TIDMFLX
RNS Number : 5222K
Falanx Group Limited
10 July 2017
10 July 2017
FALANX GROUP LIMITED
("Falanx" or "the Company")
Annual Results for the Year-Ended 31 March 2017
Falanx Group Limited (AIM: FLX), a cyber defence and
intelligence service provider working with blue chip and government
clients worldwide, is pleased to announce its audited results for
the year-ended 31 March 2017.
Period Highlights
-- Strong growth across all service lines
-- Group Revenue +50% to a record GBP2.7m
-- Cyber Revenues +300% to c.GBP1m
-- Intelligence Revenues +13% to GBP1.8m
-- EBITDA - progress towards profitability as planned
-- Debt free after redeeming all loans in October 2016
-- Board strengthened with appointment of new CEO and Executive Director Cyber Defence
-- Successful Integration of Advanced Security Consulting Ltd acquisition
-- Pilot launched in February 2017 for MidGARD - a proprietary monitoring platform
-- Awarded UK Government CHECK accreditation
Post Period Highlights
-- Oversubscribed placing of GBP2m of equity in May 2017 to augment future growth
-- Acquisition of Cloudified Ltd broadens reach and enhances SME focused offering
Outlook
Falanx continues to see new clients and opportunities in its'
pipeline post the financial year-end. Market conditions remain
robust and we view the future with confidence.
-- The combination of our own proprietary technology, 360-degree
service model and intelligence insights, sets Falanx apart from
other smaller security vendors
-- Channel partnerships will enable scale-deployment of MidGARD
-- Strong sales opportunities for all three trading divisions
Non-Executive Chairman Mike Read, commented: "The market
conditions for growth of Cyber Security and Intelligence for the
new year are extremely favourable. The Board anticipates Falanx
Group will reach breakeven within twelve months, with another
period of client acquisition and robust, organic growth. Cyber and
political risks continue to dominate our headlines and are highly
likely to grow, placing security issues at the forefront of
people's minds. Unaffected by Brexit, the General Data Protection
Regulation (GDPR) comes into force in May 2018 and will impact all
businesses across the UK and Europe, forcing management to address
their security requirements or potentially face fines of up to
EUR20m or 4% of global turnover."
Chief Executive Stuart Bladen, commented: "Falanx has
experienced robust revenue increases across all lines of business
driven by geopolitical instability, rising cyber-crime, and
increasing regulatory requirements such as GDPR, PCI-DSS and the
Cyber Essentials programme."
Enquiries:
Falanx Group Limited www.falanx.com
Stuart Bladen, Chief Executive
Officer
--------------------------------- ----------------------
SPARK Advisory Partners
Limited
Nominated Adviser
Matt Davis / James Keeshan +44 (0) 203 368 3551
Whitman Howard Limited
Joint- Broker
Nick Lovering / Francis
North +44 (0) 207 659 1234
Turner Pope Investments
(TPI) Ltd
Joint-Broker
Ben Turner / James Pope
+44 (0) 203 621 4120
IFC Advisory Ltd
Graham Herring
Tim Metcalfe
Miles Nolan +44 (0) 203 053 8671
Notes to Editors
Falanx Group Limited, is a global intelligence and cyber defence provider working with blue
chip and government clients. The Group listed on AIM in June 2013 under ticker FLX. For more
information: http://www.falanxgroup.com/
Chairman's Statement
We are pleased to report a period of significant development and
robust growth, driven by our highly-experienced team, focused on a
rapidly expanding security market. At our Annual General Meeting in
December 2016, we were delighted to announce the re-organisation of
the company, with the business focused exclusively on Cyber Defence
and Intelligence. These developments have become manifest in our
Birmingham Cyber Defence Centre, which includes our Security
Operations Centre, our Technology Development hub and our new Sales
and Marketing Team.
The benefits of these developments are already apparent. We now
possess our own proprietary monitoring platform MidGARD, which
offers exciting opportunities to scale through small and medium
sized companies and also deliver enterprise grade security to FTSE
250 organisations. Our Cyber Defence Centre, based in the heart of
Birmingham has opened the doors to a largely untapped source of
Cyber talent, vitally important as we grow in an industry where
talent is in short supply and the hiring market is highly
competitive. Our new Sales and Marketing team has quickly developed
an enviable group of channel partners who are taking our technology
and services to their large client bases.
Our Security as a Service business model is now recognised as a
new and emerging segment within the IT industry - which Gartner
call Managed Detection and Response, placing us in a small but
illustrious pool of organisations. We are excited and confident we
chose the right time and right model for Falanx Group.
Directors
This year has seen two new appointments to our Board of
Directors. Stuart Bladen, Chief Executive Officer, was appointed in
October 2016, and brings a wealth of experience in the digital
security sector. Jay Abbott, Executive Director Cyber Defence, was
appointed in January 2017. Jay is a widely-recognised thought
leader in the Cyber Security industry. I welcome the knowledge and
experience both Stuart and Jay bring to the Board.
Outlook
The market conditions for the growth of Cyber Security and
Intelligence for the new year are extremely favourable. The Board
anticipates Falanx Group will reach breakeven within the next
twelve months, with another period of client acquisition and
robust, organic growth. Cyber and political risks continue to
dominate our headlines and are highly likely to grow, placing
security issues at the forefront of people's minds. Unaffected by
Brexit, the General Data Protection Regulation (GDPR) comes into
force in May 2018 and will impact all businesses across the UK and
Europe, forcing management to address their security requirements
or potentially face fines of up to EUR20m or 4% of global turnover.
We intend to use our channel partnerships to enable
scale-deployment of MidGARD. We are building momentum and our
revenue is expected to continue to grow. We are excited by the
prospects generated from being partnered with the likes of CDW
(UK), one of the world's largest IT suppliers, and Nasstar, one of
the UK's leading Cloud Service vendors.
The Cyber market, although growing rapidly, is still relatively
immature. Our primary focus will be to grow Falanx organically,
only examining accretive and capability enhancing acquisitions,
such as the post-period purchase of Cloudified Ltd, on an
opportunity basis. The combination of our own proprietary
technology, channel partnerships, 360-degree service model and
intelligence insights, set us apart from other smaller security
vendors. Therefore, it is our belief we will continue to grow, and
over time, become a highly credible contender to larger
vendors.
Approved by the Board on 10 July 2017 and signed on its behalf
by
M D Read
Non-Executive Chairman
Chief Executive Officers Report
Falanx has experienced robust revenue increases across all lines
of business driven by geopolitical instability, rising cyber-crime,
and increasing regulatory requirements such as GDPR, PCI-DSS and
the Cyber Essentials programme.
Falanx Cyber Defence
The Falanx Cyber Defence division was formed this year when
Falanx Cyber Defence Limited (FCD), previously Advanced Security
Consulting Limited was acquired and merged with our Falanx Assuria
business. The unit relocated from Reading to Birmingham in November
2016, tripling capacity whilst reducing real estate costs. The move
from the London/M4 corridor gives us access to a different market
for technical skills and enables us to draw on Universities and
Higher Education in the centre of the country. Our Cyber Centre is
in the heart of Birmingham's bustling inner-city regeneration zone,
and is attracting local businesses and talented young technologists
from across the Midlands. The Birmingham Cyber Centre now supports
the full cyber lifecycle covering assessment services such as
penetration testing, threat and risk reviews, gap assessments
through to consulting to improve the client security strategy and a
Security Operations Centre that can monitor client assets and
enable rapid response to incidents.
FCD has grown revenue and customers significantly this year. In
May 2016, FCD held 6 clients and 3 channels; all retained,
generating circa GBP40k per month in consulting revenue. By March
2017, FCD had expanded to 29 customers and doubled Assess and
Consult revenue. This resulted in the Falanx Cyber Defence division
generating 300% growth and almost GBP1m in the 11 months from ASC
acquisition up to 31 March 2017. Sales growth is being driven by
the newly formed Sales and Consultancy team and by a strong focus
on Channel Partnerships. The following, highly regarded, channel
partners provide access to over 5,000 potential new Cyber Security
and Intelligence clients:
-- CDW Corporation: $9bn NASDAQ solution provider, who recently
bought Kelway, a leading UK supplier;
-- Stone Group: leading provider of IT services and
infrastructure to Education and public services;
-- NASSTAR Plc: The AIM listed, managed IT services provider;
-- Sentronex: One of the UK's leading Financial Services IT solutions providers; and
-- Mersey Internal Audit Agency and Audit Yorkshire: providing
access to over 100 NHS Trusts in the UK.
Towards the end of the financial year, FCD was awarded the
highly sought-after CHECK accreditation from the UK National
Technical Authority for Information Assurance (also known as CESG
and a part of GCHQ). This adds to our existing GPG13, CREST
membership and ISO 27001 accreditations and creates the opportunity
for Falanx to provide IT health check services for Her Majesty's
Government and wider public sector. UK Central government spends
circa GBP7bn a year on IT, 27% spent on information assurance and
security. Demand from Government departments is high for accredited
suppliers and we see this as a significant growth opportunity for
Falanx Cyber Defence services.
Falanx Intelligence
During the past year Falanx Intelligence, trading as Stirling
Assynt, has continued to see high levels of client retention and
strong demand for subscription products and consulting due to the
quality of our products and current geo-political volatility.
We have seen profitable growth continue with over 70 blue chip
clients demanding geo-political analysis, business intelligence,
consultancy and Intelligence reporting. Stirling Assynt generated
revenue of GBP1.8M (FY16: GBP1.59M 13% increase), and EBITDA of
GBP260k (FY16: GBP185k, 41% increase) for the financial year.
This year has brought continued and new subscriptions for our
flagship intelligence product: The Assynt Report. Coverage includes
the Middle East, North Africa, Western Europe, Latin America and
CIS (former Soviet Union) states. It is prepared using a global
network of well-connected people, and provides regular updates and
commentary on geo-political events covering 33 emerging and growing
economies.
We have a deep and respected specialism in Jihadism and this is
also in strong demand. We comment extensively on developments in
the Islamic world and our 'Black Banners Monthly' periodical is
well-regarded.
The Embedded Analyst business has been particularly strong this
year. The business has renewed 100% of existing contracts, for
embedded intelligence analysts - embedded staff being hosted within
prominent FTSE100 and 'Blue Chip' firms in the financial, insurance
and telecoms sectors. In addition, new contracts to provide
embedded analysts have been won with a major US insurer, a major
mobile telecoms company and a well-known US food and beverage
retailer. A strong pipeline exists to provide further embedded
analysts to several current and prospective clients. The Business
Intelligence practice has also seen continued strong demand, driven
partly by rising international regulatory requirements, and by
shareholder expectations relating to risk management, avoiding
corruption and compliance with international sanctions.
Falanx Cyber Technology
Falanx Cyber Technology (FCT) was established this year to
provide our core technology and deliberately placed alongside our
SOC to promote rapid development and response to emerging needs and
threats, FCT is focused on creating flexible, scalable, and
cost-effective security solutions for both the SME market and major
enterprises. FCT launched MidGARD in February 2017.
