includes next generation video transmission, unattended ground sensors, and standoff passive screening technologies. We sell technology both into large surveillance programmes and as a range of stand-alone readily deployable products.

·; Gaining international traction with military and homeland security customers and partners across North America, Europe, the Middle East and Asia-Pacific and making good early sales progress in the US, UAE, Singapore and South Korea. In addition, our technology has also been identified for potential use in much larger government programmes which are being planned in all our target regions.

·; Bringing the number of completed acquisitions since IPO to a total of 12, all of which are now fully integrated under the Digital Barriers brand. Our acquisitions have significantly enhanced our capabilities, bringing exceptional new technology into the Group. Where restructuring has been required to improve the operational performance and prospects of a specific acquisition this has been done with minimal impact on the wider performance of the Group.

·; Increasing our revenues by 129%, from £6.6 million in our first period to £15.0 million last year (pro forma organic growth1 24% from £11.1m to £13.8m). We believe that this level of organic growth illustrates the ability of Digital Barriers to execute its strategy within the international homeland security and defence markets.

·; Establishing a new office in Dubai as a hub from which to service a fast-growing market in the Middle East region, where we are seeing strong interest in our technologies and have achieved initial sales. We expect to expand our presence into the Kingdom of Saudi Arabia during the coming period.

·; Securing our position as the partner of choice in the UK for advanced surveillance solutions into the most demanding Government and law enforcement customers. We have established Digital Barriers as a credible and respected company and are making significant progress in establishing our technologies as the preferred choice for new international partners.

1 Assuming all prior period acquisitions occurred on 1 April 2010 and excluding all current year acquisition.

Results

The results for the year demonstrate encouraging growth in our revenue and prove our ability to identify and integrate acquisitions quickly and effectively.

Revenue in the year was £15.0 million. The Group's loss before tax was £4.1 million. We recorded an adjusted loss before tax of £6.0 million, after adding back amortisation of intangibles initially acquired on acquisition of £2.0 million, acquisition costs of £0.8 million, reorganisation costs of £0.5 million, deducting adjustments to deferred consideration of £5.0 million and the gain on a bargain purchase of £0.2 million. 

Consideration for acquisitions in the year totalled £5.6 million, with £5.2 million of this paid in cash in the year. The cash balance at the end of the year was £15.3 million.

People

We have now expanded to a team of 183 people at the year end, based across our headquarters in London, strategic hubs across four continents and subsidiary offices around the UK. We employ a combination of world-class technologists, highly credible homeland security and defence professionals and experienced sales executives.

This year we have focused on integrating the acquisitions we have made into the Group. We have sought to develop a strong ethos, based on innovation and high momentum, throughout the business and I have been particularly struck by the enthusiasm and commitment of our staff, most of whom have joined through acquisition.

We have also ensured that we have highly qualified people carrying out the critical work of building partnerships in our key international markets. We have established a skilled management team to oversee this and have successfully set up and integrated our major hubs in Washington DC, Dubai and Singapore. Overall, our sales force amounts to more than 30 of our staff.

As announced earlier this year, Chris Banks and Rupert Keeley will step down from the Board at the Company's Annual General Meeting in July. Chris Banks is retiring from the Board in order to reduce his workload and Rupert Keeley is stepping down following his recent appointment to a full-time executive role with PayPal in Singapore.

I would also like to express my gratitude to both Chris and Rupert for their contribution to the Board. Chris joined the Board at the time of the Company's IPO in order to assist with setting up our governance regime, a role in which he has added enormous value. Rupert joined the Board in July 2010 to enhance our knowledge of overseas markets, Asia and the Middle East in particular, and has greatly assisted our early development.

Paul Taylor joined the Board in April and will replace Chris as Chairman of the Audit Committee following our AGM and I am delighted to welcome him. Our search to replace Rupert is well advanced and I fully expect that we will appoint a replacement in the near future.

Outlook

We have built our initial platform and are achieving good early stage sales successes. We have confirmed our original view that a very substantial opportunity exists in the global surveillance market. The task now is to execute successfully in order to exploit this opportunity. The board is very confident that we will do so.

