TIDMFLX
RNS Number : 6720X
Falanx Group Limited
14 August 2018
14 August 2018
FALANX GROUP LIMITED
("Falanx" or "the Company")
Annual Results for the Year-Ended 31 March 2018
Falanx Group Limited (AIM: FLX), ("Falanx" or "the Group" or
"the Company") the global cyber security and intelligence services
provider, is pleased to announce its audited results for the
year-ended 31 March 2018.
Financial Highlights
-- Revenues increased to GBP3.0m (2017: GBP2.7m) and gross margin increased to 31% (2017: 20%)
-- Contribution from monthly recurring revenue increased to 62%
of revenue (2017: 55%). Monthly recurring revenue run rate at 31
March 2018 was GBP0.19m (2017: GBP0.15m)
-- Much greater future revenue visibility (contracted plus
deferred income) GBP3.0m (2017: GBP1.8m)
-- Underlying EBITDA loss GBP1.6m (2017: GBP1.2m), reported loss
GBP2.5m (2017: GBP1.7m) with GBP0.7m of one off restructuring and
transaction costs
-- Cash balances GBP0.9m (2017: GBP0.4m)
-- Shareholders' funds GBP4.9m (2017: GBP0.8m) and the Company remains debt free
Operational Highlights
-- Acquisition of three technology and cyber security focussed
companies; Cloudified, AuditSec, First Base
-- Substantially increased and diversified customer base across all lines of service
-- Creation of new cyber service lines: MidGARD Monitoring;
Threat Awareness Training; and Red-Team Testing
-- Significantly strengthened management team
-- Continued proprietary cyber technology development
Post Period Highlights
-- Monthly recurring revenue at the end of July 2018 has increased to GBP0.24m
-- Recent acquisitions combined with contract wins have
approximately doubled proforma revenues to GBP6m, placing the
business in a strong position to exploit growth
-- EBITDA Profitability in July 2018 following strong deliveries
-- Acquisition and integration of trade and assets of First Base
Technologies LLP, providing significantly increased Cyber
Assessment and Awareness services, progressing well with orders up
by 25% since the start of January 2018 versus the prior year
-- Acquisition of Securestorm Limited, enhances Cyber
Consultancy and extends reach into UK Government was completed in
July
Outlook
The Board has received favourable indications from our most
significant partners and vendors that our strategy to scale our
security services is appropriate and will be supported. As such,
the Board targets a much-improved financial performance for this
year. In addition to our 'business as usual' plan which combines
organic growth and targeted acquisitions that are financially
attractive, the Group will:
-- Increase the contribution from high quality recurring revenues
-- Increase average customer spend through bundled products
-- Increase sales by distributing through large Managed Service Providers (MSPs)
-- Utilise proprietary technology development to drive down cost
and add attractive new features
-- Progress current discussions with several major global
enterprises for adoption of our highly disruptive cyber technology
stack
Chairman and Chief Executive Mike Read, commented:
"In the past 8 months we have: significantly increased revenues
through contract wins and acquisitions, restructured our management
team, refocussed our strategy, won important and large customer
contracts, broken into new markets, acquired and integrated several
businesses, built a strong team, forged new channel partnerships,
successfully delivered large scale security solutions and deepened
our intelligence and security relationships with global clients.
Because of all the work done by our energetic and committed team, I
am delighted to announce, following strong deliveries, Falanx Group
has achieved EBITDA profitability this July, in-line with
management expectations."
The Annual Report will shortly be made available on the
Company's website - www.falanx.com.
Enquiries:
Falanx Group Limited www.falanx.com
Mike Read, Chief Executive Officer
SPARK Advisory Partners Limited
Nominated Adviser
Matt Davis / James Keeshan +44 (0) 203 368 3551
Turner Pope Investments (TPI)
Ltd
Broker
Ben Turner / James Pope
IFC Advisory Ltd +44 (0) 203 621 4120
Financial PR & IR
Graham Herring
Miles Nolan
Zach Cohen +44 (0) 203 934 6630
About Falanx
Falanx Group Limited, is a global intelligence and cyber defence provider working with blue
chip and government clients. It operates the MidGARD cyber monitoring platform for corporate
and governmental customers which utilises a combination of proprietary and third-party processes
and technologies. For more information: http://www.falanx.com/
Notes to Editors
Falanx Group Limited, is global cyber security and intelligence services 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/
Since I took over the role of executive Chairman and CEO in
November of last year, Falanx has evolved incredibly quickly, as
has the Cyber Security and Intelligence market we have chosen to
operate in. In the past 8 months we have significantly increased
our cyber revenues, restructured our management team, refocussed
our strategy, broken into new markets, acquired and integrated
several businesses and their extremely talented teams, forged new
channel partnerships and delivered large scale security
solutions.
Results
In this year of major change our revenues grew to GBP3.0m (2017
GBP2.7m), adjusted EBITDA loss of GBP1.6m (2017: GBP1.2m) and
shareholders' funds stood at GBP4.9m (2017: GBP0.8m). Our forward
visibility of revenue improved dramatically with the total of
deferred and order book sales standing at GBP3.0m (2017: GBP1.8m)
and 62% of our revenues were recurring (2017: 55%). A restructuring
charge of GBP0.7m was incurred in making the necessary changes
reflected in this report. In the year the Group completed the
acquisitions of First Base Technologies (trade and assets from
LLP), Auditsec Services Limited, Cloudified Limited and in July
2018 we acquired Securestorm Limited.
This is all happening against a backdrop of the cyber security
and intelligence services market growing and evolving at a
phenomenal rate. I am extremely proud of the Falanx team, who have
worked unfailingly, energetically and not least with a fair amount
of good humour during a year of major progress.
The Business Model
During my short tenure at the helm of Falanx, driving towards
profitability, introduction of new service offerings and the
acquisition of talent, has been my main focus. Broadening our
appeal to clients by offering the full range of complimentary
security services and increasing our opportunity to address their
needs wherever they may be in their buying cycle. Our team has been
extremely busy in integrating expert delivery resources with a new
sales and marketing program. This is now bearing fruit.
We have expert staff who deliver growing professional service
lines of, Intelligence, Consulting, Awareness and Assessment, which
we are providing individually, bundled or within an entire change
program. These services, generating a mixture of repeat and
recurring revenue, support our clients and their requirements as we
help to mature their security posture and transition them to our
manged Monitoring and Response security services which have
entirely recurring revenue streams and higher margin.
Strategy
Now that we have completed the first phase of building the
foundations for growth, my focus increasingly falls upon the
question of scale. I have successfully scaled technology services
businesses when growing Internet Service Providers in the 1990's,
Broadband and Hosting in the 2000's and now Cyber Security in the
2010's. All have similarities in terms of the fragmented nature of
their markets against a backdrop of strong growth. Some of these
issues can and have been solved through acquisition and
consolidation, which we will continue to do, others will be solved
through a combination of innovation and partnership.
Value enhancing acquisitions are an opportunity for us, and I
will remain open to the opportunity to buy businesses that
strengthen our current suite of services or allow us to break into
new areas that are complimentary. In this regard, our mantra will
remain to focus on sensibly priced opportunities that drive
customers and revenue to our framework of managed services,
resulting in the conversion of repeat business into high margin,
recurring revenue, from sustainable long-term contracts.
Our strategy will continue to evolve in three core ways, to
solve the question of profitability and scale. Firstly, our core
'specialist' security offerings will be augmented with those a
business would normally expect to acquire through its IT services
partner. The establishment of Falanx as a nationally recognised
MSSP (Master Security Services Provider) with a complimentary MDR
(Managed Detection and Response) service is a key target to achieve
scale. I would call this an extension of 'Business As Usual' (BAU)
with growth in line or ahead of the market. Secondly, we will
continue to innovate and engineer our technology to reduce running
costs by automating as much as possible, and we will use our
technology to deal with the implications of the market
transitioning to cloud hosting, ever more inter-connected
technology and rapidly growing data volumes and our ability to
analyse them. Thirdly, I anticipate the need to partner with larger
technology vendor and services organisations (Managed Service
Providers - MSPs), who require our specialist security services and
thus enable us to get scale faster than the conventional route of
direct sales.
As we described in last year's report, our 'Security as a
Service' business model is now recognised as an emerging segment
within the IT industry - which Gartner calls Managed Detection and
Response (MDR) This is now beginning to converge with the more
traditional MSP (Managed Service Provider) market place to create
the hybrid MSSP (Managed Security Service Provider). Currently only
some of the very largest security and IT service vendors occupy
this convergent area of the market, which would place us on the
same short list of illustrious organisations. Seeing this come to
fruition, convinces me more than ever we chose the right time and
right model.
With increase in scale, comes the challenges of managing and
servicing that growth. To scale our business appropriately, we need
to be able to deal with ever increasing volumes of data, the
multitude of cloud storage and processing options open to customers
and the ever-increasing inter-connectivity of intelligent devices,
also known as the 'Internet of Things'. The continued development
of our own tools and platforms under Project Furnace provides us
with much greater levels of flexibility to deliver market
requirements, reduced long-term costs and the creation of valuable
new software.
Our Commitment
Based on my experience and knowledge of building high-growth,
scalable, technology services businesses and following an initial
review after taking up my executive role, many discussions with our
clients, delivery teams, channel partners and technology vendors,
we are confident about delivering the best solution to our market
and for Falanx to achieve its full potential. My team and I have
'skin in the game' and are fully committed to developing and
scaling our business, and it is my job to deliver the results for
you, our shareholders.
Board and Senior Management
Following the business review, we have restructured and
strengthened the board and management team. Ian Selby joined the
Board as CFO in January 2018 to support growth and strengthen the
financial management of the business. Both Stuart Bladen and Jay
Abbott left the company and stood down from the board in the year
and I would like to thank them both for their efforts and
contribution and wish them well for the future. John Blamire became
COO to help drive the delivery and technology programmes. Emma Shaw
continues as our NED covering Remuneration Committee and giving
guidance on the strategic direction of the company. We will be
strengthening the board in the next few months with further NED
appointments.
At a senior management level, Charles Hollis joined the
management team as Managing Director of Falanx Assynt in July 2017
to re-energise and provide strategic direction to that business
unit. Rick Flood joined as Chief Marketing Officer and has focused
on sales execution and Marketing. Richard Morrell joined as CTO to
drive the technology and innovations needed for growth.
Outlook
The Board has received favourable indications from our most
significant customers and partners that our strategy to scale our
security services is the right one. As such, the Board anticipates
increasingly strong performance and much improving performance. To
do this we will focus on:
-- Growing the 'Business as Usual' as I have outlined
-- Using Technology to meet the market changes and launch new
products to give flexibility and reduce costs,
-- Using our channel partners (eg, MSPs) trusted adviser status
to sell our 'Security as a Service' into their client base
We all see Cyber and political risks continue to dominate our
headlines. They are highly likely to grow exponentially, placing
security issues at the forefront of people's minds. As outlined the
rapid deployment of complex network solutions and the rapid change
in technology is only going to add to the challenges our customers
will encounter - and we are here to help them.
We look forward to the challenges ahead.