MidGARD is our own proprietary technology for Managed Detection
and Response. It differs significantly from existing SIEM products
in that it is designed from the ground up: as a service platform,
to support multiple clients, and uses open source technology, big
data analytics and machine learning to share the benefits of
security learning on one client with all clients. MidGARD
eliminates our
dependency on outside technology providers and substantially
reduces our licensing costs, initially by GBP0.5M and increasing
thereafter with volume.
MidGARD detects and alerts potential cyber threats, and provides
analysts with the ability to investigate and intervene as threats
occur on client's networks and systems. The MidGARD platform will
also deliver MicroSOC, a 'plug-n-play' version built for the SME
market. With a low-cost entry point and easy client self-setup, we
believe that MicroSOC holds the key to a reliable and highly
scalable mid-market Cyber Security-as-a-Service solution.
Post Period Events
On the 4 May 2017, Falanx placed 29,090,909 new ordinary shares
in the Company. The placement was oversubscribed at a price of
6.875 pence per share raising GBP2 million before expenses.
On 3 July 2017, Falanx acquired Cloudified Ltd for GBP180,000 in
shares and cash, including GBP100,000 cash. Danny Waite,
Cloudified's Managing Director will be Head of Software Development
for Falanx Cyber Technology, driving research, innovation and
development of our MidGARD platform and future Cyber Defence
products. Cloudified's core connectivity technology and data
management and monitoring platform complements Falanx's MidGARD.
The acquisition of these technologies allows Falanx to accelerate
launch of its SME offering: MicroSOC.
Approved by the Board on 10 July 2017 and signed on its behalf
by
P S A Bladen
Chief Executive Officer
Directors and Advisers
Mike Read
Mike Read (Non-executive Chairman) has over 30 years experience
in the global Telecommunications, Media and Technology (TMT) sector
and has been a director of eight public companies. He has held
numerous 'C' level roles in the UK and USA, including, CEO of Pipex
Communications, Executive Director at Daisy Group Plc,
Non-Executive Director at Nasstar Plc, and Non-Executive Chairman
at IntY Limited. Mike has significant experience helping to build
international technology companies, having been involved on over 50
M&A transactions.
Stuart Bladen
Stuart Bladen (Chief Executive Officer) has a deep understanding
of the Cyber Security industry, in particular the arena of
consulting and managed security services. Under his stewardship,
Vistorm Limited (now HP Information Security UK Limited, part of
the Hewlett Packard Group) a provider of managed security services
and network solutions to companies needing a specialist security
partner, doubled in size to 400 staff and annual turnover of
GBP120m. He has held leadership roles at Hewlett Packard as Vice
President of UK Public Sector and for the Middle East,
Mediterranean and Africa, where he managed a US$2Bn+ turnover
operation. In addition he has held senior roles at EDS, Hitachi,
Unisys and PwC where he led teams of up to 18,000 people with
business units delivering revenue of more than US$3Bn.
John Blamire
John Blamire (Founder Director) is a former officer in the
British Army, having served for 10 years in Europe, Middle East and
the Americas gaining a wealth of operational experience in
challenging circumstances and environments. After leaving the Army
he co-founded Praetorian Protection Limited, a company providing
specialist security services to clients around the globe. He went
on to found Falanx in 2012, leading the IPO of Falanx Group in June
2013 and the acquisition of Stirling Assynt. John has a strong
track record of innovation, thought leadership and raising growth
capital in challenging markets. He holds a degree in Law and
Business.
Emma Shaw
Emma Shaw (Non-executive Director) is the Managing Director of
Esoteric Limited, an Electronic Sweeping, Counter-Espionage and
Intelligence gathering company. An MBA graduate, and a Chartered
Security Professional (CSyP) Emma's early career was spent with the
Royal Military Police, followed by a career in the Ministry of
Defence. Emma is also the former Chairman and Fellow of the
Security Institute; a Board member of the Defence Industry Security
Association (DISA); a Fellow of the Chartered Management Institute
and member of the Advisory Council for CSARN.
Jay Abbott
Jay Abbott (Managing Director, Falanx Cyber) is a celebrated
key-note speaker on the subject of Cyber Security with 20 years
experience in the industry. His work and leadership with the UK
Cyber Security Challenge, alongside some of the biggest names
within the commercial Cyber market and Government, has developed
creative solutions to solving the skills shortage in the cyber
industry. Innovations including the development of the "PoD online
gaming platform" and the "Cyphinx - Immersive 3D Gaming platform",
engaging the next generation of talent to ensure the future of the
industry and protect the interests of the country.
Company number Nominated adviser
1730012 (British Virgin Islands) Spark Advisory Partners
Registered office Limited
PO Box 173 5 St John's Lane
Kingston Chambers, Road Town London EC1M 4BH
Tortola, British Virgin Islands Bankers
Registered Agents Barclays Bank PLC
Maples Corporate Services UK Banking
(BVI) Limited 1 Churchill Place
PO Box 173 London E14 5HP
Kingston Chambers, Road Town Solicitors
Tortola, British Virgin Islands DWF LLP
Auditors 20 Fenchurch Street
Kingston Smith LLP London EC3M 3AG
Devonshire House Registrars
60 Goswell Road Computershare Investor Services
London EC1M 7AD (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town, Tortola
British Virgin Islands VG1110
Directors Report
The Directors present their report and the audited financial
statements for the year ended 31 March 2017.
Business Review
The Group's results for the year are set out in the consolidated
statement of comprehensive income on page 14 of these financial
statements.
A review of the business, significant contracts, progress and
the group's future prospects can be found in the Chairman's
Statement.
Key Performance Indicators
Performance Description Why measured 2017 2016 Comment
Indicator
Group Changes in Revenue growth GBP2,743,217 GBP1,815,394 Increase of
revenue total revenue gives a quantified 51.11% resulting
compared to indication from increased
prior year of the rate revenue in
at which the intelligence
the Group's and cyber divisions.
business Number of customers
activity the in cyber
is expanding division increased
over time from 5 to 29
in the year.
Provides
indication
of sales
profitability Decrease in
Percentage and proportion variable costs
of total revenue of revenue mainly attributable
retained by available to efficiency
the Group to cover savings in
Gross after direct other running Cyber security
margin costs deduction costs 20.00% (3.32)% operations.
EBITDA A measure Offers a GBP(1,221,617) GBP(2,311,141) Decrease in
of profits clearer reflection overhead cost
of the value largely due
of operations to implementation
of Group wide
cost savings.
Provides
indication A significant
of amount decrease in
of expenses cost as a result
Percentage needed to of general
G & A of total revenue support Group cost saving
ratio spent on overheads operations 77.54% 142.28% measures implemented
------------- --------------------- --------------------- --------------- --------------- ----------------------
Dividends
The consolidated statement of comprehensive income for the year
is set out on page 16, and shows the loss for the year.
The Directors do not recommend the proposal of a final dividend
in respect of the current year.
Events after reporting date
Information relating to events since the end of the year is
disclosed in note 30 to the financial statements.
Directors
The Directors who served the Company during the year and up to
the date of this report were as follows:
Executive Directors
J R Blamire
P S A Bladen appointed 17 October 2016
J D Abbott appointed 24 January 2017
Non-Executive Directors
I A Manley resigned 28 October 2016
D P Carr resigned 20 June 2016
E Shaw
M D Read
Directors' interests
The Directors' interests in the share capital of the Company at
the year end were as stated below:
2017 2016
Number % Held Number % Held
of shares of shares
-------------- ----------- ------- ----------- -------
J R Blamire 7,900,000 6.28% 7,900,000 11.09%
J D Abbott 7,125,536 5.66% - -
M D Read 1,250,000 0.99% - -
D P Carr* 1,075,000 0.85% 200,000 0.28%
P S A Bladen 310,000 0.25% - -
E Shaw 200,000 0.16% 200,000 0.28%
I A Manley** - - 200,000 0.28%
-------------- ----------- ------- ----------- -------
* D P Carr resigned on 20 June 2016
** I A Manley resigned on 28 October 2016
The interests of Directors' holding office at 31 March 2017 in
options over the share capital of the Company were as stated
below:
5.00 pence options 2017 2016
Number Number
P S A Bladen 3,000,000 -
------------------- ---------- -------
5.875 pence options 2017 2016
Number Number
P S A Bladen 1,250,000 -
J R Blamire 500,000 -
J D Abbott 500,000 -
E Shaw 750,000 -
-------------------- ---------- -------
At 31 March 2017, M D Read had 6,000,000 warrants at 4 pence
each over the share capital of the Company.
Directors' interests in transactions
No director had, during or at the end of the year, a material
interest in any contract which was significant in relation to the
Group's business, except in respect of service agreements.
Directors' remuneration
Salary Benefits Pension Bonus 2017 2016
and in contribution Total Total
fees kind
GBP GBP GBP GBP GBP GBP
---------------------- -------- --------- -------------- ------- -------- --------
Executive Directors:
P S A Bladen 68,846 - 155 - 69,001 -
J R Blamire 78,413 - 155 30,000 108,568 60,000
J D Abbott
* 16,667 - - 8,333 25,000 -
K P A Barclay - - - - - 73,333
Non-executive
Directors:
I A Manley 23,000 - - - 23,000 32,500
E Shaw 28,000 - - - 28,000 50,110
D P Carr 1,000 - - - 1,000 12,000
M D Read 25,000 - - 25,000 50,000 4,000
---------------------- -------- --------- -------------- ------- -------- --------
240,926 - 310 63,333 304,569 231,943
---------------------- -------- --------- -------------- ------- -------- --------
* J D Abbott was appointed as director of the Company on 24
January 2017.
Group's policy on payment of creditors
It is the Group's policy to pay suppliers in accordance with the
terms and conditions agreed between the Group and its suppliers,
provided that the goods and services have been supplied in
accordance with the agreed terms and conditions. In respect of the
financial year ended 31 March 2017, creditors' days have been
calculated at 64 days (2016: 96 days).
Political and charitable donations
There were no political and charitable donations made by the
Group during the year.
Financial Instruments
The Group's financial risk management objectives are to minimise
debt and to ensure sufficient working capital for the Group's
overheads and capital expenditure commitments.
Financial instruments are disclosed and discussed in note 23 to
the financial statements.
Employees
The Group recognises the benefit of keeping its employees
informed of all relevant matters on a regular basis. The Group is
an equal opportunities employer and all applications for employment
are considered fully on the basis of suitability for the job.
Health and safety
Group companies have a responsibility to ensure that all
reasonable precautions are taken to provide and maintain working
conditions for employees and visitors alike, which are safe,
healthy and in compliance with statutory requirements and
appropriate codes of practice. The avoidance of occupational
accidents and illnesses is given a high priority.
Principal Risks and Uncertainties
The following are the risk factors associated with the Group's
business and industry:
Reliance on Key Contracts and Business Relationships
Several of the Group's major customer contracts are in the form
of single purchase order arrangements and the majority of the
engagements that are more formally documented are terminable on one
month's notice. There can be no guarantee that the Group's major
customers will continue to engage its services. The Group
anticipates having significantly higher volumes of small to medium
contracts and an increase in recurring business that will represent
a significant proportion of total revenue, reducing the risk of
dependency on large customers.
Pipeline opportunities
The Group has a significant number of small, medium and major
contracts in contemplation in the form of a pipeline of
opportunities. However there is no certainty these opportunities
will be entered into or converted into concluded contracts or that
the expected level of work will in fact, if converted to contracts,
be awarded to the Group. In addition there can be no certainty that
any contracts resulting from conversion of the opportunity will be
profitable or even not loss-making.