 In the coming period, we will focus on five areas that have emerged as critical to our ongoing success.

·; We will continue to invest in our already acquired technology to ensure that it maintains its world-class status and that we develop new solutions based on that technology. We will also seek to identify additional technologies that can further enhance our portfolio.

·; We will continue to develop strong relationships with the twenty or so most important "flagship customers" to ensure that we become a technology partner of choice to them across their most demanding surveillance programmes.

·; We will expand our sales reach into key international markets by supplementing these flagship relationships with an expanding network of specialist partners and resellers to service broader market demand.

·; We will continue to develop the Digital Barriers brand internationally as a pre-eminent advanced surveillance technology provider in our sector.

·; We will continue to invest in our existing regional sales capability and will strengthen our presence in the Kingdom of Saudi Arabia, which we see as a key market for our products.

We continue to see the opportunity for Digital Barriers as very compelling over the medium to long term. The sales traction we have already achieved combined with the very positive feedback from customers and partners that our IP can outperform that offered by competitors, gives us high levels of confidence in our ability to grow revenue significantly in the coming year and in the longer-term prospects of the Group.

Business Review

Introduction

Digital Barriers has made significant progress this year. We are now engaged with many target "flagship" customers across our regions, with a broad suite of genuinely world-class and increasingly integrated Intellectual Property (IP) under ownership, which we are marketing to customers around the world as readily deployable solutions. Having completed seven acquisitions in the period since 31 March 2011, bringing the total number to twelve, and integrated all of these acquired businesses under the Digital Barriers brand, we can now offer a wide range of leading-edge surveillance solutions to the most demanding customers around the world with critical and complex operational requirements.

We have secured our position as a trusted supplier to key UK Government agencies. We have also made encouraging progress in penetrating our targeted international markets, making important early sales to influential foreign government agencies and systems integrators in all of our key regions, specifically the US, the Middle East and Asia Pacific.

This year has also seen a step change in the structure and integration of companies into Digital Barriers. Each of our acquisitions has been fully integrated into the Group and started to develop a shared ethos and sense of mission. We have implemented a clear and straightforward organisational structure to reinforce this and have streamlined management structures and focused research and development efforts in line with an integrated technology roadmap. We have consolidated our estate portfolio with clear plans in place and have deployed a unified sales force of more than 30 staff operating successfully across the world. As a result, the Digital Barriers brand is now recognised as a market leader among our core UK-based customer base and we are building a strong reputation internationally with target customers.

With good organic growth this year, seven further acquisitions integrated into the Group and a growing reputation at home and overseas, we now have the platform and customer reach to support significant organic growth in the coming period.

Market Dynamics

Despite the economic difficulties that have affected many developed countries around the world, the global defence and homeland security market has proven resilient and continues to grow. The outlook in particular for the global homeland security market is one of sustained, longer-term expansion, with forecast growth rates of between five and seven percent through to 2019*. Despite the relative decline in most NATO members' defence budgets, the global outlook for defence spending remains positive with many countries increasingly focusing on the counter-terrorism and counter-insurgency domains.

In the last year, Digital Barriers has sharpened its focus on those sections of the homeland security market in which we see the greatest potential for growth. We specialise in providing advanced surveillance technologies to support our customers operating across hostile, remote and complex environments. We concentrate particularly on requirements relating to law enforcement, border security, specialist areas of defence, airports, seaports and mass transit, public safety and natural resources.

International Developments

Digital Barriers has taken significant steps to establish itself as an international high technology products-based export business. We are doing so by driving forward our targeted international sales strategy.

Direct sales

Under this strategy, we have concentrated on the identification and development of approximately 20 large international flagship customers, mainly major government agencies, and commercial organisations in the critical infrastructure and oil and gas sectors, to whom we can sell directly. These flagship customers will be the principal end-users of our technology and we have been expanding our network of sales offices to focus on these organisations. The majority are in the UK and the US, but there are a handful of increasingly important organisations in the Gulf Co-operation Council (GCC) states of the Middle East and also the Asia Pacific region. We have therefore established offices and full-time sales staff in Washington DC, Dubai and Singapore, with the intention of increasing our presence in the Kingdom of Saudi Arabia in the coming year. Our acquisition of Keeneo, based in France, has also broadened our reach into Continental Europe.