Approved by the Board on 13 Aug 2018 and signed on its behalf
by
M D Read
Chairman and Chief Executive Officer
Cyber Division
During the year the division's revenues grew by 18% to GBP1.1m
(2017: GBP0.9m). This includes a small contribution from larger
contracts which were signed in the final quarter. The recurring
revenue base from monitoring contracts approximately doubled in the
year. Underlying EBITDA loss was GBP0.9m (2017: GBP0.7m). This was
after charging GBP0.2m of costs associated with a former sales team
which was replaced in its entirety in the year. The acquisition of
the trade and assets of First Base Technologies LLP in March 2018
has significantly added to the division which at the end of the
period had approximately 250 customers (2017: 50).
Sales and Marketing
The entire go-to-market strategy for Cyber has been reviewed and
improved. Our initial focus has been on developing and cementing
current partner relationships as the primary route to market in the
SME space, leveraging their trusted relationships to sell through
those partners to their end customers. In addition, we continue to
search for, identify and win significant direct customers for our
services.
The expansion of our manpower-based capabilities and capacity
through acquisition has also led to growth in sales and access to
customers. Already we are seeing a growing pipeline of opportunity
to cross-sell varying cyber services into customers who previously
bought just one service from Falanx. We currently have a
combination of more than 25 opportunities to sell monitoring
solutions into pen-testing customers and vice versa.
As a result, we have seen an increase in the number of customers
who now consume more than one service from the Falanx Cyber stable.
Currently the largest bundle being consumed by a single client is
for 5 services, being monitoring, penetration testing, incident
response, GDPR consulting and cyber essentials. Our aim is to
repeat this 'bundling' into a growing number of existing and new
customers.
We continue to develop our sales capabilities including sales
enablement of the channel partners to make their job easier when
positioning cyber services to their customers. We have the
opportunity to present to their communities over the coming weeks
and further expand our reach through their trusted networks. Our
sales 'reach' is significantly enhanced through their sales efforts
and we will continue to identify and sign up additional partners
with the customer base suited to consumption of our range of cyber
services.
Our market successes for monitoring continue to grow in both the
Government and Commercial sectors and a strong pipeline of
monitoring opportunities means our recurring revenues will continue
to grow in significance, often through multi-year contracts.
We have reworked our website to position it for future growth
and giving us increased dexterity in the way in which we
communicate with all our stakeholders online.
Technology Strategy
Only a few years ago outsourced data centres presented a major
challenge to the CTO (Chief Technology Officer), with the prospect
of corporate assets resting outside the traditional protection of
the company firewall. Those organisations, who were previously
cautions of Cloud, now look to place complete infrastructure
requirements with multiple Cloud vendors. Gartner have forecasted a
21.4 percent growth in IaaS (Infrastructure as a Service) alone for
the provisioning of services outside core networks for 2018.
Amazon, Rackspace, Microsoft Azure (and Office365 for application
provision) are now standard IT infrastructure. Our strategy is to
assist the enterprise in securing their assets in this rapidly
evolving Cloud environment, by providing a technology stack that
breaks their dependency upon costly, inflexible and consultancy
heavy products.
Project Furnace is the evolution of Falanx's investment in the
creation of a highly capable technology stack. Furnace allows users
to span the rapidly growing array of public and private Cloud,
currently used by enterprise. By exploiting our many years of SOC
(Security Operations Centre) experience, we have built a best of
breed microservice architecture to provide enterprise and their
in-house developers the tools to plug dangerous security gaps that
have emerged during the rapid proliferation of Cloud. Built from
best of breed components, technology acquired as part of the
Cloudified acquisition and our proprietary service architecture
MidGARD, Project Furnace has reached a level of maturity whereby an
opportunity now exists to replace large-scale proprietary
application stacks. Our aim is to offer enterprise the output of
Project Furnace to assist them in improving performance, visibility
of risks and greatly reducing costs regardless of the location or
type of data.
Operational Delivery Model
Operational delivery to support customers has been greatly
strengthened by the development of a strong management team across
all lines of service. Our organisation is structured to deliver
high quality customer outcomes whilst maximising the efficiency of
delivery by having the necessary infrastructure. Each service team
is now lead by a highly experienced subject matter expert with
strong commercial experience. As a result, quality of service and
resource utilisation has been increased across the board. This has
resulted in a marked increase in the availability of the leadership
team to contribute to client engagement, creation of new services
and the training and development of staff.
The core operational structure of Intelligence, Cyber and
Technologies remains unchanged, however the services, teams and
structure within them has developed considerably over the year.
Current Service Offerings
Falanx Cyber has gone through another year of continued
structuring and growth in both capacity, lines of service and
increased delivery. Consisting now of four core lines of service,
Consult, Assessment, Awareness, Monitor & Respond, we provide
the full breadth of 'Cyber Resilience' services as recommended by
NCSC (National Cyber Security Centre) in the UK and NIST (National
Institute for Standards and Technology) in the USA.
Consult
Containing our previous resources and the now recently acquired
Securestorm, has significant cyber consulting capacity to engage
with UK Government and small to medium enterprise businesses alike.
Our cyber security consulting services are designed to support our
client's organisation in implementing the most effective cyber
security practices. Our consultants partner with our clients to
fully understand their requirements, to help them improve their
systems, processes and protect their organisation from cyber
threats.
Assessment
The acquisition of the trade and assets of First Base
Technologies LLP combined with our existing penetration testing
assessment team has greatly broadened our Assessment delivery
capability. Our 'Assess' services help clients understand the
threats and risks relevant to their organisations through our
highly qualified penetration testing teams critically examining the
most critical assets in their environment and test their
security.
Awareness
Our 'Awareness' services are designed to increase staff
awareness of cyber-attacks, from the Board of Directors downward.
Using custom built scenarios, our experts simulate real-time
attacks through email and voice phishing and physical intrusions to
test and improve the resilience of their staff and systems.
Monitor & Respond
We understand that the vast majority of organisations are
unlikely to have all of the skills, in-house, needed to monitor and
respond to a cyber security incident. When this situation occurs
our team of Cyber Security experts are on hand to support our
clients. With options for full incident response contracts through
to ad-hoc support, we are able to help our clients when they need
us most, 24/7, 365 days a year.
Product Line Development
New Services
We constantly explore, develop and invest in security services
intended to provide our clients with adaptable layers of
protection, designed to meet a wide variety of threats and
budgetary restrictions. As with all of our long-standing services,
these new offerings can be provided discretely or bundled. New
service lines that are coming on line are;
-- Incident Response: The management of a security breach to an
existing or new customer is run from our Cyber SOC in the heart of
Birmingham. With our incident responders able to reach a client's
office, from one of our four locations (Leeds, Birmingham, London
and Brighton) in any part of England, within 3 hours.
-- Automated Vulnerability Scanning: Due to the close
relationship of the recently acquired SecureStorm with one of the
world's leading vulnerability scanning technologies Edgescan, we
intend to offer our clients a highly cost-effective alternative to
the traditional 'Penetration Test' where appropriate. This will
allow us to capture business previously lost due to the inherently
higher cost of manual testing.
-- Threat Awareness Training: Due to the acquisition of First
Base, we are now able to offer our clients with cyber security
awareness training for their staff and management. We see a rapidly
growing opportunity for such training services as 'best practice'
within industry bodies recommends personnel are trained in Cyber
Risk as an essential first step to becoming cyber secure. We are
also able to scale this training via the application of our online
training service supported by the NCSC (National Cyber Security
Centre) accredited CybSafe platform, sourced through the
acquisition of Securestorm.
-- Red Team Assessment: Is a specific application of penetration
testing that test a client organization's ability to detect an
attack, respond, and minimize or negate its effect. Our Red Team
acts as an attacker, attempting to exploit the client's
organisation without detection. Our red team escalates the nature
of each attack to test the detection and response capabilities
(security monitoring and incident response), providing constructive
feedback to the client that will then inform them of steps they may
take to increase their security posture.
Skills Management
Recognising that the Cyber talent market is becoming more
competitive we have a number of initiatives in order to
successfully recruit, motivate and retain the right staff. We
proactively invest in staff development and skills and provide a
career pathway for our new hires including undergraduates and more
experienced staff. Falanx Cyber are currently in their third annual
cycle of recruiting
and developing interns. For several years we have had strong
links with several universities and, we have a strong and steady
intake of students.
Geographic expansion
We have a network of offices around the UK to service customers.
Our main cyber centres are in Sussex (following the acquisition of
First Base), Birmingham, London and Leeds. We focus on maintaining
a flexible and low-cost office footprint which will allow our staff
to service our customers and where relevant allow staff to work
remotely to reduce premises costs.
Falanx Intelligence Services (Assynt)
Divisional revenues were GBP1.9m (2017: GBP1.8m) and it recorded
underlying EBITDA of GBP0.26m (2017: GBP0.27m). Approximately 72%
(2017: 67%) of revenues were from recurring services for report
subscriptions and embedded analysts.
Falanx Assynt, our strategic intelligence division, continues to
provide geo-political analysis, intelligence consulting and managed
intelligence services to around 60 blue chip organisations
worldwide. It derived approximately 2/3 of its revenues last year
from high quality recurring contracts from embedded analysts and
report subscriptions, with the remainder arising from specific
business intelligence assignments. The division, under the
management of Charles Hollis, who joined in July 2017, is focussed
on driving these recurring contracts given their strong financial
dynamics. The medium term goal is to achieve profitability purely
on recurring and retained revenues - through Assynt Report
subscriptions and the provision of embedded analysts to key
clients. This baseline revenue will continue to be supplemented by
bespoke Intelligence Consulting projects, leveraging off our
recognised expertise and knowledge of emerging markets,
international geopolitics and jihadist activities worldwide.
This year we have continued to experience very high retention
rates for our Assynt Report product, while continuing to attract
new subscribers across all business sectors, as well as among
international NGOs and government organisations. We continue to
focus on emerging markets, notably the MENA region, South and South
East Asia, Latin America, Russia and Ukraine and have regional
offices in the US, UAE and Hong Kong to support our multinational
customer base. In the past few months we have begun to expand our
geographic coverage and are looking to substantially increase our
reporting on sub-Saharan Africa by the end of the year. Our reports
provide, giving a depth of analysis and a predictive focus which
they are not able to find elsewhere. We are also known for our
specialism in international jihadist activities and our "Black
Banners Monthly" periodical remains highly regarded.
The embedded analyst business has continued to grow, with the
acquisition of two new US-based clients over the last year and the
up-selling of managed analyst services to existing clients. We have
retained 100% of our existing clients. We expect the embedded
analyst business to continue to grow over the course of this
financial year, with active discussions in train for more
placements in the UK and Asia.
Our Intelligence Consulting business has taken a back seat over
the last year as we have undergone a number of staff changes at a
senior level and have placed primary marketing focus on growing the
retained revenue businesses. However, revenues have held up over
the year and we have delivered a number of high value projects to
clients playing into our strengths in geo-political analysis
including a study for a FTSE 100 FMCG company looking to formulate
a strategy for building a distribution network in a jurisdiction
severely damaged by conflict, a study for an Alternative Investment
vehicle into hydrocarbon investments in a leading MENA country and
an analysis for a client of jihadist financing flows.
Our knowledge in these areas is a good fit with our Cyber
Intelligence capability, particularly 'Red Team' exercises which
are relevant to the Assynt customer base and we are already selling
bundled services.
We continue to look for potential acquisitions which might
reinforce or extend the Falanx Assynt business, while remaining
mindful that our long-term clients value above all our consistency
and quality of output. Accelerating growth while retaining these
values remains a challenge, but if we can find the right
acquisitions which allow us to do so, we are willing to consider
them on a case by case basis.
