After an encouraging first half of the year, and after increasing our capacity
as a result, we found the middle of 2004 difficult and disappointing.
Nevertheless our results have improved to a loss after taxation of £717,000
(2003: £1,174,000) on turnover of £1,010,000 (2003: £1,095,000) and we continue
to invest in the future.

The Group has four major business opportunities:

1. Adien - our high-level mapping and planning service

One of the principal industries benefiting from the use of ground penetrating
radar (GPR) is the water industry, which effectively put most of its investment
plans on hold whilst each water company negotiated its forthcoming five-year
business plan with OfWat. As a result Adien's business largely dried up and it
therefore turned its sales efforts to other industries. This has been relatively
successful, particularly in the telecom business, and bodes well for the future.

With the release on 5 August 2004 of OfWat's draft proposals on allowed price increases averaging 13.3 per cent. above the rate of inflation for the next five years, the water companies are now beginning to plan for some of their most urgently needed projects. Inherent in the water companies' plans and OfWat's determinations is the need for greater efficiency in operations; increased use of GPR techniques will much enhance their efficiency.

2. SUMO - is a franchise operation which provides an instant mark out service

SUMO's uptake of new franchisees has been similarly affected, although again
since the year-end business has picked up and two new franchisees were taken on in September. SUMO is just completing a small placing of its own of
approximately £435,000 to provide additional working capital and funds for
expansion. After capitalisation of some of our loans to SUMO at the placing
price of £3 per share (as compared with an initial investment of £1 per share),
PipeHawk will own 39.6 percent of the enlarged SUMO business.

During the year our Technology Division has been particularly busy.

We obtained full FCC approval for the sale of the PipeHawk machine in the USA. Richard Chignell, our Technical Director, whilst Chairman of Euro GPR, the GPR trade association, successfully guided ETSI (the European Telecommunications Standards Institute) in the drafting of licensing documentation regarding the use of Ultra Wide Band Technology in Ground and Wall probing radar applications. If there are no adverse public comments on these documents, they will become the European regulations, which taken with the FCC approval in the United States removes the historic degree of regulatory uncertainty from the environment in which we operate.

3. Hand held pipe detector

The next stage of the hand held pipe locator project with the North East Gas
Association (formerly NYGAS) has recently been signed. This is aimed at ensuring that a development prototype of an innovative product that should be attractive in the market place may effectively pass the American licensing regulations. We have already held discussions with a potential manufacturer and distributor of the final product.

4. Mine detection

Finally, we have progressed our plans to develop a landmine detection vehicle
following the successful feasibility field trials held in Bosnia two years ago.
During the year we have carried out significant work developing key elements of the systems required, the technology, the marketing and the field introduction. We are currently engaged in seeking funding for this programme.

This has been a difficult year for our Directors and staff and I would like to
thank them for their dedication and professionalism. I welcome Tony Chambers to the Board as a non-executive director; his experience in the banking and military world add breadth and depth to the Board.

I continue to look to the future with considerable confidence as each of the
four parts of our business are making progress in environments which will
increasingly need our services.