Progress by region is summarised as:

·; In the US, we are now working to ensure our products meet the specific requirements of our customers, who make up the largest and most influential security and defence market in the world;

* Source; Visiongain Homeland Security Market Report 2009 to 2019

·; In the Middle East, we have established a regional hub in Dubai and have made good progress in gaining traction with flagship government and law enforcement customers, and with the international systems integrators bidding for large government programmes; and

·; In Asia Pacific, we have focused our direct sales efforts on Singapore, Hong Kong and the Republic of Korea and have deepened our engagement with various government agencies in these markets.

Our regional sales teams have made significant progress in successfully penetrating many of these flagship customers, having invested significant effort in progressing our technology through the inevitably long and complex government sales cycles. For these highly discerning customers with complex requirements, we use a consultancy-led approach to understand customer needs such that we can jointly shape the right solutions, including appropriate training and support. This process involves establishing our credibility through references from UK Government, through the quality of our IP and from proven expertise. We then demonstrate our most relevant technologies and in many cases have secured successful technology trials and then sales. The strength of our IP truly differentiates our range of solutions and can provide customers with game-changing solutions.

Indirect sales

In addition to targeting direct sales into flagship customers, we continue to develop partnerships with the major systems integrators, both globally and regionally. We focus tightly on where interests align, where our partners can help us access major government programmes, and where they have already developed strategic relationships with the key customers in our target regions. By way of example, our partnerships with Cassidian and Boeing in the Middle East, and Singapore Technologies in Asia Pacific are progressing well.

We have also appointed an initial group of carefully selected value-added resellers (VARs) and other distributors to broaden our reach, particularly into Europe and South East Asia. This network is starting to open up additional revenue streams by selling proven technology used by flagship customers into a much broader market. Although at an early stage, it is expected that this route to market will become more significant for us as time progresses.

Operational Review

Services Division

Our Services division has successfully established itself in the UK market in the last year and grown well. Formed by the successful integration of Security Applications and Overtis Solutions, the division is based in Didcot.

The division implements solutions from both third party technology providers and, increasingly, from our own products division as our technology portfolio has grown. In the coming year we plan for continued organic growth and will maintain our current focus on the very high security areas of the UK Government market where we have an established reputation with key customers as the most technologically advanced, reliable and discreet partner for the provision of fully integrated surveillance solutions.

Products Division

Our Products Division has expanded rapidly with strong underlying organic growth coming from continuing penetration of the UK and targeted international markets and with new acquisitions of key technologies that broaden and strengthen our existing IP set.

The division is now able to provide leading, fully integrated and proven surveillance platforms for hostile, remote and complex environments. These solutions range from edge-intelligent sensors and image capture to real time transmission, advanced video management systems and adaptive video analytics and image processing and enhancement techniques. We have also moved beyond the capture and transmission of purely visual surveillance. The acquisition of Zimiti with its world-leading Remote Detection and Classification (''RDC'') unattended ground sensor (''UGS'') technology and ThruVision with its Standoff Passive Screening (''SPS'') detection capability bring emerging sensor technology into our capability suite.

Our capabilities in these areas are highly differentiated and we continue to invest to ensure we stay ahead of the competition both in terms of technical edge and cost-effectiveness. Feedback from major government, law enforcement and defence customers gives us confidence that we can provide a level of technical capability not available from other providers in the marketplace.

Since 31 March 2011, Digital Barriers has acquired seven businesses, each bringing its own capabilities, together forming an even more compelling and integrated product suite. These businesses were Zimiti Ltd, Keeneo SAS, Stryker Communications Ltd, the IP and assets of LMW, Codestuff Ltd, and the IP and assets of ThruVision Systems and Enterprise Technologies.