Approved by the Board on 13 August 2018 and signed on its behalf
by
M D Read J R Blamire
Chief Executive Officer Chief Operating Officer
Revenue
Group revenues grew by 10% to GBP3.0m (2017: GBP2.7m). The
majority of the growth came from the Cyber business which grew by
18% due to greater contract momentum in the second half of the
year. Contribution from larger monitoring deals was limited as they
are multiyear contracts and were only implemented towards the end
of the reporting period. The business has improved the proportion
of revenues generated from recurring contracts in each division
from 55% in 2017 to 62% in 2018. At the end of the period monthly
recurring revenues across the Group stood at approximately
GBP190,000 per month (2017: GBP146,000). The majority of the growth
was from monitoring contracts in line with the Board's strategy of
moving to higher quality revenues. At the period end the Group had
approximately GBP2.3m of future revenue (2017: GBP1.4m) under
contract. At the date of this report monthly recurring revenues
were circa GBP240,000 following further sales of monitoring
solutions after the year end. We have added (through acqusiton and
organic efforts) several larger accounts (typically spending more
than GBP0.1m per annum) and this, combined with our much expanded
customer base (322 customers (2017: 118), has very significantly
reduced our customer concentration risk with our largest accounts
representing less than 5% of our enlarged Group's revenues.
The acquisition of the trade and assets of First Base
Technologies LLP completed on 23 March 2018 contributed
approximately one week to the revenue for the year ended 31 March
2018.
Cost of Sales
Cost of sales represents cost items which vary more closely as a
function of sales demand and therefore revenues. The Intelligence
division's cost base is largely employment costs for full time and
external consultants who produce intelligence reports for customers
as well as certain database access licences. The Cyber division
costs include the team who deliver the monitoring and professional
services, external licence fees for technology platform and its
support (some of which are fixed and some of which are variable).
In the year to 31 March 2017 approximately GBP0.1m of premises
costs for the monitoring station were recorded as a cost of sales
and are now reflected as administrative expenses as they are
largely fixed.
Gross Margin
The Group's gross margin increased from 20% to 31% during the
year. Each division experienced margin improvement as a result of
favourable revenue mix with a significantly increased contribution
from high margin recurring revenues, as well as improved
utilisation of professional services staff.
Operational & Cash Based Costs
Administrative expenses excluding depreciation and amortisation
and non-underlying items increased from GBP1.7m to GBP2.5m as the
Group grew it's infrastructure and headcount to support growth.
This included increased premises costs arising from a relocation of
the London office as well as additional space in Birmingham for
staff to support the Cyber division's growth plans. Further
investment was made in increased sales and marketing capabilities
in Assynt with the hire of a new managing director and commercial
director. Average headcount in the year was 51 (2017: 35)
reflecting the impact of acquisitions in 2017 and 2018. Central
costs increased by 9% reflecting increased advisory and management
costs.
Non-underlying items
As referenced in the CEO's review, the Company has made
significant changes to its Board and management as well as
completing several acquisitions. These activities by their nature
incurred certain costs which are outside of the Group's usual
operations.
2018 2017
GBP GBP
Reported EBITDA loss (2,241,436) (1,221,617)
Acquisition costs (advisory and introduction) 201,532 54,670
Board restructuring costs 300,150 -
Share option charge 48,763 21,755
Foreign exchange loss / (gain) 74,609 (67,638)
Cloud business development 26,881 -
------------ ------------
Underlying EBITDA loss (1,589,501) (1,212,830)
============ ============
Restructuring costs include costs of Board and management
changes which mainly affected the Cyber division and the central
and board functions. In addition to the costs listed above there
was a major restructuring of the sales team in the Cyber division
in the second half of the year, and consequently a further GBP0.23m
of cost has been eliminated. In aggregate the company has been FX
neutral over the last 2 years.
EBITDA
Underlying EBITDA loss for the year was a GBP1.6m (2017:
GBP1.2m) after adjusting for the items highlighted above. Headline
reported EBITDA loss was GBP2.2m (2017: GBP1.2m).
Depreciation and Amortisation
Depreciation and amortisation was GBP0.29m (2017: GBP0.36m) and
largely represented amortisation of previously purchased software
licences for the Cyber division. These costs have been reduced due
to use of internal IP and revised licencing arrangements with
certain external vendors where they are now paid on a monthly
basis.
Financing Costs
Financing costs were GBP2,900 (2017: GBP110,000) with the prior
year charge arising from the convertible loan note issued to Darwin
Capital which was repaid in full prior to 31 March 2017.
Result for the Year
The Group's operating loss increased to GBP2.5m (2017: GBP1.6m)
with GBP0.65m of the increase relating to non-underlying items.
Loss per share is consistent with the prior year at 1.56p
(2017:1.52p).
Statement of Financial Position
Non-Current Assets
The Group continued to invest in technology during the year and
a further GBP0.5m (2017: GBP0.2m) of development costs were
capitalised in support of monitoring technology development in the
Cyber division. Spend on tangible fixed assets was GBP0.07m (2017:
GBP0.1m) primarily on technology and infrastructure costs.
Working Capital
Amounts due from customers, net of bad debt provision increased
to GBP0.9m from GBP0.4m. This was driven primarily by certain large
customer renewals which were billed in the final month of the year,
but which were not paid until April 2018. Other receivables
increased by GBP0.3m and these predominantly related to certain
settlement monies from the March 2018 fundraise, which were settled
in April 2018.
Days sales outstanding stood at 52 (2017: 42) and overall the
company had a very low incidence of delayed and/or non payment of
debts by customers.
Current liabilities (excluding deferred income) included a final
GBP0.2m due to the vendors of First Base Technologies LLP which was
settled in April 2018. The vast majority of the Group's creditors
including taxation are within agreed terms.
Deferred income increased to GBP0.75m (2017: GBP0.43m) as a
result of the acquisition of the trade and assets of First Base
Technologies LLP in March 2018 as well as a greater volume of
advanced billings to customers in both divisions.
Capital Structure
The Company issued the following shares during the period:
Date Comment Number of Share Price Value (GBP)
shares (GBP)
4 May 2017 Placing 29,090,909 0.06875 2,000,000
Settlement of broker
4 May 2017 fees 545,455 0.06875 37,500
5 July 2017 Cloudified Limited acquisition 1,122,807 0.07125 80,000
Auditsec Services Limited
11 September 2017 acquisition 750,000 0.07125 53,438
Settlement of broker
15 January 2018 fees 166,667 0.075 12,500
6 March 2018 Placing 102,222,222 0.045 4,600,000
------------------- -------------------------------- ------------ ------------ ------------
At the 31 March 2018 the Company had 259,678,964 ordinary shares
in issue. The Company also had 41,061,251 warrants outstanding at
31 March 2018 and full details are in note 20 to these financial
statements.
At the year-end shareholders' funds stood at GBP4.9m (2017:
GBP0.8m).
Statement of Cash Flows
During the year the Group raised GBP6.3m net by the issue of new
shares. Approximately GBP3.0m (net of acquired balances) was used
on acquisition consideration with the remainder being used for
transactional support around M&A (GBP0.2m), investment in
product (GBP0.4m) with the remainder being used for general
corporate purposes.
Cash balances stood at GBP0.9m (2017: GBP0.4m).
Post Period Events
On 16 July 2018 the Company acquired 100% of the issued share
capital of Securestorm Limited, a niche cyber security consultancy
business. The consideration of GBP100,000 was satisfied by the
issuance of 2,222,222 new ordinary shares at 4.5 pence each. Net
liabilities on acquisition were approximately GBP0.13m. The current
liabilities are mainly due to HMRC where a deferred payment scheme
has been agreed and is in place. Per unaudited management accounts
for the 12 months to 30 June 2018 it recorded revenues of GBP0.54m
and operating losses of GBP0.15m,The majority of losses were
incurred before December 2017. These have since been mitigated by
customer contract wins and cost reductions. The integration of
Securestorm is expected to generate enhanced revenue opportunity
and cost synergies.
Impact of Recent Acquisitions and Contract Wins on Group
The Group has in recent months undertaken significant
acquisitions and has won further new contracts. This has
significantly enlarged the Group's revenues on a pro forma basis as
set out below:
GBP'000
Falanx Group audited revenues at 31 March 2018 3,020
First Base Technologies (trade and assets acquired 23 March
2018, unaudited management accounts of First Base Technologies
LLP for year ended 31 March 2018) 1,900
Securestorm (acquired 16 July 18, unaudited management accounts
for year ended 30 June 2018) 543
Legal Firm monitoring contract (announced 7 February 2018) 233
UK Government monitoring contract (announced 16 May 2018) 230
Other contract growth in First Base Technologies (10% new
name per announcement 16(th) May 2018) 190
--------
Pro forma revenue 6,116
========
Following strong delivery of services and the associated revenue
recognition, the Group reported a profit at an EBITDA level in July
2018.
Approved by the Board on 13 August 2018 and signed on its behalf
by
I R Selby
Chief Finance Officer
Mike Read
Mike Read (Chief Executive Officer and 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.
John Blamire
John Blamire (Chief Operating Officer) is a former officer in
the British Army, having served for 10 years in Europe, the 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.
Ian Selby (appointed 15 January 2018)
Ian Selby (Chief Financial Officer) is a Chartered Accountant
with significant experience in the technology, security and
business services sectors. He was previously the CFO of AIM listed
Westminster Group plc where he supported the development of their
successful managed services business and the raising of the
associated financing. Prior to this, he was Group Finance Director
of Zenith Hygiene Group plc, where he was instrumental in executing
a successful trade sale and prior to this was the CFO of a listed
software company focused on financial and public sectors. Ian has
held international finance roles in listed technology companies
including Halliburton Inc, Sybase Inc and Micro Focus plc. He
qualified as a Chartered Accountant with Coopers & Lybrand
Deloitte and holds a degree in Physics from the University of
Birmingham.
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.
Company number Nominated adviser
1730012 (British Virgin Islands) Spark Advisory Partners Limited
Registered office 5 St John's Lane
PO Box 173 London EC1M 4BH
Kingston Chambers, Road Town Bankers
Tortola, British Virgin Islands Barclays Bank PLC
Registered Agents UK Banking
Maples Corporate Services (BVI) Limited 1 Churchill Place
PO Box 173 London E14 5HP
Kingston Chambers, Road Town HSBC Bank PLC
Tortola, British Virgin Islands 8 Canada Square
Auditors London E14 5HQ
Kingston Smith LLP
Devonshire House Solicitors
60 Goswell Road DWF LLP
London EC1M 7AD 20 Fenchurch Street
Brokers London EC3M 3AG
Turner Pope Investments (TPI) Limited Registrars
Becket House Computershare Investor Services
36 Old Jewry (BVI) Limited
London EC2R 8DD Woodbourne Hall
PO Box 3162
Road Town, Tortola
British Virgin Islands
The Directors present their report and the audited financial
statements for the year ended 31 March 2018.