The Company may need additional access to capital in the
future
The Group's capital requirements depend on numerous factors,
including its ability to expand its business and its strategy of
making complementary acquisitions. If its capital requirements vary
materially from its current plans, the Group may require further
financing. Any additional equity financing may be dilutive to
shareholders, and debt financing, if available, may involve
restrictions on financing and operating activities and adversely
affect the Group's dividend policy. In addition, there can be no
assurance that the Group will be able to raise additional funds
when needed or that such funds will be available on terms
favourable or acceptable to the Group. If the Group is unable to
obtain additional financing as needed, the Group may be required to
reduce the scope of the Group's operations or anticipated expansion
or to cease trading.
Management of future growth
The Group's plans for growth will challenge the Group's
management team, customer support, marketing, administrative and
technological resources. If the Group is unable to manage its
growth effectively its business, operations or financial condition
may deteriorate. The Group will consider future acquisition
opportunities. If the Group is unable successfully to integrate an
acquired company or business, the acquisition could lead to
disruptions to the business. If the operations or assimilation of
an acquired business does not accord with the Group's expectations,
the Group may have to decrease the value afforded to the acquired
business or realign the Group's structure.
Going Concern
On 4 May 2017 the Group announced that it had raised net
proceeds of approximately GBP1.955m after deducting commission and
transaction related expenses through the issue of the Subscription
Shares at the placing price of 6.875 pence per ordinary share. The
Directors have reviewed forecasts and budgets based on current
expected levels of expenditure and have concluded that the Group
has sufficient funds available to meet its commitments for at least
the next twelve months from the date of the approval of financial
statements. The Directors regularly review the funding position of
the Group and its cash flow forecasts and have carried out a review
of the current and future operating costs of the Group and are
focussed on seeing the Group to break-even within the next twelve
months. Key to achieving this will be the continued growth of the
Cyber division to break-even within twelve months together with
enhancing the existing profitability of the Intelligence division.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for at
least twelve months from the date of the approval of these
financial statements. Thus they continue to adopt the going concern
basis of accounting in preparing the annual financial
statements.
Information to shareholders - Website
The Group has its own web site (www.falanx.com) for the purposes
of improving information flow to its shareholders and potential
investors.
Substantial shareholdings
On 28 June 2017, the following were holders of 3% or more of the
Group's issued share capital:
Ordinary Percentage
shares of issued
Registered holder share capital
------------------------------- ----------- --------------
Steven Myers 12,701,000 8.17%
Ruffer LLP 11,095,130 7.14%
W B Nominees Limited 10,741,760 6.91%
Barclayshare Nominees Limited 9,732,386 6.26%
JIM Nominees Limited* 8,193,318 5.27%
John Blamire 7,900,000 5.08%
Jay David Abbott 7,125,536 4.58%
KC Investments Limited 5,338,611 3.44%
------------------------------- ----------- --------------
* Excluding the declared holding for Steven Myers. Save as set
out above, the Directors are not aware of any other persons with a
holding of 3% or more of the Group's issued share capital.
Auditors
The auditors Kingston Smith LLP were re-appointed by the Audit
Committee on 10 May 2017 and have indicated their willingness to
continue in office.
Disclosure of information to the auditors
So far as the Directors are aware, there is no relevant audit
information of which the Group's auditors are unaware and they have
taken all steps that they ought to have taken as Directors in order
to make themselves aware of any relevant audit information and to
establish that the Group's auditors are aware of that
information.
Statement of Directors' Responsibilities
The Statement of Directors' Responsibilities can be found on
page 12 of these financial statements. The Statement of Directors'
Responsibilities forms part of the Directors' report.
On behalf of the Board
J R Blamire
Director
10 July 2017
Statement of Directors Responsibilities
The Directors are responsible for preparing the Directors'
report and the financial statements in accordance with applicable
law and regulations and, as regards the Group financial statements,
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union. Under Company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and the financial performance and cash flows of the Group for that
year. In preparing these financial 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, in preparation of the Group financial
statements, the Group has complied with IFRS as adopted by the
European Union, subject to any material departures disclosed and
explained in the Group financial statements; and
-- prepare the accounts on the going concern basis unless it is
inappropriate to presume that the Group will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
financial statements comply with all applicable legislation and as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of 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 corporate and financial information included on the Group's
website.
Corporate Governance Report
Statement of Compliance
Save for the Companies Act, there is no mandatory corporate
governance regime in the British Virgin Islands with which the
Group must comply. However, the Directors recognise the importance
of sound corporate governance and intend to comply with appropriate
recognised corporate governance standards as far as practicable and
to the extent appropriate given the Group's size, assets,
liabilities and other relevant information. In practice this means
that the Group will be complying with the QCA Guidelines for AIM
Companies.
Board of Directors
The Board's principal responsibilities include assisting in the
formulation of corporate strategy, reviewing and approving all
significant corporate transactions, monitoring operational and
financial performance, reviewing and approving annual budgets and
generally assisting management to enhance the overall performance
of the Group in order to deliver maximum value to its shareholders.
The Group holds Board meetings at least eight times each financial
year and at other times as and when required.
Committees
The Group has in the operation the following committees: an
Audit Committee and a Remuneration Committee and Nomination
Committee.
Audit Committee
The Audit Committee comprises John Blamire (Chairman), Emma Shaw
and Mike Read and meets at least two times a year. Executive
Directors are permitted to attend meetings at the discretion of the
Chairman of the Committee. There is an opportunity for any meeting
to be in private between the Non-Executive Directors and the
Company's auditor to consider any matter they wish to bring to the
attention of the Committee. The terms of reference and areas of
delegated responsibility of the Audit Committee are in the
consideration and approval of the following matters:
-- monitoring the quality and effectiveness of the internal
control environment, including the risk management procedures
followed by the Group;
-- reviewing the Group's accounting policies and ensuring
compliance with relevant accounting standards;
-- reviewing the Group's reporting and accounting procedures;
-- ensuring that the financial performance of the business is
properly measured, controlled and reported on;
-- reviewing the scope and effectiveness of the external audit
and compliance by the Group with statutory and regulatory
requirements;
-- approving the external auditors' terms of engagement, their
audit plan, their remuneration and any non-audit work;
-- considering reports from the auditor on the outcome of the
audit process and ensuring that any recommendations arising are
communicated to the Board and implemented on a timely basis;
-- reviewing the Board's statement on internal control in the Annual Report; and
-- ensuring compliance with the relevant requirements of the AIM Rules.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee (previously 2 separate
committees) comprises Emma Shaw (Chairman) and Mike Read and meets
as and when necessary. It keeps under review the skill requirements
of the Board and the skill, knowledge, experience, length of
service and performance of the Directors. It also reviews their
external interests with a view to identifying any actual, perceived
or potential conflicts of interests, including the time available
to commit to their duties to the Group. It sets and reviews the
scale and structure of the Executive Directors' remuneration
packages, including share options and the terms of the service
contracts. The remuneration and the terms and conditions of the
Non-Executive Directors are determined by the Executive Directors
with due regard to the interests of the Shareholders and the
performance of the Group. The Committee also makes recommendations
to the Board concerning the allocation of share options to
employees.
The Committee also monitors the independence of each
Non-Executive Director and makes recommendations concerning such to
the Board. The results of these reviews are important when the
Board considers succession planning and the re-election and
reappointment of directors. Members of the Committee take no part
in any discussions concerning their own circumstances.
The Committee is also responsible for keeping under review the
senior management team of the organisation to ensuring the
continued ability of the organisation to compete effectively in the
marketplace.
Internal Control
The Board has overall responsibility for ensuring that the Group
maintains a system of internal control to provide it with
reasonable assurance regarding the reliability of financial
information used within the business and for publication. The Board
is also responsible for ensuring that assets are safeguarded and
risk is identified as early as practicably possible. As noted, the
Audit Committee has a significant role in this area. The internal
control systems established are designed to manage rather than
completely eliminate risk and can only provide reasonable but not
absolute assurance against misstatement or loss. The Group does not
currently have an internal audit function and this will be kept
under review as the Group progresses. The Board reviews the
effectiveness of the systems of internal control and its reporting
procedures and augments and develops these procedures as required
to ensure that an appropriate control framework is maintained at
all times. The principal control mechanisms deployed by the Group
are:
-- Board approval for all strategic and commercially significant transactions;
-- detailed scrutiny of the monthly management accounts with all
material variances investigated;
-- executive review and monitoring of key decision-making processes at subsidiary board level;
-- Board reports on business performance and commercial developments;
-- periodic risk assessments at each business involving senior executive management;
-- standard accounting controls and reporting procedures; and
-- regularly liaising with the Group's auditor and other professionals as required.
Shareholder Communication
The Group's website (www.falanx.com) is the primary source of
information on the Group. This includes an overview of the
activities of the Group, information on the Group's subsidiaries
and details of all recent Group announcements.
Corporate Responsibility
Falanx Group Limited operates responsibly with regards to its
shareholders, employees, other stakeholders, the environment and
the wider community. The Group is committed to the well-being of
all employees and ensures that their health, safety and general
welfare is paramount at all times. We also maintain open and fair
relationships with all clients and suppliers while ensuring that
all transactions are operated on an arm's length, commercial
basis.
The Directors are responsible for preparing the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements
for each financial period. The Directors have elected to prepare
these financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and applicable by law.
Approved by the Board on 10 July 2017 and signed on its behalf
by
J R Blamire
Director
Independent Auditors Report
To the members of Falanx Group Limited
We have audited the financial statements of Falanx Group Limited
for the year ended 31 March 2017 which comprise the Group Statement
of Comprehensive Income, the Group Statement of Financial Position,
the Group Statement of Cash Flows, the Group Statement of Changes
in Equity and the related notes. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the Group's members, as a body.
Our audit work has been undertaken for no purpose other than to
draw to the attention of the Group's members those matters which we
are required to include in an auditor's report addressed to them.
To the fullest extent permitted by law, we do not accept or assume
responsibility to any party other than the Group and Group's
members as a body, for our work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 12 the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial 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 (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial 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 company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's affairs as at 31 March 2017 and of the Group's
loss for the year then ended; and
-- the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union.
