PEBBLE BEACH SYSTEMS GROUP PLC — Annual Report 2010

Dec 31, 2010

Secure communications for global markets

Annual Report 2010

Contents

Overview

• 02 Chairman's statement
• 04 Our strategy
• 05 Our markets
• 06 Our business units

Performance

07 Operating and fi nancial review

Governance

• 17 The Board of directors
• 18 Directors' report
• 22 Remuneration report
• 28 Corporate governance statement
• 34 Statement of directors' responsibilities
• 35 Independent auditors' report

Financial statements

• 36 Consolidated Group income statement
• 37 Consolidated statement of comprehensive income
• 38 Consolidated Group statement of fi nancial position
• 39 Consolidated statement of changes in shareholders' equity
• 40 Consolidated Group statement of cash fl ows
• 41 Notes to the consolidated fi nancial statements
• 86 Company balance sheet
• 87 Reconciliation of movements in shareholders' funds
• 88 Notes to the Company fi nancial statements
• 93 Independent auditors' report to the shareholders of Vislink plc

Other information

• 94 Notice of Annual General Meeting
• 98 Explanatory notes to the Notice of the Annual General Meeting
• 100 Analysis of shareholders
• 101 Shareholder information

Discover more online at www.vislink.com

Introduction

Over the last two years, we have changed the Group from being a product led organisation to a market led one.

We have streamlined the business and aligned it closer to our customers. We have launched new award-winning products. We have reduced our costs. We have sold our Marine & Energy division.

We are now focused on two markets – News & Entertainment and Law Enforcement & Public Safety. We are debt free. We are investing in product and market development for growth.

Chairman's statement

2010 was a demanding and diffi cult year for the Group, though one of important change and development. Having successfully completed the fi rst stages of the Group reorganisation in 2009 there was early progress with our News and Entertainment business ("N&E") seeing uplift in order in-take and our Law Enforcement and Public Safety business ("LEPS") expecting an increase in order fl ow. With these early favourable market indicators we intended to complete the restructuring of the Group. The restructuring included the acceleration of new product development using modular designs to reduce costs and to speed our time to market; moving product sourcing to Singapore where we had targeted an acquisition to build our presence and give us a low-cost source of manufacturing (which was later terminated); and the introduction of new group-wide management information systems.

However the early signs of recovery and growth seen at the start of the year did not continue. Our N&E business saw a 40 per cent decline in revenues during the fi rst half of the year as our customers retrenched their spending in light of the decline in television advertising and public expenditure constraints. Our LEPS business, in common with the rest of its industry, saw contracts delayed by public procurement bodies, or larger contracts broken into smaller individual orders, not all of which were released in the year. Our Marine and Energy business ("M&E") had already suffered from a slowing in both its off-shore and marine segments, and this had continued into the fi rst half of 2010 where the order intake for M&E was 33 per cent down on the previous year.

In the light of the Group's performance, and recognising the importance of returning value to our shareholders, the Board initiated a review of the Group's portfolio of companies at the beginning of the second half. The review concluded that the Group was structured across too many markets and needed to focus on markets where it could continue to grow and make profi table returns on its investments, and that it should dispose of assets which were not core to the future development of the Group.

The Board decided that the Group should focus its resources and strategy on the related news and entertainment and law enforcement and public safety markets, where it already held strong international positions and would be able to concentrate its technology investments. By disposing of other activities, the Group would become debt free, and have the capacity to invest selectively in product development and make judicious acquisitions where it could build profi table market-share.

Accordingly, it was decided that the Marine and Energy business that traded under the name of HERNIS Scan Systems AS ("HERNIS"), did not fi t within the narrower focus of the Group and that HERNIS would be best served by becoming part of a company with a focus on marine safety.

On November 19, 2010, the Group announced that it had entered into a conditional agreement to sell the entire issued share capital of HERNIS for £32.5 million in cash to Cooper Industries Inc. The sale was completed on December 30, 2010 following shareholder approval given at a General Meeting on December 29, 2010.

Following the disposal of HERNIS, the Group comprises of two businesses serving the international broadcast and law enforcement markets. These markets share common technologies and similar manufacturing techniques, and continue to validate the strategy which we announced in 2009 to supply secure communications solutions to markets which have long term

structural growth. We will do this through the progressive expansion of our international sales organisation, through technical product innovation, and world class logistical and customer support. The Board believes the Group is well positioned to accelerate its move into Internet Protocol ("IP") based systems for the broadcast and law enforcement markets and to build market share. The Group will continue to benefi t from the economies of scale of its investment in engineering and manufacturing by amortising the cost of its investments across both markets.

In addition, the Board decided to dispose of Western Technical Services Inc. ("WTS"), its small services business located on the West Coast of the USA and this process is continuing. WTS will continue to operate independently until the business is sold. Until such time it will be reported as a discontinued activity.

We announced at the end of last year that we had entered into an agreement to buy Gigawave Limited, a privately held company which competed in the wireless camera, microwave and antenna markets. Whilst we continue to believe in the industrial logic of bringing Gigawave and Vislink and their associated brands together, we have to date been unable to reach an agreement with the vendors.

Financial results

Group revenues for the continuing business were £38.2 million (2009: £53.7 million). N&E revenues were down 28 per cent to £31.6 million (2009: £43.8 million); however, as a result of the economic downturn, underlying revenue declined 7 per cent, when revenue from the 2GHz spectrum relocation programme in the US of £9.8 million is deducted from the prior year comparative. Law Enforcement & Public Safety was also affected by the economic downturn which led to public procurement agencies deferring contracts, and its revenue fell by 34 per cent to £6.5 million (2009: £9.9 million).

The continuing business reported an increase in the adjusted operating loss for the year, being operating loss before amortisation and impairment of goodwill and acquired intangibles and other non-recurring costs, to £7.8 million (2009: loss of £2.3 million). Total operating costs in the Group were reduced by 13 per cent to £26.8 million (2009: £30.6 million) but we have maintained our investment in sales and marketing, which includes selective recruitment of sales people, and in new product development. Despite this reduction in costs, the operating loss increased as a consequence of the 29 per cent reduction in headline revenues. However trading improved in the second half of 2010 where the adjusted operating loss was £2.2 million on revenues of £21.4 million compared with a £5.6 million loss in the fi rst half of 2010 on revenues of £16.7 million.

The reported operating loss for the continuing business was £18.9 million (2009: loss of £5.6 million) after charging £1.1 million in respect of the amortisation of acquired intangibles (2009: £2.3 million), £4.6 million in respect of goodwill impairments (2009: £nil) and £5.4 million in respect of nonrecurring costs (2009: £0.9 million). Non-recurring costs comprise employee termination costs of £0.4 million, product and market rationalisation costs of £4.4 million and £0.6 million in respect of the aborted acquisition.

The continuing business reported a loss for the fi nancial year of £17.2 million (2009: £5.3 million) after net fi nance costs of £0.5 million (2009: £0.5 million) and a tax credit of £2.2 million (2009: credit of £0.8 million).

Discontinued operations contributed a net profi t after tax of £0.4 million (2009: £4.5 million) from trading activities. In addition there was a profi t from the sale of HERNIS of £20.8 million in the year. The net profi t attributable to equity shareholders was £4.0 million (2009: loss of £0.8 million).

The Group ended the year with net cash of £22.2 million (December 31, 2009: net cash of £0.6 million) after a net cash infl ow from the sale of Hernis of £26.9 million. The net cash infl ow generated from operating activities in the period was £3.2 million (2009: £5.1 million) after the cash outfl ow associated with non-recurring costs. Net capital expenditure and deferred consideration payments were £6.8 million (2009: £4.5 million) and dividend payments were £1.7 million (2009: £1.7 million).

Dividend and shareholder returns

Following consultation with major shareholders, the directors are proposing to return part of the proceeds from the sale of HERNIS to shareholders by way of an on-market tender offer, subject to shareholder approval at a General Meeting to be held on April 8, 2011. A circular was sent to shareholders on March 23, 2011 explaining the proposal. Up to £5.0 million will be returned to shareholders.

The basic undiluted earnings per share was 2.9 pence (2009: loss of 0.6 pence). After adjusting for the amortisation of acquired intangibles, impairment of goodwill and other non-recurring costs and related tax effects, the adjusted loss per share for the continuing business was 5.1 pence (2009: loss 1.7 pence).

The Board is proposing that the full-year dividend be maintained at 1.25 pence per share (2009: 1.25 pence).

The Board and management

I announced my intention at the 2010 AGM to stand down at the AGM in 2011. In December 2010 the Board appointed John Hawkins to succeed me.

Stephen Bellamy joined the Board in June 2010, and stood down in January 2011. We are grateful to Stephen for his contribution.

Duncan Lewis, Chief Executive of the Group since October 2008, indicated to the Board at the beginning of 2011 that he would wish to stand down on or around his sixtieth birthday at the end of April. Duncan will therefore be leaving the Group on March 31, at the end of the fi rst quarter. I would like to thank Duncan for his signifi cant contribution over the last two and a half years in what has been an important period of transition for the Group in particularly challenging markets.

The Board has agreed that John Hawkins will take over Duncan's responsibilities as interim CEO from April 1, 2010 whilst a search is conducted for a new CEO. This will be in addition to taking on the role of Chairman following the Annual General Meeting in May.

On a personal note, I would like to thank my board colleagues for their support during my tenure as Chairman.

Current trading and outlook

We have entered 2011 with an order book of £5.6 million for the continuing business (2009: £5.4 million). In January we announced we were reducing headcount by 60 people, being approximately one quarter of the total workforce. These reductions will be combined with further site-consolidations and the acceleration of the transfer of product sourcing to Asia. As a result, the Group expects to reduce the total operating cost-base of the continuing business to approximately £20.0 million, which is consistent with the current market trends and expected revenue growth of the Group. The cash cost of the restructuring will be approximately £0.6 million.

In N&E we anticipate that we will see continued revenue growth in Asia and Latin America. We expect that the US and Canadian broadcast markets will be more robust as the economic recovery continues, and we expect some modest recovery in Western Europe. There are also important growth opportunities from non-traditional broadcasters, for example Professional Sports teams, Religious groups and Educators.

The 2011 market outlook for LEPS is also more positive. We have a growing pipeline and we expect increased revenues from the Americas, Middle East and Asia. In addition, Federal Government agencies throughout the Americas are expanding the capabilities of their aerial surveillance units increasing demand for sophisticated airborne downlink solutions. We continue to lead in these markets by offering advanced technology solutions.

We have a clear product development programme for 2011 that includes our new one-box Newslite satcom electronic solution; innovative combinations of 4G and WiFi technology offerings with our existing microwave and satcoms products; and an expanded IP product portfolio. These will provide our customers with secure communication solutions over a variety of networks bringing them greater effi ciency and enhanced capability.

We have built strong market positions for our News and Entertainment and Law Enforcement and Public Safety businesses and we are confi dent of continuing to win market share in both of these markets in the coming year. As a result of the sale of HERNIS and the ongoing cost reduction programme we have implemented, the Group now has a strong balance sheet to invest in the profi table development of its markets and products and to consider selective acquisitions to generate future growth.

Finally, on behalf of the Board, I thank all our employees for their efforts in the course of 2010 during which they have had to deal with the consequences of an extremely diffi cult economic environment whilst in the midst of the restructuring of the Group. We now look forward to rebuilding our businesses from the sound base that we have established.

Tim Trotter, Chairman March 23, 2011

Our strategy

A market led business putting the customer fi rst

The strategy of the Group is:

To sell secure communications solutions (satellite, microwave, IP) into markets which have underlying growth; that is growth which is driven by structural need, although it may be moderated by the economic cycle. Thus governments have to continue to protect their citizens and broadcasters have to maintain their outside broadcast capabilities for live news, sport and entertainment.

The Group focuses on serving the news and entertainment and law enforcement and public safety markets. Although these markets have different customer characteristics, they require common technologies and related products. Our customers will therefore benefi t from the economies of scale in our investment in engineering and manufacturing as we amortise the costs of our investments across the two markets. In our chosen markets we are either the marketleader or a signifi cant competitor of the market leader.

The Group is debt free, and has the capacity to invest selectively in product development and make judicious acquisitions where it can build profi table market-shares from its existing position.

The business model is:

• To amortise the investment in technologies across multiple markets and multiple geographies;
• To develop products from core platforms which are replicable across multiple markets, and lead to lower costs of production;
• To evolve from selling "boxes" to selling "solutions" as our markets mature, and to develop consequential recurring revenues from services, support and maintenance;
• To develop other markets which have similar characteristics.

We will continue to execute on our plan:

• To integrate our engineering teams to eliminate duplicated investment; to develop common 'platforms' which can be used to develop products, thereby reducing time-to-market and lowering manufacturing cost; to spend between 8–10 per cent of revenues on engineering;
• To withdraw legacy product without damaging customer relationships, thereby migrating to next generation IP-based products with anticipated cost-savings and accelerated market penetration;
• To invest in sales and marketing to extend geographic coverage;
• To extend our capabilities to include systems and solutions, involving pre-sales consultancy, systems integration, test, factory acceptance, project management, installation and maintenance;
• To upgrade our skills continuously;
• To source our products from Asia, thereby improving our gross margins;
• To reduce the fi xed costs of the Group through the combination of the withdrawal of legacy products, the sourcing of product from Asia, site consolidation, functional consolidation and the introduction of common systems across the Group.

The primary fi nancial objectives of the Group are:

• To achieve a gross margin in excess of 50 per cent;
• To achieve an operating margin in excess of 10 per cent.

Our markets

Vislink sells secure communications solutions into the news & entertainment and the law enforcement & public safety markets.

Vislink specialises in wireless, video and IP (Internet Protocol) technologies.

Vislink ensures that its customers' video images are transmitted securely between locations – from a desert to the broadcaster's studio or from a helicopter to security agents on the ground. It offers state-of-the-art but proven technologies to its customers.

Vislink's brands include Advent satellite systems, Link wireless cameras, MRC microwave systems and PMR video surveillance systems.

Vislink's customers include most broadcasters in the world, including those specialising in news gathering, entertainment, sports, religious broadcasting and education, and many of the world's law enforcement agencies, together with customers requiring specialist surveillance systems such as prisons, power-generating plants and utilities.

Vislink has offi ces in North America, Europe, the Middle East and Asia.

In each of its regions, Vislink has sales and service specialists on the ground to support its customers.

Our business units

News & Entertainment

Vislink N&E brings together Vislink's four established broadcast brands of Advent satellite uplink systems, Link wireless cameras, and MRC fi xed and mobile microwave links. It has offi ces in the UK, North America, Dubai and Singapore. Its customers include most US television networks, international broadcasters and outside broadcast hire companies.

Law Enforcement & Public Safety

Vislink LEPS is a leading provider of secure digital wireless video and data communications to worldwide law enforcement and public safety agencies and commercial organisations. It has locations in the UK, the USA on both east and west coasts, Dubai and Singapore. Its customers include US state and local police and fi re departments, government agencies and security forces around the world.

Brands

• Advent Communications

• Link Research

• Microwave Radio Communications (MRC)

• Pacifi c Microwave Research (PMR)

Products

• Fixed and mobile satellite uplinks
• Wireless camera transmitters
• Fixed and mobile microwave links

• Covert transmitters and receivers

• IP and workfl ow products

Technologies

Vislink Technologies is responsible for the forward technology strategy of the Group. It designs and develops products to meet the requirements of the business units' customers.

Logistics

Vislink Logistics is responsible for the sourcing of materials and products in the most cost-effi cient way for the Business Units, with end-to-end responsibility for supply chain management, project management, installation, maintenance and customer care.

Operating and fi nancial review for the year ended December 31, 2010

The organisation of the Group

Continuing activities

The Group is now focused on serving the news and entertainment and law enforcement and public safety markets through its two business units, N&E and LEPS. Although these markets have different customer characteristics, they share common technologies and related products, and the Group will therefore continue to benefi t from economies of scale in its investment in engineering and manufacturing by amortising the costs of its investment across the two markets.

In each business unit, the Group expects it will be either the market-leader or a signifi cant competitor of the market leader, and will have uniquely competitive products to continue to build market share and brand presence.

The business units are responsible for all aspects of worldwide sales and marketing. They are each responsible for their orders, revenues and operating profi ts.

They are supported by two operational divisions:

• Vislink Technologies is responsible for the forward technology strategy of the Group. It designs and develops products to meet the requirements of the business units' customers.
• Vislink Logistics is responsible for the sourcing of materials and products in the most cost-effi cient way for the business units, with end-to-end responsibility for supply chain management, including project management, installation, maintenance and customer care.

Following the announcement of further cost reductions at the start of 2011 the Group intends to continue to contain its operating costs. No further immediate expansion is planned; our regional sales offi ces are appropriately staffed and the major planned investments in information technologies have been completed. The Group intends to move the majority of its product-sourcing to Asia by the end of 2011. As previously announced, this is expected to improve gross margins.

Discontinued business

The Group sold its Marine & Energy business unit ("HERNIS") to Cooper Industries on December 30, 2010. In addition the Group has announced its intention to sell its California based Services business, Western Technical Services ("WTS"). The trading results of both HERNIS and WTS have been treated as discontinued activities in the consolidated Group income statement.

The Group's products and markets

The Group offers its customers products under a number of different brand names which are well known in our markets:

• Advent satellite systems
• Link wireless cameras
• MRC microwave systems
• PMR video surveillance systems

The market for the News & Entertainment business unit is the global broadcast contribution market where our products are used to capture live TV coverage of news and sports events. Our brands have a strong market presence, are recognised for their quality and we historically have strong distribution. Revenue is being driven by the demand for HDTV and 3DTV, news and sports programming and new TV channels, and increasingly for IP-based workfl ow management.

For the Law Enforcement & Public Safety business unit the market is video collection and transmission solutions for surveillance purposes, either overt or covert, for police forces, government agencies and "homeland security".

In 2010, N&E represented 83 per cent of the Group's revenues (2009: 82 per cent); LEPS 17 per cent (2009: 18 per cent).

It is part of the Group's strategy to continue to increase its revenues from markets in the Middle East, Africa, Asia and South America and to reduce its dependency upon North America and Europe. In 2010 the revenue split across regions was more even, North America representing 39 per cent of Group revenues (2009: 54 per cent); UK and Europe 24 per cent (2009: 21 per cent) and the rest of the world 37 per cent (2009: 25 per cent).

Operating and fi nancial review Continued

Key indicators

The table below sets out the key indicators that are used to measure the performance in the continuing business.

Headline revenues for the continuing business declined by 29 per cent to £38.2 million (2009: £53.7 million). The end of the 2GHz US spectrum relocation programme in 2009 accounted for 18 per cent of the revenue decline. The economic downturn accounted for a further 7 per cent decline in underlying revenues in N&E to £31.6 million. Our LEPS business unit was also affected by the economic downturn which led to public procurement agencies deferring contracts, and its revenue fell by 34 per cent to £6.5 million.

Our material margin percentage declined by 3.1 per cent as pricing became increasingly competitive in our markets. Our material margin declined by £9.4 million as a result of both lower volumes and the lower margin percentage. Total operating costs were reduced by 13 per cent to £26.8 million but despite this reduction in costs, the adjusted operating loss increased to £7.8 million (2009: £2.3 million).

However trading improved in the second half of 2010 where the adjusted operating loss was £2.2 million on revenues of £21.4 million compared to a £5.6 million loss in the fi rst half on revenues of £16.7 million.

Year ended December 31	H1 2010	H2 2010	2010 Full Year	2009 Full Year
Underlying orders received (£'000)1	18,520	19,999	38,519	39,350
Revenue (£'000)	16,745	21,431	38,176	53,680
Underlying revenue (£'000)2	16,745	21,431	38,176	43,915
Material cost margin (£'000)3	8,063	10,894	18,957	28,321
Material margin as a percentage of sales	48.2%	50.8%	49.7%	52.8%
Total operating costs(£'000)4	13,708	13,096	26,804	30,637
Adjusted operating (loss) (£'000)5	(5,645)	(2,202)	(7,847)	(2,316)
Adjusted (loss) per share (pence)5	(3.6p)	(1.5p)	(5.1p)	(1.7p)
Net cash generation from operating activities (£'000)	433	2,754	3,187	5,053

Notes

1 Underlying orders are defi ned as orders booked excluding those from the 2GHz relocation programme.

2 Underlying revenue is defi ned as revenue excluding those from the 2GHz relocation programme.

3 Defi ned as revenue less material costs in cost of sales.

4 Operating costs comprise sales and marketing expenses, administration expenses, and the costs associated with the logistics and technology business units.

5 Defi ned as operating profi t before the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs. Adjusted EPS is calculated on the same basis after taking account of related tax effects.

Business unit reviews

News & Entertainment

	2010 £'000	2009 £'000
Core revenue	31,629	33,997
2GHz revenue	–	9,765
Revenue	31,629	43,762
Operating profi t contribution*	4,126	8,770
Operating margin	13.0%	20.0%

*Operating profi t contribution is gross margin less sales and marketing overheads.

Vislink News & Entertainment (N&E) is a unifi ed business unit serving broadcast industry customers worldwide with Advent satellite communications solutions, Link Research wireless camera systems, MRC terrestrial microwave products and associated services. The global sales team is supported by pre-sales engineering, product line managers and an integrated marketing organisation. N&E has four regional sales offi ces in the USA, UK, Dubai and Singapore, each with technical support.

During 2010 N&E revenue declined by 28 per cent to £31.6 million, largely due to the £9.8 million reduction in US 2GHz relocation programme revenues which ended during 2009. The 7 per cent reduction in core revenue during the year refl ected a continuing slowdown in broadcasters' expenditure. This trend was most pronounced in Europe, but also impacted revenues in the Americas and Middle East regions. There was, however, marked revenue growth in our Asia Pacifi c region during 2010.

The United States remains our single largest market. During 2010 broadcaster spending patterns shifted from electronic news gathering post the 2GHz relocation program towards high defi nition upgrades, digital fi xed microwave links, wireless camera systems and IP over 3G cellular solutions. Early in the year we won an important tender to upgrade the state-wide microwave network for Alabama public television. During 2010 US commercial broadcasters began to recover from the recession in on-air advertising, and this trend was further boosted by robust advertising expenditure during the November election cycle. The Latin America region continues to grow and is contributing an increasing percentage of regional revenue.

Trading in the UK and Western Europe has been weak, and our overall revenue from this region declined by 18 per cent from 2009. Both commercial and licence funded broadcasters exerted tight controls over equipment and operations expenditure despite increases in advertising expenditure in the second half. This affected us directly, but also impacted our events coverage and broadcast rental equipment customers. Eastern Europe and Africa offered some growth opportunities, and N&E won new customers in both regions late in the year. The Middle East/North Africa (MENA) region had a slow start to 2010 but recovered well later in the year. Overall revenue in MENA was down 12 per cent.

Revenue in the Asia Pacifi c (APAC) region grew by 45 per cent during 2010. China, Indonesia, Thailand, the Philippines, Korea and Australia were all important markets. We also won new opportunities in the Indian sub-continent. As part of our ongoing investment in the APAC region we formed a sales and marketing partnership in July to more effectively serve our customers in the People's Republic of China.

The reduction in the operating margin to 13 per cent during 2010 was due to a combination of a 2.2 point reduction in gross margin due to increasingly competitive pricing; and higher overheads as a proportion of total sales despite the fact that sales and marketing costs were reduced by 15 per cent over the course of the year.

For 2011 N&E anticipates continued revenue growth in East Asia, Latin America, Russia/Eastern Europe and the Indian sub-continent. The US and Canadian broadcast markets will be more robust as the economic recovery continues, and we expect some recovery in Western Europe. There are also important growth opportunities from non-traditional broadcasters, in particular professional sports teams, religious groups and educators.

Operating and fi nancial review Continued

We will continue to expand our portfolio of IP/3G/4G products, satellite electronics systems, satellite terminals and H.264 encoders. We will form strategic partnerships with key broadcast technology and solution vendors as appropriate. We will further evolve our Channel Partner Program in order to motivate and reward our most valued partners.

Law Enforcement & Public Safety

	2010 £'000	2009 £'000
Revenue	6,547	9,918
Operating profi t contribution*	(620)	1,759
Operating margin	–9.5%	17.7%

*Operating profi t contribution is gross margin less sales and marketing overheads.

Vislink's Law Enforcement & Public Safety (LEPS) Business Unit serves worldwide covert and overt video surveillance markets with wide area video collection solutions designed to improve accessibility and dissemination of mission critical visual intelligence over public and private networks. The business unit serves customers at all levels of government including fi rst responders (law enforcement, fi re, and other emergency rescue personnel).

The expansion of the LEPS business was much slower than we had expected due to the deferment of a large number of major projects and the unpredictability of public purchasing decisions as public authorities remained cautious about the fi scal outlook. In particular second half contract delays in the United States combined with a weaker performance in Asia and Africa was responsible for the 34 per cent decline in revenues to £6.5 million (2009: £9.9 million). During the year we have maintained our investment in sales and marketing despite the lower sales volumes and as a consequence the business unit reported an operating loss for the year of £0.6 million (2009: profi t of £1.8 million).

However, throughout 2010 there has been a steady increase in demand for airborne video surveillance from the worldwide user community. Our comprehensive digital video transmission product suite continues to eliminate many of the technical barriers faced by security offi cials; our products decrease response time and improve the effectiveness of crisis management. Our innovative technologies, including DoubleVision and RangeMaster, provide real time remote images to key decision makers with higher quality and reliability at greater distances than ever before. These features are quickly becoming the standard for high performance microwave video transmission.

Despite the lower than expected revenues in the year LEPS has achieved market penetration largely due to the fl exibility engineered into its Software Defi ned Surveillance (SDS) products. SDS allows law enforcement professionals to easily expand their video collection systems over time and mitigates technology obsolescence. End-to-end solutions for video collection represent the heart of our product and market strategy. Customers are requiring turnkey solutions which provide seamless connectivity utilising advanced RF and IP technologies. We have addressed this with the Kamelyon family of products. Kamelyon provides both over-the-air transmission and IP infrastructure capabilities to support wide area video collection and distribution.