Business Review
The Group's results for the year are set out in the consolidated
statement of comprehensive income on page 24 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 2018 2017 Comment
Indicator
Group revenue Changes in total Revenue growth GBP3.0 GBP2.7 Increase of 10%
- GBP'm revenue compared gives a quantified attributable to
to prior year indication of increased revenue
the rate at in the Cyber division
which the Group's
business activity
is expanding
over time
Provides an
indication of
Percentage of sales profitability
total revenue and proportion Improved margin
retained by the of revenue available due to efficiency
Group after direct to cover other savings and better
Gross margin costs deduction running costs 31% 20% utilisation
EBITDA A measure of Offers a clearer GBP(2.2) GBP(1.2) Increase in overhead
- GBP'm profits excluding reflection of cost largely due
non cash items the ability to increased staff
such as depreciation to generate cost and non-underlying
and amortisation cash costs
Adjusted A measure of Underlying performance GBP(1.6) GBP(1.2) Increase in underlying
EBITDA profits adjusted of business costs attributable
- GBP'm for non-underlying operations to increased staff
items cost for the sales
team
Measures the
ability of the
business to A close correlation
Operational cash convert profit between profit
Cash conversion flow / EBITDA into cash 96% 99% and cash
Shows visibility
Recurring Recurring revenue of recurring
revenue lines / total revenue growth
% revenue rate 62% 55% Quality of revenue
Contracted Binding commitments Shows visibility GBP2.3 GBP1.4 Increase in recurring
revenue from customers into contracted revenue contracts
- GBP'm for future revenues revenues underpinning
future revenue
forecasts
Monthly Revenue from Shows predictable GBP0.19 GBP0.14 Increase in revenue
recurring the provision monthly metrics from protective
revenue of services on to track progress monitoring in
- GBP'm a recurring basis against objective the Cyber division
of becoming
profitable solely
on recurring
revenue
Growth of 181%
largely attributable
to the acquired
Number of customers Measure of customer customer base
Number invoiced over concentration of First Base
of live the preceding (includes acquired for the Cyber
customers 12 months customer base) 332 118 division
Increase in operations
Shows average staff to deliver
Average headcount number of employees future revenue
Headcount during the year in the year 51 35 commitments
Deferred Contracted and Shows visibility GBP0.7 GBP0.4 Increase due to
Income invoiced revenue into invoiced growth in the
- GBP'm yet to be recognised amounts to be Cyber division
recognised in
future periods
----------------- ----------------------- ------------------------ --------- --------- -------------------------
Dividends
The consolidated statement of comprehensive income for the year
is set out on page 23, 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 31 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
M D Read (became executive director on 13 November 2017)
I R Selby appointed 15 January 2018
P S A Bladen resigned 13 November 2017
J D Abbott resigned 31 March 2018
Non-Executive Director
E Shaw
Directors' interests
The Directors' interests in the share capital of the Company at
the year end were as stated below:
2018 2017
Number of % Held Number % Held
shares of shares
--------------- ---------- ------- ----------- -------
M D Read^ 9,243,940 3.56% 1,250,000 0.99%
J R Blamire 7,900,000 3.04% 7,900,000 6.28%
J D Abbott*** - - 7,125,536 5.66%
E Shaw 866,667 0.33% 200,000 0.16%
I R Selby** 666,667 0.26% - -
P S A Bladen* - - 310,000 0.25%
--------------- ---------- ------- ----------- -------
^ M D Read has 1,250,000 warrants with an exercise price of 6
pence expiring on 10 May 2019 and a further 6,000,000 warrants at
an exercise price of 4 pence vesting and exercisable as detailed in
note 20.
The interests of Directors' in options over the share capital of
the Company at year end were as stated below:
5.00 pence options 2018 2017
Number Number
M D Read 5,000,000 -
J R Blamire 4,500,000 -
I R Selby** 5,000,000 -
E Shaw 500,000 -
P S A Bladen* - 3,000,000
-------------------- ----------- ----------
5.875 pence options 2018 2017
Number Number
P S A Bladen* - 1,250,000
J R Blamire 500,000 500,000
J D Abbott*** - 500,000
E Shaw 750,000 750,000
--------------------- -------- ----------
* P S A Bladen resigned 13 November 2017
** I R Selby appointed 15 January 2018
*** J D Abbott resigned 31 March 2018
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 Termination Pension Bonus 2018 2017
and fees in kind payment contribution Total Total
GBP GBP GBP GBP GBP GBP GBP
---------------------- ---------- --------- ------------ -------------- -------- -------- --------
Executive Directors:
M D Read 25,000 - - - 20,000 45,000 50,000
J R Blamire 100,000 - - 391 40,000 140,391 108,568
I R Selby** 26,721 - - 82 20,000 46,803 -
J D Abbott*** 108,462 - - - 50,000 158,462 25,000
P S A Bladen* 106,808 - 105,000 1,011 - 212,819 69,001
Non-executive
Directors:
E Shaw**** 40,000 - - - - 40,000 28,000
I A Manley - - - - - - 23,000
D P Carr - - - - - - 1,000
406,991 - 105,000 1,484 130,000 643,475 304,569
---------------------- ---------- --------- ------------ -------------- -------- -------- --------
* P S A Bladen resigned 13 November 2017
** I R Selby appointed 15 January 2018
*** J D Abbott resigned 31 March 2018
**** E Shaw provided additional services in the year relating to
Group restructuring and the fee of GBP20,000 (included in her
remuneration for the year) was settled by the issuance of 444,444
shares at 4.5 pence each on 6 March 2018.
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. At the end of the
financial year ended 31 March 2018, creditors' days were 66 days
(2017: 54 days) with the increase being due to certain large
invoices being received at the end the year. At present the vast
majority of the Group's creditors, including taxation are within
agreed terms.
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 control
debt levels and to ensure sufficient working capital for the
Group's overheads and capital expenditure commitments.
Financial instruments are disclosed and discussed in note 24 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
The Group is reducing its customer concentration risk by
acquisition of further customers through organic development as
well as M&A. In the 12 months to 31 March 2018, only one
customer on an annual contract represents more than 10% of revenue.
Many customers, paticuarly in the Cyber division's consulting
revenues do not have long term agreements but have repeatedly
transacted
with the Group for many years. Where the Group uses external
licences for its operations it seeks protections such as multuiple
suppliers and escrow arrangements for source code.
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
The Group made losses of GBP2.5m (2017: GBP1.7m) in the year of
which GBP1.6m (2017: GBP1.2m) relates to the underlying operations
of the business. At the end of March 2018 the Group acquired the
trade and assets of First Base Technologies LLP which has given it
a larger customer base and a profitable business which generated
circa GBP0.6m of operating cash in the year to 31 March 2018.
Falanx's organic business has improved its revenue performance
since the start of the current financial year with the larger
monitoring contracts signed since the start of the calendar year
coming onstream and commencing to produce cash. The Group is
increasing the proportion of revenues from either recurring or
repeat customers and is therefore reducing the levels of new
business to achieve cash neutral performance. Furthermore the cost
base has been streamlined over the last few months. Since the start
of the calendar year First Base Technologies customer billings are
up by 25% year on year and demand is growing across our Cyber
offerings. In July 2018 the Group was profitable at an EBITDA level
following strong deliveries in that month.
In assessing whether the going concern assumption is
appropriate, the Directors take into account all relevant available
information about the next twelve months following the signing of
these financial statements. The Directors have prepared detailed
profit and cash flow forecasts for the the next 12 months which the
Directors consider to be conservative. This scenario assumes lower
growth in revenues than the core plan as well as reductions in
parts of the cost base. Should these stress test scenario targets
not be met and a shortfall in working capital identified, the
Directors have a range of other options. These include further
operating cost and platform investment reductions and facilities
such as invoice discounting. The Group could seek, as in previous
years, the support of investors and directors (debt or equity).
Based upon the above the Directors have a reasonable expectation
that the Group has adequate working capital for the twelve months
following the date of signing these accounts. For this reason, they
continue to adopt the going concern basis in preparing the
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 9 August 2018, the following were holders of 3% or more of
the Group's issued share capital:
Ordinary shares Percentage of
issued
Registered holder share capital
-------------------- ---------------- --------------
Unicorn VCT 33,333,333 12.73%
Michael David Read 8,871,308 3.39%
John Blamire 7,900,000 3.02%
-------------------- ---------------- --------------
Auditors
The auditors Kingston Smith LLP have indicated their willingness
to continue in office and a resolution that they be re-appointed
will be proposed at the annual general meeting.
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 17 of these financial statements. The Statement of Directors'
Responsibilities forms part of the Directors' report.
On behalf of the Board
J R Blamire
Director
13 August 2018
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.
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. The Group will be
adding additional relevant non-executive directors in the year to
further balance the Board.
Committees
The Group has in 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 twice a year. Other 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 Director 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 two
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 13 August 2018 and signed on its behalf
by
J R Blamire
Director
Opinion
We have audited the financial statements of Falanx Group Limited
for the year ended 31 March 2018 which comprise the Consolidated
Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Cash Flows, the Consolidated Statement of
Changes in Equity and notes to the financial statements, including
a summary of significant accounting policies. 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.
In our opinion the group financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 March 2018 and of its loss for the year then ended;
and
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs(UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's Responsibilities for the audit of financial statements
section of our report. We are independent of the Group in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for
issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Audit Area and Description
Carrying value of intangibles (customer relationships and
goodwill)
As a result of acquisitions made in the year intangible assets
represent a significant part of the assets of the Group. The
intangible assets arising on acquisition largely comprise customer
relationships and goodwill.
Audit approach
We reviewed the assumptions underpinning the valuation of
customer relationships and goodwill arising on acquisition. We
assessed the Directors' assertion that no impairment was required
by reference to trading performance and forecasts. We considered
the appropriateness of the amortisation policy for customer
relationships.
Carrying value of intangibles (development costs)
The Group has continued to develop its MidGARD/FURNACE product
in the year. The associated capitalised development costs represent
a material asset of the Group at the reporting date.
Audit approach
We assessed the capitalised costs against the IAS 38 recognition
criteria. We assessed the Directors' assertion that no impairment
was required by reference to forecasts. We considered the
appropriateness of the amortisation policy for development
costs.
Our application of materiality
The scope and focus of our audit was influenced by our
assessment and application of materiality. We define materiality as
the magnitude of misstatement that could reasonably be expected to
influence the readers and the economic decisions of the users of
the financial statements. We use materiality to determine the scope
of our audit and the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both
individually and on the financial statements as a whole.
Due to the nature of the Group we considered income to be the
main focus for the readers of the financial statements, accordingly
this consideration influenced our judgement of materiality. Based
on our professional judgement, we determined materiality for the
Group to be GBP71,000, based on a percentage of revenue.
On the basis of our risk assessments, together with our
assessment of the overall control environment, our judgement was
that performance materiality (i.e. our tolerance for misstatement
in an individual account or balance) for the Group was 60% of
materiality, namely GBP42,600.
We agreed to report to the Audit Committee all audit differences
in excess of GBP3,550, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds. We
also reported to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level.
The entire Group is audited by one audit team, led by the Senior
Statutory Auditor. Our approach in respect of key audit matters is
set out in the table in the Key Audit Matters Section above.
The audit is performed centrally and comprises all of the
companies within the Group.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
its environment obtained in the course of the audit, we have not
identified material misstatements in the Directors' Report.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out on page 14, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs (UK) we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control
misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or
conditions may cause the group to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of our report
This report is made solely to the company's members, as a body.
Our audit work has been undertaken for no purpose other than to
draw to the attention of the company'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 company and
company's members as a body, for our work, for this report, or for
the opinions we have formed.
