This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.
Falanx Group Limited
("Falanx", "Group" or "the Company")
Final Results
Falanx Group Limited (AIM: FLX), the AIM listed provider of cyber security services, is pleased to announce its audited results for the year-ended 31 March 2022.
Financial highlights
| • | Revenues £3.54m (2021: £3.12m), an increase of 14% |
| • | Closing Monthly Recurring Revenues ("MRR") 25% greater than prior year |
| • | Gross margin increased to 41% (2021: 33%) following the rationalisation of cyber security monitoring technology platform and much improved professional services utilisation |
| • | Reduction in adjusted EBITDA* loss to £1.27m (2021: £1.35m) |
| • | Loss per share from continuing operations 0.37p (2021: 0.75p) |
| • | Overall profit of £1.48m (2021: loss £3.55m) following the disposal of the Assynt Strategic Intelligence division ("Assynt") in October 2021 |
| • | £2.5m of debt raised from BOOST&Co |
| • | Cash balances at 31 March 2022 £3.5m (2021: £0.55m), the vast majority of HMRC COVID-19 backlog paid down in the year |
| • | Shareholders' funds £4.35m (2021: £2.73m) |
Operational Highlights
| • | Strategic focus on the high growth cyber security market including expansion of sales and marketing capabilities, product development and automation capabilities |
| • | Restructured sales function with the creation of dedicated team focussed on winning new clients, channel growth and creation of further recurring revenue streams |
| • | Initial launch of mass market Cyber Security Assessment tool - f:CEL (Cyber Exposure Level) |
Post Period Highlights
| • | Strong growth in sales pipeline (**) to £6.0m as at 22 September 2022 (1 April 2022: £4.1m), including MRR pipeline increasing in the same period from £1.7m to £4.0m |
| • | 18% growth in sales orders for core offensive and defensive services in the first five months of FY23 compared to FY22 |
| • | Ongoing investment in focussed and controlled sales growth |
| • | Launch of new Retained Incident Response ("R-IR") and Continuous Vulnerability Scanning ("CVS") services |
Mike Read, Chief Executive, said:
"We are delighted that the demand for our cyber security services continues to grow. In addition to the recent high profile cyber security concerns, we are seeing even more attacks on Small to Medium size Enterprises ("SMEs"). These SMEs often receive initial support via their trusted IT providers (who are not Cyber Security specialists) and hence these are the channel for our cyber services. Therefore, we have added some key new partners to our existing base to expand our reach into these IT providers. This, together with strengthened marketing, increased PR and hard work from the sales and marketing team, has resulted in a significant increase in our pipeline and today it is in excess of £6.0m - 2/3rds of which is for our MDR Services.
"Within the Company, it has been a challenging backdrop as we came through the pandemic, sold our Assynt strategic intelligence business and raised our first significant round of debt. This has allowed us to focus on the cyber business and reposition accordingly. The Falanx team is very focused on growth in a buoyant market and, whilst H1 of FY23 revenues are expected to be similar to the same period in FY22, orders for our core services are already up by over 18% and we are expecting further growth in orders for the second half of FY23, and with ongoing significant growth thereafter.
"We are well financed and expect our existing financial resources to be sufficient to see us through to profitability."
(*) Adjusted EBITDA is a non-IFRS headline measure used by management to measure the Group's and divisional performance and is based on operating profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and highlighted items. IFRS16 is excluded so that the underlying rental costs of the premises are reflected in this metric.
(**) Pipeline is the total contract value of all current sales prospects with a potential to close in the current financial year.
The Company will post its report and accounts onto its website (www.falanx.com) for the financial year ended 31 March 2022 together with its notice of AGM shortly and these will be available to download in accordance with AIM Rule 20.
Enquiries:
| Falanx Group Limited Alex Hambro Chairman Mike Read CEO Ian Selby CFO
| Via IFC |
| WH Ireland Limited Mike Coe/ Sarah Mather (Nomad) Joanna Hunt (Corporate Broking)
| + 44 (0) 207 220 1666 |
| IFC Advisory Ltd Financial PR & IR Graham Herring / Zach Cohen | +44 (0) 203 934 663 |
About Falanx
Falanx Group Limited, is a cyber defence provider providing enterprise class defensive and offensive security solutions to SME. For further information: http://www.falanx.com/
Chairman's Statement
I am pleased to present your Company's Annual Report & Accounts for the year ended 31 March 2022 ("FY22").
I am delighted to report that the high growth cyber sector market became Falanx's sole focus through the successful disposal for cash of our non-core Assynt business intelligence division in October 2021 for an enterprise value of £4.6m. I am also pleased to report that our cyber revenues have resumed their growth trend in the period under review, along with improved gross margins. We are also now well financed with the cash resources needed to fund our organic growth plans.