The 2011 market outlook for LEPS is positive, with signifi cant improvement expected in the Americas, Middle East and Asia Pacifi c regions. In addition, Federal Government agencies throughout the Americas are expanding the roles and mission capabilities of their aerial surveillance units increasing demand for sophisticated airborne downlink solutions. Real-time aerial video downlinks play a critical role in border surveillance and suppression of criminal activities worldwide and demand is increasing in the Middle East and Asia Pacifi c regions. We continue to lead in these markets by offering advanced technology solutions and unmatched customer support.

Vislink Technologies

Expenditure on research and development in 2010 in the continuing business was £5.7 million representing 15 per cent of revenues, compared with £6.3 million in 2009, 12 per cent of revenues. In addition, the continuing business has capitalised development costs of £2.9 million (2009: £3.1 million). Amortisation of development costs of £2.6 million (2009: £1.9 million) is included in the reported research and development expenses in the consolidated group income statement. In cash terms, the Group spent £6.0 million on R&D, a decrease of 20 per cent over 2009 (2009: £7.5 million).

The integration of engineering across the Group continues to generate improvements in the effi ciency and effectiveness of the product development programme. Duplicated effort has been eliminated and the specialist expertise of the various sites is now applied to the best effect for all the Group's products. All sites operate to a common product development process which tightly integrates the development activities with the market requirements and product launch processes of the individual business units. A focus on lean and effi cient processes means that 89 per cent of the 44 staff in Vislink Technologies are engineers.

We reduced the number of engineers employed in the United States during the year as several products came to the end of their natural lives, and to enable us to change our skill mix to follow the direction of our customers as they increasingly apply IP to their operations. We took the opportunity in January 2011 to complete this process by creating a "solutions" team. Our customers in the Americas increasingly require complex IP-based systems confi gured to their particular needs. We have also developed strong relationships with third party technology providers to broaden the scope of the solutions we provide and complement our key competencies in encoding, modulation, video, IP, microwave and satcom. Development of our core technology platforms is concentrated in our UK facility.

We have now fully adopted the modular approach to product development, improving design reuse and providing more fl exible building blocks for faster product introduction, greater economies of scale, lower support costs and faster return from cost reductions through design improvements.

In 2010 we applied the Kamelyon technologies developed for the LEPS market to several products for the N&E market, including the development of a new lightweight wireless camera and H.264 encoding capabilities for our broadcast encoder-modulators. We developed a new, modular receiver-decoder platform that supports an unrivalled breadth of modulations and video compression formats, including the highest quality 10-bit H.264 4:2:2 format. We responded to the pressures on our customers' use of RF bandwidth by developing a new modulation method that combines the best features of both single and multi-carrier modulations, making optimal use of increasingly congested spectrums. We shipped IP gateways to broadcast customers, facilitating more effi cient and cost-effective contribution workfl ows.

In 2011 we will commence shipment of our innovative and highly integrated NewsLite satcom electronics solution, combining video and IP data handling, WiFi, bonded 3G/4G cellular connectivity and fully automated dish control in a single, compact, rapidly deployable package. We will also launch new encoding and modulation platforms, expand our IP product portfolio and offer innovative combinations of WiFi and 4G technologies with our class-leading microwave and satcom products to provide our customers with secure communications solutions that bring greater effi ciencies, enhanced capabilities and competitive advantage.

Vislink Logistics

Vislink Logistics is progressively changing its role as the Group evolves. When it was created in January 2009, it was responsible for the manufacture and delivery of the Group's products with the remit to ensure the business units benefi t from low-cost, fl exible manufacturing and improved customer delivery and support. In January 2011, we reduced our operational sites from three to two. As we have withdrawn a number of legacy products, we can source most of our new products from Asia because of their modular design, thereby improving our material margin. We have now implemented our new ERP system.

Logistics is responsible for all aspects of customer support, from the confi guration and integration and testing of products and systems, to customer delivery, project management and installation.

Operating and fi nancial review Continued

Financial review
The Group's results are summarised as follows:
Year ended December 31	2010 £'000	2009 £'000
Continuing business
Revenue	38,176	53,680
Material cost of sales	(19,219)	(25,359)
Material margin	18,957	28,321
Material margin percentage	49.7%	52.8%
Operating costs	(26,804)	(30,637)
Adjusted operating (loss)	(7,847)	(2,316)
Amortisation of acquired intangibles	(1,119)	(2,331)
Impairment of goodwill	(4,557)	–
Non-recurring costs	(5,408)	(942)
Reported operating (loss)	(18,931)	(5,589)
Net fi nance costs	(486)	(458)
(Loss) before tax	(19,417)	(6,047)
Taxation	2,213	767
(Loss) after tax – continuing business	(17,204)	(5,280)
Discontinued activities
Profi t after tax from discontinued operations	381	4,453
Profi t from disposal of subsidiary	20,812	–
Profi t (loss) attributable to equity shareholders	3,989	(827)
Effective tax rate1	14.3%	13.0%
Basic earnings (loss) per share	2.9p	(0.6p)
Adjusted (loss) per share2	(5.1p)	(1.7p)

1 The effective tax rate is that used to calculate adjusted earnings per share.

2 Adjusted EPS is calculated on operating profi t before/(loss) the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs after taking account of related tax effects.

Goodwill impairment

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. An impairment review has been undertaken in respect of the goodwill associated with both the N&E and LEPS business units. The basis for the review was to assess the strategic plans for the businesses and to discount the future expected cash fl ows using the Group's weighted average cost of capital in accordance with IAS 36, "Impairment of Assets". The Board considered the estimated discounted cash fl ows for the business units from the business plan for the next two years. The Board also reviewed the performance of the business units in 2010 against the prior year projections used in the impairment review undertaken the previous year.

Having reviewed all the relevant calculations and the sensitivities the Board considered that there had been a £3.4 million impairment in the goodwill associated with the LEPS business and a £1.2 million impairment in the goodwill associated with the international services business which has been incorporated within N&E. The appropriate non-cash charge has been made in the consolidated group income statement.

Non-recurring costs

Non-recurring costs comprise:

• £0.4 million in respect of rationalisation and redundancy costs;
• £1.2 million from the withdrawal from the Military Satcoms market;
• £0.9 million impairment of development costs capitalised associated with an accelerated end of life;
• £2.5 million inventory write-down associated with an accelerated end of life;
• £0.6 million aborted acquisition costs; and net of
• £0.1 million write back of onerous property commitments.

Following the reorganisation of the Group's operations into four international business units in 2009 the Group has incurred further rationalisation and redundancy costs of £0.37 million (2009: £1.22 million) in the period. As part of the reorganisation the LEPS business unit has withdrawn from the Military Satellite Communications market. As a result inventory and capitalised product development costs of £0.54 million and £0.64 million have been written-off.

The Group reorganisation has also extended to the accelerated rationalisation of the microwave product range manufactured in the United States. As a result of the planned move to manufacture products in Asia a number of microwave product lines have been terminated earlier in their life cycle than would be normal and as a result inventory has been written down by £2.51 million and development costs associated with those products have been impaired by £0.88 million.

The Group explored the possibility of acquiring a business in Asia to which it would have transferred much of its manufacturing and which would have provided a base for further expansion into the region. The transaction was aborted in the light of discoveries at the end of due diligence. The costs incurred represent professional fees incurred up to the date of the process being aborted.

Finance costs

The net interest charge for the continuing business was £0.49 million (2009: £0.46 million). Included within the interest charge is £0.17 million (2009: £0.23 million) in respect of the unwinding of the discounting of the deferred consideration associated with the acquisitions of WTS and PMR to their present value.

Interest paid in the year was £0.19 million (2009: £0.29 million) net of £0.12 million of interest earned by the discontinued business (2009: £0.01 million).

Taxation

There was a net tax credit for the year of £2.21 million (2009: £0.77 million). There was a UK current tax credit of £0.02 million (2009: credit of £0.20 million) and an overseas current taxation credit of £0.74 million (2009: credit of £0.73 million). Overseas taxation represents state and federal taxes in respect of the US business. There was a deferred tax credit of £1.46 million (2009: charge of £0.16 million).

The effective tax rate of 14.3 per cent for the year is lower than the standard UK corporation tax rate applicable during the year of 28 per cent (2009: 28 per cent) due to the level of losses that the Group made in the year which have not been recognised as tax assets.

Current tax recoverable at December 31, 2010 was £0.76 million in respect of US tax (2009: total UK tax recoverable of £0.18 million; foreign tax payable of £1.17 million). Net tax paid in the year of £0.63 million comprised Norwegian tax in respect of HERNIS of £1.17 million and repayments of UK and US tax of £0.20 million and £0.34 million respectively.

Operating and fi nancial review Continued

Discontinued activities

The business of HERNIS made an operating profi t after tax of £2.66 million (2009: £3.55 million). WTS made a loss after tax of £2.28 million (2009: profi t of £0.90 million) after charging amortisation of acquired intangibles of £0.91 million (2009: £1.08 million) and a goodwill impairment charge of £0.80 million (2009: £nil).

There was a profi t from the sale of HERNIS of £20.81 million. This was after costs of disposal of £0.49 million and payment to the management of HERNIS under a change of ownership incentive plan of £1.51 million.

Cash fl ows

The Group held cash and cash equivalents of £22.23 million at December 31, 2010 (2009: £7.42 million).

The Group generated net cash from operating activities of £3.19 million in the year (2009: £5.05 million). There was a net cash release from working capital of £4.47 million (2009: absorption of £0.05 million) after removing the effect of increased inventory provisions. Investing activities absorbed £6.82 million of cash (2009: £4.52 million), comprising £1.63 million in respect of deferred consideration on previous acquisitions, £2.98 million for capitalised development costs and a net £2.22 million for property, plant, equipment and investments.

Dividend payments in the year amounted to £1.72 million (2009: £1.72 million).

The sale of HERNIS generated a net cash infl ow of £26.94 million. The proceeds were used to repay all existing bank debt amounting to £7.16 million. The Group had no debt at December 31, 2010 (2009: secured bank loans of £6.81 million). At December 31, 2010 the Group had net funds of £22.23 million (2009: £0.61 million).

Returns to shareholders

It is the Group's stated strategy to only recommend a fi nal dividend. The Board is recommending that the dividend be maintained at 1.25 pence per share (2009: 1.25 pence). The payment of the dividend will absorb approximately £1.72 million of cash. Subject to the approval of shareholders, the dividend will be paid on July 15, 2011, to those shareholders on the register at June 24, 2011.

In addition, following consultation with major shareholders, the Group is proposing to return part of the proceeds from the sale of HERNIS to shareholders by way of an on-market tender offer, subject to shareholder approval at a General Meeting to be held on April 8, 2011. A circular was sent to shareholders on March 23, 2011 explaining the proposal. Up to £5.0 million will be returned to shareholders.

Principal risks and uncertainties for the Group

The Group may be affected adversely by global economic conditions

The operating and fi nancial performance of the Group is infl uenced by the economic conditions of the regions in which it operates, particularly the United Kingdom, Continental Europe and the USA. The Group is mitigating its reliance on these regions by expanding its activities in Asia Pacifi c, the Middle East and Africa. However the current strained global economic conditions and the volatility of international markets could result in a general reduction in business activity and a consequent loss of income for the Group. The global credit market conditions mean fi nancial institutions are applying more stringent lending criteria and the availability of debt is low by historical comparison, which may mean that it will be more costly for the Group to raise funds to take advantage of opportunities, should additional funding be required.

The Group expects to weather the current economic climate through its renewed focus on its existing customers as well as developing new relationships through expanding its international presence. Improving the operational effi ciency of the Group combined with cost reductions will help underpin the underlying performance going forward.

Risks associated with the Group's markets

The markets in which the Group operates are mature and highly competitive with respect to price, geographic distinction, functionality, brand recognition and the effectiveness of sales and marketing.

Due to price pressure, the Group may experience fl uctuations in future operating results. If the Group is unable to offset any reductions in selling prices and margins by increases in volumes and/or by decreases in operating expenses, turnover and profi tability may be affected negatively. Competition could be intensifi ed due to companies entering certain markets with new products or favourable cost structures. In such events Group sales, margins and/or market shares may decrease.

Group management and the business units are aware of the competitive risks in its markets and regularly review competitor activity in order to create strategies to protect the Group's position as far as possible.

Reputational risks for operational incidents

Many of the Group's products are for mission critical services, such as ensuring live news is available in real time or that mission critical video surveillance is uninterrupted. There is the risk that product failure will cause loss of services to Vislink customers, bringing damage to the Group's reputation. Customer service and support is a key part of the Group's offering to customers to mitigate such damage.

Operations overseas

The Group conducts its business in multiple jurisdictions and, as a result, assumes the accompanying risks which may include government regulations and administrative policies which could change quickly. Governments could expropriate assets; burdensome taxes or tariffs could be imposed. Political changes in the business environment in which the Group operates and economic downturns, political instability and civil disturbances could disrupt the Group's business activities. Where appropriate the Group will take out insurance to cover political risks. Management monitor the exposure that the Group has to higher risk countries.

The Group's business may be affected by the default of customers in respect of monies owed to the Group

As a consequence of its normal operations, the Group often has signifi cant amounts owed to it by its customers. In the current market environment, the Group's operating and fi nancial performance may be impacted by increased exposure to the default of customers, which may reduce the Group's cash fl ows.

The Group policy is to limit its exposure by setting credit limits for each customer, where possible by reference to published credit ratings, to manage its exposure. In addition on larger contracts the Group seeks deposits and advance payments to maintain a positive cash fl ow and to cover its costs.

Senior management and senior personnel

The Group is dependent on members of its senior management team and skilled personnel. Its future success will depend in part on its ability to attract and retain highly skilled management and personnel. If the Group does not succeed in attracting and retaining skilled personnel, it may not be able to grow its business as anticipated. Further, the departure of certain senior employees from the Group could, in the short term, have a material adverse effect on the Group's business. The Board gives regular consideration to succession planning.

Operating and fi nancial review Continued

Foreign exchange

The Group's exposure to market risk, liquidity risk, credit risk and cash fl ow interest rate risk remains largely unchanged from the position at December 31, 2009, other than that the Group now has a signifi cantly improved net cash position and that, through the sale of HERNIS, the Group no longer has an exposure to fl uctuations in the Norwegian krone.

The Group's principal risks and uncertainties continue to be the impact of foreign exchange rates on margins for non-domestic sales in each of our businesses. The Group mitigates this risk as far as possible through hedging expected foreign exchange receipts. Borrowings to fund overseas acquisitions are taken out in local currency to provide a natural hedge against the translation risk arising from the net assets of those businesses.

The Group is exposed to the translational risk of fl uctuations in the value of sterling when translating overseas results and assets back into sterling. The exchange risk to the Group in terms of its reported results lies in the translation of the results of our trading entities in the USA. The Group accounting policy is to translate the profi ts and losses of overseas operations using the average exchange rate for the fi nancial year and the net assets and liabilities of overseas subsidiaries at the year end exchange rate. It continues to be Group policy not to hedge the foreign currency exposures on the translation of overseas profi ts or losses and net assets or liabilities as they are considered to be accounting rather than cash exposures.

In 2010 the net assets of the Group increased by £1.1 million on the translation of foreign currency net investments (2009: decreased by £2.3 million) as a result of the strengthening of the US dollar against sterling. If the results for the year to December, 31 2009 had been translated at the 2010 rates then the translation impact on revenue would be to reduce prior year revenue by £0.4 million and increase the loss before tax by £0.02 million.

The principal exchange rates used by the Group in translating overseas profi ts and net assets into sterling are set out in the table below.

Rate compared to £ sterling	Average rate, 2010	Average rate, 2009	Year-end rate, 2010	Year-end rate, 2009
US dollar	1.55	1.56	1.57	1.61
Norwegian krone	9.34	9.78	9.10	9.33

Risk management

The Board regularly reviews the full range of business risks facing the Group. The approach adopted is to identify, evaluate and manage the likely impact of risk on the Group's business objectives. Where the risks are unavoidable they are managed through business controls and where appropriate through insurance and treasury activities.

The Group has a programme of regular risk assessment, which incorporates internal control reviews of both a fi nancial and nonfi nancial nature. A process of continuous review has been in place throughout the year at an operating company level to consider the risk environment and the effectiveness of controls. The results of reviews, initiatives and progress on implementing control improvements are regularly reported to the Board.

Duncan Lewis, Group Chief Executive James Trumper, Group Finance Director

The Board of directors

Timothy Hugh Southcombe Trotter BA, FCIPR, FCIM

Non-executive Chairman

Age 52. Joined the Board in December 2000, and became Chairman in May 2007. He was formerly Chairman and Chief Executive of Ludgate Group Limited and Deputy Chairman of Weber Worldwide, a division of Interpublic. He is the non-executive Chairman of Smithfi eld Consultants Limited, Flying Brands Limited and Severn Publishing Group Limited.

Duncan Lewis

Chief Executive

Age 59. Joined the Board in October 2008. Previously he had held the position of Managing Director of Equant, the global data communications business, and Chief Executive of Mercury Communications (now Cable & Wireless UK). Most recently he has been an adviser on telecommunications, media and technology investments at Carlyle, the global private equity group, and non-executive director of several technology companies. Mr Lewis is a non-executive director of Spirent plc.

James Ronald Trumper BSc, FCA

Group fi nance director and Company secretary

Age 49. Joined the Board in January 2000 and was appointed Company Secretary in October 2000. He previously held the positions of Finance Director of the Mitsubishi Electric Corporation PC Division and Group Finance Director of Bluebird Toys plc.

Robin Beatham Howe BSc, FCIM

Senior independent non-executive director

Age 63. Joined the Board in 2006. He is also Chairman of MetaSphere Ltd, Waterscan Ltd and Spinfl ow GmbH and is a director of Access2 Ltd. Previously he was CEO of UDEX Holdings Ltd and headed the Broadcast Systems Division of VITEC Group plc. He has built a career running successful technology businesses.

John Hawkins

Non-executive director and Chairman elect

Age 57. Joined the Board in December 2010 and will succeed Tim Trotter as Chairman in May 2011. Currently nonexecutive Chairman of Psion plc and previously Chairman of Genus plc. In the past fi ve years he has also chaired All New Video plc, Salamander Organisation Limited, Easybroker International Limited and was CEO of Atex Group.

Oliver Bernard Ellingham BA, ACA

Independent non-executive director

Age 54. Joined the Board in October 2007. He was previously Head of Corporate Finance for Europe for BNP Paribas for ten years having previously been a Director of Flemings, the investment bank that is now part of JPMorgan. He is a non-executive director of Cenkos Securities plc and Chairman/Owner of Woking Storage Solutions Limited. He is also a trustee and director of the NAAFI Pension Fund.

Directors' report

The directors present the annual report of Vislink plc together with the audited consolidated fi nancial statements for the year ended December 31, 2010, which were approved by the directors on March 23, 2011. The Group fi nancial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The Company fi nancial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).

Principal activities, future developments and review of the business

Vislink plc ("the Company") and its subsidiaries (together "the Group") is a global technology business specialising in the provision of secure communications for the news & entertainment and law enforcement & public safety markets. The Group has offi ces in the UK, USA, Dubai and Singapore, and employs over 200 people worldwide. The Group specialises in the design and manufacture of microwave radio, satellite transmission and wireless camera systems. The Group has manufacturing subsidiaries in the UK and the USA. An overview of the Group's activities is given on pages 4 to 6 of this Annual Report, which are incorporated in this report by reference.

A review of the Group's trading and an indication of future developments are contained in the Chairman's statement and the Operating and fi nancial review on pages 2 and 3 and 7 to 16. Details of turnover and operating profi ts for each business unit are contained in note 5 to the consolidated fi nancial statements. The principal subsidiaries that contribute to the profi ts and net assets of the Group in the year are listed in note 37 to the consolidated fi nancial statements.

Vislink plc is incorporated in England (company registration number 4082188) and has its registered offi ce at Marlborough House, Charnham Lane, Hungerford, Berkshire RG17 0EY.

Results and dividends

The results for the year ended December 31, 2010 are set out in the Consolidated Group income statement on page 36. The Group has reported an operating loss from its continuing activities of £18.9 million (2009: £5.6 million). After accounting for net fi nance costs the Consolidated Group Income Statement shows a loss before taxation of £19.4 million (2009: loss of £6.0 million).

During the year the Group disposed of its Marine & Energy business for £32.5 million. In addition the Group decided to sell its Services business that is located on the West Coast of the USA. The results of both these businesses, and the profi t on disposal of the Marine & Energy business have been reported as discontinued activities. The profi t for the year from discontinued activities was £21.2 million (2009: £4.5 million).

After taxation and the profi ts from discontinued activities the profi t attributable to shareholders was £4.0 million (2009: loss of £0.8 million).

The directors are recommending a fi nal dividend of 1.25 pence (2009: 1.25 pence) per ordinary share amounting to £1.7 million payable on July 15, 2011 to shareholders on the Company's register at the close of business on June 24, 2011. The shares will be quoted ex-dividend from June 22, 2011.

It is the directors' intention to return £5.0 million of the cash received from the disposal of the Marine & Energy business to shareholders through an on-market tender offer. This offer is subject to shareholder approval at a General Meeting of the Company to be held on April 8, 2011. The details of the offer have been sent to shareholders in a circular dated March 23, 2011.

Directors

The directors of the Company who served during the year are as follows:

T H S Trotter (Non-executive Chairman)

D Lewis (Chief Executive)

J R Trumper (Group fi nance director and Company secretary)

R B Howe (senior independent non-executive director)

L G Mann (non-executive director)(retired June 3, 2010)

O B Ellingham (non-executive director)

S Bellamy (non-executive director) (appointed June 23, 2010; retired January 5, 2011)

J Hawkins (non-executive director and Chairman elect) (appointed December 1, 2010)

Short biographies of each current director are provided on page 17.

Tim Trotter will retire at the Annual General Meeting and will not be seeking re-election.

Oliver Ellingham and James Trumper retire by rotation and, in accordance with the Articles of Association and being eligible, offer themselves for re-election at the forthcoming Annual General Meeting. The Company's Articles of Association require any new directors appointed by the Board to retire from offi ce and offer themselves for election by shareholders at the next Annual General Meeting following their appointment. John Hawkins therefore seeks election by shareholders this year.

Details of the directors' service contracts are given in the Remuneration report on pages 22 to 27.

Disclosure of the directors' interests in shares, including share options, is also given in the Remuneration report. During the year the Group maintained insurance providing liability cover to its directors and offi cers.

Material interest in contracts

There were no contracts in which any director of the Company had a material interest other than directors' service contracts.

Share capital

Details of the Company's share capital are shown in note 29 to fi nancial statements. All shares except for those held by the employees' share trust are freely transferable and rank pari passu for voting and dividend rights.

The Company is aware of the following substantial holdings in the Company's share capital at the date of this report:

	Number of shares	per cent
Hawk Investment Holdings	20,676,789	14.9
Hermes Investment Management	10,362,195	7.5
Barclays Stockbrokers private clients	6,379,133	4.6
JO Hambro Capital Management	6,050,000	4.4
TD Waterhouse private clients	5,839,164	4.2
Gartmore Investment Management	5,296,655	3.8
Seraffi na Holdings Limited	5,237,625	3.8
JP Morgan Asset Management	5,021,548	3.6

Fixed assets

In the opinion of the directors the current open market value of the Group's interest in land and buildings is in line with the book value. There would be no tax liability if the land and buildings were sold at book value.

Directors' report Continued

Research and development

The Group recognises the importance of investing in the continuing business research and development programmes that result in innovative new products for the Group as well as improvements to existing products. Expenditure on research and development charged to the income statement in 2010 amounted to £5.7 million in the continuing business (2009: £6.3 million). Further details of our development activities are given in the Operating and fi nancial review on page 11 under Vislink Technologies.

Financial risk management

The Group's policies on fi nancial risk management are set out in note 3 to the fi nancial statements.

Post balance sheet events

Subsequent to the year-end the Group has proposed to return capital to shareholders through an on-market tender offer. This offer is subject to shareholder approval at a General Meeting of the Company to be held on April 8, 2011. The details of the offer have been sent to shareholders in a circular dated March 23, 2011.

Social responsibility

The Board takes regular account of the signifi cance of social, environmental and ethical matters. The following specifi c matters fall under the broad defi nition of Social Responsibility.

Employees

The Group recognises the role that its employees play in its success. Each business unit within the Group has lines of communication in place to ensure that employees are consulted with and kept informed of issues relevant to them. The Chief Executive's weekly letter, staff notices, emails and staff meetings are used to communicate immediate issues to them. In addition the business units produce their own newsletters for both internal and external purposes.

The Group provides employees with access to training carried out both within the organisation and on external accredited courses that are relevant to an employee's role and development.

It is the policy of the Group not to discriminate between employees or potential employees with disabilities or on the grounds of age, race, religion, sex or political belief and to offer the same employment opportunities, training, career development and promotion prospects to all.

Applications for employment by disabled persons are always fully considered bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and the appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of a disabled person, so far as possible, be identical with that of other employees.

Employee share scheme incentives

Vislink plc operates a number of share-based incentive schemes on an all UK employee and discretionary basis for the benefi t of the Group's employees and its senior management. The aim of the share based incentive schemes is to align the interests of the employees with those of the Company's shareholders. To encourage employee interest and participation in the fi nancial performance of the Group, a Vislink plc Share Incentive Plan and a savings related share option scheme (SAYE) are in place.

At December 31, 2010 the Employee Share Ownership Plan (ESOP) held 840,000 (2009: 840,000) shares in the Company representing 0.60 per cent of the issued share capital (2009: 0.60 per cent). The ESOP has waived its rights to receive dividends.

Health and safety

It is the policy of the Group to ensure the health and welfare of employees by maintaining a safe place and system of work. This policy is based on the requirements of national employment legislation in the countries where the Group operates, including the Safety, Health and Welfare at Work Act, 1989.