These new acquisitions and their successful integration into the Group have enabled us to bring an increased structure and focus to our products and propositions. We have made sales into flagship customers across each of our four key regions with significant positive feedback gained from government and prime systems integrators on the performance of our technology.

We have also made steady progress in integrating all our acquisitions into better-defined product family groupings. These groupings are as follows:

Advanced Technologies: This product family focuses on the wireless and fixed video transmission technologies acquired through COE, Essential Viewing Systems, and ETech. In this area, we design solutions principally around our ultra-narrow band and high security video streaming capability to meet the specific needs of our military and law enforcement customers in remote and hostile locations.

Solution Engineering: This product family focuses on command and control, video content analytics and specialist image processing. It includes the technology acquired through Waterfall Solutions, Keeneo and Codestuff. In this area, we develop surveillance software solutions that are managed at an enterprise level or embedded into our products. This includes advanced 4D video analytics, image processing, real time sensor/data fusion, 3D imaging and command and control. These software capabilities are sold into all our market areas.

Tactical Products: Formed from the acquisitions of Stryker and LMW. It develops and manufactures readily deployable solutions that are designed to work with little or no customisation. This includes fixed-wireless surveillance units, mobile surveillance and specialist cameras and sensors. Our principal customers are military and law enforcement agencies, and organisations protecting high profile sites and events.

Emerging Sensors: This family contains our 'edge' sensor technologies; passive stand-off body scanning from Thruvision and Unattended Ground Sensors from Zimiti. As the earlier stage technologies in Digital Barriers, we continue to invest in final productisation of both technologies in parallel with focused international sales campaigns for each.

The Group has also made excellent progress in integrating the various acquired technology components into a range of compelling technical solutions. This allows us to meet the differing needs of our market domains and geographic regions from the same underlying technology. We are also working to optimise our supply chain management across the Group and to take fullest advantage of the economies of scale offered.

Performance Indicators

We monitor a number of metrics, both financial and non-financial, on a monthly basis. The most important of these are as follows:

·; Revenue: £15.0 million for the year under review (20112: £6.6 million);

·; Pro forma organic revenue growth: 24% for the year under review, growing from £11.1 million to £13.8 million;

·; Gross margin: 40.4% for the year under review (2011: 38.7%);

·; Corporate overhead: £5.3 million for the year (2011: £2.7 million);

·; Number of employees: 183 at 31 March 2012 (2011: 110); and

·; Cash: £15.3 million at 31 March 2012 (2011: £33.5 million).

The Board is satisfied with the status of the above performance indicators given the current stage of the Group's development.

2 First reported period being the 13 months to 31 March 2011.

Financial review

In its second full accounting year, Digital Barriers has delivered revenue of £15.0 million (2011: £6.6 million) generating an adjusted loss before tax of £6.0 million (2011 loss: £2.7 million) and adjusted loss per share of 12.83 pence (2011 loss: 9.21 pence). On an unadjusted basis, the loss before tax was £4.1 million (2011 loss: £4.6 million) and loss per share was 8.11 pence (2011 loss: 15.38 pence).

Revenue and loss

Of the £15.0 million of revenue in year, £13.8 million was delivered by acquisitions made during the prior period and £1.2 million was contributed by acquisitions in the current year.

The increase in revenue over the prior period was £8.4 million (129%). On a pro forma basis (assuming all prior year acquisitions occurred on 1 April 2010 and excluding all current year acquisitions) revenue has increased by £2.7 million (24%).

Our acquisitions have contributed significantly to the results of the Group in the year. In two cases the performance since acquisition has fallen short of earn-out targets. In a further two cases the timing of revenues rather than underlying poor performance has impacted the achievement of earn-out targets. In all four cases the related payments have either not been made or settled early on a partial basis, resulting in a substantial adjustment to deferred consideration as detailed below. Where necessary, restructuring has been carried out to improve operational performance and prospects. In all cases the customers, skills and technology acquired remain important to the Group's future development and we are confident they will contribute significantly to the prospects of the Group in the longer term.