Matthew Meadows
Senior Statutory Auditor
for and on behalf of Kingston Smith LLP
Devonshire House
60 Goswell Road
London
EC1M 7AD
10 July 2017
Consolidated Income Statement
2017 2016
Note GBP GBP
----------------------------------------- ----- ------------ ------------
Continuing operations
Revenue 4 2,743,217 1,815,394
Cost of sales (2,194,564) (1,875,689)
----------------------------------------- ----- ------------ ------------
Gross profit / (loss) 548,653 (60,295)
Administrative expenses (2,062,570) (2,582,988)
Administrative expenses - Research (64,517) -
Operating loss (1,578,434) (2,643,283)
Finance income 8 196 373
Finance costs 8 (110,000) (8,149)
----------------------------------------- ----- ------------ ------------
Finance costs - net (109,804) (7,776)
Loss before income tax (1,688,238) (2,651,059)
Income tax (expense) / credit 9 (12,416) 16,880
----------------------------------------- ----- ------------ ------------
Loss for the year from continuing
operations (1,700,654) (2,634,179)
Loss for the year (1,700,654) (2,634,179)
Earnings per share
Basic earnings per share - continuing
and total operations 10 (1.52)p (3.79)p
Diluted earnings per share - continuing
and total operations 10 (1.52)p (3.79)p
----------------------------------------- ----- ------------ ------------
Consolidated statement of comprehensive income
for the year ended 31 March 2017
2017 2016
GBP GBP
------------------------------------------ ------------ ------------
Loss for the year (1,700,654) (2,634,179)
Other comprehensive income: - -
Other comprehensive income for the year, - -
net of tax
------------------------------------------ ------------ ------------
Total comprehensive income for the year (1,700,654) (2,634,179)
------------------------------------------ ------------ ------------
Attributable to:
Owners of the parent (1,700,654) (2,634,179)
Total comprehensive income for the year (1,700,654) (2,634,179)
------------------------------------------ ------------ ------------
Items in the statement above are disclosed net of tax. The
income tax relating to each component of other comprehensive income
is disclosed in note 9.
The notes on pages 20 to 38 are an integral part of these
consolidated financial statements.
Consolidated Statement of Financial
Position
As at 31 March 2017 2017 2016
Note GBP GBP
------------------------------------- ----- ------------ ------------
Assets
Non-current assets
Property, plant and equipment 12 131,456 59,441
Intangible assets 13 769,983 495,771
Deferred tax asset 15 - 2,887
901,439 558,099
------------------------------------- ----- ------------ ------------
Current assets
Inventories 16 8,500 41,175
Trade and other receivables 17 633,101 529,686
Cash and cash equivalents 18 430,459 430,132
------------------------------------- ----- ------------ ------------
1,072,060 1,000,993
------------------------------------- ----- ------------ ------------
Total assets 1,973,499 1,559,092
------------------------------------- ----- ------------ ------------
Equity
Capital and reserves attributable
to equity holders of the Company
Share premium account 20 7,410,507 5,309,031
Translation reserve (100,285) (42,162)
Shares to be issued reserve 196,606 174,851
Retained earnings 21 (6,703,447) (5,002,793)
------------------------------------- ----- ------------ ------------
Total equity 803,381 438,927
------------------------------------- ----- ------------ ------------
Liabilities
Current liabilities
Trade and other payables 22 1,160,589 1,120,165
Deferred tax liability 15 9,529 -
Total liabilities 1,170,118 1,120,165
------------------------------------- ----- ------------ ------------
Total equity and liabilities 1,973,499 1,559,092
------------------------------------- ----- ------------ ------------
The notes on pages 20 to 38 are an integral part of these
consolidated financial statements.
The financial statements on pages 16 to 19 were authorised for
issue by the Board of Directors on 10 July 2017 and were signed on
its behalf by:
J R Blamire
Director
Company number: 1730012 (British Virgin Islands)
Consolidated Statement of Changes in Equity
for the year ended 31 March 2017
Share Retained Translation Shares
to be
Note premium earnings reserve Issued Total
reserve
GBP GBP GBP GBP GBP
------------------------ ----- ---------- ------------ ------------ --------- ------------
Balance at 1 April
2015 2,841,797 (2,368,614) (29,224) 91,875 535,834
Loss for the year - (2,634,179) - - (2,634,179)
Transactions with
owners:
Issue of share capital 2,662,259 - - - 2,662,259
Costs of issue of
share capital (195,025) - - - (195,025)
Translation of foreign
subsidiary - - (12,938) - (12,938)
Share options issued - - - 82,976 82,976
Balance at 31 March
2016 5,309,031 (5,002,793) (42,162) 174,851 438,927
------------------------ ----- ---------- ------------ ------------ --------- ------------
Balance as at 1
April 2016
Loss for the year - (1,700,654) - - (1,700,654)
Transactions with
owners:
Issue of share capital 2,175,021 - - - 2,175,021
Costs of issue of
share capital (73,545) - - - (73,545)
Translation of foreign
subsidiary - - (58,123) - (58,123)
Share options issued 11 - - - 21,755 21,755
------------------------ ----- ---------- ------------ ------------ --------- ------------
Balance as at 31
March 2017 7,410,507 (6,703,447) (100,285) 196,606 803,381
------------------------ ----- ---------- ------------ ------------ --------- ------------
The share premium account represents the excess of the amount
subscribed for share capital over the nominal value of the shares,
net of share issue expenses. Share issue expenses comprise the
costs in respect of the issue by the Company of new shares.
Retained earnings represent the cumulative earnings of the Group
attributable to the owners of the parent.
The notes on pages 20 to 38 are an integral part of these
consolidated financial statements.
Consolidated Cash Flow Statement
for the year ended 31 March 2017
2017 2016
Note GBP GBP
---------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Loss before tax (1,688,238) (2,651,059)
Adjustments for:
Depreciation 43,874 22,746
Amortisation 312,943 309,396
Share based payment 56,755 82,976
Loss / (profit) on disposal of
property, plant and equipment 697 (109)
Net finance cost recognised in
profit or loss 109,804 7,776
(1,164,165) (2,228,274)
----------------------------------------------- ------------ ------------
Changes in working capital:
Decrease in inventories 32,675 15,802
(Increase) / decrease in trade
and other receivables (11,388) 130,473
(Decrease)/ increase in trade
and other payables (67,676) 154,641
------------------------------------------------ ------------ ------------
Cash used in operations (1,210,554) (1,927,358)
Interest paid (55,000) (8,149)
------------------------------------------------ ------------ ------------
Net cash used in operating activities (1,265,554) (1,935,507)
------------------------------------------------ ------------ ------------
Cash flows from investing activities
Interest received 196 373
Acquisition of property, plant
and equipment (109,365) (12,414)
Disposal of property, plant and
equipment - 300
Expenditure on capitilised development (152,967) -
cost
Acquisition of subsidiary net
of cash acquired (140,315) (505,000)
Net cash used in investing activities (402,451) (516,741)
------------------------------------------------ ------------ ------------
Cash flows from financing activities
Net proceeds from loan notes 495,000 -
Repayment of loan notes (550,000) -
Net proceeds from issue of shares 1,781,455 2,467,234
Net cash generated from financing
activities 1,726,455 2,467,234
------------------------------------------------ ------------ ------------
Net increase in cash equivalents 58,450 14,986
Cash and cash equivalents at beginning
of year 430,132 428,084
Foreign exchange losses on cash
and cash equivalents (58,123) (12,938)
------------------------------------------------ ------------ ------------
Cash and cash equivalents at end
of year 430,459 430,132
------------------------------------------------ ------------ ------------
Notes to the Consolidated Financial Statements
for the year ended 31 March 2017
1. General information
Falanx (the "Company") and its subsidiaries (together the
"Group") operate in the security (including cyber) and intelligence
markets.
The Company is a public limited company which is listed on the
AIM Market of the London Stock Exchange and is incorporated and
domiciled in the British Virgin Islands. The address of its
registered office is PO Box 173, Kingston Chambers, Road Town,
Tortola, British Virgin Islands.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been applied consistently to all the years presented
unless otherwise stated.
2.1 Basis of preparation
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union and International
Financial Reporting Interpretations Committee ("IFRIC")
interpretations. The functional and presentational currency for the
financial statements is GBP Sterling. The financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of available for sale financial assets, financial
assets and financial liabilities at fair value through profit or
loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its 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 significant to the consolidated
financial statements are disclosed in note 3.
2.1.1 Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement and Directors' Report on
pages 2-9. In addition, notes 23 and 24 to the financial statements
includes the Group's objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposures to credit risk and liquidity risk. The Directors
regularly review the funding position of the Group and its cash
flow forecasts.
On 4 May 2017 the Group announced that it had raised net
proceeds of approximately GBP1.955m after deducting commission and
transaction related expenses through the issue of the Subscription
Shares at the placing price of 6.875 pence per ordinary share.
The Directors have reviewed forecasts and budgets based on
current, expected and future operating costs of the Group and are
focussed on seeing the Group to break-even in the next twelve
months. Key to achieving this will be the growth of the Cyber
division which up to recently has been in its development phase and
required significant cash resources. Revenues in the Cyber division
have started to increase and the forecasts anticipate that with
continued growth this division will achieve break-even within
twelve months. Achieving break-even at a Group level will also be
supported by enhancing the existing profitability of the
Intelligence division and careful control over Group overheads. The
Directors have therefore concluded that the Group has sufficient
funds available to meet its commitments for at least the next
twelve months from the date of the approval of these financial
statements. Thus the Directors continue to adopt the going concern
basis of accounting in preparing the annual financial
statements.
2.1.2 New and Revised Standards
Standards in effect in 2017
The following new and amended standards, and interpretations are
mandatory for the first time for the financial year beginning 1
April 2017 but are not currently relevant to the group (although
they may affect the accounting for future transactions and
events):
-- IAS 7 (Amended) 'Statements of Cash Flows', effective for
periods commencing on or after 1 January 2017. These amendments are
intended to clarify the information provided to users of financial
statements about an entity's financing activities.
-- IAS12 (Amended), 'Income Taxes', effective for periods
commencing on or after 1 January 2017 but not yet adopted by the
EU. This amendment relates to the recognition of deferred tax
assets for unrealised losses and clarifies that estimations for
future taxable profits exclude tax deductions arising from the
reversal of temporary differences.
IFRS in issue but not applied in the current financial
statements
The following IFRS and IFRIC Interpretations have been issued
but have not been applied by the Group in preparing these financial
statements as they are not as yet effective. The Group intends to
adopt these Standards and Interpretations when they become
effective, rather than adopt them early.
-- IFRS 2 (Amended), 'Share-based payment', effective for
periods commencing on or after 1 January 2018. These amendments
clarify the classification and measurement of share-based payment
transactions.
-- IFRS9, 'Financial Instruments', effective for periods
commencing on or after 1 January 2018 but not yet adopted by the
EU. This is final version of the project to replace IAS39
'Financial Instruments: Recognition and Measurement'.
-- IFRS15, 'Revenue from Contracts with Customers', effective
for periods commencing on or after 1 January 2018 but not yet
adopted by the EU. This standard focuses on a principles based
model which is to be applied to all contracts with customers.
-- IFRS 16, 'Leases', effective for periods commencing on or
after 1 January 2019 but not yet adopted by the EU. This standard
focuses on recognising all leases on the balance sheet, thus
eliminating the distinction between finance and operating
leases.
A number of IFRS and IFRIC interpretations are also currently in
issue which are not relevant for the Group's activities and which
have not therefore been adopted in preparing these financial
statements.
2.2 Consolidation
Subsidiaries
Subsidiary undertakings are all entities over which the Group
has the power to govern the financial and operating policies of the
subsidiary and, therefore, exercise control. The existence and
effect of both current voting rights and potential voting rights
that are currently exercisable or convertible are considered when
assessing whether control of an entity is exercised. Subsidiaries
are consolidated from the date at which the Group obtains the
relevant level of control and are de-consolidated from the date at
which control ceases.