MATTHEW MEADOWS (Senior Statutory Auditor)
for and on behalf of Kingston Smith LLP, Statutory Auditor
Devonshire House
60 Goswell Road
London EC1M 7AD
13 August 2018
2018 2017
Note GBP GBP
-------------------------------------------------- ----- ------------ ------------
Continuing operations
Revenue 4 3,020,935 2,743,217
Cost of sales (2,079,891) (2,194,564)
-------------------------------------------------- ----- ------------ ------------
Gross profit 941,044 548,653
Administrative expenses - excluding depreciation
and amortisation (2,530,545) (1,696,966)
Depreciation and amortisation (298,138) (356,817)
Administrative expenses - research - (64,517)
Non-underlying items 5 (651,935) (8,787)
Operating loss 6 (2,539,574) (1,578,434)
Finance income 9 633 196
Finance costs 9 (2,900) (110,000)
-------------------------------------------------- ----- ------------ ------------
Finance costs - net (2,267) (109,804)
Loss before income tax (2,541,841) (1,688,238)
Income tax credit / (expense) 10 18,798 (12,416)
-------------------------------------------------- ----- ------------ ------------
Loss for the year from continuing operations (2,523,043) (1,700,654)
Loss for the year (2,523,043) (1,700,654)
Earnings per share
Basic earnings per share - continuing and
total operations 11 (1.56)p (1.52)p
Diluted earnings per share - continuing
and total operations 11 (1.56)p (1.52)p
-------------------------------------------------- ----- ------------ ------------
Consolidated statement of comprehensive income
for the year ended 31 March 2018
2018 2017
GBP GBP
------------------------------------------------- ------------ ------------
Loss for the year (2,523,043) (1,700,654)
Other comprehensive income: - -
Other comprehensive income for the year, net of - -
tax
------------------------------------------------- ------------ ------------
Total comprehensive income for the year (2,523,043) (1,700,654)
------------------------------------------------- ------------ ------------
Attributable to:
Owners of the parent (2,523,043) (1,700,654)
Total comprehensive income for the year (2,523,043) (1,700,654)
------------------------------------------------- ------------ ------------
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 10.
The notes on pages 27 to 48 are an integral part of these
consolidated financial statements.
2018 2017
Note GBP GBP
--------------------------------------------- ----- ------------ ------------
Assets
Non-current assets
Property, plant and equipment 13 132,544 131,456
Intangible assets 14 4,464,257 769,983
4,596,801 901,439
--------------------------------------------- ----- ------------ ------------
Current assets
Inventories 17 4,382 8,500
Trade and other receivables 18 1,467,434 633,101
Cash and cash equivalents 19 914,961 430,459
--------------------------------------------- ----- ------------ ------------
2,386,777 1,072,060
--------------------------------------------- ----- ------------ ------------
Total assets 6,983,578 1,973,499
--------------------------------------------- ----- ------------ ------------
Equity
Capital and reserves attributable to equity
holders of the Company
Share premium account 21 13,868,734 7,410,507
Translation reserve (37,024) (100,285)
Shares to be issued reserve 245,369 196,606
Retained earnings 22 (9,226,490) (6,703,447)
--------------------------------------------- ----- ------------ ------------
Total equity 4,850,589 803,381
--------------------------------------------- ----- ------------ ------------
Liabilities
Current liabilities
Trade and other payables 23 1,374,981 727,762
Deferred income 748,479 432,827
Deferred tax liability 16 9,529 9,529
Total liabilities 2,132,989 1,170,118
--------------------------------------------- ----- ------------ ------------
Total equity and liabilities 6,983,578 1,973,499
--------------------------------------------- ----- ------------ ------------
The notes on pages 27 to 48 are an integral part of these
consolidated financial statements.
The financial statements on pages 23 to 26 were authorised for
issue by the Board of Directors on 13 August 2018 and were signed
on its behalf by:
J R Blamire I R Selby
Director
Director
Company number: 1730012 (British Virgin Islands)
Share Retained Translation Share option
Note premium earnings reserve reserve Total
GBP GBP GBP GBP GBP
--------------------------- ----- ----------- ------------ ------------ ------------- ------------
Balance at 1 April 2016 5,309,031 (5,002,793) (42,162) 174,851 438,927
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
subsidiaries - - (58,123) - (58,123)
Share options issued - - - 21,755 21,755
Balance at 31 March 2017 7,410,507 (6,703,447) (100,285) 196,606 803,381
--------------------------- ----- ----------- ------------ ------------ ------------- ------------
Loss for the year - (2,523,043) - - (2,523,043)
Transactions with owners:
Issue of share capital 6,783,438 - - - 6,783,438
Costs of issue of share
capital (325,211) - - - (325,211)
Translation of foreign
subsidiaries - - 63,261 - 63,261
Share options issued 12 - - - 48,763 48,763
--------------------------- ----- ----------- ------------ ------------ ------------- ------------
Balance as at 31 March
2018 13,868,734 (9,226,490) (37,024) 245,369 4,850,589
--------------------------- ----- ----------- ------------ ------------ ------------- ------------
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 represents the cumulative earnings of the
Group attributable to the owners of the parent.
The translation reserve represents the movement in the
translation of foreign subsidiaries into the presentation
currency.
The share option reserve represents the cumulative share option
charge.
The notes on pages 27 to 48 are an integral part of these
consolidated financial statements.
2018 2017
GBP GBP
--------------------------------------------------- ------------ ------------
Cash flows from operating activities
Loss before tax (2,541,841) (1,688,238)
Adjustments for:
Depreciation 65,430 43,874
Amortisation and impairment 232,708 312,943
Share based payment 81,263 56,755
Loss on disposal of property, plant and equipment 1,026 697
Net finance cost recognised in profit or
loss 2,267 109,804
(2,159,147) (1,164,165)
--------------------------------------------------- ------------ ------------
Changes in working capital:
Decrease in inventories 4,118 32,675
Increase in trade and other receivables (741,701) (11,388)
Increase / (decrease) in trade and other
payables 755,156 (67,676)
---------------------------------------------------- ------------ ------------
Cash used in operations (2,141,574) (1,210,554)
Interest paid (2,900) (55,000)
---------------------------------------------------- ------------ ------------
Net cash used in operating activities (2,144,474) (1,265,554)
---------------------------------------------------- ------------ ------------
Cash flows from investing activities
Interest received 633 196
Acquisition of property, plant and equipment (67,694) (109,365)
Disposal of property, plant and equipment 150 -
Expenditure on development cost (499,179) (152,967)
Acquisition of subsidiaries net of cash acquired (3,160,483) (140,315)
Net cash used in investing activities (3,726,573) (402,451)
---------------------------------------------------- ------------ ------------
Cash flows from financing activities
Net proceeds from loan notes - 495,000
Repayment of loan notes - (550,000)
Net proceeds from issue of shares 6,292,288 1,781,455
Net cash generated from financing activities 6,292,288 1,726,455
---------------------------------------------------- ------------ ------------
Net increase in cash equivalents 421,241 58,450
Cash and cash equivalents at beginning of
year 430,459 430,132
Foreign exchange gains / (losses) on cash
and cash equivalents 63,261 (58,123)
---------------------------------------------------- ------------ ------------
Cash and cash equivalents at end of year 914,961 430,459
---------------------------------------------------- ------------ ------------
Cash and cash equivalents are shown net of a bank facility of
GBP290,000 over which a right of set-off exists, as detailed in
note 19.
The notes on pages 27 to 48 are an integral part of these
consolidated financial statements.
1. General information
Falanx (the "Company") and its subsidiaries (together the
"Group") operate in the cyber security 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 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 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
The Group made losses of GBP2.5m (2017: GBP1.7m) in the year of
which GBP1.6m (2017: GBP1.2m) relates to the underlying operations
of the business. At the end of March 2018 the Group acquired the
trade and assets of First Base Technologies LLP which has given it
a larger customer base and a profitable business which generated
circa GBP0.6m of operating cash in the year to 31 March 2018.
Falanx's organic business has improved its revenue performance
since the start of the current financial year with the larger
monitoring contracts signed since the start of the calendar year
coming onstream and commencing to produce cash. The Group is
increasing the proportion of revenues from either recurring or
repeat customers and is therefore reducing the levels of new
business to achieve cash neutral performance. Furthermore the cost
base has been streamlined over the last few months. Since the start
of the calendar year First Base Technologies customer billings are
up by 25% year on year and demand is growing across our Cyber
offerings. In July 2018 the Group was profitable at an EBITDA level
following strong deliveries in that month.
In assessing whether the going concern assumption is
appropriate, the Directors take into account all relevant available
information about the next twelve months following the signing of
these financial statements. The Directors have prepared detailed
profit and cash flow forecasts for the next 12 months which the
Directors consider to be conservative. This scenario assumes lower
growth in revenues than the core plan as well as reductions in
parts of the cost base. Should these stress test scenario targets
not be met and a shortfall in working capital identified, the
Directors have a range of other options. These include further
operating cost and platform investment reductions and facilities
such as invoice discounting. The Group could seek, as in previous
years, the support of investors and directors (debt or equity).
Based upon the above the Directors have a reasonable expectation
that the Group has adequate working capital for the twelve months
following the date of signing these accounts. For this reason, they
continue to adopt the going concern basis in preparing the
financial statements.
2.1.2 New and Revised Standards
Standards in effect in 2018
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 and in some cases had
not yet been adopted by the EU.
The Company intends to adopt these Standards and Interpretations
when they become effective, rather than adopt them early.
-- IFRS 9, 'Financial Instruments'
-- IFRS 15, 'Revenue from Contracts with Customers'
-- IFRS 16 'Leases'
-- IFRS 10 and IAS 28 (amendments), 'Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture'
2.1.2 New and Revised Standards continued
-- Amendments to IFRS 2, 'Classification and Measurement of Share-based Payment Transactions'
-- Amendments to IAS 7, 'Disclosure Initiative'
-- Amendments to IAS 12, 'Recognition of Deferred Tax Assets for Unrealised Losses'
The directors do not expect that the adoption of the Standards
listed above will have a material impact on the Group in future
periods except that IFRS 9 will impact both the measurement and
disclosure of financial instruments and IFRS 15 may have an impact
on revenue recognition and related disclosures. Beyond this, it is
not practicable to provide a reasonable estimate of the effect of
IFRS 9 and IFRS 15 until a detailed review has been completed.
IFRS 16 is a significant change to lessee accounting and all
leases will require balance sheet recognition of a liability and a
right-of-use asset except short term leases and leases of low value
assets. The effect on the Group cannot be accurately quantified at
this stage.
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 entities that are controlled by the
Company. The definition of control involves three elements: power
over the investee; exposure or rights to variable returns and the
ability to use the power over the investee to affect the amount of
the investor's returns. The Group generally obtains power through
voting rights. 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 Segmental 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 on the following bases:
Class of revenue Recognition criteria
Subscription fees 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
reporting 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.
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 reporting 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 profits 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 adjusted to the extent that it is no longer
probable that sufficient taxable profits 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 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 their
estimated useful life, which does not exceed 5 years.
Customer relationships
Customer relationships are amortised over the period expected to
benefit which is ten 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 Inventories
Inventories 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, share option
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. At 31 March 2018
a deferred tax asset has not been recognised (2017: GBPnil).
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 12.75%.
The customer relationships intangible asset, with a carrying
value of GBP2,840,000 at 31 March 2018, detailed in note 14 is
being amortised over a 10 year period. The directors consider this
to be a realistic period given that First Base Technologies
(London) Limited and its predecessor entity have been trading for
over 20 years, and its recent customer churn is less than 10%.