Significant acquisitions in the year were:

Results by division are shown below. Whilst revenue from each division has grown substantially on the prior period, the operating results reflect the legacy costs of running separate acquired businesses prior to their full integration, reorganisation during the year, and the on-going investment in certain product lines.

Revenue in the year was split 42% (2011: 64%) and 58% (2011: 36%) between Services and Products respectively. The movement from the prior period is driven by the respective growth rates within each division and the split of acquisitions made in the year, which reflect the strategic focus of the Group. The swing towards typically higher margin product sales has also driven the change in gross margin, increasing from 38.7% to 40.4%.

An adjusted loss before tax figure is presented as the Directors believe that this is a more relevant measure of the Group's underlying performance. For the year this was £6.0 million (2011: £2.7 million) and is detailed in the table below:

(i) Relates to the early settlement of deferred consideration for Keeneo and Waterfall, a nil pay-out against the Essential Viewing deferred consideration and a reassessment of the likely deferred consideration payable for Zimiti, partly offset by the unwind of discount against deferred consideration.

(ii) Relates to the purchase of ThruVision in March 2012.

(iii) Relates to the rationalisation of certain entities within the Services and Products divisions.

The increase in adjusted loss over the prior period reflects:

·; Increased expenditure on central sales and marketing, building the international sales platform across all four key regions;

·; Continued investment in key strategic product lines such as those provided by Zimiti and ThruVision; and

·; Relatively static central corporate overhead, excluding the investment in sales and marketing and the strengthening of the central team as detailed in note (i) below.

The corporate overheads are broken down as follows:

(i) 2012 includes the impact of a full time Group Finance Director and Company Secretary, the associated recruitment costs and those for the new non-executive director, plus the market based adjustments to executive remuneration in December 2010 as disclosed in the prior period annual report.

Taxation

As a result of losses acquired through acquisitions and corporate overheads we do not expect to pay the full rate of UK corporation tax for a number of years. The tax credit for the period of £0.6 million (2011: £0.3 million) principally relates to the unwinding of deferred tax liabilities on acquired intangibles and R&D tax credits.

At 31 March 2012 the Group had unutilised tax losses carried forward of approximately £19.6 million (2011: £11.2 million). Given the varying degrees of uncertainty as to the timescale of utilisation of these losses, the Group has not recognised £3.7 million (2011: £2.2 million) of potential deferred tax assets associated with £14.8 million (2011: £8.3 million) of these losses.

At 31 March 2012 the Group's net deferred tax liability stood at £0.4 million (2011: £0.5 million), relating to intangibles on acquisitions made in the year of £1.6 million (2011: £1.3 million), offset by £1.2 million (2011: £0.8 million) relating to tax losses.

Loss per share

The reported Loss per share is 8.11 pence (2011 loss: 15.38 pence). The adjusted Loss per share is 12.83 pence (2011 loss: 9.21 pence).

Cash and treasury

The Group ended the year with a cash balance of £15.3 million (2011: £33.5 million).

During the course of the year £5.2 million was paid to acquire new businesses, with an additional £0.8 million in associated costs, and a further £2.0 million was paid in deferred consideration in respect of current and prior period acquisitions. £9.2 million funded the Group's operating loss and working capital requirements, and the remaining cash movement during the year of £1.0 million was invested in fixed assets.

The maximum deferred consideration payable in the future in respect of acquisitions made to date is £9.7 million, of which £2.5 million has been provided for within the accounts. The Directors are of the opinion that any deferred consideration payments falling due will be largely self-financing, and so view the majority of the £15.3 million of cash held at the end of the year as being available to the Group to fund future acquisitions and growth in working capital.

Financing costs included a charge of £0.4 million in respect of the discounting of the deferred consideration for Security Applications Limited, Waterfall Solutions Limited, Essential Viewing Systems Limited, Keeneo SAS, Stryker Communications Limited, LMW and Codestuff Limited, which will be paid out over the next two years.

Dividends

The Board is not recommending the payment of a dividend.

Consolidated income statement

for the year ended 31 March 2012

The results for the year and the prior period are derived from continuing activities.