The acquisition method of accounting is used for all business
combinations. On acquisition, the cost is measured at the aggregate
of their fair values at the date of exchange, of assets given,
liabilities incurred or assumed and equity instruments issued by
the Group in exchange for control of the acquire. Any costs
directly attributable to the business combination are expensed as
incurred. The acquiree's identifiable assets, liabilities and
contingent liabilities that meet the conditions for recognition
under IFRS 3 (Revised), "Business Combinations" are recognised at
fair values at the acquisition date.
Goodwill represents the excess of the consideration transferred,
the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the
acquiree over the fair value of the Group's share of the
identifiable net assets acquired is recorded as goodwill. If, after
reassessment, the Group's interest in the net fair value of the
acquiree's identifiable assets, liabilities and contingent
liabilities exceeds the cost of the business combination, the
difference is recognised directly in profit or loss. Any subsequent
adjustment to reflect changes in consideration arising from
contingent consideration amendments are recognised in profit or
loss.
Inter-company transactions, balances and unrealised gains on
transactions between group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the
policies adopted by the group.
2.3 Segment reporting
In accordance with IFRS 8, segmental information is presented
based on the way in which financial information is reported
internally to the chief operating decision maker. The Group's
internal financial reporting is organised along product and service
lines and therefore segmental information has been presented about
business segments. A business segment is a group of assets and
operations engaged in providing products and services that are
subject to risks and returns which are different from those of
other business segments.
2.4 Revenue recognition
Revenue comprises the fair value of the consideration received
or receivable for the sale of goods and services in the ordinary
course of the Group's activities. Revenue is shown net of
value-added tax, returns, rebates and discounts and after
eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be
reliably measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met
for each of the Group's activities. The Group bases its estimates
on historical results, taking into consideration the type of
customer, the type of transaction and the specifics of each
arrangement.
Revenue is recognised, when it is probable that the economic
benefits will flow to the Group and when the revenue can be
measured reliably, on the following bases:
Class of revenue Recognition criteria
Subscription fee straight line basis over the life of the contract
Managed services straight line basis over the life of the contract
Consultancy on rendering of service to customers
Vulnerability assessment on rendering of service to customers
Supply of products when effective title passes to the customer
Maintenance income straight line basis over the life of the contract
Training courses on delivery of training course
2.5 Taxation
The tax expense for the year represents the total of current
taxation and deferred taxation. The charge in respect of current
taxation is based on the estimated taxable profit for the year.
Taxable profit for the year is based on the profit as shown in the
income statement, as adjusted for items of income or expenditure
which are not deductible or chargeable for tax purposes. The
current tax liability for the year is calculated using tax rates
which have either been enacted or substantively enacted at the
balance sheet date.
Deferred tax is provided in full, using the liability method on
temporary differences arising between the tax base of assets and
liabilities and their carrying values in the financial statements.
The deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that, at the time of the transaction, affects
neither accounting nor taxable profit or loss. Deferred tax is
determined using tax rates which have been enacted or substantively
enacted at the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred income
tax liability is settled.
Deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax
losses, to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences,
and the carrying forward of unused tax assets and unused tax losses
can be utilised.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax assets to be utilised. Conversely,
previously unrecognised deferred tax assets are recognised to the
extent that it is probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be
utilised.
Deferred 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 tax rates and tax
laws that have been enacted or substantively enacted at the
statement of financial position date.
2.6 Foreign Currency
Assets and liabilities in foreign currency are translated into
sterling at the rate of exchange ruling on the reporting date.
Transactions in foreign currency are translated into sterling at
the rate of exchange ruling at the date of transaction. Exchange
differences are taken into account in arriving at the operating
loss.
(a) Functional and presentation currency
Items included in the financial statements of the Group are
measured using the currency of the primary economic environment in
which the entity operates (the functional currency). The financial
statements are presented in GBP Sterling, which is the Group's
functional and presentation currency.
(b) Translation of foreign currencies
In preparing the financial statements of each individual group
entity, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the
rates of exchange prevailing at the dates of the transactions.
Transactions in foreign currencies during the year are converted
at exchange rates ruling at the transaction dates. Monetary assets
and liabilities items in foreign currencies at the year-end are
translated at rates of exchange ruling on the reporting date. All
exchange differences are dealt with in the income statement in the
period in which they arise except for exchange differences on
monetary items receivable from or payable to a foreign operation
for which settlement is neither planned nor likely to occur
(therefore forming part of the net investment in the foreign
operation), which are recognised initially in other comprehensive
income and reclassified from equity to profit or loss on repayment
of monetary items.
For the purposes of presenting consolidated financial
statements, the assets and liabilities of the Group's foreign
operations are translated into Currency Units using exchange rates
prevailing at the end of each reporting period. Income and expense
items are translated at the average exchange rates for the period,
unless exchange rates fluctuate significantly during the period, in
which case the exchange rates at the dates of the transactions are
used. Exchange differences arising, if any, are recognised in other
comprehensive income and accumulated in equity.
2.7 Property, plant and equipment
All property, plant and equipment are stated at historical cost
less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
All assets are depreciated in order to write off the costs, less
anticipated residual values of the assets over their useful
economic lives on a straight line basis as follows:
-- Fixtures and fittings: 5 years
-- Computer equipment: 3 years
2.8 Intangible assets
Acquired intangible assets are shown at historical cost.
Acquired intangible assets have a finite useful life and are
carried at cost, less accumulated amortisation over the finite
useful life. All charges in the year are shown in the income
statement in administrative expenses.
Goodwill
Goodwill arising on acquisition is stated at cost. Goodwill is
not amortised, but subject to an annual test for impairment.
Impairment testing is performed by the Directors. Where impairment
is identified, it is charged to the income statement in that
period.
Software and brand licences
Acquired software and brand licences are shown at historical
cost. Software and brand licences have a finite useful life and are
carried at cost less accumulated amortisation. Amortisation is
calculated using the straight line method to allocate the cost of
software and brand licences over the period of the licence.
Research and development
Research expenditure is charged to the income statement in the
year incurred.
Development costs that are directly attributable to the design
and testing of identifiable and unique software products controlled
by the group are recognised as intangible assets when the following
criteria are met:
-- it is technically feasible to complete the software so that it will be available for use;
-- management intends to complete the software product and use or sell it;
-- it can be demonstrated how the software product will generate
probable future economic benefits;
-- adequate technical, financial and other resources to complete
the development and to use or sell the software product are
available; and
-- the expenditure attributable to the software product during
its development can be reliably measured.
Other development expenditures that do not meet these criteria
are charged to the income statement in the year incurred.
Development costs recognised as assets are amortised over its
estimated useful life, which does not exceed 3 years.
Other intangibles
Acquired intangible assets are shown at historical cost.
Acquired intangible assets have a finite useful life and are
carried at cost less accumulated amortisation. All charges in the
year are shown in the consolidated income statement in
administrative expenses. Other intangible assets are amortised over
10 years.
2.9 Impairment of non-financial assets
Assets that are subject to depreciation or amortisation are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. A review
for indicators of impairment is performed annually. An impairment
loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset's fair value less costs to sell and value in
use. Any impairment charge is recognised in the income statement in
the year in which it occurs. When an impairment loss, other than an
impairment loss on goodwill, subsequently reverses due to a change
in the original estimate, the carrying amount of the asset is
increased to the revised estimate of its recoverable amount, up to
the carrying amount that would have resulted, net of depreciation,
had no impairment loss been recognised for the asset in prior
years.
2.10 Inventory
Inventory mainly comprises work in progress which is stated at
the lower of cost and net realisable value. Cost is based on
purchase price and net realisable value is based on estimated
selling price less disposal costs.
2.11 Financial assets
The Group classifies its financial assets as cash and cash
equivalents and trade and other receivables. The classification is
dependent on the purpose for which the financial assets are
acquired.
(a) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at bank and in hand and short-term deposits,
including liquidity funds, with an original maturity of three
months or less. For the purpose of the consolidated cash flow
statement, cash and cash equivalents consist of cash and cash
equivalents as defined above, net of outstanding bank
overdrafts.
(b) Trade and other receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted on an active market. They
arise principally from the provision of goods and services to
customers. Trade receivables are initially recognised at fair value
less an allowance for any uncollectible amounts. A provision for
impairment is made when there is objective evidence that the Group
will not be able to collect debts. Bad debts are written off when
identified.
2.12 Share capital
Ordinary shares of the Company are classified as equity. Costs
directly attributable to issue of new shares are shown in equity as
a deduction to the share premium account.
2.13 Reserves
The consolidated financial statements include the following
reserves: share premium account, translation reserve, shares to be
issued reserve and retained earnings. Premiums paid on the issue of
share capital, less any costs relating to these, are posted to the
share premium account.
2.14 Trade payables
Trade payables are obligations to pay for goods and services
that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Trade payables are recognised initially at fair value and are
subsequently measured at amortised cost using the effective
interest method. As the payment period of trade payables is short
future, cash payments are not discounted as the effect is not
material.
2.15 Leases
Leases where the risks and rewards of ownership are retained by
the lessor are classified as operating leases. Payments made under
operating leases, net of any incentives received from the lessor,
are charged to the income statement on a straight line basis over
the term of the lease.
Rental income received under operating leases is credited to the
income statement on a straight line basis over the lease term.
2.16 Pensions
The Company operates a defined contribution pension scheme under
which fixed contributions are payable. Pension costs charged to the
income statement represent amounts payable to the scheme during the
year.
2.17 Share-based payments
The cost of share-based payment arrangements, which occur when
employees receive shares or share options, is recognised in the
income statement over the period over which the shares or share
options vest.
The expense is calculated based on the value of the awards made,
as required by IFRS 2, 'Share-based payment'. The fair value of the
awards is calculated by using the Black-Scholes option pricing
model taking into account the expected life of the awards, the
expected volatility of the return on the underlying share price,
the market value of the shares, the strike price of the awards and
the risk-free rate of return. The charge to the income statement is
adjusted for the effect of service conditions and non-market
performance conditions such that it is based on the number of
awards expected to vest. Where vesting is dependent on market-based
performance conditions, the likelihood of the conditions being
achieved is adjusted for in the initial valuation and the charge to
the income statement is not, therefore, adjusted so long as all
other conditions are met.
Where an award is granted with no vesting conditions, the full
value of the award is recognised immediately in the income
statement.
2.18 Provisions
Provisions are recognised in the statement of financial position
where there is a legal or constructive obligation to transfer
economic benefits as a result of a past event. Provisions are
discounted using a rate which reflects the effect of the time value
of money and the risks specific to the obligation, where the effect
of discounting is material.
Provisions are measured at the present value of expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time, value of
money and the risks specific to the obligation. The increase in
provision due to the passage of time is recognised as interest
expense.
3. Critical accounting estimates and judgements
The preparation of the Group financial statements in conformity
with IFRSs as adopted by the European Union requires the use of
certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group's
accounting policies. Estimates and judgements are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the present circumstances. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the Group financial
statements are disclosed below.
Deferred tax asset
The extent to which deferred tax assets can be recognised is
based on an assessment of the probability of the Group's future
taxable income against which the deferred tax assets can be
utilised. This is based on projected forecasts and budgets which
are reviewed by the Directors and a judgement is made as to the
whether the deferred tax asset can be recognised.