Impairment of trade receivables
Impairments against trade receivables are recognised where a
loss is probable. Neither division has suffered from high rates of
bad debts and management have also 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 are regularly reviewed and
such a review could lead to changes in the assumptions, which may
impact the income statement in future periods. The pre and post
provision carrying values are detailed in note 18.
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 2018
are as follows:
Other
Intelligence Cyber segment Total
GBP GBP GBP GBP
------------------------------------ ------------- ------------ ------------ ------------
Revenues from external customers 1,894,731 1,109,204 17,000 3,020,935
------------------------------------ ------------- ------------ ------------ ------------
Gross Margin 708,304 215,740 17,000 941,044
Segment Reported EBITDA 216,214 (999,501) (1,458,149) (2,241,436)
Non-underlying costs (Note 5) 41,850 108,504 501,581 651,935
Segment Adjusted EBITDA 258,064 (890,997) (956,568) (1,589,501)
------------------------------------ ------------- ------------ ------------ ------------
Finance costs-net (2,668) 25 376 (2,267)
Depreciation and amortisation (12,153) (282,977) (3,008) (298,138)
Segment profit/(loss) for the year 201,393 (1,282,453) (1,460,781) (2,541,841)
------------------------------------ ------------- ------------ ------------ ------------
4. Segmental reporting continued
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
------------------------------------ ------------- ---------- -------------------- ------------
Gross margin 467,215 76,410 5,028 548,653
Segment Reported EBITDA 272,112 (627,942) (865,787) (1,221,617)
Non-underlying costs (Note 5) 5,494 7,338 (4,045) 8,787
Segment Adjusted EBITDA 277,606 (620,604) (869,832) (1,212,830)
------------------------------------ ------------- ---------- -------------------- ------------
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)
------------------------------------ ------------- ---------- -------------------- ------------
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 2018 and capital
expenditure for the year then ended are as follows:
Other
Intelligence Cyber segment Total
GBP GBP GBP GBP
---------------------------------- ------------- ---------- ---------- ----------
Total assets 864,513 5,111,623 1,007,442 6,983,578
Liabilities 641,852 912,533 578,604 2,132,989
Capital expenditure - Tangible 14,640 38,644 14,410 67,694
Capital expenditure - Intangible - 3,926,982 - 3,926,982
---------------------------------- ------------- ---------- ---------- ----------
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 1,353,954 53,614 1,973,499
Liabilities 542,814 362,341 264,963 1,170,118
Capital expenditure - Tangible 3,085 103,950 2,330 109,365
Capital expenditure - Intangible - 587,155 - 587,155
---------------------------------- ------------- ---------- --------- ----------
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.
4. Segmental reporting continued
Revenue 2018 2017
GBP GBP
----------------- ---------- ----------
United Kingdom 2,265,734 1,873,078
Europe 273,130 371,775
Australasia 131,459 230,942
United States 272,203 189,236
Middle East 70,924 70,811
Other countries 7,495 7,375
----------------- ---------- ----------
3,020,945 2,743,217
----------------- ---------- ----------
Non-current assets 2018 2017
GBP GBP
-------------------- ---------- --------
United Kingdom 4,596,801 901,439
4,596,801 901,439
-------------------- ---------- --------
Major customers
One customer contributed 10% or more to the Group's revenue in
2018 (2017: 2).
5. Non-underlying costs and adjusted EBITDA
Operating loss includes the following items which the Directors
consider to be one-off in nature, non-cash expenses or necessary
elements of expenditure to derive future benefits for the Group
which have not been capitalised on the consolidated statement of
financial position.
5.1 Non-underlying costs
2018 2017
GBP GBP
-------------------------------- ---- -------- ---------
Acquisition costs a) 201,532 54,670
Board restructuring costs b) 300,150 -
Share option expense c) 48,763 21,755
Foreign exchange loss / (gain) d) 74,609 (67,638)
Cloud business development e) 26,881 -
-------------------------------- ---- -------- ---------
651,935 8,787
------------------------------------- -------- ---------
a) Acquisition costs
Advisory and introduction costs incurred on acquisition of
subsidiaries not capitalised.
b) Board restructuring costs
Cost of restructuring the the Board including severance payment,
recruitment fees for new Board members and advisory costs.
c) Share option expense
A Group share option scheme is in place and options are granted
in the year as detailed in note 20. The share based payment charge
has been shown separately as it is a non-cash expense.
d) Foreign exchange loss/ (gain)
Foreign exchange arising from the translation of intercompany
balances of foreign subsidiaries to the Group's functional and
presentation currency on consolidation. It is a non-cash expense
subject to the volatility of the foreign exchange market and as
such does not form part of the underlying operating costs of the
Group.
e) Cloud business development
Costs incurred in business development for a cloud business.
This initiative was however discontinued as the Directors
identified it as not viable in the long term.
5. Non-underlying costs and adjusted EBITDA continued
5.2 Adjusted EBITDA
2018 2017
GBP GBP
-------------------------------------------- ------------ ------------
Operating loss (2,539,574) (1,578,434)
Depreciation and amortisation 298,138 356,817
Non-underlying costs (note 5.1) 651,935 8,787
-------------------------------------------- ------------ ------------
Adjusted EBITDA from underlying operations (1,589,501) (1,212,830)
-------------------------------------------- ------------ ------------
6. Operating loss
Operating loss for the year is stated after charging the
following:
2018 2017
GBP GBP
----------------------------------------------------- -------- ---------
Depreciation of owned property, plant and equipment 65,430 43,874
Amortisation and impairment of intangible fixed
assets 232,708 312,943
Loss on disposal of property, plant and equipment 1,026 697
Operating lease rentals - Land & Buildings 130,444 111,001
Research expenditure - 64,517
Share based payment expense 81,263 56,755
Foreign exchange loss / (gain) 84,735 (80,652)
----------------------------------------------------- -------- ---------
7. Auditors' remuneration
During the year the Group obtained the following services from
the Company's auditors:
2018 2017
GBP GBP
------------------------------------------------------------ ------- -------
Remuneration receivable by the Company's auditors
for the audit of consolidated and Company financial
statements 23,000 17,500
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 28,000 22,500
- other services pursuant to legislation 16,000 7,650
- tax services 5,750 3,250
------------------------------------------------------------ ------- -------
72,750 50,900
------------------------------------------------------------ ------- -------
8. Employee benefit expense
2018 2017
GBP GBP
---------------------------------------------------- ---------- ----------
Wages and salaries, including termination benefits 2,987,800 1,821,307
Social security costs 346,270 199,573
Other pension costs 15,460 11,872
Share options granted to employees 48,763 21,755
---------------------------------------------------- ---------- ----------
3,398,293 2,054,507
---------------------------------------------------- ---------- ----------
8. Employee benefit expense continued
The average monthly number of employees, including Directors,
employed by the Group during the year was:
2018 2017
------------------------------- ----- -----
Operations 28 20
Development team 2 -
Sales and marketing 8 3
Administration and management 13 12
------------------------------- ----- -----
51 35
------------------------------- ----- -----
Directors' emoluments
2018 2017
GBP GBP
---------------------------------------- -------- --------
Emoluments, including benefits in kind 536,991 304,259
Compensation for loss of office 105,000 -
Pension costs 1,484 310
---------------------------------------- -------- --------
643,475 304,569
---------------------------------------- -------- --------
The emoluments of the highest paid Director were as follows:
2018 2017
GBP GBP
---------------------------------------- -------- --------
Emoluments, including benefits in kind 106,808 108,413
Compensation for loss of office 105,000 -
Pension costs 1,011 155
---------------------------------------- -------- --------
212,819 108,568
---------------------------------------- -------- --------
The Directors consider that the only key management personnel of
the Group are the directors only.
9. Finance income and costs
2018 2017
GBP GBP
------------------------------------------------- -------- ----------
Interest receivable 633 196
Interest payable - other (2,900) (110,000)
Net finance expense recognised in profit/(loss) (2,267) (109,804)
------------------------------------------------- -------- ----------
Interest payable in 2017 included the early redemption of the
convertible loan note to Darwin Capital which was fully repaid
before 31 March 2017.
10. Income tax expense
2018 2017
GBP GBP
Current tax
Current tax on loss for the year - -
Over provision in prior year (18,798) -
----------------------------------- --------- -------
Total current tax - -
----------------------------------- --------- -------
Deferred tax
Deferred tax expense for the year - 12,416
----------------------------------- --------- -------
Total deferred tax - 12,416
----------------------------------- --------- -------
Income tax (credit) / expense (18,798) 12,416
----------------------------------- --------- -------
10. Income tax expense continued
The tax charge for the year is different from the standard rate
of corporation tax in the United Kingdom of 19% (2017: 20%). The
difference can be reconciled as follows:
2018 2017
GBP GBP
------------------------------------------------ ------------ ------------
Loss before tax (2,541,841) (1,688,238)
------------------------------------------------ ------------ ------------
Tax calculated at the applicable rate based on
the loss for the year 19% (2017: 20%) (482,950) (337,648)
Tax effects of:
Creation of tax losses 424,576 543,923
Expenses not deductible for tax purposes 39,369 (239,228)
Accelerated capital allowances 19,005 32,953
Current tax on loss for the year - -
------------------------------------------------ ------------ ------------
11. 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.
2018 2017
---------------------------------------------------- ------------ ------------
Earnings attributable to equity holders of the
Company (GBP) (2,523,043) (1,700,654)
Weighted average number of ordinary shares in
issue 161,299,740 112,169,330
---------------------------------------------------- ------------ ------------
Basic and diluted loss per share (pence per share) (1.56) (1.52)
---------------------------------------------------- ------------ ------------
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 and share
options. 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 31 March 2018, 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.
12. 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.
2018 2017
------------------------------- -----------------------------
Average exercise Average exercise
price (pence) Options price (pence) Options
------------- ----------------- ------------ ----------------- ----------
At 1 April 12.72 9,104,766 42.48 2,070,869
Granted 5.00 24,150,000 4.00 400,000
Granted 5.13 200,000 4.13 605,326
Granted 6.13 1,150,000 5.00 3,000,000
Granted 6.50 500,000 5.875 3,100,000
Granted 7.38 200,000 7.00 200,000
Forfeited 4.00 (100,000) 28.00 (71,429)
Forfeited 5.00 (2,000,000) 44.50 (200,000)
Forfeited 5.875 (1,166,666) - -
Forfeited 7.00 (200,000) - -
Exercised - - - -
Expired - - - -
At 31 March 7.25 31,838,100 12.72 9,104,766
------------- ----------------- ------------ ----------------- ----------
12. Share based payment expense continued
Share options outstanding at the end of the year have the
following expiry date and exercise prices:
Shares
-----------------------
Expiry date Exercise price (pence) 2018 2017
------------------- ----------------------- ----------- ----------
2018-2023 - - -
28 July 2024 44.5 1,699,440 1,699,440
2 June 2025 14.5 100,000 100,000
16 May 2026 4.13 605,326 605,326
30 September 2026 4.00 300,000 400,000
7 October 2026 5.00 1,000,000 3,000,000
24 January 2027 5.875 1,933,334 3,100,000
30 March 2027 7.00 - 200,000
17 July 2027 6.50 500,000 -
22 August 2027 6.13 1,000,000 -
4 September 2027 6.13 150,000 -
19 September 2027 7.38 200,000 -
20 November 2027 5.13 200,000 -
14 March 2028 5.00 24,150,000 -
------------------- ----------------------- ----------- ----------
31,838,100 9,104,766
------------------- ----------------------- ----------- ----------
The weighted average fair value of the 26,200,000 (2017:
7,305,326) options granted during the year was determined using the
Black-Scholes option pricing model and was 3.41 pence per option
(2017: 1.22p). 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% (2017: 50%) and a risk-free rate
of return estimated between 0.35% (2017: 0.10%) and of 1.16% (2017:
0.18%). 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 GBP48,763 (2017: GBP21,755).