Environmental management

The Group is committed to environmental management through a process of continuous improvement. As manufacturers of electronic equipment the Group's businesses are compliant with the latest legislation for the European Union (EU) directives regarding Waste Electrical and Electronic Equipment (WEEE) and the Restriction of Hazardous Substances (RoHS).

Our UK-based business has achieved the international environmental management system standard of ISO 14001 for its operations. Our US factory is registered with the environment agency and has a producer compliance scheme for the recycling of all electrical and electronic waste produced on site. All our businesses are conscious of the need to reduce their waste and carbon footprint through energy management and recycling schemes.

The Group actively encourages all shareholders to contribute towards a greener countryside by registering for our registrar's eTree service under which we dedicate a tree to be planted on each registered shareholder's behalf in a UK reforestation area. This can be accessed through the investor relations page on the Group website at www.vislink.com.

Creditor payment policy

The Group operates a decentralised supplier payment system. It is the Group's policy that payments to suppliers are made in accordance with those terms agreed between each operating company and its suppliers, provided that all trading terms and conditions have been complied with. The aggregate creditor days for the UK subsidiaries was 68 days (2009: 28 days).

The Company is a holding company and has minimal trade purchases; therefore, its numbers of days' purchases outstanding is not meaningful.

Charitable and political donations

The Group made a number of charitable donations in support of local communities totalling £1,613 through its UK and overseas subsidiaries during the year (2009: £3,710). No political donations were made.

Annual General Meeting

The Annual General Meeting will be held at 29 Cloth Fair, London EC1A 7NN on Wednesday May 18, 2011 at 12.00 noon. Share capital resolutions will be proposed at the Annual General Meeting to renew for a further year the directors' authority to allot equity securities for cash other than to existing shareholders on a pro rata basis and to authorise purchases by the Company of its own shares. An explanation of these Special Business resolutions is given in the accompanying notice of the Annual General Meeting on pages 94 to 99.

Statement as to disclosure of Information to Auditors

In the case of the individuals who are directors of the Company at the date when this report was approved:

• so far as each of the directors is aware, there is no relevant audit information of which the Company's auditors are unaware, and
• each of the directors has taken all the steps they ought to have taken individually as a director in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Corporate governance

The company's statement on corporate governance can be found in the Corporate governance statement on pages 28 to 33 of these fi nancial statements. The corporate governance statement forms part of this directors' report and is incorporated into it by its cross-reference.

Independent auditors

The independent auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in offi ce and a resolution that they be re-appointed will be proposed at the Annual General Meeting.

By order of the Board J R Trumper, Company Secretary

Remuneration report

This report has been prepared in accordance with the Companies Act 2006 ("the Act"), the Listing Rules of the Financial Services Authority and the Combined Code on corporate governance (the Combined Code (2008)).

As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the consolidated fi nancial statements will be approved.

The Act requires the auditors to report to the Company's members on the "auditable part" of the Remuneration report and to state whether in their opinion that part of the report has been properly prepared in accordance with the Act. The report has therefore been divided into separate sections for the audited and unaudited information.

Unaudited information

Remuneration Committee

The Company has a Remuneration Committee that is constituted in accordance with the recommendations of the Combined Code (2008). The current members of the Remuneration Committee are Robin Howe, who chairs the Committee, Tim Trotter, John Hawkins and Oliver Ellingham who are independent non-executive directors. Stephen Bellamy served on the committee during the term of his appointment as a non-executive director of the Company.

No member of the Committee has any personal fi nancial interest (other than as a shareholder), confl icts of interest arising from cross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to the Board. No director plays any part in discussions about his own remuneration.

The Remuneration Committee has access to both internal and external advice including, where appropriate, information on the remuneration of similar executives in comparable organisations.

Remuneration policy

It is the policy of the Board to ensure that remuneration packages offered to executive directors and senior management are designed to be competitive to attract, motivate and retain executives of the high calibre needed for the long term development of the Group and to reward them for enhancing value to shareholders.

There are four main elements of the remuneration package for executive directors and senior management:

• Basic annual salary (including directors' fees) and benefi ts;
• Annual bonus payments;
• Share incentive schemes; and
• Pension arrangements.

The Group's policy is that a substantial and increasing proportion of the remuneration of executive directors and senior management should be performance related. As described below, executive directors and senior management may earn annual incentive payments in addition to their basic salary together with the benefi ts of participation in share incentive schemes.

Basic salary and benefi ts

Each executive director's basic salary and benefi ts are reviewed annually having regard to performance and are intended to be competitive but fair using information provided from both internal and external sources. Whilst salaries will continue to be benchmarked against an appropriate peer group by the Remuneration Committee's advisors, the Committee intends that basic salaries should normally be increased by not more than the rate of infl ation each year whilst progressively increasing the performance related element of pay. Benefi ts include the provision of a car allowance, private medical insurance, life assurance and permanent health insurance.

Duncan Lewis's current salary of £280,000 per annum was set on October 1, 2008; James Trumper's current salary of £175,000 per annum was set at April 1, 2009. The salaries of both executives were due for an annual review on April 1, 2011. There will be no change to salaries as of that date and the next review will be April 1, 2012.

The Chief Executive recommends the salaries of senior managers to the Remuneration Committee. These are also benchmarked against an appropriate peer group, and will be subject to the cost-of-living increases in the future. However, for senior managers the amount of performance related pay, being a combination of cash bonus and long term incentives, is expected to increase over time.

Performance related bonus

The Remuneration Committee establishes the objectives that must be met each fi nancial year for a cash bonus to be paid. Bonus parameters address the fi nancial performance of the Group as well as key goals and strategic objectives.

The executive directors are entitled to an annual bonus that is capped at 100 per cent of basic annual salary. Senior managers within the Group can earn up to 60 per cent of their base salaries as performance related bonuses against the same performance criteria as the Executive Directors.

For the fi nancial year beginning January 1, 2010 the cash bonus scheme was based on four criteria set by the Committee, subject to a maximum award of 100 per cent of basic annual salary, as follows:

• A bonus of up to 25 per cent of basic annual salary based on satisfying a revenue growth target;
• A bonus of up to 25 per cent of basic annual salary based on satisfying a gross margin target;
• A bonus of 25 per cent of basic annual salary based on satisfying an operating profi t (defi ned as profi t before net fi nance costs, amortisation of intangibles, non-recurring costs and taxation) target;
• A bonus of 25 per cent of basic annual salary based on satisfying a cash target.

None of the targets set for 2010 were achieved and therefore no bonuses will be paid in respect of 2010.

With regards to 2011, the Remuneration Committee has retained the same four key performance parameters as in 2010. However, no bonus can be earned unless the Group has achieved an adjusted operating profi t of £1.0 million (defi ned as profi t before net fi nance costs, amortisation of acquired intangibles, non-recurring costs and taxation). The specifi c targets for each of the above parameters are set to accelerate the fi nancial performance of the Group, bonuses being earned pari passu with the improvement in the Group's performance.

Share options

The Group has historically operated both an Inland Revenue Approved Share Option Scheme and an Unapproved Share Option Scheme. The Group's historic policy was to grant options to executive directors and senior management at the discretion of the Committee taking into account individual performance and according to their position in the Group. Generally, it was the Group's policy to phase the granting of share options rather than to award them in a single block to any individual.

The exercise of options granted to current executive directors under the scheme was not dependent upon performance criteria, since the options were awarded as an incentive or for individual past performance. No options were granted during the year. Details of previous option grants can be found in note 29 to the consolidated fi nancial statements.

The Group also operates an Inland Revenue Approved Sharesave Scheme open to eligible employees (including executive directors) in the United Kingdom who have worked for the Group for a minimum qualifying period and agree to save a fi xed amount for a period of either three or fi ve years under an approved savings contract. Inland Revenue rules limit the maximum amount that can be saved by a participant to £250 per month. Options in normal circumstances are exercisable for six months following the completion of the savings contract utilising the proceeds of the contract.

The Group operates a Share Incentive Plan (SIP) for all qualifying employees. Under the scheme employees can invest a maximum of £1,500 (or local currency equivalent) of their salary a year in Company shares and receive awards of matching shares currently at the ratio of one matching share for every employee share purchased, provided that they remain employed by the Company for three years and that they retain the shares that they acquired for this period.

Long term incentive plan (LTIP)

The Group operates an LTIP. Details of awards made can be found in note 29 to the fi nancial statements. The principal performance conditions in respect of the awards made under the scheme at its establishment were:

• EPS Growth the grants have an EPS growth performance condition which has to be satisfi ed for the release of 50 per cent of shares awarded.
• Comparative Total Shareholder Return the grant of awards has a comparative TSR performance condition which has to be satisfi ed for the release of 50 per cent of shares awarded.

Remuneration report Continued

The table below sets out the performance conditions used in conjunction with the awards under the LTIP that were made in 2008.

Performance Level	TSR Part of Award (50%)		EPS Part of Award (50%)
	Comparative TSR at the end of Holding Period	Percentage of Award Released	Average EPS Growth (over 3 year Holding Period)	Percentage of Award Released
Threshold	Median	20%	3%	10%
Maximum	Upper Quartile	100%	10%	100%

No LTIP awards were made in 2009. After reviewing recommendations from its independent remuneration advisors, the Remuneration Committee consulted with its principal shareholders and shareholder representatives on certain changes to the longer term share based incentives so as to better align management and shareholder interests.

Following these discussions the Committee concluded that awards should continue to be made under the LTIP scheme in future, but that the principal performance conditions in respect of the awards made under the scheme would be restricted to EPS Growth. The Remuneration Committee concluded that the TSR comparator group was not comparable to the Vislink Group, and that there were no similar companies to form a signifi cant comparator group. Thus future grants would have an EPS growth performance condition which has to be satisfi ed for the release of up 100 per cent of shares awarded on the same threshold criteria as set out above.

In 2010 awards were granted over 3,350,000 shares on April 13, 2010 at a price of 24.3 pence per ordinary share (the closing share price on April 12, 2010). The shares will be released subject to continued employment and the Company's achievement of EPS growth targets over the three year period from the date of grant as set out in the table above.

Pension arrangements

The Group operates a defi ned contribution pension scheme and it is the Group's policy that only basic salaries are pensionable for executive directors. For Duncan Lewis and James Trumper the Company contributes 20 per cent of their basic salary. There are no pension arrangements for non-executive directors. There are no unfunded pension promises or similar arrangements for current directors.

Performance graph

Vislink shares are quoted within the TechMARK index, and the directors believe that this provides the most appropriate comparative performance measure. The following graph shows the Group's performance, measured by total shareholder return, compared with the performance of the TechMARK. The chart shows the theoretical change in value of a shareholding in the Company over the last fi ve years, assuming that dividends are reinvested to purchase additional units of equity at the closing price on the ex-dividend date.

Directors' service contracts

Duncan Lewis and James Trumper both have a rolling 12 month service contract with the Company, which requires one year's notice for termination. On termination of these executive directors' service contracts there is entitlement to predetermined compensation, linked to annual salary and contractual benefi ts. Duncan Lewis's contract is dated October 1, 2008 and that of James Trumper is dated March 23, 2000.

Change of control

The Remuneration Committee had approved a Senior Management Bonus Scheme ("the Scheme") for the senior management of HERNIS. The Scheme was intended to provide a reward to the senior management of HERNIS in the event that HERNIS was disposed of to a third party outside of the Group. The bonus pool was 20 per cent of the capital appreciation in the value of HERNIS, after the associated costs of such a sale, above Norwegian krone 96.0 million (£9.5 million). The Scheme was capped at a gross sale consideration of Norwegian krone 165.0 million (£16.4 million) giving a maximum bonus pool of Norwegian krone 13.8 million (£1.5 million).

On December 30, 2010 the business of HERNIS was sold to Cooper Industries (UK) Limited for £32.5 million. As a result the Committee approved that the bonus be paid out in full in January 2011.

Non-executive directors' service contracts

Tim Trotter was appointed a non-executive director of the Company by way of a letter of appointment dated December 28, 2000. The initial term of appointment was for a period of fi ve years subject to re-election at Annual General Meetings of the company at which he is required to retire by rotation. On March 1, 2005 and then March 17, 2010 Mr Trotter's appointment was extended for a second and third term of fi ve years with effect from January 1, 2005 and January 1, 2010. The contract is subject to a notice period of six months. There is no provision within the contract for compensation for early termination of offi ce.

Robin Howe was appointed a non-executive director of the Company by way of a letter of appointment dated April 4, 2006. The initial term of appointment is for a period of fi ve years from June 1, 2006 subject to re-election at Annual General Meetings of the company at which he is required to retire by rotation. There is no provision within the contract for compensation for early termination of offi ce. Oliver Ellingham has a similar letter of appointment dated September 26, 2007.

John Hawkins was appointed a non-executive director of the Company by way of a letter of appointment dated November 17, 2010. The letter provides for the fact that John Hawkins joins the Board as the Non-Executive Chairman elect with a fee of £30,000 per annum. On taking over the Chair his fee will increase to £100,000 per annum. The initial term of appointment is for a period of fi ve years from December 1, 2010 subject to re-election at Annual General Meetings of the company at which he is required to retire by rotation. There is no provision within the contract for compensation for early termination of offi ce.

The remuneration of the non-executive directors is determined by the Board within the limits set by the Articles of Association and based on independent surveys of fees paid to non-executive directors of similar companies.

The non-executive directors cannot participate in the Company's share option schemes, do not participate in any performance related bonus schemes and are not eligible to join the Company's pension scheme.

Remuneration report Continued

Audited information

Aggregate directors' remuneration

Directors' emoluments and pension contributions for the year ended December 31, 2010 were as follows:

	Basic salary and fees £	Performance related bonus £	Benefi ts £	Emoluments before pension contributions £	Pension Contributions £	2010 Total £	2009 Total £
Executive directors
D Lewis	280,000	–	20,117	300,117	56,000	356,117	449,422
J R Trumper	175,000	–	15,913	190,913	35,000	225,913	308,211
Non-executive directors
T H S Trotter	60,000	–	–	60,000	–	60,000	60,000
J Hawkins (from December 1, 2010)	2,500	–	–	2,500	–	2,500	–
R B Howe	30,000	–	–	30,000	–	30,000	30,000
L G Mann (to June 3, 2010)	11,667	–	–	11,667	–	11,667	28,000
O B Ellingham	30,000	–	–	30,000	–	30,000	30,000
S Bellamy (from June 26, 2010)	15,580	–	–	15,580	–	15,580	–
	604,747	–	36,030	640,777	91,000	731,777	905,633

Benefi ts include the provision of a car allowance and non-cash benefi ts relating to private medical insurance, life insurance and permanent health insurance for each executive director.

Duncan Lewis received fees of £33,000 in respect of his non-executive directorship at Spirent plc, and he was permitted to retain these fees.

Directors' share options

Details of share options granted to the executive directors are as follows:

	Date of grant	December 31, 2009	Granted/ (exercised)	Lapsed	December 31, 2010 or date of retirement if earlier	Exercise price	Date from which excercisable	Expire date
J R Trumper	April 7, 2000	300,000	–	(300,000)	–	84.0p	April 7, 2003	April 6, 2010
	April 14, 2005	500,000	–	–	500,000		27.3p April 14, 2008	April 13, 2015

The market price of the share options granted at the date of grant equates to the exercise price as the exercise price was based on the average price for the three days immediately preceding the grant.

The highest and lowest market prices of the shares during the year were 28.50 pence and 15.25 pence respectively. The midmarket price on December 31, 2010 was 24.75 pence.

Directors' interest in LTIP shares

The director's benefi cial interest in the LTIP is shown below.

	Award date	Vesting date	Market price of a share on award	Interest at December 31, 2009	Awards made in year	Lapsed	Interest at December 31, 2010
D Lewis	October 2, 2008	October 2, 2011	30.5p	1,866,666	–	(1,866,666)	–
	April 13, 2010	April 13, 2013	24.3p	–	875,000	–	875,000
J R Trumper	April 7, 2008	April 7, 2011	29.8p	1,075,630	–	(1,075,630)	–
	April 13, 2010	April 13, 2013	24.3p	–	875,000	–	875,000

Sharesave scheme

The Vislink plc Sharesave Scheme was introduced in 2000 following approval by the shareholders. There are currently no share options granted to the executive directors under these schemes.

Share Investment Plan

The Vislink plc Share Investment Plan was introduced in 2008 following approval by the shareholders. James Trumper is a member of this plan and his interests in it are included in his benefi cial interests in the share capital of the Company shown below.

The remainder of the Remuneration Report is unaudited

Directors' interests in shares

The benefi cial and non-benefi cial interests of the directors in offi ce at the year end in the share capital of the Company at December 31, 2009, December 31, 2010 and at the date of this report were as follows:

			Number of shares LTIP awards Number of options
	December 31, 2009 or date of appointment if later	December 31, 2010	Report Date	December 31, 2009 or date of appointment if later	December 31, 2010 and report date	December 31, 2009 or date of appointment if later	December 31, 2010 and report date
D Lewis	–	–	–	1,866,666	875,000	–	–
J R Trumper	434,734	448,154	452,620	1,075,630	875,000	800,000	500,000
T H S Trotter	30,000	30,000	30,000	–	–	–	–
J Hawkins	–	–	–	–	–	–	–
R B Howe	1,132,578	1,132,578	1,132,578	–	–	–	–
O B Ellingham	100,000	100,000	100,000	–	–	–	–

Transactions with directors

No director is, or has been, interested in any transaction which is, or was, unusual in its nature or conditions, or signifi cant to the business of the Group.

Shareholder approval of the Remuneration Report

As required by the Companies Act 2006, the Company is proposing an ordinary resolution to its shareholders approving this Remuneration Report.

On behalf of the Board Robin Howe, Chairman of the Remuneration Committee March 23, 2011

Corporate governance statement

The Board is committed to ensuring that high standards of corporate governance are maintained throughout the Group and has a formal corporate governance policy in place that clarifi es the Group's position on all signifi cant matters. The Board believes that maintaining high standards in this area is a fundamental part of discharging its responsibility for leading, controlling, protecting and growing the value of the Group for shareholders.

This report shows how the principles of corporate governance contained in the Combined Code (2008) (the Code) on Corporate Governance have been applied by the directors. For the purpose of applying the Code the Group qualifi es as a smaller company.

Statement of compliance with the Combined Code

Throughout the year ended December 31, 2010 the Group has been in compliance with the provisions of section 1 of the Combined Code (2008).

Further explanation of how the principles have been applied is set out below and, in connection with directors' remuneration, in the Remuneration report on pages 22 to 27.

Directors

Board effectiveness

During the 2010 fi nancial year the Board comprised of a non-executive Chairman, two executive directors and a minimum of two independent non-executive directors. The size of the Board and the balance between executives and non-executives is considered to be appropriate to the Company's size and scope of activities and provides for effective operation.

A schedule of formal meetings of the Board, Audit Committee and Remuneration Committee is arranged each year in line with the Company's management reporting, and interim and annual reporting cycles. During the year the Board met formally eleven times. Attendance at meetings was as follows:

	Board (11 meetings)	Audit (3 meetings)	Remuneration (1 meeting)	Nomination (4 meetings)
Tim Trotter	11	3	1	3
Duncan Lewis	11	31	1	4
Robin Howe	11	3	1	4
Oliver Ellingham	11	3	1	4
James Trumper	11	31	–	31
Len Mann	2	–	–	–
Stephen Bellamy	6	2	–	3
John Hawkins	1	1	–	–

1 In attendance for part of the meetings.

In addition to the formal schedule of meetings the Board held informal discussions with executive directors and senior operational managers on strategy, business development and other topics important to the Group's progress throughout the year. Non-executive Board members were invited to attend the quarterly executive management offsite meetings in furtherance of these discussions.

The Chairman is responsible for the running of the Board. Through the executive he ensures that all directors receive suffi cient relevant information on fi nancial, business and corporate issues prior to meetings. The Chief Executive's responsibilities focus on co-ordinating the Company's business and implementing Group strategy as set by the Board. The Company Secretary is responsible for ensuring that Board procedures are complied with. All directors are able to take independent professional advice in furtherance of their duties if necessary and have access to the Company Secretary.

The Board has a formal schedule of matters reserved to it. It is responsible for overall Group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of signifi cant fi nancial matters. It monitors the exposure to key business risks and reviews the strategic direction of individual trading subsidiaries, their codes of conduct, their annual budgets, their progress towards achievement of those budgets and their capital expenditure programmes. The Board also considers environmental and employee issues, Board and key appointments. It ensures that all directors receive appropriate training on appointment and then subsequently as appropriate.

In accordance with the Company's Articles of Association, all directors are subject to election by shareholders at the fi rst opportunity after their appointment. The Articles also provide that at least one third of the directors are to retire at each Annual General Meeting and may offer themselves to re-election by rotation.

Biographical details of the directors are set out on page 17.

The Board has established three permanent committees, the Audit Committee, the Nomination Committee and the Remuneration Committee. These operate within defi ned terms of reference, which are reviewed by the Board annually. Full details of the terms of reference are provided on the Group website at www.vislink.com.

Chairman and Chief Executive

There is a clear division of responsibilities between the running of the Board and the executive responsibility for running the Group's businesses. The Company is in compliance with the Combined Code by separating the roles of Chairman and Chief Executive. The Chairman met the independence criteria on his appointment.

John Hawkins joined the Board in December 2010 as an independent non-executive director and Chairman elect. He will succeed Tim Trotter at the Annual General Meeting on May 18, 2011.

Board balance and independence

The recognised senior independent non-executive director is Robin Howe. The Board has a second independent non-executive director in Oliver Ellingham in order to retain the appropriate Board balance. In June 2010 Stephen Bellamy also joined the Board as an independent non-executive director. Len Mann, who retired from the Board in June 2010 was not considered to be independent because he had previously served as an executive director.

Board performance evaluation

The recognised senior independent non-executive director, Robin Howe, has undertaken a formal review of the operation of the Board and its Committees. This has included individual discussions with the executive directors and the Chairman. His fi ndings and recommendations were reported to the Company Secretary and presented to the Board. The evaluation in respect of the period under review found no signifi cant weaknesses in the operation of the Board or its Committees.

Re-election

As reported in the Directors' report on page 19. James Trumper and Oliver Ellingham will retire by rotation and, in accordance with the Articles of Association and being eligible, offer themselves for re-election at the forthcoming Annual General Meeting.

John Hawkins was appointed to the Board with effect from December 1, 2010 and is therefore now seeking election by shareholders. He is an experienced public company director with a strong background in working in and with technology companies. He is considered to be a valuable addition to the Vislink Board.

Tim Trotter will retire at the forthcoming Annual General Meeting.

Corporate governance statement Continued

The Audit Committee

Membership and duties

The Audit Committee is chaired by Oliver Ellingham. As a qualifi ed Chartered Accountant Oliver Ellingham has the relevant fi nancial experience as required by the Code.

The Combined Code (2008) incorporated an amendment to provision C.3.1 to allow the company chairman to be a member of the Audit Committee, provided that the company was outside the FTSE350 and the chairman was considered independent on his appointment as chairman. The Audit Committee considered that the Committee is strengthened with Tim Trotter as a member thereof and he has therefore served on the Committee throughout the year.

Robin Howe served on the Committee throughout the year; Stephen Bellamy and John Hawkins joined the Committee on their appointment as directors.

The Chief Executive and Financial Director are normally invited to attend each Committee meeting as are the external auditors, who have direct access to the Chairman of the Committee at all times. The Committee also meet with the external auditors without the presence of executive directors, for independent discussions.

The duties of the Audit Committee include the review of the Group's fi nancial controls and accounting policies, the review of the fi ndings of the external auditors, assisting the Board in ensuring that the published consolidated fi nancial statements give a true and fair view, and in securing reliable internal fi nancial information for decision making.

In order to ensure the independence and objectivity of our auditors, PricewaterhouseCoopers LLP, the Committee regularly review the remuneration received by our auditors for audit services, audit-related services and non-audit work. These reviews ensure a balance of objectivity, value for money and compliance with our requirement for independence. The outcome of these reviews was that the performance of non-audit work by our auditors was the most cost-effective way of conducting our business and that no confl icts of interest existed between such audit and non-audit work. The fees for such non-audit work within the fi nancial year were principally related to Reporting Accountant work required by the listing rules of the UKLA in connection with an aborted acquisition and the disposal of HERNIS. Any signifi cant non-audit work undertaken by the external auditors was approved by the Audit Committee to ensure that the auditors' independence was not compromised. These reviews enabled the Audit Committee to confi rm that it continues to receive an effi cient, effective and independent audit service.

Activities of the Audit Committee

The Committee meeting held in March 2010 was principally concerned with the draft fi nancial statements for the year ended December 31, 2009, together with the draft preliminary results announcement. The Committee considered the report of the external auditors on the full-year audit, concentrating on issues of judgement and audit focus identifi ed in the audit plan.

The Committee meeting held in August 2010 was principally concerned with the draft interim fi nancial statements for the period ended June 30, 2009, together with the draft interim results announcement. The Committee considered the report of the external auditors on the half-year review, concentrating on key areas of work including the consistency of the application of accounting policies.

At the meeting in December 2010 the Committee reviewed with the Board the plan and approach for the audit for the year ended December 31, 2010. In addition the audit fees for 2010 were agreed, the auditors' independence was reviewed and engagement letters were approved.

In addition the Audit Committee reviewed the need for an internal audit department and concluded that there was not a requirement given the present size of the Group and internal control reviews undertaken by the head offi ce function.

The Nomination Committee

Tim Trotter chairs the Committee. The other members of the Committee are Oliver Ellingham, Robin Howe and Duncan Lewis. Stephen Bellamy and John Hawkins joined the Committee on their appointment as directors. The Group Company Secretary also attends the meetings.

The Nomination Committee reviews the structure, size and composition of the Board. It also ensures that there is adequate succession planning in regard to the Board and senior appointments.

During the year under review the Committee met to consider the membership of the Board and succession planning for the senior executive management team. This included the recruitment of a new non-executive director and the subsequent recruitment of a successor to the Chairman. The Nomination Committee also takes advice from independent recruitment specialists.