3. Critical accounting estimates and judgements continued
Impairment of intangible assets
Management have assessed indicators of impairment and conducted
an impairment review of intangible assets. They have made
judgements as to the likelihood of them generating future cash
flows, the period over which those cash flows will be received and
the costs which are attributable against them. The recoverable
amount is determined using the value in use calculation. The use of
this method requires the estimation of future cash flows and the
selection of a suitable discount rate in order to calculate the
present value of these cash flows.
In support of the assumptions, management use a variety of
sources. In addition, management have undertaken scenario analyses,
including a reduction in sales forecasts, which would not result in
the value in use being less than the carrying value of the
cash-generating unit. However, if the business model is not
successful, the carrying value of the intangible assets may be
impaired and may require writing down.
Management have exercised judgement in selecting the appropriate
discount rate for application to intangible assets when carrying
out impairment calculations and have applied a pre-tax discount
rate of 13.2%.
The other intangible asset detailed in note 13 is being written
down over a 10 year period with a remaining useful life of 1
year.
The directors consider that this continues to be a realistic
period given that the Stirling Assynt (Europe) Limited has been
trading for 9 years.
Impairment of trade receivables
Impairments against trade receivables are recognised where a
loss is probable. As the cyber division business has a short
trading history there is little historical evidence available to
assess the likely level of bad debts and management have therefore
based their assessment of the level of impairment on prior industry
experience as well as the collection rates being experienced. The
estimates and assumptions used to determine the level of provision
will be regularly reviewed and such a review could lead to changes
in the assumptions, which may impact the income statement in future
periods.
4. Segmental reporting
As described in note 2, the Directors consider that the Group's
internal financial reporting is organised along product and service
lines and, therefore, segmental information has been presented
about business segments. The categorisation of business activities
into segments is analysed per division to be consistent with the
views of the chief operating decision maker, as highlighted in the
Chairman's statement. The segmental analysis of the Group's
business is derived from its principal activities as set out below.
The information below also comprises the disclosures required by
IFRS 8 in respect of products and services as the Directors
consider that the products and services sold by the disclosed
segments are essentially similar and therefore no additional
disclosure in respect of products and services is required. The
other segment consists of the parent company's administrative
operation.
Reportable segments
The reportable segment results for the year ended 31 March 2017
are as follows:
Other
Intelligence Cyber segment Total
GBP GBP GBP GBP
------------------------------- ------------- ------------ ---------- ------------
Revenues from external
customers 1,802,180 936,009 5,028 2,743,217
------------------------------- ------------- ------------ ---------- ------------
Total revenue 1,802,180 936,009 5,028 2,743,217
------------------------------- ------------- ------------ ---------- ------------
Operating expenses (1,530,068) (1,563,951) (870,815) (3,964,834)
Finance costs-net 77 - (109,881) (109,804)
Depreciation and amortisation (11,267) (344,649) (901) (356,817)
Segment profit/(loss) for
the year 260,922 (972,591) (976,569) (1,688,238)
------------------------------- ------------- ------------ ---------- ------------
The reportable segment results for the year ended 31 March 2016
are as follows:
Other
Intelligence Cyber segment Total
GBP GBP GBP GBP
------------------------------- ------------- ------------ -------------------- ------------
Revenues from external
customers 1,585,915 229,479 - 1,815,394
------------------------------- ------------- ------------ -------------------- ------------
Total revenue 1,585,915 229,479 - 1,815,394
------------------------------- ------------- ------------ -------------------- ------------
Operating expenses (1,387,873) (1,779,757) (958,905) (4,126,535)
Finance costs-net 39 - (7,815) (7,776)
Depreciation and amortisation (12,110) (319,972) (60) (332,142)
Segment profit/(loss) for
the year 185,971 (1,870,250) (966,780) (2,651,059)
------------------------------- ------------- ------------ -------------------- ------------
Segment assets consist primarily of property, plant and
equipment, intangible assets, inventories, trade and other
receivables and cash and cash equivalents. Unallocated assets
comprise deferred tax assets, available for sale financial assets,
financial assets held at fair value through profit or loss and
derivatives. Segment liabilities comprise operating liabilities;
liabilities such as deferred taxation, borrowings and derivatives
are not allocated to individual business segments.
Segment assets and liabilities as at 31 March 2017 and capital
expenditure for the year then ended are as follows:
Other
Intelligence Cyber segment Total
GBP GBP GBP GBP
--------------------- ------------- -------- --------- ----------
Total assets 565,931 919,766 487,802 1,973,499
Liabilities 542,814 362,341 264,963 1,170,118
Capital expenditure 3,085 256,917 2,330 262,332
--------------------- ------------- -------- --------- ----------
Segment assets and liabilities as at 31 March 2016 and capital
expenditure for the year then ended are as follows:
Other
Intelligence Cyber segment Total
GBP GBP GBP GBP
--------------------- ------------- -------- --------- ----------
Total assets 696,875 766,378 95,839 1,559,092
Liabilities 524,844 291,824 303,007 1,120,165
Capital expenditure 4,837 511,894 683 517,414
--------------------- ------------- -------- --------- ----------
Geographical information
The Group's business segments operate in six geographical areas,
although managed on a worldwide basis from the Group's head office
in the United Kingdom.
A geographical analysis of revenue and non-current assets is
given below. Revenue is allocated based on location of customer;
non-current assets are allocated based on the physical location of
the asset.
Revenue 2017 2016
GBP GBP
----------------- ---------- ----------
United Kingdom 1,873,078 993,738
Europe 371,775 343,133
Australasia 230,942 204,317
United States 189,236 143,481
Middle East 70,811 108,624
Other countries 7,375 22,101
----------------- ---------- ----------
2,743,217 1,815,394
----------------- ---------- ----------
Non-current assets 2017 2016
GBP GBP
-------------------- -------- --------
United Kingdom 901,439 558,099
901,439 558,099
-------------------- -------- --------
Major customers
Two customers contributed 10% more to the Group's revenue in
2017 (2016: none).
5. Operating loss
Operating loss for the year is stated after charging the
following:
2017 2016
GBP GBP
-------------------------------------------- -------- --------
Depreciation of owned property, plant
and equipment 43,874 22,746
Amortisation of intangible fixed assets 312,943 309,396
Loss / (profit) on disposal of property,
plant and equipment 697 (109)
Operating lease rentals - Land & Buildings 111,001 94,957
Research expenditure 64,517 -
-------------------------------------------- -------- --------
6. Auditors' remuneration
During the year the Group obtained the following services from
the Company's auditors:
2017 2016
GBP GBP
--------------------------------------------- ------- -------
Remuneration receivable by the Company's
auditors for the audit of consolidated
and Company financial statements 17,500 18,500
Remuneration receivable by the Company's
auditors and its associates for the
supply of other services to the Company
and its associates, including remuneration
for the audit of the financial statements
of the Company's subsidiaries:
- the audit of the Company's subsidiaries
pursuant to legislation 22,500 15,500
- other services pursuant to legislation 7,650 832
- tax services 3,250 6,246
--------------------------------------------- ------- -------
50,900 41,078
--------------------------------------------- ------- -------
7. Employee benefit expense
2017 2016
GBP GBP
------------------------------------------- ---------- ----------
Wages and salaries, including termination
benefits 1,821,307 1,776,492
Social security costs 199,573 184,560
Other pension costs 11,872 6,665
Share options granted to employees 21,755 82,976
------------------------------------------- ---------- ----------
2,054,507 2,050,693
------------------------------------------- ---------- ----------
The average monthly number of employees, including Directors,
employed by the Group during the year was:
2017 2016
------------------------------- ----- -----
Researchers and analysts 14 11
SOC operations and analysts 6 5
Sales 3 2
Administration and management 12 15
------------------------------- ----- -----
35 33
------------------------------- ----- -----
Directors' emoluments
2017 2016
GBP GBP
---------------------------------------- -------- --------
Emoluments, including benefits in kind 304,259 231,943
Pension costs 310 -
---------------------------------------- -------- --------
304,569 231,943
---------------------------------------- -------- --------
7. Employee benefit expense continued
The emoluments of the highest paid Director were as follows:
2017 2016
GBP GBP
---------------------------------------- -------- -------
Emoluments, including benefits in kind 108,413 73,333
Pension costs 155 -
---------------------------------------- -------- -------
108,568 73,333
---------------------------------------- -------- -------
8. Finance income and costs
2017 2016
GBP GBP
------------------------------------------- ---------- --------
Interest receivable 196 373
Interest payable - other (110,000) (8,149)
Net finance (expense) / income recognised
in profit/(loss) (109,804) (7,776)
------------------------------------------- ---------- --------
9. Income tax expense
2017 2016
GBP GBP
Current tax
Current tax on loss for the year - -
------------------------------------- ------- ---------
Total current tax - -
------------------------------------- ------- ---------
Deferred tax
Deferred tax expense / (credit) for
the year 12,416 (16,880)
------------------------------------- ------- ---------
Total deferred tax 12,416 (16,880)
------------------------------------- ------- ---------
Income tax expense / (credit) 12,416 (16,880)
------------------------------------- ------- ---------
The tax charge for the year is different from the standard rate
of corporation tax in the United Kingdom of 20%. The difference can
be reconciled as follows:
2017 2016
GBP GBP
---------------------------------------------- ------------ ------------
Loss before tax (1,688,238) (2,651,059)
---------------------------------------------- ------------ ------------
Tax calculated at the applicable rate
based on the loss for the year 20%
(2016: 20%) (337,648) (530,212)
Tax effects of:
Creation of tax losses 543,923 527,693
Expenses not deductible for tax purposes (239,228) 10,058
Accelerated/(decelerated) capital allowances 32,952 (7,539)
Current tax on loss for the year - -
---------------------------------------------- ------------ ------------
10. Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the
profit/(loss) attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue during the
year. There are no dilutive share options at present as these would
currently increase the loss per share.
2017 2016
----------------------------------------- ------------ ------------
Earnings attributable to equity holders
of the Company (GBP) (1,700,654) (2,634,179)
Weighted average number of ordinary
shares in issue 112,169,330 69,441,528
----------------------------------------- ------------ ------------
Basic and diluted loss per share (pence
per share) (1.52) (3.79)
----------------------------------------- ------------ ------------
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares in issue to assume the
conversion of all dilutive potential ordinary shares. The Company's
dilutive potential ordinary shares arise from warrants. In respect
of the warrants, a calculation is performed to determine the number
of shares that could have been acquired at fair value, based upon
the monetary value of the subscription rights attached to the
outstanding warrants. The number of shares calculated as above is
compared with the number of shares that would have been issued
assuming the exercise of the warrants.
At the year ended 31 March 2017, the potentially dilutive
ordinary shares were anti-dilutive because the Group was
loss-making. The basic and diluted earnings per share as presented
on the face of the income statement are therefore identical. All
earnings per share figures presented above arise from continuing
and total operations and, therefore, no earnings per share for
discontinued operations is presented.
11. Share based payment expense
The Company operates share-based payment arrangements to
remunerate directors and key employees in the form of a share
option scheme. Vesting of the options is conditional on the
completion of three years' service from the date of grant of the
options (the vesting period). The exercise price of the option is
normally equal to the market price of an ordinary share in the
Company at the date of grant. The options may be exercised over
periods ranging from one to ten years from the date of grant and
lapse if not exercised by that date.