13. Property, plant and equipment
Fixtures Computer
and fittings equipment Total
GBP GBP GBP
---------------------- ------------- ---------- ---------
Cost
At 1 April 2017 59,701 160,103 219,804
Additions 6,754 60,940 67,694
Disposals (3,507) (17,115) (20,622)
At 31 March 2018 62,948 203,928 266,876
Depreciation
At 1 April 2017 22,986 65,362 88,348
Charge for the year 12,525 52,905 65,430
Released on disposal (3,218) (16,228) (19,446)
At 31 March 2018 32,293 102,039 134,332
---------------------- ------------- ---------- ---------
Net book value
At 31 March 2018 30,655 101,889 132,544
---------------------- ------------- ---------- ---------
At 31 March 2017 36,715 94,741 131,456
---------------------- ------------- ---------- ---------
14. Intangible assets
Goodwill Software Development Customer Total
and
brand licences costs relationships
GBP GBP GBP GBP GBP
--------------------- ---------- --------------- ------------ -------------- ----------
Cost
At 1 April 2017 434,188 916,301 152,967 75,000 1,578,456
Additions 587,804 - 499,178 2,840,000 3,926,982
At 31 March 2018 1,021,992 916,301 652,145 2,915,000 5,505,438
Amortisation and
impairment
At 1 April 2017 - 740,973 - 67,500 808,473
Amortisation charge
for year - 171,770 - 7,500 179,270
Impairment in the
year 53,438 - - - 53,438
At 31 March 2018 53,438 912,743 - 75,000 1,041,181
--------------------- ---------- --------------- ------------ -------------- ----------
Net book value
At 31 March 2018 968,554 3,558 652,145 2,840,000 4,464,257
--------------------- ---------- --------------- ------------ -------------- ----------
At 31 March 2017 434,188 175,328 152,967 7,500 769,983
--------------------- ---------- --------------- ------------ -------------- ----------
14.1 Goodwill
As detailed in note 2.8 to the consolidated financial
statements, the Directors test goodwill 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.
The Directors have undertaken an impairment review of the
goodwill at the reporting date relating to the acquisition of
Falanx Cyber Defence Limited, Cloudified Limited and the trade and
assets of First Base Technologies LLP. The recoverable amount of
goodwill is determined based on a value in use calculation which
uses future cash flow projections over the estimated useful
life.
In determining value in use, the Directors have prepared
financial and business forecasts. These forecasts indicate growth
rates that increase by various rates throughout the five year
forecast period. The discount rate applied is 12.75% (2017:
13.20%). The Directors have prepared sensitivity analysis which
shows that:
-- an increase in the discount rate from 20% to 87%
-- a decrease in the revenue growth rate in the second year from
400% to 100% and from 100% to 53.5% in the third year
would result in the value in use falling below the carrying
value.
Following the impairment review the Directors do not consider
that the carrying value of goodwill detailed above is not impaired
at the reporting date.
The Directors have separately undertaken an impairment review of
the goodwill arising on the acquisition of Auditsec Services
Limited of GBP53,438. The Directors consider the goodwill at 31
March 2018 to be fully impaired on the basis that the Company has
no future revenue stream.
14.2 Customer relationships
The customer relationships intangible assets arise on the
acquisition of subsidiaries when accounted for as a business
combination and relate to the expected value to be derived from
contracted and non-contractual relationships. The value placed on
the contractual customer relationships is based on the expected
cash revenue inflows over the estimated remaining life of each
existing contract. The value placed on the non-contractual customer
relationships is based on past revenue performance by virtue of the
customer relationships; but using an attrition rate depending on
the length of the relationship. Associated cash outflows have been
based on historically achieved margins. The net cash flows are
discounted at a rate which the Directors consider is commensurate
with the risks associated with capturing returns from customer
relationships.
The customer relationships acquired relate to the purchase of
Assynt Associates by Falanx Assynt Limited (formerly Stirling
Assynt (Europe) Limited) in April 2008 and the acquisition of the
trade and assets of First Base Technologies LLP on 23 March 2018.
The goodwill on the former was fully amortised at 31 March
2018.
The Directors consider that the period expected to benefit in
respect of the customer relationships acquired with the trade and
assets of First Base Technologies LLP is ten years. Amortisation
has not been charged in the period 24 March 2018 to 31 March 2018
on grounds of immateriality.
15. Subsidiaries
Principal subsidiaries
The Company holds more than 20% of the share capital of the
following companies:
Proportion
of
Country of ordinary
shares
Name incorporation Nature of business held by
parent
---------------------------- ---------------- ------------------------------- -----------
Falanx Cyber Defence England and
Limited Wales Cyber defence solution 100%
Falanx Cyber Holdings
Limited (formerly Falanx England and
Assuria Limited) Wales Cyber defence solution 100%
First Base Technologies England and
(London) Limited Wales Cyber defence solution 100%
Falanx Cyber Technologies England and
Limited Wales Research and development 100%
Falanx Cyber Defence
Spain S.L. Spain Research and development 100%
Software development
England and in telecommunications,
Cloudified Limited Wales security and data analytics 100%
Falanx Assynt Limited
(formerly Stirling Assynt England and International business
(Europe) Limited) Wales intelligence consultancy 100%
United States International business
Falanx Group US LLC of America intelligence consultancy 100%
FG Consulting Services United Arab
DMCC Emirates Management consultancy 100%
Stirling Risk (Asia) Provision of risk assessments
Limited Hong Kong and investigation services 100%
British Virgin
Falanx Protection Limited Islands Dormant 100%
---------------------------- ---------------- ------------------------------- -----------
Auditsec Services Limited was acquired on 11 September 2017. The
company was dissolved on 24 April 2018.
16. Deferred taxation
2018 2017
GBP GBP
--------------------------------- -------- ---------
Group
Balance at 1 April (9,529) 2,887
Expense to the income statement - (12,416)
Balance at 31 March (9,529) (9,529)
--------------------------------- -------- ---------
The deferred tax liability represents:
2018 2017
GBP GBP
-------------------------------- -------- --------
Accelerated capital allowances (9,529) (9,529)
(9,529) (9,529)
-------------------------------- -------- --------
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
reporting date.
The above deferred tax liability was calculated based on the
expected UK corporation tax rate of 19% (2017: 19%), being the rate
which is expected to apply in the future when the liability is
settled. The Group has significant losses, subject to HMRC
agreement, available to offset against future taxable profits. A
deferred tax asset has not been recognised on these losses due to
the uncertainty of sufficient future taxable profits against which
the losses can be utilised.
17. Inventories
2018 2017
GBP GBP
------------------ ------ ------
Work in progress - 8,500
Finished goods 4,382 -
------------------ ------ ------
4,382 8,500
------------------ ------ ------
18. Trade and other receivables
2018 2017
GBP GBP
------------------------------------------ ---------- --------
Trade receivables 881,639 440,969
Less: provision for doubtful receivables (8,000) -
------------------------------------------ ---------- --------
873,639 440,969
Other receivables 336,179 33,348
Prepayments and accrued income 257,616 158,784
1,467,434 633,101
------------------------------------------ ---------- --------
Trade and other receivables are stated at fair value.
19. Cash and cash equivalents
2018 2017
GBP GBP
------------------------------------------------ -------- --------
Cash and cash equivalents in statement of cash
flows 914,961 430,459
------------------------------------------------- -------- --------
Cash and cash equivalents are shown net of a bank facility of
GBP290,000 over which a right of set-off exists. Funds held at
Lloyds Bank at the year end relate to the operation of the
Transition Account following the acquisition of the trade and
assets of First Base Technologies LLP. The need for the Transition
Account was eliminated in July 2018 on integration completion.
20. Share capital
2018 2017
Number Nil par Number Nil par
of shares value of shares value
Allotted, called up and fully
paid at 1 April 125,780,904 - 71,255,368 -
New shares issued 133,898,060 - 54,525,536 -
------------------------------- ------------ -------- ------------ --------
Allotted, called up and fully
paid at 31 March 259,678,964 - 125,780,904 -
------------------------------- ------------ -------- ------------ --------
On 4 May 2017 the Company announced the issue of 29,090,909 new
ordinary shares of nil 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 nil par value at a price of 6.875 pence each to
Turner Pope Investments (TPI) Limited in satisfaction of placing
agent fees. The share are subject to 6 month 'lock-in' period from
date of issue.
On 5 July 2017 the Company announced the issue of 1,122,807 new
ordinary shares of nil par value at a price of 7.125 pence each to
the vendors of Cloudified Limited in partial satisfaction of the
acquisition consideration for Cloudified Limited.
On 11 September 2017 the Company announced the issue of 750,000
new ordinary shares of nil par value at a price of 7.125 pence to
the vendors of Auditsec Services Limited in satisfaction of the
acquisition consideration for Auditsec Services Limited.
20. Share capital continued
On 15 January 2018 the Company announced the issue of 166,667
new ordinary shares of nil par value at a price of 7.5 pence each
to Beaufort Securities Limited in satisfaction of corporate broking
fees.
On 6 March 2018 the Company announced the issue of 102,222,222
new ordinary shares of nil par value at a price of 4.5 pence
raising net proceeds of GBP4.357m after deducting commission and
transaction related costs. The proceeds of the placing shares was
to fund the acquisition of the trade and assets of First Base
Technologies LLP and the balance for working capital, integration
and development expenditure.
At 31 March 2018 a total of 41,061,251 warrants issued to
various shareholders remained outstanding. No residual value has
been allocated to the warrants as the issue price of the subscribed
shares equated to their fair values.
Warrants
------------------------
Expiry Exercise price (pence) 2018 2017
----------------- ----------------------- ----------- -----------
17 April 2017 30.0 - 4,555,558
4 May 2019 6.0 24,156,250 24,156,250
10 May 2019* 6.0 2,125,000 2,125,000
15 January 2021 10.0 250,000 -
15 January 2021 15.0 250,000 -
15 January 2021 20.0 250,000 -
6 March 2021 4.50 2,646,667 -
23 March 2021 4.50 800,000 -
5 May 2021 6.0 4,583,334 4,583,334
----------------- ----------------------- ----------- -----------
35,061,251 35,420,142
M D Read** 4.0 6,000,000 6,000,000
----------------- ----------------------- ----------- -----------
41,061,251 41,420,142
----------------- ----------------------- ----------- -----------
* Of the total warrants expiring in 2019 with an exercise price
of 6 pence, 1,250,000 are held by M D Read.