The Remuneration Committee

Robin Howe chairs the Remuneration Committee. Tim Trotter and Oliver Ellingham served on the Committee throughout the year; Stephen Bellamy and John Hawkins joined the Committee on their appointment as directors.

The responsibilities of the Committee are to advise upon and make recommendations to the Board on the Group's remuneration policies and, within the framework established by the Board, to recommend the remuneration of the executive directors. The Chief Executive is also invited to attend meetings to discuss remuneration packages and bonus schemes for senior executives within the Group.

Directors' remuneration

The Remuneration Committee will measure the performance of the executive directors and key members of senior management as a prelude to recommending their annual remuneration; bonus awards and share plan awards to the Board for fi nal determination. The remuneration of the non-executive directors is recommended by the executive directors and takes account of the time spent on Board and Committee matters. The Board as a whole will make the fi nal determination but no director plays a part in any discussion about his own remuneration. The Committee may consult the Chief Executive about its proposals and has access to professional advice from inside and outside the Company.

The Group's compliance with the requirements of the Combined Code are detailed further in the Remuneration report as set out on pages 22 to 27.

Relations with shareholders

The Board welcomes enquiries from both institutional and private investors throughout the year and responds quickly either verbally or in writing to enquiries received from both. The Chief Executive and the Finance Director meet at regular intervals with institutional investors to discuss the Group's performance and objectives. The Chairman, non-executive directors and other executive directors are available to attend meetings with shareholders if they are requested to do so.

The Group, via its website at www.vislink.com provides up to date information on the Company and its operating subsidiaries, including all stock exchange announcements and downloadable copies of the most recent report and accounts and interim statements. The website also provides a communication channel to the Group via email. Shareholders may now elect to receive all shareholder documents electronically by registering with the Group's registrars.

The Company uses its Annual General Meeting as an opportunity to communicate with its shareholders and encourages their participation. As in previous years, it is the intention of the Board to incorporate a presentation reviewing the Group's objectives and strategy, followed by a question and answer session with members of the Board at the next Annual General Meeting on May 18, 2011. The notice of the Annual General Meeting is sent to shareholders at least 20 working days in advance of the date of the meeting and contains details of the separate resolutions that are proposed for shareholder approval. The notice of the Annual General Meeting is set out on page 94.

Corporate governance statement Continued

Financial reporting

Reviews of the performance and fi nancial position of the Group are included in the Chairman's statement and the Operating and fi nancial review on pages 2 and 3 and 7 to 16. The Board uses these, together with the Directors' report on page 18, to present a balanced and understandable assessment of the Group's position and prospects.

The directors' responsibilities in respect of the consolidated fi nancial statements are described in the statement of directors' responsibilities on page 34.

Responsibility for risk and internal control

The Group has an internal control system in place, in line with the Turnbull guidance, which is designed to protect shareholders' investments by safeguarding the assets of the Group and facilitating its effi cient operation. The Board considers that strong internal controls are integral to the sound management of the Group, and it is committed to maintaining strict fi nancial, operational and risk management control over all its activities.

The directors are responsible for the Group's system of internal control and for reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. There is an ongoing process for identifying, evaluating and managing risks that are faced by the Group through the management reporting structures, which have been in place during 2010 and up to the date of approval of the Annual Report and Accounts.

The Board regularly reviews the strategy for the Group together with its medium term objectives. A risk assessment has been undertaken relative to these objectives to ensure that there are appropriate controls and reporting mechanisms in place in order that the Board can manage the risk of failing to meet these objectives.

The Board has reviewed the effectiveness of the system of internal control for the period covered by the accounts in accordance with the requirements of the Combined Code. During the year no signifi cant weaknesses have been found.

The key elements of internal control within the Group to monitor the key risks are described below.

Control environment

There is a clear organisation structure in place, levels of authority are well defi ned and responsibility for operational control of the business units is delegated to managing directors. Whilst management guidelines and a comprehensive management reporting package are in place for all subsidiaries and business units, the Group also monitors these controls by a number of means including regular internal review.

Identifi cation and evaluation of risks and control objectives

The Board has the primary responsibility for identifying and evaluating the major risks facing the Group and developing appropriate policies and procedures to manage them. It identifi es the key risks faced by the Group, and delegates responsibility for managing those risks to senior management. The effectiveness of the risk control procedures in place is reported on at least annually to the Board.

Financial reporting

The Group operates a comprehensive budgeting, fi nancial reporting and forecasting system. Each operating entity is required to complete management accounts on a monthly basis which compare actual results with budget, forecast and prior year; these are reviewed at both executive and board level meetings to ensure that variances and discrepancies are identifi ed and acted upon on a timely basis.

Quarterly reviews are held by the executive board at which revised forecasts for the next six quarters are presented. The review process allows management to take appropriate steps where forecasts are at variance to the original budget. Members of the Board are invited to attend the quarterly reviews.

Towards the end of each fi nancial year the operating entities prepare budgets for the following year. The Board reviews budgets before they are formally adopted. The Group reports to its shareholders at the half year and full year-ends as well as through Interim Management Statements.

Main control procedures and monitoring systems used by the Board

There are a number of key control procedures in place that are reviewed on an annual basis by the Board. These cover the key risks faced by the Group and are predominantly of an operational and fi nancial nature.

The Group fi nance function consolidates the Group results monthly, and a full fi nancial review is presented at each Board meeting, accompanied by appropriate Key Performance Indicators for each business unit. Each Group entity compiles forecasts of profi ts and cash fl ows refl ecting their current expectations, which are also monitored by the Board. In addition the Board considers the following matters:

• Commercial risk. All signifi cant commercial contracts are reported to the Board and are controlled by the use of appropriate vetting processes and authorisation levels.
• Investment appraisal. The Group has a clearly defi ned framework for controlling and reporting acquisitions, disposals and capital expenditure including the use of appropriate authorisation levels.
• Legal matters. Signifi cant litigation and legal matters are reported to the Board.
• Operating business fi nancial controls. The executive management has defi ned the fi nancial controls and procedures that each operating entity is required to comply with. Key controls over major business risks include reviews against key performance indicators and exception reporting. The operating entities make periodic assessments of their exposure to major business risks and the extent to which these risks are controlled. These are reviewed by the executive management and reported to the Board.
• Strategic planning. The executive management are responsible for keeping the Board appraised of the Group strategy. The Board reviews strategic plans as part of the ongoing business planning process.
• Computer systems. Much of the Group's fi nancial management information is processed by and stored on computer systems. Accordingly the Group has established controls and procedures over the security of data held on computer systems. During the current year the Group has introduced a new Group-wide ERP system. The implementation was carefully controlled to ensure that the ability of the business to continue to operate effectively was not impaired.
• • Internal Audit. The Group does not have an internal audit function although the head offi ce team fulfi ls some functions of an internal audit department and has undertaken internal control reviews throughout the fi nancial year. The directors believe the Group falls into the category of small for this purpose. The Audit Committee reviews the need for an internal audit department at least annually.

Going concern

The directors are required to make an assessment of the Group's ability to continue to trade as a going concern. Because of the diffi cult prevailing market conditions this assessment has been subject to more uncertainties than are usual. The directors have given this matter due consideration in the light of current trading and of its current net cash position and have concluded that it is appropriate to prepare the Group fi nancial statements on a going concern basis.

By order of the Board J R Trumper, Company Secretary

Statement of directors' responsibilities

The directors are responsible for preparing the Annual Report, the Remuneration Report and the fi nancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare fi nancial statements for each fi nancial year. Under that law the directors have prepared the group fi nancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company fi nancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the Group and the Company and of the profi t or loss of the Group for that period. In preparing these fi nancial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company fi nancial statements respectively;
• prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the fi nancial position of the Company and the Group and enable them to ensure that the fi nancial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group fi nancial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company's website, www.vislink.com. Legislation in the United Kingdom governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed on page 17 confi rm that, to the best of their knowledge:

• the Group fi nancial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, fi nancial position and profi t of the Group; and
• the Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

By order of the Board J R Trumper, Company Secretary

Independent auditors' report to the members of Vislink plc

We have audited the Group fi nancial statements of Vislink plc for the year ended December 31, 2010 which comprise the Consolidated Group income statement, the Consolidated statement of comprehensive income, the Consolidated Group statement of fi nancial position, the Consolidated statement of changes in equity, the Consolidated Group statement of cash fl ows, and the related notes. The fi nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of directors' responsibilities set out on page 34, the directors are responsible for the preparation of the Group fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the fi nancial statements

An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made by the directors; and the overall presentation of the fi nancial statements.

Opinion on fi nancial statements

In our opinion the group fi nancial statements:

• give a true and fair view of the state of the group's affairs as at December 31, 2010 and of its profi t and cash fl ows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the lAS Regulation.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion:

• the information given in the Directors' Report for the fi nancial year for which the Group fi nancial statements are prepared is consistent with the group fi nancial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• certain disclosures of directors' remuneration specifi ed by law are not made; or
• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• the directors' statement, set out on page 34, in relation to going concern;
• the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2008 Combined Code specifi ed for our review; and
• certain elements of the report to shareholders by the Board on directors' remuneration.

Other matter

We have reported separately on the parent company fi nancial statements of Vislink plc for the year ended December 31, 2010 and on the information in the Directors' Remuneration Report that is described as having been audited.

Colin Bates (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Bristol

Consolidated Group income statement for the year ended December 31, 2010

		2010	2009 Restated
	Notes	£000	£000
Continuing operations:
Revenue	5	38,176	53,680
Cost of sales		(24,754)	(32,337)
Gross profi t		13,422	21,343
Sales and marketing expenses		(9,916)	(10,814)
Research and development expenses		(5,712)	(6,281)
Administrative expenses		(5,641)	(6,564)
Other expenses		(11,084)	(3,273)
Operating (loss)	6	(18,931)	(5,589)
Operating (loss) is analysed as:
Adjusted operating (loss)		(7,847)	(2,316)
Amortisation of acquired intangibles		(1,119)	(2,331)
Goodwill impairment		(4,557)	–
Non-recurring costs	6	(5,408)	(942)
Finance costs	8	(487)	(474)
Investment income	8	1	16
(Loss) before taxation		(19,417)	(6,047)
Income tax credit	9	2,213	767
(Loss) for the year from continuing operations		(17,204)	(5,280)
Discontinued operations:
Profi t for the year from discontinued operations	10	21,193	4,453
Profi t/(loss) for the year being profi t/(loss) attributable to equity shareholders		3,989	(827)
Basic earnings/(loss) per share
From continuing operations	12	(12.4p)	(3.8p)
From discontinued operations	12	15.3p	3.2p
		2.9p	(0.6p)
Diluted earnings/(loss) per share
From continuing operations	12	(12.4p)	(3.8p)
From discontinued operations	12	15.3p	3.2p
		2.9p	(0.6p)

Consolidated statement of comprehensive income for the year ended December 31, 2010

	Notes	2010 £000	2009 £000
Profi t/(loss) for the fi nancial year		3,989	(827)
Other comprehensive income/(loss):
Translation difference on foreign currency net investments	31	1,062	(2,313)
Total comprehensive income/(loss) for the year attributable to equity shareholders		5,051	(3,140)

Consolidated Group statement of fi nancial position as at December 31, 2010

	Notes	2010 £000	2009 £000
Assets
Non-current assets
Goodwill	13	16,252	24,832
Intangible assets	14	9,182	12,192
Property, plant and equipment	15	2,793	5,756
Investment in associates	16	–	224
Deferred tax assets	28	408	958
Total non current assets		28,635	43,962
Current assets
Inventories	17	7,398	15,655
Trade and other receivables	19	10,917	23,738
Non-current assets held for sale	20	–	461
Current tax assets	23	764	179
Cash and cash equivalents	21	22,230	7,423
		41,309	47,456
Assets of subsidiary undertaking classifi ed as held for sale	10	2,305	–
Total current assets		43,614	47,456
Liabilities
Current liabilities
Trade and other payables	22	12,841	22,677
Current tax liabilities	23	–	1,173
Provisions for other liabilities and charges	27	514	1,093
		13,355	24,943
Liabilities of subsidiary undertaking classifi ed as held for sale	10	1,049	–
Total current liabilities		14,404	24,943
Net current assets		29,210	22,513
Non-current liabilities
Financial liabilities – borrowings	24	–	6,812
Deferred tax liabilities	28	96	2,380
Other non-current liabilities	25	1,177	4,143
Provisions for other liabilities and charges	27	299	380
Total non current liabilities		1,572	13,715
Net assets		56,273	52,760
Shareholders' equity
Ordinary shares	29	3,465	3,465
Share premium account	30	4,900	4,900
Merger reserve	31	30,565	30,565
Translation reserve	31	4,592	3,530
Retained earnings	32	12,751	10,300
Total shareholders' equity		56,273	52,760

The fi nancial statements on pages 36 to 85 were approved by the Board of directors on March 23, 2011 and were signed on its behalf by:

D Lewis		J R Trumper
Director		Director

Consolidated statement of changes in shareholders' equity

	Share capital account £000	Share premium £000	Merger reserve £000	Translation reserve £000	Retained earnings £000	Total £000
At January 1, 2009	3,465	4,900	30,565	5,843	12,501	57,274
Retained (loss) for the year	–	–	–	–	(827)	(827)
Value of employee services (note 29)	–	–	–	–	346	346
Dividends paid (note 11)	–	–	–	–	(1,720)	(1,720)
Exchange differences on translation of overseas operations	–	–	–	(2,313)	–	(2,313)
At January 1, 2010	3,465	4,900	30,565	3,530	10,300	52,760
Retained profi t for the year	–	–	–	–	3,989	3,989
Value of employee services (note 29)	–	–	–	–	182	182
Dividends paid (note 11)	–	–	–	–	(1,720)	(1,720)
Exchange differences on translation
of overseas operations	–	–	–	1,062	–	1,062
At December 31, 2010	3,465	4,900	30,565	4,592	12,751	56,273

Consolidated Group statement of cash fl ows for the year ended December 31, 2010

	Notes	2010 £000	2009 £000
Cash fl ow from operating activities
Cash generated from operations	33	3,998	7,333
Interest received		1	50
Interest paid		(187)	(289)
Taxation paid		(625)	(2,041)
Net cash generated from operating activities		3,187	5,053
Cash fl ows from investing activities
Proceeds from sale of subsidiary (net of working capital adjustments)		26,943	–
Deferred consideration in respect of acquisition		(1,629)	(484)
Proceeds from sale of property, plant and equipment		304	1,828
Purchase of property, plant and equipment	15	(2,519)	(2,662)
Expenditure on capitalised development costs	14	(2,980)	(3,197)
Net cash generated from/(used in) investing activities		20,119	(4,515)
Cash fl ows from fi nancing activities
Repayment of borrowings		(7,162)	(199)
Dividend paid to shareholders		(1,720)	(1,720)
Net cash (used in) fi nancing activities		(8,882)	(1,919)
Net increase/(decrease) in cash and cash equivalents		14,424	(1,381)
Effect of foreign exchange rate changes		383	(228)
Cash and cash equivalents at 1 January		7,423	9,032
Cash and cash equivalents at December 31	21	22,230	7,423
Net cash/(debt) comprises:
Cash and cash equivalents at December 31		22,230	7,423
Borrowings	24	–	(6,812)
Net cash		22,230	611

1 General information

Vislink plc ("the Company") and its subsidiaries (together "the Group") is a global technology business specialising in the provision of secure communications for the news & entertainment and law enforcement & public safety markets. The Group has offi ces in the UK, USA, Dubai and Singapore, and employs over 200 people worldwide. The Group specialises in the design and manufacture of microwave radio, satellite transmission, wireless camera and video surveillance systems. The Group has manufacturing subsidiaries in both the UK and USA.

The Company is a public limited company that is listed on the London Stock Exchange. The Company is registered and domiciled in the UK and its registered offi ce is Marlborough House, Charnham Lane, Hungerford, Berkshire RG17 0EY.

The registered number of the Company is 4082188.

2 Summary of signifi cant accounting policies

The principal accounting policies applied in the preparation of these consolidated fi nancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The consolidated fi nancial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The fi nancial statements have been prepared under the historical cost convention as modifi ed by the revaluation of derivative instruments at fair value through the income statement.

The preparation of fi nancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the consolidated fi nancial statements are disclosed in note 4.

New accounting standards and interpretations have been issued during the year. The Group's approach to these is as follows.

(a) Standards, amendments and interpretations effective in 2010

The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after January 1, 2010.

• IFRS 3 (amendment), "Business combinations" and consequential amendments to IAS 27, "Consolidated and separate fi nancial statements", IAS 28, "Investments in associates" and IAS 31, "Interests in joint ventures", effective prospectively to business combinations for which the acquisition date is on or after the beginning of the fi rst annual reporting period beginning on or after July 1, 2009. There is no impact of these changes on any historic acquisitions made by the Group.
• IAS 36 (amendment) "Impairment of assets" effective January 1, 2010 clarifi es that the largest cash generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defi ned by paragraph 5 of IFRS 8, "Operating segments".
• IFRS 5 (amendment) "Non-current assets held for sale and discontinued operations". The amendment clarifi es that IFRS 5 specifi es the disclosures required in respect of non-current assets classifi ed as held for sale or discontinued operations and have been applied by the Group in the disclosures relating to the proposed sale of the US services business, Western Technical Services.

The following new standards, amendments to standards or interpretations are mandatory for the fi rst time for the fi nancial year beginning January 1, 2010, but are not currently considered to be relevant to the Group (although they may affect the accounting for future transactions and events).

• IFRIC 16 "Hedges of a net investment in a foreign operation", effective for annual periods beginning on or after July 1, 2009. This is not currently applicable to the Group as it does not hedge its net foreign investments.
• IFRIC 17, "Distributions of non-cash assets to owners", effective for annual periods beginning on or after July 1, 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions.

2 Summary of signifi cant accounting policies continued

• IFRIC 18, "Transfers of assets from customers", effective for transfer of assets received on or after July 1, 2009. This is not relevant to the Group, as it has not received any assets from customers.
• "Additional exemptions for fi rst-time adopters" (Amendment to IFRS 1) was issued in July 2009. The amendments are required to be applied for annual periods beginning on or after January 1, 2010. This is not relevant to the Group, as it is an existing IFRS preparer.
• "Group cash-settled share based payment transactions" (Amendment to IFRS 2) was effective from January 1, 2010. This is not relevant to the Group as it has not made any cash-settled share based payments.
• Improvements to International Financial Reporting Standards 2009 were issued in April 2009. The effective dates vary standard by standard but most are effective January 1, 2010.

(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the fi nancial year beginning January 1, 2010 and have not been early adopted:

• IFRS 9, "Financial instruments", issued in December 2009. This addresses the classifi cation and measurement of fi nancial assets and may affect the Group's accounting for its fi nancial assets. The standard is not applicable until January 1, 2013 but is available for early adoption. The Group is yet to assess IFRS 9's full impact.
• Revised IAS 24, "Related party disclosures", issued in November 2009. It supersedes IAS 24, "Related party disclosures", issued in 2003. The revised IAS 24 is required to be applied from January 1, 2011.
• "Classifi cation of rights issues" (Amendment to IAS 32), issued in October 2009. The amendment should be applied for annual periods beginning on or after February 1, 2010 but is not considered relevant to the Group.
• "Prepayments of a minimum funding requirement" (Amendments to IFRIC 14), issued in November 2009. The amendments are effective for annual periods beginning January 1, 2011. This is not considered relevant to the Group as it has no defi ned benefi t pension schemes.
• IFRIC 19, "Extinguishing fi nancial liabilities with equity instruments". This clarifi es the requirements of IFRSs when an entity renegotiates the terms of a fi nancial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the fi nancial liability fully or partially. The interpretation is effective for annual periods beginning on or after July 1, 2010 but is not considered relevant to the Group.
• Improvements to International Financial Reporting Standards 2010 were issued in May 2010. The effective dates vary standard by standard but most are effective January 1, 2011.

Basis of consolidation

(a) Subsidiaries

The Group consolidated fi nancial statements include the results of the Company and its subsidiary undertakings. Subsidiaries are all entities over which the Group has the power to govern the fi nancial and operating policies generally accompanying a shareholding of more than 50 per cent of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the cost of the acquisition over the fair value of the Group's share of the identifi able net assets acquired is recorded as goodwill.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred.

2 Summary of signifi cant accounting policies continued

The fi nancial statements of the subsidiaries and the Company are prepared for the same reporting year as the Group, in accordance with UK Generally Accepted Accounting Principles (UK GAAP). Adjustments are made on consolidation to bring into line any dissimilar accounting policies that may exist.

(b) Associates

An associate is an entity over which the Group is in a position to exercise signifi cant infl uence, but not control or joint control, generally accompanying a shareholding of between 20 and 50 per cent of the voting rights.

The results and assets and liabilities of the associates are incorporated in these fi nancial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate.

Any excess of the cost of acquisition over the Group's share of the fair values of identifi able net assets of the associate at the date of acquisition is recognised as goodwill.

Segmental reporting

The Group's internal organisational and management structure has been organised around its business units that specialise in the provision of secure communications for the news & entertainment and law enforcement & public safety markets.

An Executive Management Board under the chairmanship of the Chief Executive oversees the running of the Group. Each business unit has its own managing director who sits on the Executive Management Board together with the managing directors of Logistics and Technologies and the directors of HR and IT.

The chief operating decision-maker has been identifi ed as the Executive Management Board. This Board reviews the Group's internal fi nancial reporting in order to assess the operating performance of each business unit and allocate resources to them. The same information is provided to the Board of Directors of Vislink plc. Therefore the primary segmental reporting of operating profi ts has been aligned to the business units, which is consistent with the presentation of internal reporting provided to the Executive Management Board and the Board of Directors of Vislink plc.

Balance sheet reporting and operating results below the operating profi t line will continue to be disclosed by geographic location of the assets and liabilities as again this is consistent with the presentation of internal reporting provided to the Executive Management Board and the Board of Directors of Vislink plc.

Segmental reporting is also provided by reference to revenue by business unit and by geographic market.

Foreign currency translation

(a) Functional and presentation currency

Items included in the fi nancial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated fi nancial statements are presented in pounds sterling (GBP), which is the Company's functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions in the Company and its subsidiaries are translated into their functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income.

Other monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date and other non-monetary assets at the exchange rates ruling at the dates of the transactions.

2 Summary of signifi cant accounting policies continued

(c) Group companies

Trading results and fi nancial positions of all Group entities (none of which has the currency of a hyper-infl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate of exchange prevailing at the balance sheet date;
• income and expenditure for each income statement are translated at the average rates of exchange prevailing during the year;
• all resulting exchange differences arising from restatement of the opening balance sheets and trading results of overseas subsidiaries are recognised as a separate component of shareholders equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Intangible assets

(a) Goodwill

Goodwill represents the excess of the fair value of the purchase consideration for the interest in subsidiary undertakings over the fair value to the Group of the net tangible and intangible assets and any contingent liabilities acquired.

Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses are recognised for the amount by which an asset's carrying amount exceeds its recoverable amount; that recoverable amount is the higher of the asset's fair value less costs to sell and its value in use. Impairments of goodwill are not reversed. Gains and losses on the disposal of an entity will be net of the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purposes of impairment testing. The allocation is made to cash-generating units that are expected to benefi t from the business combination in which the goodwill arose. Goodwill is allocated to each business segment within the Group's segmental reporting.

Goodwill in associates is included in "investments in associates" and is tested for impairment as part of the overall balance.

(b) Acquired intangibles

Intangible assets acquired as part of business combinations are capitalised at fair value at the date of acquisition. Following the initial recognition, the carrying amount of an intangible asset is its cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged on the basis of the estimated useful life on a straight line basis and the expense is taken to the income statement (note 14).

The Group has recognised customer relationships, IPR and brands as separately identifi able acquired intangible assets. The useful economic life attributed to each intangible asset is determined at the time of acquisition and ranges from three to ten years.

(c) Research and Development costs

Research expenditure is written off as incurred.

Where development expenditure meets the criteria for capitalisation as set out in IAS 38 "Intangible Assets" the costs are capitalised and amortised over its useful economic life from the date of commercial manufacture of the product. The key eligibility criteria for capitalisation relate to:

• The identifi cation of development costs. In general the Group's research and development activities are closely inter-related and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs are separately identifi able; and
• The generation of future economic benefi t. Intangible assets are not recognised unless the resultant product is expected to generate future economic benefi t in excess of the amount capitalised.

2 Summary of signifi cant accounting policies continued

Development costs are amortised over the estimated useful life of the products with which they are associated. Amortisation commences when a new product is in commercial production. The average amortisation period is three years. If a product becomes unviable the deferred development costs are written-off.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

Depreciation is calculated in order to write off the cost of property plant and equipment, other than land, over their estimated useful lives by equal annual instalments using the following rate:

Freehold land and buildings	2% for buildings
	No depreciation on land
Leasehold improvements and fi xtures and fi ttings	The remaining term of the lease
Plant, tools, test and computer equipment	10%–33%

Group depreciation rates and the carrying values of property, plant and equipment are reviewed annually to consider their appropriateness. An asset's carrying value is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on the disposal of assets are determined by comparing the proceeds with the carrying amount and are recognised in administration expenses in the consolidated group income statement as they arise.

Leases

Operating leases are leases where the risks and rewards of ownership are retained by the lessor. Rentals payable under operating leases are charged to the income statement on a straight-line basis.

Inventory and work in progress

Inventory is stated at the lower of cost and net realisable value. Cost is based on normal levels of cost and activity and comprises cost of purchase and, where applicable, cost of conversion to current condition. Cost of purchase includes charges such as freight or duty where appropriate. Cost of conversion includes direct labour, direct expenses and fi xed and variable production overhead expenditure.

Net realisable value comprises the actual or estimated selling price (net of trade but before settlement discounts), less all further costs to completion, and less all costs to be incurred in marketing, selling and distribution.

Work in progress is stated net of amounts taken to cost of sales under long term contracts. The amount by which turnover exceeds a payment received on account is included in debtors as amounts recoverable on long term contracts. Payments on account in excess of work in progress are included in creditors as payments received on account.