2017 2016
--------------------- ---------------------
Average Average
exercise exercise
price Options price Options
(pence) (pence)
------------- --------- ---------- --------- ----------
At 1 April 42.48 2,070,869 42.88 2,106,583
Granted 4.00 400,000 14.50 100,000
Granted 4.13 605,326 - -
Granted 5.00 3,000,000 - -
Granted 5.875 2,350,000 - -
Granted 7.00 200,000 - -
Forfeited 28.00 (71,429) 28.00 (135,714)
Forfeited 44.50 (200,000) - -
Exercised - - - -
Expired - - - -
At 31 March 13.33 8,354,766 42.48 2,070,869
------------- --------- ---------- --------- ----------
Share options outstanding at the end of the year have the
following expiry date and exercise prices:
Shares
----------------------
Expiry date - 31 March Exercise price 2017 2016
(pence)
------------------------ --------------- ---------- ----------
2017-2023 - - -
2024 44.5 1,699,440 1,899,440
2024 28.0 - 71,429
2025 14.5 100,000 100,000
2026 4.13 605,326 -
2026 4.00 400,000 -
2026 5.00 3,000,000 -
2026 5.875 2,350,000 -
2027 7.00 200,000 -
------------------------ --------------- ---------- ----------
8,354,766 2,070,869
------------------------ --------------- ---------- ----------
The weighted average fair value of the 6,655,326 (2016: 100,000)
options granted during the year was determined using the
Black-Scholes option pricing model and was 1.22 pence per option
(2016: 11.60p). The significant inputs to the model were exercise
price as shown above, an expected option life of three and a half
years, expected volatility of 50% (2016: 50%) and a risk-free rate
of return estimated between 0.10% (2016: 1.2%) and of 0.18% (2016:
1.59%). The volatility is based on analysis of the volatility of
the company's historical share price.
The total share-based payment expense recognised in the income
statement in respect of share options granted to directors and
employees is GBP21,755 (2016: GBP82,976).
12. Property, plant and equipment
Fixtures Computer
and fittings equipment Total
GBP GBP GBP
---------------------------- ------------- ---------- --------
Cost
At 1 April 2016 48,182 50,132 98,314
Additions through business
combinations 1,191 11,694 12,885
Additions 10,328 99,037 109,365
Disposals - (760) (760)
At 31 March 2017 59,701 160,103 219,804
Depreciation
At 1 April 2016 11,879 26,994 38,873
Additions through business
combinations 506 5,158 5,664
Charge for the year 10,601 33,273 43,874
Released on disposal - (63) (63)
At 31 March 2017 22,986 65,362 88,348
---------------------------- ------------- ---------- --------
Net book value
At 31 March 2017 36,715 94,741 131,456
---------------------------- ------------- ---------- --------
At 31 March 2016 36,303 23,138 59,441
---------------------------- ------------- ---------- --------
13. Intangible assets
Goodwill Software Development Other Total
and costs
brand intangibles
licences
GBP GBP GBP GBP GBP
------------------ --------- ---------- ------------ ------------ ----------
Cost
At 1 April 2016 - 916,301 - 75,000 991,301
Additions 434,188 - 152,967 - 587,155
At 31 March
2017 434,188 916,301 152,967 75,000 1,578,456
Amortisation
and impairment
At 1 April 2016 - 435,530 - 60,000 495,530
Amortisation
charge for year - 305,443 - 7,500 312,943
At 31 March
2017 - 740,973 - 67,500 808,473
------------------ --------- ---------- ------------ ------------ ----------
Net book value
At 31 March
2017 434,188 175,328 152,967 7,500 769,983
------------------ --------- ---------- ------------ ------------ ----------
At 31 March
2016 - 480,771 - 15,000 495,771
------------------ --------- ---------- ------------ ------------ ----------
As noted in note 2.8 to the accounts, the Directors test
annually for impairment by calculating the value in use of each
cash generating unit using discounted cash flow techniques and
comparing it to the carrying amount of goodwill. No impairments
were identified in the year under review.
The other intangible asset arose as a result of the purchase of
Assynt Associates by Stirling Assynt (Europe) Limited in April
2008. The customer base acquired consisted of a number of companies
that subscribed to the Stirling Assynt (Europe) Limited reporting
service.
Impairment review
The Group has undertaken an impairment review of cash generating
units (CGUs) and has identified CGUs subject to impairment testing,
listed below.
Business Subsidiaries
-------------- ------------------------------
Cyber Defence Falanx Assuria Limited and
Falanx Cyber Defence Limited
-------------- ------------------------------
Management performed impairment testing of goodwill and software
and brand licences at the balance sheet date. The recoverable
amount of goodwill and software and brand licences relating to this
operation is determined based on a value in use calculation which
uses future cash flow projections over the estimated useful life
(see note 2.8).
Key assumptions
Cyber Defence
In determining value in use, financial and business forecasts
have been prepared by management and approved by the Board. These
forecasts indicate growth rates that increase by various rates
throughout the forecast period. Management used pre-tax discount
rate of 13.2% (2016: 20.7%) in calculating the value in use.
The key assumption used in the value in use calculations is the
level of future cash flows estimated by management over the
forecast period, which does not exceed 4 years. An increase in the
discount rate from 13.2% to 14.25% or a decrease in revenue of 30%
in the second year of the forecast would result in the net present
value falling below carrying value.
Following the impairment testing of the CGU the Directors do not
believe that the carrying value of goodwill and software and brand
licences need to be impaired and, hence, no charge has been made.
However, if the business model is not successfully implemented, the
carrying value of the intangible assets may be impaired and may
require writing down in the future.
14. Subsidiaries
Principal subsidiaries
The Company holds more than 20% of the share capital of the
following companies:
Proportion
of
Country ordinary
of shares
Name incorporation Nature of business held by
parent
------------------- ----------------- -------------------------------- -----------
Stirling Assynt England International business
(Europe) Limited and Wales intelligence consultancy 100%
Provision of risk
Stirling Risk assessments and investigation
(Asia) Limited Hong Kong services 100%
Falanx Assuria England
Limited and Wales Cyber defence solution 100%
Falanx Cyber England
Defence Limited and Wales Cyber defence solution 100%
Falanx Protection British
Limited Virgin Islands Dormant 100%
FG Consulting United Arab
Services DMCC Emirates Management consultancy 100%
Falanx Cyber
Technologies England
Limited and Wales Dormant 100%
------------------- ----------------- -------------------------------- -----------
Falanx UK Limited was dissolved on 2 August 2016 and Stirling
Assynt (Acquisition) Limited was dissolved on 7 December 2016.
15. Deferred taxation
2017 2016
GBP GBP
-------------------------------------------- --------- ---------
Group
Balance at 1 April 2,887 (13,993)
(Expense) / credit to the income statement (12,416) 16,880
Balance at 31 March (9,529) 2,887
-------------------------------------------- --------- ---------
The deferred tax (liability) / asset represents:
2017 2016
GBP GBP
------------------------------------- -------- ------
(Accelerated) / decelerated capital
allowances (9,529) 2,887
(9,529) 2,887
------------------------------------- -------- ------
A deferred tax asset, in respect of Group trading losses of
GBP6.76m (2016: GBP5.48m) has not been recognised on the basis of
the uncertainty of the timing of future taxable profits.
In accordance with IFRS, deferred tax assets and liabilities are
measured at the tax rates that are expected to apply to the period
when the asset is realised or the liability is settled, based on
the tax rates (and tax law) that have been enacted or substantively
enacted by the balance sheet date.
The above deferred tax liability was calculated based on the
expected UK corporation tax rate of 19% (2016: 19%), being the rate
which is expected to apply in the future when the liability is
settled.
16. Inventories
2017 2016
GBP GBP
------------------ ------ -------
Work in progress 8,500 8,100
Finished goods - 33,075
------------------ ------ -------
8,500 41,175
------------------ ------ -------
17. Trade and other receivables
2017 2016
GBP GBP
------------------------------------------ -------- --------
Trade receivables 440,969 368,975
Less: provision for doubtful receivables - -
------------------------------------------ -------- --------
440,969 368,975
Other receivables 33,348 51,227
Prepayments and accrued income 158,784 109,484
633,101 529,686
------------------------------------------ -------- --------
Trade and other receivables are stated at fair value.
18. Cash and cash equivalents
2017 2016
GBP GBP
---------------------------------------- -------- --------
Cash at bank and in hand 430,459 430,132
Cash and cash equivalents in statement
of cash flows 430,459 430,132
----------------------------------------- -------- --------
19. Share capital
2017 2016
Number Nil par Number Nil par
of shares value of shares value
Allotted, called up and
fully paid at 1 April 71,255,368 - 52,176,804 -
New shares issued 54,525,536 - 19,078,564 -
------------------------- ------------ -------- ----------- --------
Allotted, called up and
fully paid at 31 March 125,780,904 - 71,255,368 -
------------------------- ------------ -------- ----------- --------
On 5 May 2016 the Company announced the issue of 25,106,250 new
ordinary shares of no par value at a price of 4 pence each raising
net proceeds of GBP968,205 after deducting commission and
transaction related costs. The subscription proceeds were used in
funding the acquistion of Falanx Cyber Defence Limited (formerly
known as Advanced Security Consulting Limited) with the remainder
to be used for continued sales marketing development of the Falanx
growth strategy. Subscribers were granted 1 for 1 warrant with an
exercise price of 6 pence each and a three year time to expiry.
On 5 May 2016 the Company announced the issue of 7,125,536
ordinary shares of no par value at a price 4 pence each in partial
satisfaction of the consideration of the acquisition of Falanx
Cyber Defence Limited.
On 11 May 2016 the Company announced the issue of 2,125,000 new
ordinary shares of no par value at a price of 4 pence each to M D
Read and D P Carr (Directors of the Company in the year). 1,250,000
shares were issued to M D Read on a cash subscription basis raising
GBP50,000 proceeds. 875,000 shares were issue to D P Carr in lieu
of accrued Director fees of GBP35,000. The Directors were granted 1
for 1 warrant with the same terms as the share placing participants
of 5 May 2016.
On 3 October 2016 the Company announced the issue of 18,750,000
new ordinary shares of no par value at a price of 4 pence each
raising net proceeds of GBP712,500 for working capital purposes
after deducting commission and transaction related costs. In
addition, the Company announced the issue of 468,750 new ordinary
shares of no par value at a price of 4 pence each to Turner Pope
Investments in satisfaction of placing agent fees. The shares were
subject to 6 month 'lock-in' period from date of issue.
On 11 November 2016 the Company announced the issue of 150,000
new ordinary shares of no par value at a price of 6 pence each
following the exercises of warrants.
On 25 November 2016 the Company announced the issue of 625,000
new ordinary shares of no par value at a price of 6 pence each
following the exercises of warrants.
On 9 January 2017 the Company announced the issue of 175,000 new
ordinary shares of no par value at a price of 6 pence each
following the exercises of warrants.
At 31 March 2017 a total of 41,420,142 warrants issued to
various shareholders remained outstanding. 4,541,669 issued at an
exercise of price of 30 pence per share expired on 17 April 2017.