Consolidated statement of comprehensive income

for the year ended 31 March 2012

Consolidated balance sheet

at 31 March 2012

Consolidated statement of changes in equity

for the year ended 31 March 2012

Consolidated statement of cash flows

for the year ended 31 March 2012

Notes to the financial information

Basis of preparation

The preliminary results of the year 31 March 2012 have been extracted from audited accounts which have not yet been delivered to the Registrar of Companies. The Financial Statements set out in this announcement do not constitute statutory accounts for the year ended 31 March 2012. The report of the auditors on the statutory accounts for the year ended 31 March 2012 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The Financial Statements for the year ended 31 March 2012 included in this announcement were authorised for issue in accordance with a resolution of the Board of Directors on 28 May 2012.

Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Subsidiaries are consolidated using the Group's accounting policies. Business combinations are accounted for using the acquisition method of accounting except for the acquisition of Digital Barriers Services Limited by Digital Barriers plc which has been accounted for using the pooling method. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated on consolidation.

The Company is a limited liability company incorporated and domiciled in England & Wales and whose shares are quoted on AIM, a market operated by The London Stock Exchange.

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 March 2012 and applied in accordance with the Companies Act 2006.

An adjusted loss before tax measure has been presented as the Directors believe that this is a more relevant measure of the Group's underlying performance. Adjusted loss is not defined under IFRS and has been shown as the Directors consider this to be helpful for a better understanding of the performance of the Group's underlying business. It may not be comparable with similarly titled measurements reported by other companies and is not intended to be a substitute for, or superior to, IFRS measures of profit. The net adjustments to loss before tax are summarised below:

(i) Adjustments to deferred consideration comprise releases of £3,986,000 and reassessments of £1,693,000 partly offset by the unwind of discount on deferred consideration balances of £357,000 and legal and other fees associated with settling certain of the earn-outs of £318,000. £669,000 was paid in cash in full settlement of the Waterfall earn-out considerations and so the balance of the deferred consideration held has been released to the Other income line within the income statement. After the payment of £200,000 for excess working capital, no further deferred consideration was paid in relation to the Essential Viewing earn-out considerations and so the full balance of the deferred consideration has been released to the Other income line within the income statement. £315,000 was paid in cash in the year and a further £107,000 was issued in shares after year end in full settlement of the Keeneo earn-out considerations, and the balance of the deferred consideration held has been released to the Other income line within the income statement. The undiscounted deferred consideration in respect of Zimiti has been reassessed as at 31 March 2012 to be £1,720,000.

(ii) The gain on bargain purchase relates to the acquisition of ThruVision, and has been recognised in the other income line within the income statement.

 (iii) Reorganisation costs relate to the rationalisation of the organisational and geographical design, information systems and support functions within both the Services and Products divisions. As the expenditure relates to transforming the divisions for the future these costs are not directly related to current operations.

Unadjusted loss per share

Adjusted loss per share

The Directors consider that adjusted loss per share better reflects the underlying performance of the Group.

The inclusion of potential ordinary shares arising from LTIPs and Incentive Shares would be anti-dilutive. Basic and diluted loss per share has therefore been calculated using the same weighted number of shares. If the Incentive Shares had become convertible on 31 March 2012 and based on the share price of £1.815 (2011: £2.05) on that day, 2,332,711 (2011: 2,679,206) ordinary shares would have been issued in respect of the Incentive Share conversion. Full details as to the basis of calculation are given in the Placing Document available on the Company's website. The Incentive Shares will immediately vest on change of control of the Company.

The weighted average number of shares excludes any shares held by employee share ownership plan (ESOP) trusts, which are treated as cancelled.

Business combinations in the year ended 31 March 2012

The Group has made six material acquisitions during the year, each of which the Board believes has a product set and technology capabilities that are complementary to those already offered by the Group and which will expand the solutions the Group can bring to its customers. These acquisitions were all made into the Group's Products division. Non material 'Other Acquisitions' were made into the Group's Services division.