Trade and other receivables

Trade receivables are initially recognised at fair value, being the original invoice amount, and subsequently measured at amortised cost less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Trade receivables that are less than three months past due are not considered impaired unless there are specifi c fi nancial or commercial reasons that lead management to conclude that the customer will default. Older debts are considered to be impaired unless there is suffi cient evidence to the contrary that they will be settled. The amount of the provision is the difference between the asset's carrying value and the present value of the estimated future cash fl ows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within sales and marketing expenses in the Consolidated Group income statement. When a trade receivable is uncollectible it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against sales and marketing expenses in the Consolidated Group income statement.

2 Summary of signifi cant accounting policies continued

Non-current assets classifi ed as held for sale

Non-current assets are classifi ed as held for sale when their carrying value is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable.

Cash and cash equivalents

Cash and short term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of less than three months, reduced by overdrafts to the extent that there is a right of offset against other cash balances.

For the purposes of the consolidated cash fl ow statement, cash and cash equivalents consist of cash and short term deposits as defi ned above net of outstanding bank overdrafts.

Share capital

Ordinary shares are classifi ed as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share premium account and are also classifi ed as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are deducted from the share premium account.

Where shares are issued in part or full consideration for the acquisition of more than 90 per cent of the issued share capital of another company, the excess of value attributed to the shares over the nominal value of shares issued is allocated to the merger reserve. The merger reserve is also classifi ed as equity.

Where any group company purchases the Company's equity share capital (treasury shares) the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such shares are reissued, any consideration received, net of any directly attributable incremental transaction costs, is included in equity attributable to the Company's equity holders.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classifi ed as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Borrowings

Borrowings are recognised at the fair value of proceeds received. Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs are expensed in the consolidated group income statement under the heading "fi nance costs". Arrangement and facility fees together with bank charges are charged to the income statement under the heading "administrative costs".

2 Summary of signifi cant accounting policies continued

Current and deferred taxation

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company's subsidiaries and associates operate and generate taxable income. Management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred corporation tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred tax liabilities are recognised in respect of all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in business combinations.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be suitable taxable profi ts against which the future reversal of the underlying temporary differences can be deducted. The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all, or part, of the tax asset to be utilised.

Deferred corporation tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the balance sheet date.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Employee benefi ts

(a) Pension obligations

The Group employees are members of defi ned contribution money purchase schemes where the obligations of Group companies are charged to the profi t and loss account as they are incurred. The Group has no further obligations once the contributions have been paid.

(b) Share-based compensation

The Group operates a number of equity-settled, share-based compensation plans, under which the Group receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

• including any market performance conditions (for example, the Group's share price);
• excluding the impact of any service and non-market performance vesting conditions (for example, profi tability, sales growth targets and remaining an employee of the entity over a specifi ed time period); and
• including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specifi ed vesting conditions are to be satisfi ed. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

2 Summary of signifi cant accounting policies continued

(c) Employee Share Ownership Plan

The Group's Employee Share Ownership Plan (ESOP) is a separately administered trust. The Company guarantees liabilities of the ESOP, and the assets of the ESOP mainly comprise shares in the Company. The assets, liabilities, income and costs of the ESOP have been included in the consolidated fi nancial statements of the Group.

Provisions

Provisions are made in respect of residual onerous long leasehold properties where expected future rental costs are in excess of expected income from subletting.

Provision is made for product warranty claims to the extent that the Group has a current obligation under warranties given. Warranty accruals are based on historic warranty claims experience. Provisions are discounted to their present value where the impact is signifi cant.

Provision is made for rationalisation costs to the extent that any restructuring of the Group, or any part thereof, has been announced prior to the end of the reporting period. Rationalisation costs include the costs of redundancy, outplacement fees and relocation where appropriate. Rationalisation costs are reported separately within the consolidated group income statement under the heading "other expenses".

Revenue recognition

(a) Sale of goods

Revenue represents net amounts receivable from outside customers for goods sold by Group companies in the ordinary course of business and excluding value added tax. Sales are recognised in accordance with IAS 18 "Revenue", when the signifi cant risks and rewards of ownership of the goods are transferred to the customer, the sales price agreed and the receipt of payment can be assured.

(b) Construction and long term contracts

Customer contracts that are expected to span more than one period end are recognised in revenue in accordance with IAS 11.

Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is measured by the proportion that contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.

Where the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

(c) Sales of services

Revenue from service contracts that are not accounted for as long term contracts under IAS 11 is recognised when all of the services have been provided to the customer. Related costs are deferred on the balance sheet and then recorded as a cost of sale when the revenue is recognised.

2 Summary of signifi cant accounting policies continued

(d) Interest income

Interest income is recognised on a time apportionment basis.

Derivative fi nancial instruments

The Group uses forward foreign currency contracts and currency swaps to reduce its exposure to foreign exchange rates. These fi nancial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. The fair value of a derivative contract is calculated on a marking to market basis at the balance sheet date and any resulting profi ts or losses are taken to the income statement.

The Group's policy prohibits the use of derivatives for speculation. The Group does not hold or issue fi nancial instruments for trading purposes.

None of the Group's derivative contracts qualify for hedge accounting.

Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's fi nancial statements in the period in which the dividends are approved by the Company's shareholders.

3 Financial risk management

Financial risk factors

The Group's activities expose it to a variety of fi nancial risks: market risk (foreign exchange risk and cash fl ow interest rate risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of the fi nancial markets and seeks to minimise the potential adverse effects on the Group's fi nancial performance.

Risk management policy is carried out through a central treasury function within the executive management team at the Group's head offi ce. The treasury function identifi es, evaluates and hedges fi nancial risks in close co-operation with the Group's operating units. The Board provides written principles for overall risk management whilst the central treasury function provides specifi c policy guidance for the operating units in terms of managing foreign exchange risk, credit risk, cash and liquidity management and the use of hedging instruments.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily between the US dollar and GBP. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

At a transactional level the UK business units have a broadly neutral exposure to foreign currency transactions, in that their revenues in Euros and US dollars match their purchases. Foreign currency bank accounts are maintained to minimise exchange risk by trading currencies into sterling only when forecast surpluses or defi cits are expected to arise. Approximately 30 per cent of the US businesses cost of goods sold comes from its fellow subsidiaries in the UK and is priced in US dollars. The fl ow of cash from the USA to the UK businesses is managed by central treasury through forward contracts and swaps in order to minimise the risk to the Group.

3 Financial risk management continued

The exchange risk to the Group in terms of its reported results lies in the translation of the results of the US business from US dollars to GBP and to a lesser extent historically on the translation of the results of HERNIS, the Norwegian business that was disposed of on December 30, 2010. The Group's accounting policy is to translate the profi ts and losses of overseas operations using the average exchange rate for the fi nancial year and the net assets and liabilities of overseas subsidiaries at the year end exchange rate. It continues to be the Group's policy not to hedge the foreign currency exposures on the translation of overseas profi ts or losses and net assets or liabilities to sterling as they are considered to be accounting rather than cash exposures.

The principal exchange rates used by the Group in translating overseas profi ts and net assets into GBP are set out in the table below.

Rate compared to GBP	Average rate 2010	Average rate 2009	Year end rate 2010	Year end rate 2009
US dollar	1.55	1.56	1.57	1.61
Norwegian krone	9.34	9.78	9.10	9.33

If the average rate for the US dollar was 5 cents (3.2 per cent) lower against the GBP with all other variables held constant, pre tax losses for the year would have been £342,000 higher (2009: losses higher by £84,000) as a result of foreign exchange losses on translation of US dollar denominated losses. The pre tax result is more sensitive in 2010 than in 2009 due to the higher level of foreign currency denominated trading losses.

If the year end US dollar was 5 cents (3.2 per cent) lower against the GBP, equity would have been £286,000 lower (2009: £543,000 lower) due to the foreign exchange gains on the translation of the net investments of the overseas operations.

The rate of 5 cents is used here to illustrate the sensitivity of the Group's results and equity to the value of the US dollar relative to GBP. Management regularly monitor the impact of changes in exchange rates on the forecast results of the Group.

(ii) Cash fl ow and interest rate risk

The Group has no signifi cant interest bearing assets; the Group's income and operating cash fl ows are substantially independent of changes in market interest rates.

On December 30, 2010 the Group repaid its interest bearing debt in full following the sale of HERNIS. This loan represented the Group's most signifi cant exposure to interest rate risk. Therefore looking forward into 2011 with net cash on the balance sheet the Group will be looking to maximise its investment returns from its cash balances. Full details of the Group's cash position are given in note 21 to the fi nancial statements.

Had the average interest rate been 100 basis points higher or lower in 2010 or 2009 then the Group's post tax losses would not have been materially different due to the relatively low level of net borrowings during the year.

The Group's policy in relation to the fi nance of its overseas operations requires that suffi cient liquid funds be maintained in each of its territory subsidiaries to support short and medium term operational plans. Where necessary, short term funding is provided by the holding company. In the UK the working capital bank facility and the management of liquid funds in excess of operational needs are controlled centrally. Typically excess funds are placed as short-term deposits, to provide a balance between interest earnings and fl exibility.

Where overseas acquisitions are made, it is the Group's policy to arrange any borrowings required in local currency.

It is the Group's policy not to trade in fi nancial instruments. The Group does not use interest rate swaps. The Group does not speculate in foreign currencies and no operating company is permitted to take unmatched positions in any foreign currency. The Group will use borrowings in currencies other than GBP where appropriate to specifi c transactions, such as overseas acquisitions. This policy has been in force throughout the fi nancial year and remains so.

3 Financial risk management continued

(b) Credit risk

Credit risk is managed on a group basis, except for credit risk relating to accounts receivable balances.

Each local subsidiary and operating business unit is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. It is the Group policy to obtain deposits from customers where possible, particularly overseas customers. In addition the Group will seek confi rmed letters of credit for the balances due. The nature of the customer base (for example national TV stations, government procurement agencies) makes the use of credit insurance inappropriate. Credit risk is managed at the operating business unit level and monitored at the Group level to ensure adherence to Group policies. If there is no independent rating, risk control assesses the credit quality of the customer, taking into account its fi nancial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored.

Credit risk also arises from cash and cash equivalents, derivative fi nancial instruments and deposits with banks and fi nancial institutions, as well as credit exposures to customers. For banks and fi nancial institutions, only independently rated parties with a minimum rating of "A" are accepted.

(c) Liquidity risk

The Group's liquidity risk management policy is to maintain suffi cient cash and available funding through an adequate amount of committed credit facilities from its bankers. Due to the dynamic nature of the underlying businesses, central treasury aims to maintain fl exibility in funding by keeping committed credit lines available, as disclosed in note 24.

The table below analyses the Group's non-derivative fi nancial liabilities and net-settled derivative fi nancial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash fl ows. In the case of deferred consideration the amount shown as payable between years 2 and 5 for December 31, 2010 is the total gross contractual liability should all performance criteria be met, not the estimated liability based on current and forecast performance.

	Less than 1 year £'000	Between 1 and 2 years £'000	Between 2 and 5 years £'000	Total £'000
At December 31, 2010:
Deferred consideration	623	800	2,700	4,123
Trade and other payables	12,218	–	–	12,218
At December 31, 2009:
Borrowings	136	6,948	–	7,084
Deferred consideration	2,065	1,708	2,435	6,208
Trade and other payables	20,612	–	–	22,612

Capital risk management

The Group's objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefi ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

Consistent with other businesses the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including "current and non-current borrowings" as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is the sum of net debt plus equity.

The Group is currently ungeared, having net cash at December 31, 2010. It is the stated strategy of the Group to grow both organically and through acquisition. Acquisitions would be funded through an appropriate combination of equity and borrowings. Future gearing would not be expected to exceed 50 per cent.

3 Financial risk management continued

Fair value estimation

The carrying value less impairment provision of trade receivables and payables are assumed to approximate to their book value. In the case of bank loans due in more than one year the fair value of the fi nancial liability is also assumed to be the current book value by virtue of the fact that any discounting applied would not be at a signifi cantly different discount rate as the current rate of interest being paid on the loans. In the case of other non-current liabilities due after more than one year the future cash fl ows are discounted in arriving at the book value and therefore book value equates to fair value. The fair value of forward exchange contracts is determined by using forward exchange rates at the balance sheet date.

4 Critical accounting estimates and judgements

In the process of applying the Group's accounting policies, management has made accounting judgements in the determination of the carrying value of certain assets and liabilities. Due to the inherent uncertainty involved in making assumptions and estimates, actual outcomes will differ from those assumptions and estimates. The following judgements have the most signifi cant effect on the amounts recognised in the fi nancial statements.

Acquired intangibles

Intangible assets (intellectual property rights, brands and customer relationships) were deemed to have been acquired as part of the net assets of Link Research Limited in 2005, Western Technical Services in 2007 and Pacifi c Microwave Research in 2008. These intangible assets were capitalised at their fair value at the date of acquisition. Determining the value of acquired intangibles required the calculation of estimated future cash fl ows expected to arise from the intangible assets at a suitable discount rate in order to calculate their present value. In addition an estimate of the useful life of the intangible asset has to be made, over which period the cash fl ows were expected to be generated. The carrying amount of acquired intangibles at the balance sheet date was £3.8 million (note 14).

Impairment of goodwill

Determining whether goodwill is impaired requires the estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate future cash fl ows expected to arise from the cashgenerating unit at a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date was £16.3 million. Details of the impairment review are provided in note 13. There was an impairment charge during the year of £5.4 million.

Deferred tax assets

The carrying value of deferred tax assets is dependent on suffi cient taxable profi ts being generated in certain territories in future periods. The carrying amount of deferred tax assets at the balance sheet date was £0.4 million (note 28). In addition there were £7.4 million of deferred tax assets not recognised.

Warranty provisions

Included within the balance sheet are warranty provisions amounting to £0.8 million (2009: £1.0 million) (note 27). Management believes that these provisions are adequate to cover the future risk of product warranty claims based on historic claims history applied to the current revenue levels.

Impairment of trade receivables

The carrying amount of receivables at year-end was £7.9 million (2009: £22.0 million), against which there was an impairment provision of £0.8 million (2009: £0.8 million) (note 19). Trade receivables that are less than three months past due are not considered impaired unless there are specifi c fi nancial or commercial reasons that lead management to conclude that the customer will default. Older debts are considered to be impaired unless there is suffi cient evidence to the contrary that they will be settled. Management believe that the provision is adequate to cover the risk of bad debts.

4 Critical accounting estimates and judgements continued

Inventory provisions

The carrying amount of inventory at year end was £7.4 million (2009: £15.7 million) after a provision for excess and obsolete inventory of £5.3 million (2009: £3.2 million) (note 17). During the year £0.2 million of the provision was utilised following the scrapping and sale of obsolete inventory. The provision was increased by £3.4 million as part of the ongoing provisioning review with the charge being made in the Consolidated Group income statement. Management believe that the provision is adequate to cover the risk of obsolete and excess inventory.

Share-based payments

A number of accounting estimates and judgements are incorporated within the calculation of the charge to the income statement in respect of share-based payments. These are described in more detail in note 29.

5 Segmental reporting

In 2009 the Group was reorganised into four international business units that were focused on providing secure communications to the customers that the Group served. In 2010 one of the business units, Marine & Energy, was sold and the US services business was put up for sale. As a result the Group has restated the prior year numbers so as to treat the Marine & Energy business and the US services business as discontinued activities. The remaining business units of News & Entertainment and Law Enforcement & Public Safety continue to be reported on within the following segmental analysis.

The Group's internal organisational and management structure is organised to refl ect the business unit structure. An Executive Management Board under the chairmanship of the Chief Executive oversees the running of the Group. Each business unit has its own managing director who sits on the Executive Management Board together with the managing directors of Logistics and Technologies and the directors of HR and IT. The costs of Technologies, HR and IT are all allocated to central costs.

The chief operating decision-maker has been identifi ed as the Executive Management Board for the purposes of determining the appropriate operating segments for the Group. This Board reviews the Group's internal fi nancial reporting in order to assess performance and allocate resources. The same information is provided to the Board of directors of Vislink plc. Management has therefore determined that the operating segments for the Group will be based on these reports.

The business unit managing directors are responsible for income statement performance down to the operating profi t level. They are also responsible for revenues by the geographic segments and product categories within their business unit. Thereafter the Group manages its operations by geographic location. Therefore fi nance costs, taxes and balance sheet items will continue to be disclosed by the geographic location of the related assets and liabilities of the Group as this is consistent with the presentation of internal reporting provided to the Executive Management Board and the Board of directors of Vislink plc.

5 Segmental reporting continued

The segment information provided to the Executive Management Board for the reportable continuing segments for the year ended December 31, 2010 is as follows:

News & Entertainment £000	Law Enforcement & Public Safety £000	Central £000	Total £000
31,629	6,547	–	38,176
(15,883)	(3,336)	–	(19,219)
(4,586)	(949)	–	(5,535)
11,160	2,262	–	13,422
(7,034)	(2,882)	–	(9,916)
–	–	(5,712)	(5,712)
–	–	(5,641)	(5,641)
4,126	(620)	(11,353)	(7,847)
–	–	(1,119)	(1,119)
–	–	(4,557)	(4,557)
–	–	(5,408)	(5,408)
4,126	(620)	(22,437)	(18,931)

5 Segmental reporting continued

				Inter-segmental
	UK	US	Norway	transactions	Central	Total
Segmental reporting by geographic location	£000	£000	£000	£000	£000	£000
Year ended December 31, 2010
Income statement:
External revenue	18,468	19,708	–	–	–	38,176
Inter-segmental revenue	3,030	1,579	–	(4,609)	–	–
Total revenue	21,498	21,287	–	(4,609)	–	38,176
Adjusted operating profi t	(1,230)	(4,431)	–	113	(2,299)	(7,847)
Amortisation of acquired intangibles	(153)	(966)	–	–	–	(1,119)
Goodwill impairment	(1,952)	(2,605)	–	–	–	(4,557)
Non-recurring costs	(1,046)	(3,761)	–	–	(601)	(5,408)
Finance costs	(145)	(438)	–	–	96	(487)
Investment income	–	1	–	–	–	1
(Loss) before taxation	(4,526)	(12,200)	–	113	(2,804)	(19,417)
Taxation	171	2,028	–	–	14	2,213
(Loss) for the year from continuing operations	(4,355)	(10,172)	–	113	(2,790)	(17,204)
Discontinued operations:
Profi t (loss) for the year from discontinued
operations	–	(1,470)	22,663	–	–	21,193
Profi t/(loss) for the year being loss attributable
to equity shareholders	(4,355)	(11,642)	22,663	113	(2,790)	3,989
Segment assets
Non current assets	14,147	13,731	–	–	757	28,635
Current assets	9,534	12,033	–	–	22,047	43,614
Total assets	23,681	25,764	–	–	22,804	72,249
Total liabilities	6,886	6,523	–	–	2,567	15,976
Total net assets	16,795	19,241	–	–	20,237	56,273
Other segment items
Capital expenditure	656	439	1,031	–	393	2,519
Capitalised development expenditure	890	2,032	58	–	–	2,980
Depreciation – continuing business	506	1,056	–	–	123	1,685
Depreciation – discontinued business	–	147	408	–	–	555
Amortisation and impairment of intangibles
– continuing business	4,067	5,617	–	–	–	9,684
Amortisation and impairment of intangibles
– discontinued business	–	1,713	37	–	–	1,750

Inter-segmental revenues represent the transfer of goods between US and UK subsidiaries at agreed transfer prices.

Central costs represent corporate expenses.

Segment assets include property, plant and equipment, goodwill, intangibles, inventories, trade receivables and operating cash. Segment assets exclude inter-segment investments. Segment liabilities comprise operating liabilities, taxation and segmental provisions for liabilities and charges. Segmental liabilities also include amounts owed to other segments and central.

Segmental capital expenditure comprises additions to property, plant and equipment. It excludes segmental additions resulting from acquisitions through business combinations.

5 Segmental reporting continued

Operating profi t by business unit	News & Entertainment £000	Law Enforcement & Public safety £000	Central £000	Total £000
Year ended December 31, 2009
Income statement:
External revenue	43,762	9,918	–	53,680
Material cost of sales	(20,963)	(4,396)	–	(25,359)
Logistics	(5,778)	(1,200)	–	(6,978)
Gross profi t	17,021	4,322	–	21,343
Sales and marketing expenses	(8,251)	(2,563)	–	(10,814)
Research and development costs	–	–	(6,281)	(6,281)
Administrative costs	–	–	(6,564)	(6,564)
Adjusted operating profi t/(loss)	8,770	1,759	(12,845)	(2,316)
Amortisation of acquired intangibles	–	–	(2,331)	(2,331)
Non-recurring costs	–	–	(942)	(942)
Operating profi t/(loss)	8,770	1,759	(16,118)	(5,589)

5 Segmental reporting continued

				Inter-segmental
Segmental reporting by geographic location	UK £000	US £000	Norway £000	transactions £000	Central £000	Total £000
Year ended December 31, 2009
Income statement:
External revenue	19,358	34,322	–	–	–	53,680
Inter-segmental revenue	4,297	1,428	–	(5,725)	–	–
Total revenue	23,655	35,750	–	(5,725)	–	53,680
Adjusted operating profi t/(loss)	(405)	304	–	382	(2,597)	(2,316)
Amortisation of acquired intangibles
and goodwill impairment	(1,364)	(967)	–	–	–	(2,331)
Non-recurring costs	(231)	(711)	–	–	–	(942)
Finance costs	(1)	(394)	–	–	(79)	(474)
Investment income	–	14	–	–	2	16
(Loss)/profi t before taxation	(2,001)	(1,754)	–	382	(2,674)	(6,047)
Taxation	584	(263)	–	(107)	553	767
(Loss)/profi t for the year from
continuing operations	(1,417)	(2,017)	–	275	(2,121)	(5,280)
Discontinued operations:
Profi t for the year from discontinued
operations	–	901	3,552	–	–	4,453
(Loss)/profi t for the year being loss
attributable to equity shareholders	(1,417)	(1,116)	3,552	275	(2,121)	(827)
Segment assets
Non-current assets	17,127	24,054	2,158	–	399	43,738
Investment in associate	–	–	224	–	–	224
Current assets	10,431	20,761	17,875	–	(1,611)	47,456
Total assets	27,558	44,815	20,257	–	(1,212)	91,418
Total liabilities	6,985	22,917	8,052	–	704	38,658
Total net assets	20,573	21,898	12,205	–	(1,916)	52,760
Other segment items
Capital expenditure	597	1,610	421	–	34	2,662
Capitalised development expenditure	854	2,260	83	–	–	3,197
Depreciation – continuing business	660	894	–	–	149	1,703
Depreciation – discontinued business	–	153	271	–	–	424
Amortisation and impairment of
intangibles – continuing business	2,208	2,008	–	–	–	4,216
Amortisation and impairment of intangibles – discontinued business	–	1,075	96	–	–	1,171

Central costs represent corporate expenses.

Segment assets include property, plant and equipment, goodwill, intangibles, inventories, trade receivables and operating cash. Segment assets exclude inter-segment investments. Segment liabilities comprise operating liabilities, taxation and segmental provisions for liabilities and charges. Segmental liabilities also include amounts owed to other segments and central.

Segmental capital expenditure comprises additions to property, plant and equipment. It excludes segmental additions resulting from acquisitions through business combinations.

5 Segmental reporting continued

Geographic external revenue analysis

The sales analysis in the table below is based on the geographical location of the customer for each business unit. The analysis of assets and capital expenditure is not relevant to this table as the geographic location of assets and liabilities follows that of the segments identifi ed above. There are no individual customers that represent more than 10 per cent of Group revenues.

			2010			2009
	News & Entertainment £000	Law Enforcement & Public Safety £000	Total £000	News & Entertainment £000	Law Enforcement & Public Safety £000	Total £000
By market:
UK and Ireland	2,812	80	2,892	4,449	381	4,830
Rest of Europe	5,990	243	6,233	6,285	171	6,456
United States of America	8,686	4,713	13,399	22,165	6,135	28,300
Canada	868	591	1,459	473	275	748
South America	3,483	599	4,082	1,830	494	2,324
Middle East	3,596	95	3,691	3,599	118	3,717
Asia	5,707	226	5,933	3,941	1,644	5,585
Africa	487	–	487	1,020	700	1,720
	31,629	6,547	38,176	43,762	9,918	53,680

6 Operating loss

The following items have been included in arriving at the operating (loss) for the continuing business:

	2010 £000	2009 £000
Depreciation of property, plant and equipment (note 15)	1,685	1,703
Amortisation of acquired intangibles (note 14)	1,120	2,331
Goodwill impairment (note 13)	4,557	–
Operating lease rentals	471	556
Loss/(profi t) on sale of property, plant and equipment	2	(738)
Repairs and maintenance expenditure on property, plant and equipment	49	295
Exchange losses charged to profi t and loss	14	44
Research and development expenditure:
– Expenditure	5,712	6,281
– Amortisation and impairment of development costs (note 14)	4,007	1,885

6 Operating loss continued

Non-recurring costs

The following items of unusual nature, size or incidence have been charged in arriving at the operating loss for the period and are described as non-recurring:

	2010 £000	2009 £000
(Profi t) from disposal of freehold property	–	(699)
Rationalisation and redundancy costs	374	1,219
Costs associated with the withdrawal from the Military Satcoms market	1,176	–
Onerous property commitments	(134)	422
Impairment of development costs capitalised associated with accelerated end of life	880	–
Inventory write-down associated with accelerated end of life	2,511
Aborted acquisition costs	601	–
	5,408	942

Following the reorganisation of the Group's operations into four international business units as described in note 5 above the Group has incurred further rationalisation and redundancy costs of £0.37 million (2009: £1.22 million) in the period. As part of the reorganisation the Law Enforcement & Public Safety business unit has withdrawn from the Military Satellite Communications market. As a result inventory and capitalised product development costs of £0.54 million and £0.64 million have been written off.