** The 6,000,000 warrants have an exercise period ending 36
months after each vesting period. Vesting is conditional on the
share price being equal to or greater than the relevant minimum
share price during each corresponding vesting period. The warrants
shall vest in 4 tranches as set out below:
Vesting period Proportion of warrant Minimum share
shares price
---------------------------------------- --------------------------- --------------
The first period of 6 months commencing 25% (equivalent to 4 pence
on 22 August 2016 ("First Vesting 1,500,000 warrant shares)
Period")
A second period of 6 months immediately 25% (equivalent to 10 pence
following the expiry of the First 1,500,000 warrant shares)
Vesting Period ("Second Vesting
Period")
A third period of 6 months immediately 25% (equivalent to 15 pence
following the expiry of the Second 1,500,000 warrant shares)
Vesting Period ("Third Vesting
Period")
A fourth period of 6 months immediately 25% (equivalent to 20 pence
following the expiry of the Second 1,500,000 warrant shares)
Vesting Period ("Fourth Vesting
Period")
---------------------------------------- --------------------------- --------------
At 31 March 2018, 1,500,000 warrants with an exercise price of 4
pence each had vested and are due to expire on 22 February 2020.
The remaining 4,500,000 had not vested. Accelerated vesting occurs
when there is a change of control of the Company.
21. Share Premium
2018 2017
GBP GBP
---------------------------- ----------- ----------
At 1 April 7,410,507 5,309,031
Premium on issue of shares 6,783,438 2,175,021
Costs of share issues (325,211) (73,545)
At 31 March 13,868,734 7,410,507
----------------------------- ----------- ----------
22. Retained earnings
2018 2017
GBP GBP
------------------- ------------ ------------
At 1 April (6,703,447) (5,002,793)
Loss for the year (2,523,043) (1,700,654)
At 31 March (9,226,490) (6,703,447)
------------------- ------------ ------------
23. Trade and other payables
2018 2017
GBP GBP
------------------------------ ---------- --------
Trade payables 460,009 385,608
Other payables 24,280 16,646
Taxation and social security 421,006 119,058
Accruals 469,686 206,450
1,374,981 727,762
------------------------------ ---------- --------
24. 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
2018 2017
GBP GBP
----------------------------- ---------- --------
Trade and other receivables 1,209,818 474,317
Cash and cash equivalents 914,961 430,459
2,124,779 904,776
----------------------------- ---------- --------
Trade and other payables
2018 2017
GBP GBP
-------------------------- -------- --------
Trade and other payables 484,289 402,254
484,289 402,254
-------------------------- -------- --------
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.
24. Financial instruments continued
The trade and other payables maturity profile, based on
contractual undiscounted cash flows, of the Group is as
follows:
2018 2017
GBP GBP
---------------------------------- -------- --------
Trade and other payables due in:
Less than one month 288,906 209,517
Six months to one year 195,383 192,737
---------------------------------- -------- --------
Total 484,289 402,254
---------------------------------- -------- --------
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 GBP2,124,779 (2017:
GBP904,776). The amount represents the total of the carrying amount
of current assets.
The maximum amount exposure to credit risk for trade receivables
at the statement of financial position date was GBP881,639 (2017:
GBP440,969). 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 and 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 are assessed by reference
to external credit ratings (if available) or to historical
information about counterparty default rates:
Foreign currency risk
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 Kong Emirati Total
Dollar Dollar Dirham
GBP GBP GBP GBP GBP GBP
--------------------------- ---------- -------- ------- ---------- -------- ----------
At 31 March 2018
Cash and cash equivalents 817,350 66,524 27,536 296 3,255 914,961
Trade receivables 811,283 49,713 12,643 - - 873,639
Other receivables 334,042 - 57 1,886 194 336,179
--------------------------- ---------- -------- ------- ---------- -------- ----------
1,962,675 116,237 40,236 2,182 3,449 2,124,779
--------------------------- ---------- -------- ------- ---------- -------- ----------
Financial liabilities
Sterling US Euro Hong Kong Emirati Total
Dollar Dollar Dirham
GBP GBP GBP GBP GBP GBP
------------------ --------- ------- ------- ---------- -------- --------
At 31 March 2018
Trade payables 408,104 39,553 11,674 678 - 460,009
Other payables 24,280 - - - - 24,280
------------------ --------- ------- ------- ---------- -------- --------
432,384 39,553 11,674 678 - 484,289
------------------ --------- ------- ------- ---------- -------- --------
24. Financial instruments continued
Foreign exchange sensitivity analysis
A 10% strengthening of sterling against the above currencies
would increase the loss by GBP11,020 (2017: GBP21,769) 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.
25. 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.
26. Pension
The Group operates a defined contribution pension scheme in
accordance with the Government Directive on Work Place Pensions.
The total contributions for the year were GBP15,460 (2017:
GBP11,872).
27. Financial commitments
The Group's total obligations under non-cancellable operating
leases are as follows:
2018 2017
GBP GBP
---------------------------- -------- -------
Due within one year 101,502 55,901
Between two and five years 59,360 19,907
160,862 75,808
---------------------------- -------- -------
Operating lease obligations represent rentals payable by the
Group and its subsidiaries for the office premises at Five Kings
House in London, Fazeley Studios in Birmingham and King Business
Centre in Hassocks (acquired as part of the acquisition of the
trade and assets of First Base Technologies LLP) respectively.
28. Business combinations
First Base Technologies LLP
The trade and assets of First Base Technologies LLP, a business
operating in the cyber security sector since 1989, were acquired
and transferred to a newly incorporated subsidiary First Base
Technologies (London) Limited, 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 and
achieve cross selling in the enlarged Group. It also expects to
reduce certain costs through economies of scale.
On 23 March 2018 the Group completed the acquisition of the
trade and assets of First Base Technologies LLP for a total
consideration of GBP3,200,000. Prior to acquisition (in the twelve
month period to 31 March 2018), First Base Technologies LLP had
revenue of circa GBP1.9m and EBITDA of circa GBP0.6m. The business
contributed GBP3,122 net profit and GBP33,490 revenue to the Group
for the period from 24 March 2018 to 31 March 2018.
28. Business combinations continued
The following table summarises the fair value of assets acquired
and liabilities assumed at the acquisition date.
Fair value
Book value adjustment Fair value
GBP GBP GBP
-------------------------------------------- ----------- ----------- -----------
Intangible assets - customer relationships - 2,840,000 2,840,000
Cash and cash equivalents 139,567 - 139,567
Trade and other receivables 86,947 - 86,947
Trade and other payables (226,514) - (226,514)
- 2,840,000 2,840,000
-------------------------------------------- ----------- ----------- -----------
The consideration for the acquisition and goodwill arising on
acquisition are as follows:
GBP
--------------------------------- ----------
Purchase consideration:
Fair value of assets acquired 2,840,000
Cash paid 3,200,000
---------------------------------- ----------
Goodwill arising on acquisition 360,000
---------------------------------- ----------
Acquisition related costs of GBP195,100 have been charged to
administrative expenses in the consolidated income statement for
the year ended 31 March 2018.
The vendors of the trade and assets of First Base Technologies
LLP, were granted 800,000 warrants on 23 March 2018 to subscribe
for shares at an a exercise price of 4.5 pence per share. They will
vest equally at intervals of 12, 24 and 36 months from the date of
grant.
Cloudified Limited
Cloudified Limited, a business operating in the technology
sector, was acquired to increase the research and development
capability of the cyber security division.
On 3 July 2017 the Group acquired 100% of the issued share
capital for a total consideration of GBP180,000. The business
contributed GBP12,089 net profit and GBP15,694 revenue to the Group
for the period from 4 July 2017 to 31 March 2018.
The following table summarises the fair value of assets acquired
and liabilities assumed at the acquisition date.
Fair value
Book value adjustment Fair value
GBP GBP GBP
----------------------------- ----------- ----------- -----------
Trade and other receivables 5,684 - 5,684
Trade and other payables (50) - (50)
5,634 - 5,634
----------------------------- ----------- ----------- -----------
The consideration for the acquisition and goodwill arising on
acquisition are as follows:
GBP
--------------------------------- --------
Purchase consideration:
Cash paid 100,000
Fair value of shares 80,000
---------------------------------- --------
180,000
--------------------------------- --------
Goodwill arising on acquisition 174,366
---------------------------------- --------
28. Business combinations continued
Acquisition related costs of GBP6,432 have been charged to
administrative expenses in the consolidated income statement for
the year ended 31 March 2018.
The fair value of the 1,122,807 ordinary shares issued as part
of the consideration paid for Cloudified Limited was based on the
share placing price of 7.125 pence per share for the fundraising
completed on 3 July 2017.
Auditsec Services Limited
Auditsec Services Limited, a business operating in the
technology sector, was acquired to increase the research and
development capability of the cyber security division. On 11
September 2017 the Group acquired 100% of the issued share capital
for a total consideration of GBP53,438.
The following table summarises the fair value of assets acquired
and liabilities assumed at the acquisition date.
Fair value
Book value adjustment Fair value
GBP GBP GBP
---------------------------- ----------- ----------- -----------
Cash and cash equivalents - - -
Trade and other receivables - - -
Trade and other payables - - -
- - -
---------------------------- ----------- ----------- -----------
The consideration for the acquisition and goodwill arising on
acquisition are as follows:
GBP
--------------------------------- -------
Purchase consideration:
Fair value of shares 53,438
---------------------------------- -------
Goodwill arising on acquisition 53,438
---------------------------------- -------
The fair value of the 750,000 ordinary shares issued in
fulfilment of the consideration paid for Auditsec Services Limited
was based on the share placing price of 7.125 pence per share.
29. Control
No ultimate party controls Falanx Group Limited.
30. Related party transactions
There were no transactions with related parties during the
year.
31. Events after the reporting period
Acquisition of Securestorm Limited
On 17 July 2018 the Company acquired 100% of the issued share
capital of Securestorm Limited, a cyber security consultancy
business. The consideration of GBP100,000 was satisfied by the
issuance of 2,222,222 Falanx new ordinary shares at 4.5 pence each.
The integration of Securestorm is expected to generate enhanced
revenue opportunity and cost synergies.
For the year ended 30 June 2017, Securestorm had revenues of
approximately GBP700,000, operating profits of GBP30,000 and net
assets were approximately GBP20,000. Unaudited management accounts
for the 12 months to 30 June 2018 show revenues of GBP543,898 and
an operating loss of GBP153,192. Tangible assets, current assets
and current liabilities were GBP369, GBP81,259 and GBP208,866 at 30
June 2018 respectively. The current liabilities are mainly due to
HMRC where a deferred payment scheme has been agreed and is in
place. The majority of losses were incurred before December 2017.
These have since been eliminated by customer contract wins and cost
reductions. In recent months Securestorm has been at break even
with a strengthening pipeline of business.
Grant of Options
On 17 July 2018 made a grant of 4,250,000 options under its EMI
scheme as follows:
-- 2,000,000 options with a strike price of 5 pence each (0.76%
issued share capital) to T Richards, the founder of
Securestorm,
-- 2,250,000 options with a strike price of 5 pence each to
certain staff, including those previously at First Base
Technologies LLP
31. Events after reporting date continued
All of the above options vest in three tranches: the first
tranche when the share price reaches 7.5p (25%), the second tranche
when the share price reaches 10p (25%) and the third tranche when
the share price reaches 12.5p (50%). The Options only vest if the
average share price has reached the relevant threshold level for a
period of three months, save for the event of a change of control
in the Company, in which case they will vest in full.
Business Performance
In the month of July 2018, following strong delivery of
services, the Group's unaudited management accounts reported a
profit at an EBITDA level.
Falanx Group Limited
Five Kings House
1 Queen Street Place
London
EC4R 1QS
Telephone: 0207 856 9457
Email: info@falanx.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MMGMRNFRGRZM
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