Zimiti Limited

On 18 June 2011, the Group acquired the entire share capital of Zimiti Limited ('Zimiti'). Zimiti is a wireless communications specialist that develops very low power, wireless, autonomous networks that operate securely over long ranges using small power sources for long periods of time. Its technology is used to enable sensor systems to operate in intelligent networks, or to enhance existing fixed networks by making them more flexible and cheaper to install and improve. Zimiti is currently focusing on the development of unattended ground sensor technology that can be used in a range of surveillance and protective applications across both the defence and security sectors, being particularly effective in remote or hostile locations.

Keeneo SAS

On 29 July 2011, the Group acquired the entire share capital of Keeneo SAS ('Keeneo'). Keeneo was founded in 2005 as a spin-out from INRIA, the French institute for computer science and automatic control research, and provides proprietary video analytics software solutions to the security, aviation, mass-transit, energy and industrial sectors from its operational base in Sophia-Antipolis, France. Keeneo operates primarily in Europe but has recently begun to extend its presence into other regions, most notably the Middle East. Keeneo's solutions enable the real-time detection of human intrusion and other pre-defined activities or incidents within a targeted 3D area or zone. Keeneo also offers a patented "4D" solution that can intelligently adapt its surveillance to manage adverse environmental effects, such as changing light or weather conditions.

Stryker Communications Limited

On 18 November 2011, the Group acquired the entire share capital of Stryker Communications Limited ('Stryker'). Stryker is a specialist engineering business that focuses on re-deployable integrated wireless CCTV systems. Stryker has developed a range of readily deployable products that integrate various types of camera, transmission technologies and DVR recording that can be used for both overt and covert surveillance.

LMW Electronics

On 20 January 2012, the Group acquired the complete product set and intellectual property, along with certain customer contracts, of LMW Electronics Limited ('LMW'). LMW's products provide advanced video capture and transmission technology to the international law enforcement and military markets. Its leading edge products include ruggedised video cameras, outstations, vehicle and body-worn solutions, controller units and low-power point-to-point video transmission solutions. The LMW products and associated intellectual property will form part of the readily deployable Tactical Product range that the Group is developing for its customers around the world.

Codestuff Limited

On 1 March 2012 the Group acquired the entire share capital of Codestuff Limited ('Codestuff'). Codestuff is the developer of a range of best-in-class internet protocol video solutions for the security, infrastructure, transportation and defence industries. Operating primarily in the UK, Codestuff's solutions include video management system ('VMS') software and network video recorder ('NVR') servers, in addition to system design and development services that build on its extensive video management platform. Codestuff offers its solutions to a variety of leading players in the CCTV and security industries, as well as a number of original end manufacturers, and is an existing supplier of VMS technology to the Group.

ThruVision

On 8 March 2012 the Group acquired the assets, intellectual property and customer contracts of ThruVision Systems Limited ('ThruVision'). ThruVision designs and manufactures standoff passive TeraHertz screening products that can detect objects under a person's clothes, such as weapons, explosives or smuggled contraband. ThruVision's products incorporate proprietary passive sensing technology that detect concealed objects safely using natural energy. ThruVision's products have been deployed around the world for a variety of screening applications including border security, law enforcement, defence and loss prevention.

Other Acquisitions

During the year ended 31 March 2012 the Group made other non-material acquisitions for total cash consideration of £0.2 million, paid on completion.

Purchase consideration

The purchase consideration for each acquisition was as follows:

In accordance with IFRS3R the Directors have assessed the undiscounted fair value of deferred consideration payable for each acquisition as stated above, based on expected cash flows. The discounted fair values of deferred consideration payable have been calculated from the undiscounted amounts using the pre-tax cost of debt as stated above.

The Zimiti maximum consideration is £10.0 million payable in cash and new Ordinary Shares at the Group's discretion, on a cash-free, debt-free basis. Initial cash consideration of £1.5 million was paid less debt and working capital adjustments of £0.6 million. Deferred consideration of up to £8.5 million is payable over the period from completion to 30 September 2013, subject to revenue, profit and operational targets. Up to £4.25 million of the deferred consideration may be satisfied through the issue of new Ordinary Shares, with the balance satisfied in cash. Up to £1.25 million of the deferred consideration is based on operational targets through to 18 June 2012, but can be achieved and paid prior to this date. Up to £1.25 million of the deferred consideration is based on operational targets through to 30 September 2012, but can be achieved and paid prior to this date. Up to £3.0 million of the deferred consideration is based on revenue and profit targets for the year ended 30 September 2012 and a further £3.0 million on the year ended 30 September 2013. The amount of deferred consideration likely to be paid was reassessed at 31 March 2012.