The Group reorganisation has also extended to the accelerated rationalisation of the microwave product range manufactured in the United States. As a result of the planned move to manufacture products in Asia a number of microwave product lines have been terminated earlier in their life cycle than would be normal and as a result inventory has been written down by £2.51 million and development costs associated with those products have been impaired by £0.88 million.

The Group explored the possibility of acquiring a business in Asia to which it would have transferred much of its manufacturing and which would have provided a base for further expansion into the region. The transaction was aborted in the light of discoveries at the end of due diligence. The costs incurred represent professional fees incurred up to the date of the process being aborted.

6 Operating loss continued

Services provided by the Group's auditor and network fi rms

During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditor at costs detailed below:

	2010 £000	2009 £000
Audit services
Fees payable to the Company's auditor for the audit of the Company's annual accounts	56	55
Fees payable to the Company's auditor and its associates for other services:
– The audit of the Company's subsidiaries pursuant to legislation	70	56
– Further assurance services pursuant to legislation	16	19
– Other services pursuant to legislation	402	3
Tax services
– Compliance services	21	21
– Advisory services	16	15
	581	169

Other services pursuant to legislation conducted by the auditors comprised Reporting Accountant work relating to the Class 1 circular sent to shareholders in respect of the disposal of HERNIS (£0.09 million) and Reporting Accountant work associated with the aborted acquisition described above (£0.30 million) which would have been a Class 1 transaction had it completed. This work was required by the listing rules of the UKLA.

A description of the work of the Audit Committee is set out in the corporate governance statement on page 30 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

7 Directors and employees

Staff costs during the year for the continuing business were as follows:

	2010 £000	2009 £000
Wages and salaries including termination benefi ts	12,825	14,885
Social security costs	1,114	1,270
Pension costs – defi ned contribution plans	319	497
Vislink Share Investment Plan contributions	23	56
Share-based payment (note 29)	182	346
	14,463	17,054

7 Directors and employees continued

The number of employees employed by the Group was as follows:

			2010			2009
	Continuing	Discontinued	Number	Continuing	Discontinued	Number
Average number of employees
Sales & Marketing N&E	46	–	46	66	–	66
Sales & Marketing LE&PS	16	–	16	18	–	18
Sales & Marketing M&E	–	20	20	–	16	16
Services	–	43	43	–	53	53
Technologies	53	28	81	71	28	99
Logistics	83	74	157	91	81	172
Central	38	17	55	37	14	51
	236	182	418	283	192	475

The average number of employees has been calculated on a pro rata basis from the date of disposal or acquisition of subsidiaries and businesses. The average number of employees includes directors with service contracts.

The average number of employees in HERNIS in 2010 was 139 (2009: 139). The average number of employees in WTS was 43 in 2010 (2009: 53).

The total number of employees at December 31, 2010 was 256 (2009: 475).

Key management compensation for the continuing business:

	2010 £000	2009 £000
Wages and salaries	1,706	2,711
Short term employee benefi ts	63	99
Pension costs – defi ned contribution plans	124	126
Termination benefi ts	79	371
Share-based payments (note 29)	182	346
	2,154	3,653

The analysis of key management compensation above includes executive directors but excludes the senior management of the discontinued businesses. Key management is defi ned as the senior management teams in each of the business units of the Group. Details of directors emoluments are included in the Remuneration report on pages 22 to 27.

8 Finance costs – net

	2010 £000	2009 £000
Interest payable on bank borrowing	(316)	(245)
Unwinding of interest associated with the discounting of deferred consideration (note 25)	(171)	(229)
Finance costs	(487)	(474)
Finance income	1	16
Finance costs – net	(486)	(458)

Investment income is derived from cash held on deposit.

9 Income tax expense

a) Analysis of the tax charge in period 2010 £000 2009 £000 Current tax UK corporation tax – prior year adjustment (21) (199) Foreign tax – current year (1,127) (1,283) Foreign tax – prior year adjustment 390 557 Total current tax (758) (925) Deferred tax UK corporation tax (88) (586) Foreign tax (1,367) 744 Total deferred tax (1,455) 158 Total taxation (2,213) (767)

UK Corporation tax is calculated at 28.0 per cent (2009: 28.0 per cent) of the estimated assessable profi t for the year. Foreign corporation taxes for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

Deferred tax has been calculated at the rate of 27.0 per cent (2009: 28.0 per cent). There was not a material impact on the deferred tax charge as a result of the change in deferred tax rates.

There is no tax impact associated with items that have been taken directly to equity. There is no tax impact for the Group associated with the dividend proposed (note 11).

b) Factors affecting tax charge for period

The current tax charge for the period is higher (2009: higher) than profi t on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 28 per cent (2009: 28 per cent).

The differences are explained below:

	2010 £000	2009 £000
(Loss) on ordinary activities before tax	(19,417)	(6,047)
(Loss) on ordinary activities before tax multiplied
by the standard rate of UK corporation tax	(5,437)	(1,693)
Effects of:
Adjustment in respect of prior years	390	414
Adjustment for foreign tax rates	(819)	117
Goodwill impairment and intangibles (not deductible for tax purposes)	955	–
Other permanent differences (expenses not deductible for corporation tax purposes)	85	(128)
Other timing differences	–	7
Carried forward unrecognised losses	2,613	516
Total taxation	(2,213)	(767)

A number of changes to the UK corporation tax system were announced in the June 2010 Budget Statement. The Finance (No 2) Act 2010, which was substantively enacted on July 20, 2010, includes legislation reducing the main rate of corporation tax from 28 per cent to 27 per cent from April 1, 2011. Further reductions are proposed to reduce the rate by one per cent per annum to 24 per cent by April 1, 2014.

10 Discontinued operations

On December 29, 2010 Shareholders approved the disposal of the entire issued share capital of HERNIS Scan Systems AS ("HERNIS") to Cooper Industries Inc. for £32.5 million. The disposal was completed on December 30, 2010. The amount of cash left in the business after working capital adjustments following completion of the sale was £2.5 million.

On November 19, 2010 the Group announced it was proposing to dispose of the Services business, Western Technical Services ("WTS").

Both WTS and HERNIS are treated as discontinued activities in the current year and the prior year income statement comparatives have been restated. The analysis of the result of discontinued operations is as follows:

			2010			2009
	HERNIS £000	WTS £000	Total £000	HERNIS £000	WTS £000	Total £000
Revenue	24,996	4,948	29,944	31,758	9,239	40,997
Expenses	(21,582)	(5,488)	(27,070)	(26,895)	(6,914)	(33,809)
Amortisation of acquired intangibles	–	(908)	(908)	–	(1,075)	(1,075)
Goodwill impairment	–	(805)	(805)	–	–	–
Finance costs (net)	108	16	124	5	(14)	(9)
Profi t before tax of
discontinued operations	3,522	(2,237)	1,285	4,868	1,236	6,104
Tax	(866)	(38)	(904)	(1,316)	(335)	(1,651)
Profi t after tax of discontinued operations	2,656	(2,275)	381	3,552	901	4,453
Pre-tax gain recognised on disposal of the assets of HERNIS	20,812	–	20,812	–	–	–
After tax gain recognised on the disposal of the assets of HERNIS	20,812	–	20,812	–	–	–
Profi t for the year from discontinued operations	23,468	(2,275)	21,193	3,552	901	4,453

The cash fl ows relating to the discontinued activities were as follows:

			2010			2009
	HERNIS £000	WTS £000	Total £000	HERNIS £000	WTS £000	Total £000
Operating cash fl ows	2,282	337	2,619	4,953	29	4,982
Investing cash fl ows	1,123	(58)	1,065	(535)	(350)	(885)
Financing cash fl ows	–	(126)	(126)	–	105	105
Total cash fl ow	3,405	153	3,558	4,418	(216)	4,202

Financing cash fl ows exclude dividends paid to Vislink Group companies.

10 Discontinued operations continued

The assets and liabilities of WTS have been presented as an asset held for sale following the Groups announcement that it proposes to sell the business as follows:

(a) Assets of WTS classifi ed as held for sale

	2010 Total £000	2009 Total £000
Property plant and equipment	431	–
Intangible assets	954	–
Inventory	117	–
Other current assets	803	–
Total	2,305	–

(b) Liabilities of WTS classifi ed as held for sale

	2010 Total £000	2009 Total £000
Trade and other payables	415	–
Other current liabilities	634	–
Total	1,049	–

11 Dividends and returns to shareholders

	2010 £000	2009 £000
Final dividend paid of 1.25p per share (2009: 1.25p per share)	1,720	1,720

The directors are proposing a fi nal dividend in respect of the fi nancial year ending December 31, 2010 of 1.25 pence per share which will absorb an estimated £1.72 million of shareholders' funds. It will be paid on July 15, 2011 to shareholders who are on the register of members on June 24, 2011.

In addition the directors are proposing to return part of the proceeds from the sale of HERNIS to shareholders by way of an on-market tender offer, subject to shareholder approval at a General Meeting to be held on April 8, 2011. A circular was sent to shareholders on March 23, 2011 explaining the proposal. Up to £5.0 million will be returned to shareholders.

12 Earnings per ordinary share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

As the average market price for 2010 and 2009 was below that of all share option prices share options have no dilutive effect and therefore the diluted earnings per share matches the basic earnings per share.

			2010			2009
	Earnings £000	Weighted average number of shares 000s	Earnings per share pence	Earnings £000	Weighted average number of shares 000s	Earnings per share pence
Basic and diluted earnings per share
(Loss) attributable to
ordinary shareholders from
continuing activities	(17,204)	138,594	(12.4)p	(5,280)	138,594	(3.8)p
Profi t from discontinued operations
attributable to ordinary shareholders	21,193	138,594	15.3p	4,453	138,594	3.2p
Profi t/(loss) attributable to
ordinary shareholders	3,989	138,594	2.9p	(827)	138,594	(0.6)p

Adjusted earnings

The directors believe that adjusted operating profi t, adjusted profi t before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term "adjusted" is not a defi ned term under IFRS and may not therefore be comparable with similarly titled profi t measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles, impairment of goodwill and non-recurring costs and their related tax effects. In 2009 there was a signifi cant prior year tax adjustment that related to the periods 2002 to 2007 that was also excluded as it had a material effect on the consolidated Group tax charge for that year.

The reconciliation between reported and underlying earnings and basic earnings per share is shown below:

		2010		2009
	£000	Pence	£000	Pence
Reported (loss)	(17,204)	(12.4)p	(5,280)	(3.8)p
Amortisation of acquired intangibles after tax	806	0.6p	1,632	1.2p
Impairment of goodwill	4,557	3.3p	–	–
Non-recurring costs after tax	4,702	3.4p	678	0.5p
Prior year adjustment for foreign tax	–	–	557	0.4p
Adjusted (loss)	(7,139)	(5.1)p	(2,413)	(1.7)p

13 Goodwill

	News & Entertainment £000	Law Enforcement & Public safety £000	Services £000	Total £000
Cost
At January 1, 2009	24,713	6,907	5,141	36,761
Exchange adjustment	(756)	(592)	(260)	(1,608)
At January 1, 2010	23,957	6,315	4,881	35,153
Adjustments (note 25)	–	(2,258)	(425)	(2,683)
Transfer to non-current assets held for sale	–	–	(1,749)	(1,749)
Exchange adjustment	176	167	66	409
At December 31, 2010	24,133	4,224	2,773	31,130
Aggregate impairment
At January 1, 2009	7,982	924	1,562	10,468
Exchange adjustment	(129)	(18)	–	(147)
At January 1, 2010	7,853	906	1,562	10,321
Impairment – continuing business	–	3,347	1,210	4,557
Impairment – discontinued business	–	–	805	805
Transfer to non-current assets held for sale	–	–	(795)	(795)
Exchange adjustment	28	(29)	(9)	(10)
At December 31, 2010	7,881	4,224	2,773	14,878
Net book value
At December 31, 2010	16,252	–	–	16,252
At December 31, 2009	16,104	5,409	3,319	24,832
At January 1, 2009	16,731	5,983	3,579	26,293

Historic goodwill acquired in a business combination was allocated, at acquisition, to the cash-generating units (CGUs) that were expected to benefi t from that business combination. As a result of the reorganisation of the Group at the start of 2009 the historic goodwill was reallocated to each business unit.

Goodwill impairment testing:

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amount of CGUs are determined from value in use calculations. The key assumptions for value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that refl ect current market assessments of the time value of money and the risks specifi c to the CGUs. The growth rates are based on management's expectations sourced from the Group's strategic plans, and thereafter a terminal growth rate is used. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

13 Goodwill continued

For each business unit the goodwill was reviewed for impairment as at December 31, 2010 in accordance with IAS 36, "Impairment of Assets". The basis for the review was to assess the strategic plans for each business unit and to discount the related future expected cash fl ows in accordance with IAS 36. In assessing the appropriate discount rate, the Group has considered market conditions, expectation of return by shareholders as well as its own cost of borrowing. The discount rate applied was 8.5 per cent (2009: 8.6 per cent). The Board considered it appropriate to use the same discount rate for both News & Entertainment (N&E) and Law Enforcement and Public Safety (LEPS).

In the case of the N&E business unit the Board considered the estimated discounted cash fl ows after the allocation of both R&D and operational administrative costs (but excluding Group management costs) from the business plan for the next two years. Thereafter revenue growth at the rate of 3 per cent was assumed to be reasonable. The Board also applied various sensitivity analyses to the expected cash fl ows, paying particular regard to shortfalls in sales growth and anticipated margin improvements. Having reviewed all the relevant calculations and the sensitivities the Board concluded that there had been no impairment in the goodwill associated with the N&E business unit. Inherent in the growth rates used in the impairment calculation are assumptions concerning successfully growing business in existing geographic markets at the rate of 3 per cent per annum from the level achieved in 2010. The impairment test for the News & Entertainment business unit indicated headroom of £8.6 million (40 per cent).

In the case of the LEPS business unit the Board considered the estimated discounted cash fl ows using the same methodology as for N&E. The Board reviewed the business plan for the next two years and thereafter a growth rate of 3 per cent per annum was considered reasonable. The Board also applied various sensitivity analyses to the expected cash fl ows, paying particular regard to the impact of short falls in anticipated sales growth in the next two years and anticipated margin improvements. The Board also considered the performance of the business unit relative to the prior year projections used in the impairment review last year. Having reviewed all the relevant calculations and the sensitivities the Board concluded that there has been a £3.3 million impairment in the goodwill associated with the LEPS business unit. This is based on achieving a weighted average revenue growth rate of 30 per cent over the next two years, (equivalent to a weighted average growth of 6 per cent growth on the 2009 revenue).

The goodwill in the Services business unit comprises two elements; the goodwill associated with WTS and that associated with the international fi xed earth station business that is managed out of the UK. For the Services business unit, the impairment review was based on the Board's assessment of the likely net proceeds from the sale of WTS relative to the book value of the net assets of the business plus the value of goodwill. The Board assessed that, in the current economic environment, the goodwill associated with the WTS had been impaired by £0.8 million. The Board considered that the £1.2 million goodwill associated with the international services business, which has been absorbed into N&E from January 2011 no longer has a value as the business needs to be rebuilt through the N&E business unit after two years of weak trading.

14 Intangible assets

	Customer relationships £000	Intellectual property £000	Brand £000	Development costs £000	Total £000
Cost
At January 1, 2009	10,989	3,720	768	13,532	29,009
Additions	542	–	–	3,197	3,739
Exchange adjustment	(864)	–	(84)	(988)	(1,936)
At January 1, 2010	10,667	3,720	684	15,741	30,812
Additions	–	–	–	2,980	2,980
Disposals	–	–	–	(2,106)	(2,106)
Disposal through sale of business	–	–	–	(621)	(621)
Exchange adjustment	216	–	19	281	516
At December 31, 2010	10,883	3,720	703	16,275	31,581
Aggregate amortisation
At January 1, 2009	3,285	2,892	26	7,825	14,028
Charge for the period – continuing business	1,516	744	71	1,885	4,216
Charge for the period – discontinued business	1,075	–	–	96	1,171
Exchange adjustment	(157)	–	(5)	(633)	(795)
At January 1, 2010	5,719	3,636	92	9,173	18,620
Charge for the period – continuing business	965	84	71	2,592	3,712
Charge for the period – discontinued business	908	–	–	37	945
Impairment charge	–	–	–	1,415	1,415
Disposals	–	–	–	(2,106)	(2,106)
Disposal through sale of business	–	–	–	(410)	(410)
Exchange adjustment	54	–	1	168	223
At December 31, 2010	7,646	3,720	164	10,869	22,399
Net book value
At December 31, 2010	3,237	–	539	5,406	9,182
At December 31, 2009	4,948	84	592	6,568	12,192
At January 1, 2009	7,704	828	742	5,707	14,981

The estimated useful life for the intellectual property and customer relationships acquired with the business of Link Research Limited has been determined to be fi ve years based on the expected future cash fl ows that they would generate in arriving at their fair value. The estimated useful life of the customer relationships associated with the business of WTS has been estimated to be four years on the same basis. These assets are now fully written-down, having had an original cost of £9.3 million.

The remaining net book value of brand and customer relationships were acquired with the business of PMR and are associated with the Law Enforcement & Public Safety business unit. The estimated useful lives had been determined to be ten years and six years respectively based on the expected future cash fl ows that they would generate in arriving at their fair value.

Development costs are amortised over the estimated useful life of the products with which they are associated. Amortisation commences when a new product is in commercial production. The average amortisation period is three years. During the year an incremental impairment charge of £1.4 million was made in respect of accelerated amortisation for products where the Group has terminated the product life cycle earlier than normal (see note 6).

The amortisation of development costs is included in research and development costs in the Consolidated Group Income Statement. The amortisation of intellectual property and customer relationships is included in administrative costs and referred to as the amortisation of acquired intangibles. Within development costs there are £4.8 million (2009: £1.4 million) of fully written-down assets that are still in use.

Amortisation of customer relationships, brands and IPR are all charged to other expenses in the Consolidated Group income statement.

	Freehold land and buildings £000	Leasehold improvements fi xtures and fi ttings £000	Plant, tools, test and computer equipment £000	Total £000
Cost
At January 1, 2009	4,806	1,587	11,736	18,129
Additions	196	181	2,285	2,662
Transfer to non-current assets held for sale	(1,477)	–	–	(1,477)
Disposals	(833)	(363)	(1,085)	(2,281)
Exchange adjustment	(49)	(99)	(1,106)	(1,254)
At January 1, 2010	2,643	1,306	11,830	15,779
Additions	708	440	1,371	2,519
Transfer to assets classifi ed as held for sale	–	–	(1,298)	(1,298)
Disposals	–	(474)	(946)	(1,420)
Disposal of discontinued business	(2,495)	–	(2,838)	(5,333)
Exchange adjustment	75	32	231	338
At December 31, 2010	931	1,304	8,350	10,585
Accumulated depreciation
At January 1, 2009	1,514	948	8,695	11,157
Charge for the period – continuing business	59	402	1,242	1,703
Charge for the period – discontinued business	61	–	363	424
Transfer to non-current assets held for sale	(778)	–	–	(778)
Disposals	(228)	(193)	(1,014)	(1,435)
Exchange adjustment	(29)	(77)	(942)	(1,048)
At January 1, 2010	599	1,080	8,344	10,023
Charge for the period – continuing business	122	192	1,371	1,685
Charge for the period – discontinued business	74	–	481	555
Transfer to assets classifi ed as held for sale	–	–	(868)	(868)
Disposals	–	(474)	(640)	(1,114)
Disposal of discontinued business	(657)	–	(2,014)	(2,671)
Exchange adjustment	16	26	140	182
At December 31, 2010	154	824	6,814	7,792
Net book value
At December 31, 2010	777	480	1,536	2,793
At December 31, 2009	2,044	226	3,486	5,756
At January 1, 2009	3,292	639	3,041	6,972

15 Property, plant and equipment

There are no assets with held under fi nance leases or hire purchase contracts at December 31, 2010 (2009: £nil) within property, plant and equipment.

The Group has pledged land and buildings having a carrying amount of approximately £0.35 million (2009: £0.35 million) to secure banking facilities granted to the Group.

16 Investment in associates

	2010 £000	2009 £000
At January 1	224	204
Share of post-acquisition profi t, net of dividends received included in discontinued operations	12	2
Disposal through sale of business	(242)	–
Exchange adjustments	6	18
At December 31	–	224

On December 30, 2010 the Group disposed of its interest in Wireless Power and Communications AS as part of the sale of the HERNIS Scan Systems AS.

The Group's share of the results of its associate, which is unlisted, and its share of the aggregate assets and liabilities are as follows. The associates results are included within the profi t for the year from discontinued activities.

	% interest in ordinary shares	Assets £000	Liabilities £000	Revenues £000	Profi t/(Loss) £000
Wireless Power and Communications AS:
December 31, 2010	0.0%	–	–	–	(12)
December 31, 2009	34.2%	147	(74)	145	2

17 Inventories

	2010 £000	2009 £000
Raw materials and consumables	5,844	11,970
Work in progress	239	1,197
Finished goods and goods for resale	1,315	2,488
	7,398	15,655

During the year the Group consumed £19.2 million (2009: £25.4 million) of inventories and charged £3.4 million (2009: £0.7 million) to the income statement in respect of inventory write-downs.

Inventories with a carrying value of £2.7 million (2009: £3.3 million) have been pledged as security for the Group's bank borrowings and facilities.

18 Construction contracts

	2010 £000	2009 £000
Contracts in progress at the balance sheet date:
Amounts recoverable on contract revenue included in trade and other receivables	–	1,063
Advances in excess of revenue included in trade and other payables	–	1,258
Contract costs incurred plus recognised profi ts less recognised losses to date	–	1,800

During the year the Group has recognised revenue of £4.6 million (2009: £2.3 million) from construction contracts in the continuing business.

19 Trade and other receivables

	2010	2009
	£000	£000
Amounts due within one year:
Trade receivables	7,862	22,016
Less: provision for impairment	(821)	(845)
Trade debtors – net	7,041	21,171
Other debtors	3,106	541
Prepayments and accrued income	770	2,026
	10,917	23,738

Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large and unrelated. Due to this management believes there is no further credit risk provision required in excess of the normal provision for doubtful receivables. The value of fully performing receivables at December 31, 2010 is £3.6 million (2009: £14.4 million).

Trade receivables that are less than three months past due are not considered impaired unless there are specifi c fi nancial or commercial reasons that lead management to conclude that the customer will default. At December 31, 2010 trade receivables of £4.2 million (2009: £7.6 million) were past due but not impaired. The credit quality of the Group's customers is good, being a combination of large broadcast stations (public and private), government agencies and departments. Controls within Group companies are in place to ensure that appropriate credit limits are in place. The overdue amounts relate to customers with no history of default. The ageing of these receivables is as follows:

	2010 £000	2009 £000
Up to three months	3,652	4,544
Three to six months	160	2,463
Over six months	355	543
	4,167	7,550

At December 31, 2010 trade receivables of £0.8 million (2009: £0.9 million) were impaired and provided for in whole or in part. The provision of £0.8 million (2009: £0.8 million) is set against specifi c customer debts. In general customer debts that are considered impaired are as a result of contractual disputes rather than as a result of customer cash fl ow diffi culties, although some specifi c customers in the US, for which the debts have been provided in full, have fi led for relief from its creditors under Chapter 11 in the United States. The ageing of these receivables is as follows:

	2010 £000	2009 £000
Up to three months	–	39
Three to six months	–	14
Over six months	821	824
	821	877

19 Trade and other receivables continued

The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:

	2010 £000	2009 £000
Pounds sterling	2,388	5,375
US dollars	5,430	11,845
Norwegian krone	–	3,378
Euros	44	807
Other currency	–	611
	7,862	22,016

Movements on the Group provision for impairment of trade receivables is as follows:

	2010 £000	2009 £000
At January 1	845	1,073
Provision for receivable impairment	246	68
Receivables written-off during the year as uncollectible	(205)	(208)
Transfer to assets held for sale	(45)	–
Reduction on sale of business	(33)	–
Exchange adjustment	13	(88)
At December 31	821	845

The creation and release of provision for impaired receivables have been included in "selling and marketing costs" in the income statement. Amounts charged to the allowance account are generally written-off, when there is no expectation of recovering additional cash.

The other classes within trade and other receivables do not contain impaired assets.

Other debtors include deferred consideration in respect of the disposal of HERNIS Scan Systems AS.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security.

20 Non-current assets held for sale

	2010 £000	2009 £000
Freehold property	–	461

The Group had a legacy freehold property in Pittsburgh, USA. This property was sold during the current fi nancial year at its book value.

21 Cash and cash equivalents

	2010 £000	2009 £000
Cash at bank and in hand (including restricted cash held in escrow)	17,315	394
Short term bank deposits	4,915	7,029
	22,230	7,423

Cash of £4.9 million (2009: £nil) is held in an escrow account. The cash is held in escrow to be able to satisfy any potential claims by the buyer of HERNIS under the terms of the sale and purchase agreement for breaches of warranties and indemnities. The cash will be released from this account on June 30, 2012.

The effective interest rate on short term deposits was 0.50 per cent (2009: 1.75 per cent) and these deposits have an average maturity of 28 days (2009: 28 days).

The credit quality of the cash and cash equivalents that are not impaired can be assessed by reference to the external credit ratings of the banks where the deposits are held.

2010 Credit rating (S&P) £000	2009 £000
AA 15,811	–
A+ 50	4,889
A+/A-1 4,875	2,534
A 1,494	–
Total 22,230	7,423

22 Trade and other payables

	2010 £000	2009 £000
Payments received on account	–	2,830
Trade payables	6,348	9,445
Accruals and deferred income	5,586	7,193
Other taxes and social security costs	271	1,136
Deferred consideration for acquisitions	623	2,065
Other	13	8
	12,841	22,677

23 Current tax assets and liabilities

	2010 £000	2009 £000
Current tax liabilities
Foreign corporation tax	–	1,173
Current tax assets
Foreign corporation tax	764	179

24 Financial liabilities – borrowings

	2010 £000	2009 £000
Non-current:
Bank loans (secured)	–	6,812

The bank facilities are secured by fi xed and fl oating charges over the Group's assets and by cross-guarantees between the Company and certain UK and US subsidiaries.