30,864,584 were issued at an exercise price of 6 pence expiring in
2019; of this amount, 24,156,250 will expire on 4 May 2019,
4,583,334 will expire on 5 May 2019 and 2,125,000 will expire on 10
May 2019 (of this amount 1,250,000 are held by M D Read,
Non-executive chairman). The remaining 6,000,000 (held by M D Read)
were issued at an exercise price of 4 pence per share expiring on
22 August 2019.
20. Share Premium
2017 2016
GBP GBP
---------------------------- ---------- ----------
At 1 April 5,309,031 2,841,797
Premium on issue of shares 2,175,021 2,662,259
Costs of share issue (73,545) (195,025)
At 31 March 7,410,507 5,309,031
----------------------------- ---------- ----------
21. Retained earnings
2017 2016
GBP GBP
------------------- ------------ ------------
At 1 April (5,002,793) (2,368,614)
Loss for the year (1,700,654) (2,634,179)
At 31 March (6,703,447) (5,002,793)
------------------- ------------ ------------
22. Trade and other payables
2017 2016
GBP GBP
------------------------------ ---------- ----------
Trade payables 385,608 489,981
Other payables 16,646 11,454
Taxation and social security 119,058 93,286
Accruals and deferred income 639,277 525,444
------------------------------- ---------- ----------
1,160,589 1,120,165
------------------------------ ---------- ----------
On 5 May 2016 the Company issued loan notes of GBP495,000 to
Darwin Capital Limited. The loan notes had a six month term with a
redemption value of GBP550,000. The loan notes were repaid in full
on 14 October 2016 with a 5% early redemption fee.
23. Financial instruments
The Group is exposed through its operations to one or more of
the following financial risks that arise from its use of financial
instruments. A risk management programme has been established to
protect the Company against the potential adverse effects of these
financial risks.
Market risk
The main risks arising from the Group's financial instruments
are liquidity risk, credit risk and foreign currency risk. The
Directors regularly review and agree policies for managing each of
these risks and are set out in the subsections below. The totals
for each category of financial instruments and the carrying
amounts, measured in accordance with IAS 39 as detailed in the
policies, are as follows:
Loans and receivables
2017 2016
GBP GBP
----------------------------- -------- --------
Trade and other receivables 474,317 420,202
Cash and cash equivalents 430,459 430,132
904,776 850,334
----------------------------- -------- --------
Trade and other payables
2017 2016
GBP GBP
-------------------------- -------- --------
Trade and other payables 402,254 501,435
402,254 501,435
-------------------------- -------- --------
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting these obligations associated with financial
liabilities.
The responsibility for liquidity risks management rests with the
Board of Directors, which has established an appropriate liquidity
risk management framework for the management of the Group's short
term and long-term funding and liquidity requirements.
The Group manages liquidity risks by maintaining adequate
reserves by continuously monitoring monthly expected forecasts and
actual cash flows, and by matching the maturity profiles of
financial assets and liabilities.
23. Financial instruments continued
The trade and other payables maturity profile, based on
contractual undiscounted cash flows, of the Group is as
follows:
2017 2016
GBP GBP
---------------------------------- -------- --------
Trade and other payables due in:
Less than one month 209,517 147,836
Six months to one year 192,737 353,599
---------------------------------- -------- --------
Total 402,254 501,435
---------------------------------- -------- --------
Credit risk
Credit risk is the risk that a counter-party will cause a
financial loss to the Group by failing to discharge its obligation
to the Group.
The Group manages its exposure to this risk by applying Board
approved limits to the amount of credit exposure to anyone
counter-party and employs strict minimum credit worthiness criteria
as to the choice of counter-party thereby ensuring that there are
no significant concentrations of credit risk.
The carrying amount of financial assets represents the maximum
credit exposure; therefore, the maximum exposure to credit risk at
the statement of financial position date was GBP904,776 (2016:
GBP850,334). The amount represents the total of the carrying amount
of current assets.
The maximum amount exposure to credit risk for trade receivables
at the balance sheet date was GBP440,969 (2016: GBP368,975). As at
the date of signing these financial statements, the Group does not
expect to incur material credit losses of its financial assets or
other financial instruments; therefore credit exposure is
considered minimal.
Credit quality of financial assets
The Group's credit risk is mainly attributable to trade
receivables. The Group's customers are spread across a wide range
of industries and service sectors and consequently the Group is not
exposed to material concentrations of credit risk on trade
receivables with there being a preponderance of blue chip
companies.
The credit quality of financial assets can be assessed by
reference to external credit ratings (if available) or to
historical information about counterparty default rates:
2017 2016
GBP GBP
----- -----
Cash at bank and short term deposits
Counterparties with external credit
rating (Moody's)
A2 Barclays Bank plc 192,548 109,388
Aa2 HSBC Bank 231,177 308,741
Baa2 Mashreq Bank 6,313 10,731
-------------------------------------- --------- ---------
Total 430,038 428,860
-------------------------------------- --------- ---------
Foreign currency risks
The Group's exposure to foreign currency risk is as follows.
This is based on the carrying amount for monetary financial
instruments:
Financial assets
Sterling US Euro Hong Emirati Total
Kong
Dollar Dollar Dirham
GBP GBP GBP GBP GBP GBP
------------------- --------- -------- ------- ------- -------- --------
At 31 March 2017
Cash and cash
equivalents 297,492 81,600 50,707 660 - 430,459
Trade receivables 349,423 79,337 12,209 - - 440,969
Other receivables 30,992 - - 2,138 218 33,348
------------------- --------- -------- ------- ------- -------- --------
677,907 160,937 62,916 2,798 218 904,776
------------------- --------- -------- ------- ------- -------- --------
Financial liabilities
Sterling US Euro Hong Emirati Total
Kong
Dollar Dollar Dirham
GBP GBP GBP GBP GBP GBP
At 31 March 2017
Trade payables 376,428 9,180 - - - 385,608
Other payables 16,646 - - - - 16,646
------------------ --------- ------- ----- ------- -------- --------
393,074 9,180 - - - 402,254
------------------ --------- ------- ----- ------- -------- --------
Foreign exchange sensitivity analysis
A 10% strengthening of GBP sterling against the above currencies
would increase the loss by GBP21,769 (2016: GBP35,897) in the
coming financial year.
The Group currently does not utilise swaps or forward contracts
to manage its currency exposures, although such facilities are
considered and may be used where appropriate in the future.
24. Capital risk management
Total capital managed in the Group is the shareholders' funds as
shown in the statement of financial position.
The Group aims to manage its overall capital so as to ensure
that it continues to operate as a going concern, whilst providing
an adequate return to its shareholders.
The Group set the amount of capital in proportion to its overall
financing structure, i.e. equity and financial liabilities. The
Group manages the capital structure and makes adjustments to it in
the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debts.
The Group is not subject to any externally imposed capital
requirements.
Other risks management
The Group operations expose it to a variety of financial risks
that include the effects of changes in interest rates, liquidity
risk and credit risk. Given the size of the Group, the Directors
have not delegated the responsibility of monitoring financial risk
management to a sub-committee of the Board. The policies set by the
Board of Directors are implemented by the Group's finance
department.
25. Pension
The Group operates a defined contribution pension scheme in
accordance with the Government Directive on Work Place Pensions. In
addition, one of its subsidiaries, Stirling Assynt (Europe)
Limited, contributes 8% of the gross salary of one of its employees
to a pension scheme of the employee's choice. The total
contributions for the year were GBP11,872 (2016: GBP6,665).
26. Financial commitments
The Group's total obligations under non-cancellable operating
leases are as follows:
2017 2016
GBP GBP
---------------------------- ------- -------
Due within one year 55,901 77,096
Between two and five years 19,907 8,125
75,808 85,221
---------------------------- ------- -------
Operating lease obligations represent rentals payable by the
Group's subsidiaries (Stirling Assynt (Europe) Limited and Falanx
Cyber Defence Limited) for the office premises at The Europoint
Centre in London and Fazeley Studios in Birmingham
respectively.
27. Business combinations
Falanx Cyber Defence Limited
Falanx Cyber Defence Limited is a business operating in the
cyber security sector which was acquired to increase the scale of
the cyber division business. As result of the acquisition, the
Group is expected to increase its presence in the cyber security
market. It also expects to reduce costs through economies of
scale.
On 4 May 2016 the Group acquired 100% of the issued share
capital of Falanx Cyber Defence Limited for a total consideration
of GBP483,760. The business contributed GBP322,180 net profit and
GBP683,632 revenue to the Group for the period from 5 May 2016 to
31 March 2017.
The following table summarises the fair value of assets acquired
and liabilities assumed at the acquisition date.
Fair value
Book values adjustments Fair
values
GBP GBP GBP
------------------------------- ------------ ------------ ----------
Cash and cash equivalents 58,424 - 58,424
Property, plant and equipment 7,220 - 7,220
Trade and other receivables 92,028 - 92,028
Trade and other payables (108,100) - (108,100)
49,572 - 49,572
------------------------------- ------------ ------------ ----------
The consideration for the acquisition and goodwill arising on
acquisition are as follows:
GBP
--------------------------------- --------
Purchase consideration:
Fair value of shares 285,021
Cash paid 198,739
---------------------------------- --------
483,760
--------------------------------- --------
Goodwill arising on acquisition 434,188
---------------------------------- --------
Acquistion related costs of GBP39,670 have been charged to
administrative expenses in the consolidated income statement for
the year ended 31 March 2017.
The fair value of of the 7,125,536 ordinary shares issued as
part of the consideration paid for Falanx Cyber Defence Limited was
based on the share placing price of 4 pence per share for the
fundraising completed on 5 May 2016.
28. Control
No ultimate party controls Falanx Group Limited.
29. Related party transactions
The following transactions were carried out with related parties
during the year:
Payment for services
Andrea Barclay, the partner of K P A Barclay, (former Executive
Chairman and shareholder) was paid GBP6,050 (2016: GBP12,100) in
respect of research and report writing for Stirling Assynt (Europe)
Limited.
K P A Barclay was paid GBP7,108 (2016: GBPnil) in respect of
consultancy services for the Group.
Fees and commissions
During the year the Company paid KC Investments Limited (a
shareholder) GBP20,000 (2016: GBPnil) as a retainer to use its best
endeavours to assist the Company on a non-exclusive basis with its
fundraising (including, but not limited to, procuring of
subscribers for shares in the Company) during the 12 month period
beginning on the date of payment of the retainer.
30. Events after the reporting period
Equity transactions
On 4 May 2017 the Company announced the issue of 29,090,909 new
ordinary shares of no par value at a price of 6.875 pence each
raising net proceeds of GBP1.954m after deducting commission and
transaction related costs.
On 4 May 2017 the Company announced the issue of 545,455 new
ordinary shares of no par value at a price of 6.875 pence each to
Turner Pope Investments in satisfaction of placing agent fees. The
share are subject to 6 month 'lock-in' period from date of
issue.
Business acquisition
On 5 July 2017 the Company announced the acquisition of
Cloudified Ltd. The purchase consideration was satisfied partly by
shares of 1,122,807 issued at a price of 7.125p and cash payment of
GBP100,000.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KMGGNZLVGNZZ
(END) Dow Jones Newswires
July 10, 2017 02:00 ET (06:00 GMT)
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