The Keeneo maximum consideration is €6.5 million payable in cash and new Ordinary Shares at the Group's discretion. The Group will also assume debt of up to €1.0 million. Initial consideration paid on completion was €2.0 million of which €1.6 million was paid in cash and a further €0.4 million was satisfied through the issue of new Ordinary Shares. Deferred consideration of up to €4.5 million is payable over the period from completion to 31 March 2014, subject to revenue and profit targets. Up to €2.25 million of the deferred consideration may be satisfied through the issue of new Ordinary Shares, with the balance satisfied in cash. €0.5 million of this deferred consideration is based on certain financial targets for the year ended 31 March 2012, €2.0 million on the year ended 31 March 2013 and €2.0 million on the year ended 31 March 2014. The deferred consideration recognised on acquisition was £2.1 million. Following the settlement in full of any earn-out considerations the balance of deferred consideration held at 31 March 2012 has been reduced to £0.1 million.

The Stryker maximum consideration is £1.5 million payable in cash. Initial cash consideration of £0.75 million was paid on completion less a working capital adjustment of £0.03 million. Deferred consideration of up to £0.75 million is payable in cash over the period from completion to 30 September 20112, subject to certain financial and operational conditions.

LMW maximum consideration is £0.75 million payable in cash. Initial cash consideration of £0.45 million was paid on completion. Deferred consideration of up to £0.30 million is payable in cash over the period from completion to 19 July 2012 subject to certain operational conditions.

Codestuff maximum cash consideration is £1.50 million. Initial cash consideration of £0.75 million was paid on completion less a working capital adjustment of £0.1 million. A further £0.75 million is payable in two tranches shortly after the years ending 31 March 2013 (£0.3 million) and 31 March 2014 (£0.45 million), and is contingent on the vendors continuing to be employed by the Group at those dates. These amounts are treated as remuneration for services to Codestuff and will be recognised within administrative expenses over the respective years to 31 March 2013 and 31 March 2014.

The ThruVision total cash consideration of £0.95 million was paid on completion.

Total deal costs of £754,000 (2011: £892,000) were incurred and recorded within the administration costs line in the income statement.

As at 31 March 2012, the maximum deferred consideration payable in the future is £9.7 million (2011: £4.0 million), up to £4.3 million (2011: £nil) of which may be satisfied through the issue of new Ordinary Shares, and the remainder satisfied in cash.

On 23 April 2012, the Group acquired the complete product set and intellectual property, along with certain customer contracts, of Enterprise Technologies (UK) Limited ('E-Tech'). Under the terms of the acquisition the Group has acquired the intellectual property, products, know-how, stock and certain customer contracts of E-Tech for the purchase on completion of E-Tech stock in the amount of £149,000. In addition, commission will be payable on legacy E-Tech products sold by Digital Barriers in the period between completion and 31 March 2013.

E-Tech's exceptionally skilled staff of four each has a background in technical surveillance, military and commercial communications technologies across the defence and security sectors. These employees have now joined the Group under the terms of the Acquisition. Together with their very highly regarded, and complementary to the Group, technology capabilities, they are expected to expand the range of solutions the Group can offer to its customers.

Provisional net assets acquired were £149,000 which will result in provisional intangible assets and goodwill of £430,000 and £755,000 respectively.

On 4 May 2012, 59,216 Ordinary Shares were issued in settlement of deferred consideration payable in respect of the acquisition of Keeneo.

On 5 August 2011 the Company issued 195,460 Ordinary Shares on the acquisition of Keeneo.

At 31 March 2012 there were 43,727,960 Ordinary Shares in issue (2011: 43,532,500).