Bank loans bear interest at fl oating rates detailed below. No interest is borne on other fi nancial liabilities totalling £0.8 million which comprise provisions for warranty costs, rationalisation and legacy property costs as described in note 27. Other than a warranty provision of US\$0.6 million (£0.4 million) provisions are denominated in GB pounds sterling.

The Group does not use interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. The effective interest rates at the balance sheet dates were as follows:

	2010	2009
Bank overdraft	2.75%	2.75%
Bank borrowings	n/a	1.26%

25 Other non-current liabilities

	2010 £000	2009 £000
Deferred consideration for acquisitions	1,177	4,143

The Vendors of Western Technical Services are entitled to deferred consideration calculated on the basis of the fi nancial trading performance of the business. The maximum deferred consideration that can be earned is US\$3.0 million (£2.1 million) between 2008 and 2010, with payments being made within three months of the end of each fi nancial year. The deferred consideration has been discounted to its present value at the rate of 6.75 per cent, being the rate applying at the date of the acquisition.

The Vendors of Pacifi c Microwave Research are entitled to deferred consideration calculated on the basis of the sales performance of the business. The maximum deferred consideration that can be earned is US\$7.0 million (£4.9 million) between September 2008 and September 2012, with payments being made within three months of the end of each fi nancial year. The deferred consideration has been discounted to its present value at the rate of 3.5 per cent being the rate applying at the date of the acquisition.

During 2010 £171,000 (2009: £229,000) of discount has unwound and has been charged to fi nance costs in respect of deferred consideration (note 8). Of this, £130,000 relates to the acquisition of PMR, £41,000 for WTS. Deferred consideration payments of £1,629,000 were made during the year (2009: £484,000). The current portion of deferred consideration is shown in trade and other payables, (note 22).

During 2010 deferred consideration was reduced by a £2.7 million (2009: £nil) following a review of the likely maximum consideration that can be earned. Of this, £2.3 million relates to the acquisition of PMR and £0.4 million in respect of WTS. Goodwill was reduced by the same amounts (note 13).

26 Financial instruments

Numerical fi nancial instrument disclosures are set out below. Additional disclosures are set out in the accounting policies (notes 2 to 4) and also in note 24.

Financial instruments by category

			2010			2009
	Assets at fair value through profi t and loss £000	Loans and receivables £000	Total £000	Assets at fair value through profi t and loss £000	Loans and receivables £000	Total £000
Assets as per balance sheet at December 31,
Trade and other receivables excluding prepayments	–	10,147	10,147	–	21,712	21,712
Cash and cash equivalents	–	22,230	22,230	–	7,423	7,423
Total	–	32,377	32,377	–	29,135	29,135

Other than cash held in escrow (note 21) there are no fi nancial assets that are pledged as collateral for liabilities or contingent liabilities.

			2010			2009
	Liabilities at fair value through profi t and loss £000	Other fi nancial liabilities at amortised cost £000	Total £000	Liabilities at fair value through profi t and loss £000	Other fi nancial liabilities at amortised cost £000	Total £000
Liabilities as per balance sheet at December 31,
Bank borrowings	–	–	–	–	6,812	6,812
Trade and other payables excluding statutory liabilities	–	12,570	12,570	–	21,541	21,541
Non-current deferred consideration	–	1,177	1,177	–	4,143	4,143
Total	–	13,747	13,747	–	32,496	32,496

Currency derivatives

The Group, from time to time, utilises currency derivates in the form of forward contracts and currency swaps to hedge signifi cant future transactions and cash fl ows. Forward contracts and currency swaps are primarily denominated in the currencies of the Group's principal markets. All of the currency derivatives are valued using inputs other than quoted prices that are directly observable for the asset or liability. This is the Level 2 method of determining fair value as defi ned by IFRS 7. There were no currency derivatives outstanding at December 31, 2010 (2009: nil).

Trading derivatives are classifi ed as a current asset or liability as the maturity of the forward contracts is within 12 months.

At the balance sheet date the Group had no outstanding contracts to sell US dollars or Euros under forward contracts. In 2009 these contracts were in place to address specifi c exchange exposures in the fi rst half of 2010.

At the balance sheet date the Group held no currency swaps (2009: 20.0 million Norwegian krone into GB£). In 2009 the value of the future cash fl ow under the contract was £2.1 million based on the rates applying at the balance sheet date. There was no material difference between the swap rate and the year end exchange rate.

26 Financial instruments continued

Maturity of fi nancial liabilities

The maturity profi le of the carrying amounts of the Group's non-current fi nancial liabilities is as follows. The amounts at December 31, 2010 are in respect of deferred consideration payments. The amount due within one year has been determined relative to the 2010 fi nancial year results and is payable within 30 days of the signing of these fi nancial statements. The amounts due after one year are dependent on the fi nancial performance of the Law Enforcement and Public Safety business as described in note 25.

			2010			2009
	Debt £000	Other fi nancial liabilities £000	Total £000	Debt £000	Other fi nancial liabilities £000	Total £000
In more than one year but not more
than two years	–	500	500	–	1,708	1,708
In more than two years but not more
than fi ve years	–	677	677	6,812	2,435	9,247
	–	1,177	1,177	6,812	4,143	10,955

Borrowing facilities

The Group had the following undrawn committed borrowing facilities available at December 31.

	2010 £000	2009 £000
Expiring within one year	–	8,500
Expiring in more than one year but
not more than two years	–	3,188
	–	11,688

The facilities expiring within one year comprise the Group overdraft, bonding and ancillary facility that are subject to review during 2011 in the normal course of business.

The Group's facilities include a gross bank overdraft facility of £8.0 million, net limit of £nil. Interest on the overdraft facility is charged at 2.25 per cent over base rate.

Prudent liquidity risk management implies maintaining suffi cient cash and available funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, group treasury aims to maintain fl exibility in funding by keeping committed credit lines available.

27 Provisions for other liabilities and charges

	Warranty Provisions £000	Property Provisions £000	Rationalisation Provisions £000	Total £000
At January 1, 2010	979	403	91	1,473
Charged/(credited) during the year	377	(134)	–	243
(Utilised) during the year	(608)	(224)	(91)	(923)
Exchange adjustment	20	–	–	20
At December 31, 2010	768	45	–	813
At January 1, 2009	1,361	–	–	1,361
Charged during the year	348	422	1,195	1,965
(Utilised) during the year	(650)	(19)	(1,104)	(1,773)
Exchange adjustment	(80)	–	–	(80)
At December 31, 2009	979	403	91	1,473

Provisions have been analysed between current and non-current as follows:

	2010 £000	2009 £000
Current	514	1,093
Non-current	299	380
	813	1,473

Warranty provisions are made in respect of the expected future warranty costs in certain businesses based on historic actual costs. Warranty periods on products are generally between one and two years. Other than a warranty provision of US\$0.6 million (£0.4 million) all provisions are denominated in sterling.

Property provisions are in respect of vacated lease premises and represent the future liabilities associated with the property to the end of the lease, net of anticipated income from sub-letting.

Rationalisation provisions are in respect of future liabilities for committed reorganisation costs at the balance sheet dates, including severance payments.

28 Deferred taxation

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which the deferred tax liability or asset has arisen.

Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as recoverable against future profi ts.

No deferred tax is recognised on unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the group no tax is expected to be payable on them in the foreseeable future.

The movement on the deferred tax asset and liability accounts are shown below:

	Accelerated tax depreciation £000	Intangible assets £000	Other £000	Total £000
Deferred tax liabilities
At January 1, 2010	1,988	130	262	2,380
(Credited)/charged during the year – continuing business	(315)	1,076	(2,766)	(2,005)
(Credited) during the year – discontinued business	(193)	–	–	(193)
Disposal of business	(147)	–	–	(147)
Exchange adjustment	20	20	21	61
At December 31, 2010	1,353	1,226	(2,483)	96

	Accelerated tax depreciation £000	Other £000	Total £000
Deferred tax assets
At January 1, 2010	537	421	958
Credited during the year – continuing business	(184)	(366)	(550)
At December 31, 2010	353	55	408

Deferred tax assets are not available for offset against deferred tax liabilities.

The movement on net deferred tax assets/(liabilities) in the year was:

	2010 £000	2009 £000
Net (liability) at January 1	(1,422)	(1,246)
Credited/(charged) in the year – continuing business	1,455	(158)
Credited/(charged) in the year – discontinued business	193	(106)
Disposal of business	147	–
Exchange adjustment	(61)	88
Net asset/(liability) at December 31	312	(1,422)

28 Deferred taxation continued

Certain deferred tax assets have not been provided for where they are not regarded as recoverable as follows:

	2010 £000	2009 £000
Losses	7,375	2,829
Unutilised ACT	584	584
	7,959	3,413

There is no expiry period with regard to the unrecognised deferred tax assets.

29 Called up share capital

		2010		2009
	Number 000s	£000	Number 000s	£000
Ordinary shares of 2.5 pence each at December 31
Authorised	200,000	5,000	200,000	5,000
Allotted, called up and fully paid
At January 1 and December 31	138,594	3,465	138,594	3,465

There were no shares issued under the exercise of executive share options or under SAYE share options in the year (2009: nil).

Potential issue of shares

The Group has the following share-based payment schemes.

a) Executive share option schemes

Executive share options are granted at a fi xed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is ten years. Awards are at the discretion of the remuneration committee. Options will become exercisable on the third anniversary of the date of grant. Exercise of an option is subject to continued employment. There are no performance criteria attached to the options.

Certain senior executives hold options to subscribe for shares in the company at prices ranging from 27.25 pence to 86.25 pence under the share option schemes approved by shareholders.

29 Called up share capital continued

The number of shares subject to options and the exercise prices are:

Date of grant	Exercise price	Exercise period	2010 Number 000s	2009 Number 000s
April 7, 2000	84.0p	07/04/03 – 06/04/10	–	300
March 29, 2001	52.0p	29/03/04 – 28/03/11	45	45
April 5, 2002	27.5p	05/04/05 – 04/04/12	30	30
April 7, 2004	34.5p	07/04/07 – 06/04/14	192	226
April 14, 2005	27.3p	14/04/08 – 13/04/15	500	500
April 13, 2006	53.5p	13/04/09 – 12/04/16	314	444
April 27, 2007	86.3p	27/04/10 – 26/04/17	150	150
			1,231	1,695

A reconciliation of executive option movements over the year is shown below.

	2010		2009
	Number 000s	Weighted average exercise price	Number 000s	Weighted average exercise price
Outstanding at beginning of period	1,695	51.0p	2,891	43.5p
Forfeited during the period	(164)	49.6p	(1,196)	32.8p
Lapsed during the period	(300)	84.0p	–	0.0p
Outstanding at the end of the period	1,231	43.2p	1,695	51.0p
Exercisable at the end of the period	1,231	43.2p	1,545	47.6p

No options were exercised in 2010 (2009: nil). The options outstanding at December 31, 2010 had a weighted average exercise price of 43.2 pence (2009: 51.0 pence) and a weighted average remaining contractual life of 2.6 years (2009: 3.9 years).

b) SAYE option plan

The Group also operates an Inland Revenue Approved Sharesave Scheme open to eligible employees (including executive directors) in the United Kingdom who have worked for the Group for a minimum qualifying period and agree to save a fi xed amount for a period of either three or fi ve years under an approved savings contract. Inland Revenue rules limit the maximum amount that can be saved by a participant to £250 per month. Options in normal circumstances are exercisable for six months following the completion of the savings contract utilising the proceeds of the contract.

Eligible employees have been invited to join the company Sharesave Scheme under the scheme approved by shareholders, and the following options have been granted.

During the year no options were exercised (2009: nil) and 49,063 lapsed (2009: 197,964).

Date of grant	Exercise price	Exercise period	2010 Number	2009 Number
May 24, 2006	54.0p	01/08/09 – 31/01/10	–	49,063
May 24, 2006	54.0p	01/08/11 – 31/01/12	44,311	44,311
			44,311	93,374

29 Called up share capital continued

A reconciliation of SAYE option movements over the year is shown below.

	2010			2009
	Number 000s	Weighted average exercise price	Number 000s	Weighted average exercise price
Outstanding at beginning of period	93	54.5p	291	54.5p
Forfeited during the period	(49)	54.5p	(198)	54.5p
Exercised during the period	–	54.5p	–	54.5p
Outstanding at the end of the period	44	54.5p	93	54.5p
Exercisable at the end of the period	–	–	49	54.5p

c) Long Term Incentive Plan (LTIP)

Options have been granted as nil cost options under this scheme. The options granted under this scheme are generally exercisable at the end of the performance period and for six months thereafter. Awards under this scheme are reserved for employees at senior management level and above. If an employee leaves the employment of the group, a proportion of his award may be deemed to have vested, subject to satisfying any performance conditions and at the discretion of the Remuneration Committee. The company anticipate making annual awards under this scheme.

Awards under the LTIP scheme are subject to performance criteria, the scales relating to which will be determined annually by the Remuneration Committee. Details of the performance criteria are disclosed in the remuneration report.

The number of shares subject to the LTIP are:

Date of grant	Share price At award date	Vesting date	2009 Number outstanding	2010 Number granted	2010 Number lapsed	2010 Number outstanding
April 7, 2008	29.8p	April 7, 2011	3,415,234	–	(2,170,771)	1,244,463
October 2, 2008	30.5p	October 2, 2011	1,866,666	–	(1,866,666)	–
April 13, 2010	24.3p	April 13, 2013	–	3,350,000	(304,380)	3,045,620
Total			5,281,900	3,350,000	(4,341,817)	4,290,083
Average price			30.0p	24.3p	29.7p	25.9p

29 Called up share capital continued

The fair value of the LTIP options granted during 2010 that vest in 2013 was £696,000 (2009: £nil) based on the Black-Scholes pricing model. The signifi cant assumptions used in the calculation were as follows:

	2010
Date of grant	April 13
Option type	LTIP
Weighted average share price at grant	24.3p
Weighted average exercise price	0.0p
Shares under option	3,350,000
Weighted average vesting period (years)	3.00
Expected volatility	53%
Risk free rate	0.5%
Expected dividends expressed as a dividend yield	5.2%
Possibility of ceasing employment before vesting	0%
Expectations of meeting performance criteria	100%
Fair value per option	20.8p

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous three years. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life.

The Group recognised total expenses of £182,000 (2009: £346,000) related to equity-settled share-based payment transactions in the year.

30 Share premium account

2010	2009
£000	£000
At January 1 and December 31 4,900	4,900

31 Other reserves

	Merger reserve £000	Translation reserve £000	Total £000
At January 1, 2009	30,565	5,843	36,408
Exchange differences on translation of overseas operations	–	(2,313)	(2,313)
At January 1, 2010	30,565	3,530	34,095
Exchange differences on translation of overseas operations	–	1,062	1,062
At December 31, 2010	30,565	4,592	35,157

32 Retained earnings

	2010 £000	2009 £000
At January 1	10,300	12,501
Profi t/(loss) for the fi nancial year	3,989	(827)
Share options – value of employee services (note 29)	182	346
Dividends paid (note 11)	(1,720)	(1,720)
At December 31	12,751	10,300

Retained earnings have been reduced to refl ect the investment in the Company's own shares held by the Trustee of the Employees' Share Ownership Plan (the ESOP).

This is a trust which holds shares for the benefi t of employees and executive directors. The Trustee may use the shares to meet share requirements when share options are exercised.

At December 31, 2010 the ESOP held 840,000 shares (2009: 840,000) with a market value of £0.20 million (2009: £0.20 million). The net book value of these shares was £0.20 million (2009: £0.20 million), and has been deducted from retained earnings.

33 Cash fl ow from operating activities

Reconciliation of profi t/(loss) attributable to shareholders to net cash fl ows from operating activities.

	2010 £000	2009 £000
Profi t/(loss) attributable to shareholders	3,989	(827)
Taxation on loss from continuing operations	(2,213)	(767)
Taxation on profi t from discontinued activities	903	1,651
Depreciation	2,240	2,127
Loss/(gain) on disposal of property, plant and equipment	2	(745)
(Gain) on disposal of subsidiary	(20,812)	–
Impairment of goodwill	5,362	–
Amortisation and impairment of development costs	4,044	1,981
Amortisation of acquired intangibles	2,028	3,406
Share options – value of employee services	182	346
Investment income from continuing operations	(1)	(16)
Finance costs from continuing operations	487	474
Net fi nance costs from discontinued activities	(124)	9
Movement in fair value of derivative fi nancial instruments	–	(257)
Share of loss/(profi t) of associate	12	(2)
Decrease in inventories	3,999	3,090
Decrease/(increase) in trade and other receivables	11,079	(24)
(Decrease) in payables	(6,503)	(3,305)
(Decrease)/increase in provisions	(676)	192
Net cash infl ow from operating activities	3,998	7,333

34 Contingent liabilities and commitments

The Group has contingent liabilities of approximately £0.5 million in respect of performance bonds, advance payment guarantees, terminable indemnities, documentary credits and bills of exchange at December 31, 2010 (2009: £1.6 million).

The aggregate future minimum lease payments due under non-cancellable operating leases are as follows:

		2010		2009
	Land and buildings £000	Other £000	Land and buildings £000	Other £000
Not later than one year	539	40	475	40
Later than one year and not later than fi ve years	1,765	84	2,899	63
Later than fi ve years	849	–	2,033	–
	3,153	124	5,407	103

The Group leases a number of offi ce and factory premises under operating leases of periods between fi ve and ten years. None of these leases contain contingent rentals. Other leases comprise leases for offi ce equipment.

The Group has no capital expenditure contracted for but not provided at December 31, 2010 (2009: £nil).

Share options granted between April 5, 1999 and April 5, 2002 under unapproved schemes are subject to employers' and employees' national insurance on the gain made on the exercise of such options by UK employees. At December 31, 2010 no accrual was required in respect of this liability (2009: £nil).

35 Pensions

Defi ned contribution plans

The Group currently operates a Group Personal Pension Plan and funds are invested with AXA Sun Life plc. Certain UK employees are entitled to join the plan to which the company contributes varying amounts subject to status. In addition the Group operates a Stakeholder pension scheme in the UK. In the US the Group contributes to a 401K plan on behalf of employees up to US\$2,500 (£1,700) per employee. The total Group pension charge for the year was £0.60 million (2009: £0.73 million).

The Group has no unfunded pension liabilities.

36 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

HERNIS Scan Systems AS, had entered into a license, production and sales agreement with its associate, Wireless Power and Communications AS ("WPC"), in respect of certain products to which WPC own the commercial rights and that HERNIS Scan Systems AS will manufacture and sell in exchange for a royalty payment to WPC at specifi ed amounts per item sold. The Group's investment in WPC was sold on December 30, 2010.

The Group has a 10 per cent investment in Vislink (China) Limited, a company incorporated in Hong Kong to distribute Vislink products into the Peoples Republic of China. Sales to Vislink (China) Limited in the year ended December 31, 2010 were £0.15 million (2009: nil).

Other than the transactions set out above, the Group has not entered into any transactions with any related parties who are not members of the Group.

37 Principal subsidiary companies

The following subsidiaries are included in the Group's consolidated results.

	Proportion of ordinary shares held by the	Group Principal activity	Country of incorporation and operation	Registered offi ce
Vislink International Limited* (incorporating the business of Advent Communications and Link Research)	100%	Design and manufacture of wireless camera systems satellite uplink and downlink equipment	UK	Hungerford England
Continental Microwave Limited*	100%	Broadcast transmission systems integration and project management	UK	Hungerford England
Vislink, Inc. (Incorporating the businesses of Microwave Radio Communications and Pacifi c Microwave Research)	100%	Design and manufacture of microwave radio transmission equipment	USA	Delaware USA
Focus Communications, Inc (Incorporating the business of Western Technical Services)	100%	Provision of technical installation services	USA	California USA
Vislink Holdings Limited*	100%	Management holding company	UK	Hungerford England
Vislink Holdings, Inc.	100%	Management holding company	USA	Delaware USA
Vislink (Singapore) PTE. LTD	100%	Provision of sales and marketing services for Asia	Singapore	Singapore

* Owned directly by the parent company, Vislink plc.

Company balance sheet as at December 31, 2010

	Notes	2010 £000	2009 £000
Fixed assets
Tangible assets	7	359	35
Investments	8	11,339	19,990
		11,698	20,025
Current assets
Debtors	9	11,893	16,859
Cash at bank and in hand		14,298	–
		26,191	16,859
Creditors – amounts falling due within one year	10	1,620	6,077
Net current assets		24,571	10,782
Total assets less current liabilities		36,269	30,807
Creditors – amounts falling due after more than one year	11	–	6,812
Net assets		36,269	23,995
Capital and reserves
Called up share capital	13	3,465	3,465
Share premium account	14	4,900	4,900
Merger reserve	14	2,670	2,670
Profi t and loss account	14	25,234	12,960
Equity shareholders' funds		36,269	23,995

Company registration number 4082188.

The fi nancial statements on pages 86 to 92 were approved by the Board of Directors on March 23, 2011 and were signed on its behalf by:

D Lewis J R Trumper Directors Directors

Reconciliation of movements in shareholder's funds for the year ended December 31, 2010

	Notes	2010 £000	2009 £000
Opening equity shareholders' funds		23,995	25,504
Profi t/(loss) for the fi nancial year	2	13,812	(135)
Share options – value of employee services	6	182	346
Dividends paid	5	( 1,720)	( 1,720)
Movement in the year		12,274	( 1,509)
Closing equity shareholders' funds		36,269	23,995

Notes to the Company fi nancial statements

1 Accounting policies

The separate fi nancial statements of the Company are presented as required by the Companies Act 2006. They have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law.

A summary of the more important accounting policies is set out below, together with an explanation of where changes have been made to previous policies on adoption of new accounting standards in the year.

Investments

All investments are initially recorded at cost, being the fair value of consideration given including the acquisition costs associated with the investment. Subsequently, they are reviewed for impairment on an individual basis if events, or changes in circumstances indicate the carrying value may not be fully recoverable.

Tangible fi xed assets

Tangible fi xed assets are stated at cost less accumulated depreciation and any provision for impairment.

Depreciation is calculated in order to write off the cost of property, plant and equipment over their estimated useful lives by equal annual instalments using the following rates:

Plant and computer equipment 10 per cent – 33 per cent

Deferred taxation

Deferred tax recognised in respect of all timing differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes.

Deferred tax assets are recognised for all deductible timing differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be suitable taxable profi ts against which the future reversal of the underlying timing differences can be deducted. The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all, or part, of the tax asset to be utilised.

Deferred corporation tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis.

Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date. Transactions and non-monetary assets are translated at the exchange rates ruling at the date of the transactions. All differences on exchange are taken to the profi t and loss account.

Share-based payments

The fair value of employee share plans is calculated using an option-pricing model. In accordance with FRS 20 "Share-based payments" the resulting cost is charged to the income statement over the vesting period of the plans. The value of the charge is adjusted to refl ect the expected and actual levels of options vesting.

Dividends

Under FRS 21 dividends are not to be recognised as a creditor until the dividend is approved by the Company's shareholders.

Pensions

Company employees are members of money purchase schemes where the obligations of the Company are charged to the profi t and loss account as they are incurred.

2 Profi t for the year

As permitted by section 408 of the Companies Act 2006 the Company has elected not to present its own profi t and loss account, statement of total recognised gains and losses and cash fl ow statement for the year. Vislink plc reported a profi t for the fi nancial year of £13.81 million (2009: loss of £0.14 million).

3 Services provided by the Company auditor

During the year the Company obtained the following services from the Company's auditor at costs detailed below:

	2010 £000	2009 £000
Audit services
Fees payable to the Company's auditor for the audit of the
Company's annual accounts	56	55
Fees payable to the Company's auditor for other services:
– Further assurance services pursuant to legislation	16	3
– Other services pursuant to legislation	402	–
Tax services
– Compliance services	8	8
– Advisory services	16	15
	498	81

A description of the work of the Audit Committee is set out in the corporate governance statement on page 30 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

Other services pursuant to legislation conducted by the auditors comprised the Reporting Accountant work relating to the Class 1 circular sent to shareholders in respect of the disposal of HERNIS Scan Systems AS (£0.09 million) and Reporting Accountant work associated with the aborted acquisition described above (£0.30 million) which would have been a Class 1 transaction had it completed. This work was required by the listing rules of the UKLA.

4 Directors and employees

Staff costs during the year were as follows:
	2010 £000	2009 £000
Wages and salaries	669	841
Social security costs	85	76
Other pension costs	140	133
	894	1,050

The number of employees employed by the Company was as follows:

2010	2009
Number	Number
Average number of employees 6	6

The total number of employees at December 31, 2010 was six (2009: six).

Pension contributions of £140,000 (2009: £133,000) have been paid into defi ned contribution schemes (see note 35 of the consolidated Group fi nancial statements).

The remuneration of the directors of the company is detailed in the Remuneration report on pages 22 to 27. Included within the employee costs above are the salaries and benefi ts of D Lewis and J R Trumper. Non-executive directors fees are excluded from the amounts shown.

Notes to the Company fi nancial statements Continued

5 Dividends
	2010 £000	2009 £000
Final dividend paid of 1.25p per share (2009 – 1.25p per share)	1,720	1,720

In addition the directors are proposing a fi nal dividend in respect of the fi nancial year ending December 31, 2010 of 1.25 pence per share which will absorb an estimated £1.72 million of shareholders' funds. It will be paid on July 15, 2011 to shareholders who are on the register of members on June 24, 2011.

6 Share-based payments

Details of share based payments are shown in note 29 to the consolidated Group fi nancial statements.

7 Tangible fi xed assets

	Plant and computer equipment
	£000
Cost
At January 1, 2010	92
Additions	353
At December 31, 2010	445
Accumulated depreciation
At January 1, 2010	57
Charge for the year	29
At December 31, 2010	86
Net book value
At December 31, 2010	359
At December 31, 2009	35

8 Investments

	Investments in subsidiaries unlisted shares £000
Cost
At January 1, 2010	32,966
Intercompany transfer	( 13,651)
Disposal	( 70)
At December 31, 2010	19,245
Provisions
At January 1, 2010	12,976
Intercompany transfer	( 5,000)
Disposal	( 70)
At December 31, 2010	7,906
Net book value
At December 31, 2010	11,339
At December 31, 2009	19,990

During the year the Company's investment in Vislink Communications Limited was transferred at book value to Vislink International Limited.

9 Debtors

	2010 £000	2009 £000
Deferred taxation	5	3
Corporation tax	22	157
Other debtors	29	8
Prepayments & accrued income	340	464
Amounts owed by Group undertakings	11,497	16,227
	11,893	16,859

Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as recoverable against future profi ts. The movement on deferred tax assets in the year relates to the utilisation of timing differences associated with capital allowances.

Amounts due from Group undertakings includes a loan £8.8 million (2009: £nil) that bears interest at 2.75 per cent, and which is repayable on demand.

10 Creditors – amounts falling due within one year

	2010 £000	2009 £000
Bank overdraft	–	2,381
Trade creditors	619	282
Accruals and deferred income	184	379
Other taxes and social security costs	27	41
Amounts owed to Group undertakings	790	2,994
	1,620	6,077

11 Creditors – amounts falling due after more than one year

	2010 £000	2009 £000
Bank loans (secured) (note 12)	–	6,812

12 Bank and other borrowings

	2010 £000	2009 £000
Due between two and fi ve years	–	6,812

The bank facilities are secured by fi xed and fl oating charges over the Group's assets and by cross-guarantees between the Company and certain UK and US subsidiaries.

Bank loans bear interest at fl oating rates detailed below. There were no outstanding loans or fi nance leases at December 31, 2010.

The effective interest rates at the balance sheet dates were as follows:

	2010	2009
Bank overdraft	2.25%	2.75%
Bank borrowings – revolving credit	n/a	1.26%

Notes to the Company fi nancial statements Continued

13 Called up share capital

		2010		2009
	Number 000s	£000	Number 000s	£000
Authorised ordinary shares of 2.5 pence each at December 31	200,000	5,000	200,000	5,000
Allotted, called up and fully paid
At January 1 and December 31	138,594	3,465	138,594	3,465

Potential issue of shares

Details of the potential issue of shares are shown in note 29 to the Consolidated Group fi nancial statements.

14 Reserves

	Share premium account £000	Merger reserve £000	Profi t & loss account £000	Total £000
At January 1, 2010	4,900	2,670	12,960	20,530
Retained profi t for the year	–	–	13,812	13,812
Value of employee services	–	–	182	182
Dividends paid	–	–	( 1,720)	( 1,720)
At December 31, 2010	4,900	2,670	25,234	32,804

At December 31, 2010 the trustee of the Employees Share Ownership Plan (ESOP) held 840,000 shares (2009: 840,000) with a market value of £0.20 million (2009: £0.20 million). The net book value of these shares was £0.20 million (2009: £0.20 million) and was deducted from the profi t and loss account.

15 Contingent liabilities and commitments

The Company is party to a cross guarantee to secure bank borrowings of certain members of the Vislink plc group which amounted to £nil (2009: £6.8 million).

The Company has no capital expenditure contracted for but not provided at December 31, 2010 (2009 – £nil).

Share options granted between April 5, 1999 and April 5, 2002 under unapproved schemes are subject to employers' and employees' National Insurance on the gain made on the exercise of such options by UK employees. At December 31, 2010 an accrual of £nil has been made in respect of this liability (2009: £nil).

16 Related party transactions

The Company is exempt from disclosing related party transactions with entities that are part of the Vislink plc group or investees of Vislink plc under Financial Reporting Standard 8. There are no other related party transactions other than those relating to directors that have been disclosed in note 36 to the Consolidated Group fi nancial statements.

17 Company principal subsidiaries

The principal subsidiaries of the Company are listed in note 37 to the Consolidated Group fi nancial statements of the Group.

Independent auditor's report to the shareholders of Vislink plc

We have audited the parent company fi nancial statements of Vislink plc for the year ended December 31, 2010 which comprise the Company balance sheet, the reconciliation of movements in shareholders' funds and the related notes. The fi nancial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Respective responsibilities of directors and auditors

As explained more fully in the Directors' responsibilities statement set out on page 34, the directors are responsible for the preparation of the parent company fi nancial statements and for being satisfi ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company fi nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the fi nancial statements

An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of signifi cant accounting estimates made by the directors; and the overall presentation of the fi nancial statements.

Opinion on fi nancial statements

In our opinion the parent company fi nancial statements:

• give a true and fair view of the state of the Company's affairs as at December 31, 2010;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors' report for the fi nancial year for which the parent company fi nancial statements are prepared is consistent with the parent company fi nancial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company fi nancial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specifi ed by law are not made; or
• we have not received all the information and explanations we require for our audit.

Other matter

We have reported separately on the Group fi nancial statements of Vislink plc for the year ended December 31, 2010.

Colin Bates (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Bristol March 23, 2011

Notice of Annual General Meeting

Notice is hereby given that the Annual General Meeting of the Company will be held at 29 Cloth Fair, London, EC1A 7NN on Wednesday May 18, 2011 at 12.00 noon for the following purposes:

Ordinary business

• 1. To receive the fi nancial statements for the year ended December 31, 2010 and the reports of the directors and auditors thereon as set out in the Annual Report and Accounts.
• 1. To approve the Directors' Remuneration Report for the year ended December 31, 2010.
• 1. To declare a fi nal dividend of 1.25 pence per ordinary share for the fi nancial year ended December 31, 2010.
• 1. To re-elect Mr O B Ellingham as a director.
• 1. To re-elect Mr J R Trumper as a director.
• 1. To elect Mr J Hawkins as a director, who was appointed since the last Annual General Meeting and who is retiring in accordance with the Company's Articles of Association.
• 1. To re-appoint PricewaterhouseCoopers LLP as auditors of the Company to hold offi ce until the conclusion of the next general meeting at which audited accounts are laid before the Company and to authorise the directors to fi x their remuneration.

Special business

To consider, and if thought fi t, pass the following resolutions, of which resolution 8 will be proposed as an ordinary resolution and resolutions 9 to 11 will be proposed as special resolutions.

Authority to allot shares

1. THAT, in substitution for all existing authorities, the directors be and they are hereby generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the "Act") to exercise all powers of the Company to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £1,154,946 for the period expiring on whichever is the earlier of the conclusion of the next Annual General Meeting of the Company after the passing of this resolution and June 30, 2012 unless renewed or extended prior to such expiry, except that the Company may, before the expiry of any power contained in this resolution, make an offer or agreement which would or might require shares to be allotted, or rights to be granted, after such expiry and the directors may allot shares or grant rights in pursuance of such offer or agreement as if the power conferred hereby had not expired.

Disapplication of pre-emption rights

• 1. THAT, in substitution for all existing authorities to allot equity securities as if section 561 of the Companies Act 2006 (the "Act") did not apply, the directors be and they are hereby generally and unconditionally authorised pursuant to section 570 of the Act to allot equity securities (as defi ned in section 560 of the Act) for cash either pursuant to the authority conferred upon them by resolution 8 of this Notice of Annual General Meeting or by way of a sale of treasury shares as if section 561 of the 2006 Act did not apply to any such allotment, provided that the power conferred by this resolution shall be limited to:
• (a) the allotment of equity securities in connection with a rights issue or any other pre-emptive offer in favour of the holders of equity securities where the equity securities respectively attributable to the interests of all such holders are proportionate (as nearly as may be) to the respective numbers of equity securities held by them subject only to such exclusions or other arrangements as the directors may consider appropriate to deal with fractional entitlements or legal and practical diffi culties under the laws of, or the requirements of any recognised regulatory body in, any territory or otherwise; and
• (b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities for cash pursuant to the authority granted under resolution 8 above up to an aggregate nominal amount of £173,241;

and shall expire on whichever is the earlier of the conclusion of the next Annual General Meeting of the Company after the passing of this resolution and June 30, 2012, unless renewed or extended prior to such expiry, except that the Company may, before the expiry of any power contained in this resolution, make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired.

Authority for market purchases

• 1. THAT the Company is hereby generally and unconditionally authorised to make market purchases (within the meaning of section 701 of the Companies Act 2006) of ordinary shares of 2.5 pence each in the capital of the Company ("ordinary shares") provided that
• (a) the maximum number of ordinary shares hereby authorised to be purchased shall be 13,859,358 (representing approximately 10 per cent of the Company's issued ordinary share capital);
• (b) the minimum price which may be paid for each ordinary share so purchased shall not be less than 2.5 pence, being the nominal value thereof, exclusive of the expenses of purchase;
• (c) the maximum price which may be paid for each ordinary share so purchased shall not exceed 105 per cent of the average middle market quotation for an ordinary share as derived from the London Stock Exchange Daily Offi cial List for the fi ve business days preceding the day of purchase, exclusive of the expenses of purchase; and
• (d) the authority hereby conferred shall expire on whichever is the earlier of the conclusion of the next Annual General Meeting of the Company after the passing of this resolution and June 30, 2012 unless renewed or extended prior to such expiry, except that the Company may, before the expiry of any authority contained in this resolution, make a contract to purchase ordinary shares which will or may be executed wholly or partly after the expiry of such authority and may make purchases of ordinary shares in pursuance of any such contract or contracts.

Notice of General Meeting

1. THAT the Company be generally and unconditionally authorised to hold general meetings (other than annual general meetings) on 14 clear days' notice provided that this authority shall expire at the conclusion of the Annual General Meeting or, if earlier, on June 30, 2012.

By Order of the Board

J R Trumper

Secretary

March 23, 2011

Registered offi ce: Marlborough House Charnham Lane Hungerford Berkshire RG17 0EY

Notes

• 1. Shareholders are entitled to appoint a proxy to exercise all or any of their rights to attend, speak and vote on their behalf at the Annual General Meeting, and a form of proxy which may be used to make such appointment and give proxy instructions accompanies this notice. A proxy need not be a shareholder of the Company. Details of how to appoint the Chairman of the meeting or another person as a proxy are set out in the notes to the form of proxy.
• 1. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. To be valid any form of proxy, or amendment to the instructions given for a previously appointed proxy, and any power of attorney or other authority under which the proxy is appointed (or a notarially certifi ed copy of such power or authority), must be received by post or (during normal business hours only) by hand at Vislink plc, c/o Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY no later than 12.00 noon on May 16, 2011, or 48 hours before the time of any adjourned meeting.
• 1. As an alternative to completing the hard copy proxy form, shareholders can vote and appoint a proxy electronically by going to the following website www.eproxyappointment.com. You will be asked to enter the Control Number, the Shareholder Reference Number (SRN) and PIN as provided on your proxy card and agree to certain terms and conditions. For an electronic proxy to be valid, your appointment must be received by Computershare no later than 12.00 noon on May 16, 2011, or 48 hours before the time of any adjourned meeting.

Notice of Annual General Meeting Continued

• 1. The return of a completed form of proxy, other such instrument or any CREST Proxy Instruction (as described in paragraph 8 below) will not prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so.
• 1. If you are a person who has been nominated under section 146 of the 2006 Act to enjoy nomination rights (a "Nominated Person") you may, under an agreement between you and the member of the Company who has nominated you, have a right to be appointed (or have someone else appointed) as a proxy for the Annual General Meeting. If you do not have such a proxy appointment right, or you do but do not wish to exercise it, you may have a right to give instructions to the member who has appointed you as to the exercise of voting rights.
• 1. If you are a Nominated Person, the statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 to 4 above do not apply. The rights described in these paragraphs can only be exercised by registered shareholders of the Company.
• 1. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
• 1. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited ("EUI")'s specifi cations, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID 3RA50) by 12.00 noon on May 16, 2011. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
• 1. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his [or her] CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
• 1. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertifi cated Securities Regulations 2001.
• 1. The Company, pursuant to Regulation 41 of the Uncertifi cated Securities Regulations 2001, specifi es that only those shareholders registered on the Register of Members of the Company as at 6.00 pm on May 16, 2011 ("the specifi ed time") shall be entitled to attend and vote at the Annual General Meeting in respect of the number of shares registered in their name at that time. Changes to entries on the Register of Members after the specifi ed time shall be disregarded in determining the rights of any person to attend or vote at the Annual General Meeting. If the Annual General Meeting is adjourned the shareholders, to be so entitled, must have been entered on the Register of Members at a time which is 48 hours before the time fi xed for the adjourned meeting or, if the Company gives notice of the adjourned meeting, at the time specifi ed on that notice.
• 1. In the case of joint holders of shares in the Company, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which names of the joint holders appear in the Company's register of members in respect of the joint holding.
• 1. As at March 22, 2011 (being the last business day prior to the publication of this Notice) the Company's issued share capital consists of 138,593,588 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company are 138,593,588.
• 1. Under section 319A of the Companies Act 2006, the Company must answer any questions you ask relating to the business being dealt with at the meeting, unless:
• (a) answering questions would interfere unduly with the preparation for the meeting or involve the disclosure of confi dential information;
• (b) the answer has already been given on a website in the form of an answer to a question; or
• (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
• 1. Under section 527 Companies Act 2006, members of the Company representing at least 5 per cent of the total voting rights of the Company or at least 100 members who have a right to vote and hold shares in the Company on which there has been paid up an average sum per member of at least £100, may require the Company to publish on its website a statement setting out any matter relating to the audit of the Company's accounts or any circumstances connected with an auditor of the Company ceasing to hold offi ce since the last Annual General Meeting where relevant. Where the Company is required to publish such a statement on its website, it may not require the members making the request to pay its expenses in complying with the request. The Company must forward the statement to the Company's auditors not later than the time when it makes the statement available on its website. The business of the meeting includes any such statement that the Company has been required to publish on its website.
• 1. Members have the right, under section 338 of the Companies Act 2006, to require the Company to give its members notice of a resolution which the shareholders wish to be moved at an Annual General Meeting of the Company. Additionally, members have the right under section 338A of the Companies Act 2006 to require the Company to include a matter (other than a proposed resolution) in the business to be dealt with at the Annual General Meeting. The Company is required to give such notice of a resolution or include such matter once it has received requests from members representing at least 5 per cent of the total voting rights of all the members who have a right to vote at the Annual General Meeting or from at least 100 members with the same right to vote who hold shares in the Company on which there has been paid up an average sum per member of at least £100, unless (a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise); (b) it is defamatory of any person; or (c) it is frivolous or vexatious. Any such request must be received by the Company not later than six weeks before the Annual General Meeting or, if later, the time at which notice is given of the Annual General Meeting. In the case of a request relating to section 338A of the Companies Act 2006, the request must be accompanied by a statement setting out the grounds for the request.
• 1. This notice of meeting and details of (i) the total number of shares in the Company and shares of each class in respect of which members are entitled to exercise voting rights at the meeting, and (ii) the total voting rights that members are entitled to exercise at the meeting, are available on the Company's website, www.vislink.com. In addition, members' statements, members' resolutions and members' matters of business (if any) will be added to that website for viewing as soon as reasonably practicable following receipt by the Company.
• 1. You may not use any electronic address provided within this notice or any related documents (including the form of proxy) to communicate with the Company other than as expressly stated.
• 1. Copies of the directors' service contracts or letters of appointment will beavailable for inspection between the date of this notice and the Annual General Meeting at the Company's registered offi ce and at the venue of the Annual General Meeting for 15 minutes prior to the commencement of the Annual General Meeting until its conclusion.

Explanatory notes to the Notice of the Annual General Meeting

Resolution 1: Reports and Accounts

The directors are required by law to present to the Annual General Meeting the audited accounts and the reports of the directors and the auditors contained in the Annual Report and Accounts.

Resolution 2: Directors' Remuneration Report

The Directors' Remuneration Report Regulations 2002 require the Company to produce a yearly report on directors' remuneration and to put an annual resolution to shareholders for approval of that report. The directors' remuneration report for which approval is sought is set out on pages 22 to 27 of the Annual Report and Accounts. In line with the Regulations, this vote will be advisory.

Resolution 3: Declaration of dividend

Final dividends must be approved by shareholders but cannot exceed the amount recommended by the directors. If the Annual General Meeting approves resolution 3, the fi nal dividend in respect of 2010 of 1.25 pence per ordinary share will be paid on July 15, 2011 to holders of ordinary shares who are on the register of shareholders on June 24, 2011 in respect of each ordinary share.

Resolutions 4 to 6: Election and re-election of directors

Under the Company's Articles of Association one third of the directors must retire at each Annual General Meeting. All retiring directors are eligible to seek re-election by shareholders if they so wish. Mr J Trumper and Mr O Ellingham retire by rotation and, in accordance with the Articles of Association and being eligible, offer themselves for re-election. Mr J Hawkins, being newly appointed to the Board since the last Annual General meeting, offers himself for election in accordance with the Company's Articles of Association.

Biographical details of Mr O Ellingham, Mr J Trumper and Mr J Hawkins are set out on page 17 of the Annual Report and Accounts and re-election details are on page 19. In compliance with the Combined Code, none of the directors have participated in discussions on his own re-election. The remainder of the Board have, however, reviewed the independence of Mr Ellingham and Mr Hawkins and confi rm that they are fully independent of management.

Resolution 7: Re-appointment of auditors

The Company is required to appoint auditors at each general meeting at which accounts are laid before the Company, to hold offi ce until the end of the next such meeting. PricewaterhouseCoopers LLP have indicated that they are willing to continue in offi ce as the Company's auditors for another year. Accordingly, this resolution proposes their re-appointment and, in accordance with standard practice, gives authority to the directors to determine their remuneration.

Resolution 8: Authority to allot shares

Under section 551 of the Companies Act 2006, the directors of a company may only allot unissued shares and grant rights to subscribe for or convert security into shares in a company if authorised to do so. This resolution, if passed, will continue the directors' fl exibility to act in the best interests of shareholders, when opportunities arise, by issuing new shares and replaces the authority given on June 3, 2010 to allot unissued shares pursuant to section 551 of the Companies Act 2006.

This authority will allow the directors to allot new shares up to a nominal value of £1,154,946 which is equivalent to 33.3 per cent of the total issued ordinary share capital as at March 22, 2011. The directors have no current intention of exercising this authority.

As at March 22, 2011 the Company held no shares in treasury.

This authority will expire at the conclusion of the Annual General Meeting in 2012 or on June 30, 2012, whichever is the earlier.

Resolution 9: Disapplication of pre-emption rights

If equity securities are to be allotted for cash, section 561 of the 2006 Act requires that those equity securities are offered fi rst to existing shareholders in proportion to the number of shares held by them at the time of the offer and then in compliance with the technical requirements of the 2006 Act. Those pre-emption provisions also apply to the sale of treasury shares by the Company. This resolution, if passed, will allow the directors to allot shares and/or sell treasury shares for cash without the need to fi rst offer them to existing shareholders in accordance with the 2006 Act. This power is limited to the allotments of equity securities and/ or sale of treasury shares for cash up to a maximum nominal amount of £173,241, which is equivalent to 5 per cent of the total issued ordinary share capital of the Company as at March 22, 2011 and allotments of equity securities and/or sale of treasury shares in connection with a rights issue or other offer to shareholders, subject to the directors' ability to make arrangements to deal with certain legal or practical problems arising in connection with such offer. This power will expire at the conclusion of the Annual General Meeting in 2012 or on June 30, 2012, whichever is the earlier.

The directors do not intend to issue more than 7.5 per cent of the issued ordinary share capital of the Company for cash on a nonpre-emptive basis in any rolling three year period without prior consultation with the Investment Committee of the ABI and National Association of Pension Funds.

Resolution 10: Purchase of own shares

The directors believe that it is in the interests of the Company and its shareholders to continue to have the fl exibility to purchase its own shares and this resolution seeks authority from shareholders to do so. The Board has no immediate intention of using this authority, moreover the directors only intend to exercise this authority where, after considering market conditions prevailing at the time, they believe that the effect of such exercise would be to increase the earnings per share and be in the best interests of shareholders generally.

The effect of such purchases would either be to cancel the number of shares in issue or the directors may elect to hold them in treasury pursuant to the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the "Regulations").

The Regulations enable certain listed companies to hold shares in treasury, as an alternative to cancelling them, following a purchase of own shares by a company in accordance with the 2006 Act. Shares held in treasury may subsequently be cancelled, sold for cash or used to satisfy share options and share awards under an employee share scheme. Once held in treasury, a company is not entitled to exercise any rights, including the right to attend and vote at meetings in respect of the shares. Further, no dividend or other distribution of the company's assets may be made to the company in respect of the treasury shares. The Company would consider holding any of its own shares purchased as treasury shares as this would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide additional fl exibility in the management of its capital base.

This resolution if passed would renew the authority given at the Annual General Meeting held on June 3, 2010 and would be limited to 13,859,358 ordinary shares, representing approximately 10 per cent of the issued share capital as at March 22, 2011. The directors intend to seek renewal of this power at each subsequent Annual General Meeting.

As of March 22, 2011 there were options outstanding over 1,275,311 shares, representing 0.9 per cent of the Company's issued share capital (excluding treasury shares). If the authority to buy back shares given by this resolution were exercised in full, this would represent 1.0 per cent of the Company's issued share capital (excluding treasury shares). As of March 22, 2011 there were awards outstanding over 4,290,084 shares in respect of the Long Term Incentive Plan (LTIP), representing 3.1 per cent of the Company's issued share capital (excluding treasury shares). If the authority to buy back shares given by this resolution were exercised in full, this would represent 3.4 per cent of the Company's issued share capital (excluding treasury shares).

Resolut ion 11: Notice of general meetings

Resolut ion 11 will be proposed as a special resolution to approve the holding of general meetings, other than Annual General Meetings, on 14 days' notice. Prior to the Shareholders' Rights Regulations coming into force on August 3, 2009, the Company was able to call general meetings, other than an Annual General Meeting, on 14 clear days' notice without obtaining shareholder approval. Changes made to the 2006 Act by the Shareholders' Rights Regulations increase the notice period required for general meetings of the Company to 21 clear days unless shareholders approve a shorter notice period (which cannot be less than 14 clear days) and provided that certain conditions are met, namely (a) that the Company offers a facility for shareholders to vote by electronic means and (b) that there is an annual resolution of shareholders approving the reduction of the minimum notice period from 21 clear days to 14 clear days. Therefore, in order to continue to be able to call general meetings on 14 clear days' notice, resolution 11 seeks such approval. The directors believe it is in the best interest of the shareholders of the Company to preserve the shorter notice period. It is intended that this fl exibility will only be used for non-routine business and where merited in the interests of shareholders as a whole. The approval will be effective until the Company's next Annual General Meeting, when it is intended that a similar resolution will be proposed. Annual General Meetings will continue to be held on at least 21 clear days' notice.

Analysis of shareholders

As at December 31, 2010

Holding size range	Number of shareholders	Percentage of total shareholders	Number of shares ('000)	Percentage of issued share capital
1 – 1,000	3,857	53.8	1,776	1.3
1,001 – 5,000	2,445	34.1	5,623	4.0
5,001 – 10,000	391	5.5	2,942	2.1
10,001 – 100,000	367	5.2	11,171	8.1
Over 100,000	103	1.4	117,082	84.5
	7,163	100.0	138,594	100.0

Shareholder information

Board of directors

T H S Trotter* Chairman

J Hawkins* Chairman Elect

D Lewis Chief Executive

J R Trumper Group Finance Director

R B Howe* Senior Independent non-executive director Remuneration Committee Chairman

O B Ellingham* Audit Committee Chairman

Secretary

J R Trumper

Registered offi ce

Marlborough House Charnham Lane Hungerford Berkshire RG17 0EY

Company registration

Number 4082188

* Non-executive

Auditors

PricewaterhouseCoopers LLP 31 Great George Street Bristol BS1 5QD

Bankers

Santander Corporate Banking Solent Corporate Banking Centre 1 Dorset Street Southampton Hampshire SO15 2DP

Legal Advisers

Pinsent Masons LLP 3 Colmore Circus Birmingham B4 6BH

Registrars

Computershare Investor Services The Pavilions Bridgewater Road Bristol BS99 7NH

Stockbrokers and Financial Advisers

Evolution Securities 100 Wood Street London EC2V 7AN

Shareholder queries

All queries regarding shareholdings, dividends, lost share certifi cates or changes of address should be communicated in writing to Vislink plc, c/o Computershare Services plc, PO Box 82, The Pavilions, Bridgewater Road, Bristol BS99 7NH stating the registered shareholder's name and address.

Telephone: 0870 703 6270

Shareholders may also check their shareholding, dividend payments or update their personal details via the Investor Services section of the Registrar's website at www.computershare.com. This is a secure section of the Computershare website. To access your details you will require the unique Shareholder Reference Number, found on the corresponding share certifi cate.

Shareholder ecoms

Website

For further up to date shareholder information please visit www.vislink.com/fi nancial_news

News alerts

To receive the latest news announcements and press releases by email please visit www.vislink.com and follow the link to the contacts page to register your details.

Unsolicited mail

The Company is required by law to make its share register available on request to the public and organisations which may use it as a mailing list, resulting in shareholders receiving unsolicited mail. Shareholders wishing to limit receipt of such mail should write to the Mailing Preference Service, DMA House, 70 Margaret Street, London W1W 8SS or register online at www.mpsonline.org.uk

Warning to shareholders: boiler room scams

Over the last year, many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based "brokers" who target UK shareholders, offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. These operations are commonly known as "boiler rooms". These "brokers" can be very persistent and extremely persuasive.

The directors have been made aware that approaches have been made to Vislink shareholders. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports.

More detailed information on this or similar activity can be found on the FSA website www.moneymadeclear.fsa.gov.uk or by calling the FSA on 0845 606 1234.

Vislink plc Marlborough House Charnham Lane Hungerford Berkshire RG17 0EY

T 01488 685 500 F 01488 685 501 www.vislink.com