In last year's annual report, I highlighted the enormous opportunity for Falanx in cyber security, with its powerful social, technological, economic and regulatory drivers, especially with the growing threat of ransomware attacks and data thefts. Cyber security attacks have increased by over 30% in the last year and are showing no signs of receding. These factors, combined with recessionary pressures, create an environment where cyber-attacks and cybercrime will become even more prevalent, and organisations must step up their defences or suffer the potentially devastating financial and reputational consequences. Whilst inevitably exposed to the issues of the wider UK economy, we expect that this growing threat will require organisations to further invest in cyber security services and technologies.
Falanx is very much a service, as opposed to a technology development, company. Our focus is therefore on delivering client solutions as opposed to investing in the development of new technologies.
Falanx has become a trusted cyber security corporate advisor. This has been achieved by providing incisive and objective assessments of an organisations' cyber resilience position. In turn, this often results in us providing clients with monitoring services on a recurring basis under long term contracts thereby increasing the Company's contractual monthly recurring revenues.
The successful disposal of the Assynt division has provided us with the capital to fulfil our expansion plans for our cyber security business, specifically investing in our sales and marketing capabilities, product development and infrastructure to support this high growth opportunity. Our cash position has been further strengthened by the £2.5m loan received from BOOST&Co in October 2021, and all of this has been achieved without shareholder dilution.
Whilst our underlying cyber business is fundamentally solid, the significant investments we have been making and will continue to make, as outlined above, are already making a difference in terms of additional sales, creating a wider and more effective partner base as well as innovative service developments. We are optimistic that this investment will generate significant growth in the next year as sales momentum builds.
Approved by the Board on 28 September 2022 and signed on its behalf by
A Hambro
Chairman
Chief Executive Officer's Report
Falanx is a provider of Offensive and Defensive cyber security services, which protect around 400 customers worldwide. Customers include Managed Service Providers ("MSPs"), IT providers, public sector organisations, large multinationals and SMEs.
Attack
These are our Offensive Services and are primarily centred around Penetration Testing / ethical hacking ("PT"). Our comprehensive portfolio of PT services covers a wide range of skills and techniques which we use to emulate potential attackers looking for vulnerabilities in our client's infrastructure. These services are provided under a traditional professional services business model with a mix of day rate and fixed price contracts. This service benefits from a high level of repeat business, long term relationships and has negligible churn. We have provided these services to nearly 400 customers over the last four years, many on an annual repeat basis.
Defend
Our Defensive managed services are provided by our Security Operations Centre ("SOC") based in Reading. The SOC operates a 24/7/365 service, continually watching our customers' IT estates, looking for unusual items which may be a sign of a cyber-attack or data theft. To achieve this, we monitor billions of client's log events, such as a user logon, each week and distil this down, via AI and our assembled skills, to the few actionable items which must be alerted to the client. Our growing client base, and the move to the online world has grown the number of log events by over 150% compared to previous years. This service is supplied on a monthly recurring basis and has a largely fixed cost base of people and infrastructure with some licence fees as a function of client volumes.
Protect
Through both our Offensive and Defensive services, we help our customers to protect themselves against cyber-attacks. Through the use of either or a combination of both Attack and Defend, we inform our customers as to their strengths and weaknesses, so that they can be better protected against hostile threats. To help SMEs understand their exposure to these threats, we introduced our Cyber Security posture scoring, f:CEL (the falanx Cyber Exposure Level). Through this self-service evaluation tool, customers can understand their weaknesses and see recommendations as to what they can do to improve their posture, all in a matter of minutes.
Sales performance
Our sales performance in FY22 was achieved with a smaller team than in previous years, and despite this, sales orders were broadly similar at £3.3m (2021: £3.4m). Individual sales productivity increased by over 15%, and average spend per customer grew by 5%. In total, the Company received 369 (2021: 384) individual sales orders from 205 customers (2021: 225) out of a wider active client base of around 400. This includes 45 new clients won in the year. We have increased the number of clients who have been using both Offensive and Defensive services, and this remains an opportunity for significant further contract wins for monthly recurring revenue ("MRR") generation. The team was expanded towards the end of the financial year, and this is discussed below in the sales execution strategy.
Operational performance
Following the development of our XDR / MDR service ("Triarii") last year, we migrated our client base to it from previous platforms during the first half of FY22. This, combined with a stronger sales performance and much improved utilisation levels, enabled our cyber security business to record an adjusted EBITDA profit in the first half of FY22 following a loss in FY21. Since then (and as a result of the proven baseline profitability model for cyber) we are carrying out our planned investment in the cyber business.
The SOC experienced some managed churn during the year, typically from older contracts which required on-premises solutions as opposed to our cloud-based strategy. This technology consolidation enabled both a much more efficient service and a greatly enhanced client experience. We have now moved to a predominantly cloud-first environment, and we continue to develop our offering as the market evolves. We are now both well aligned with the market and able to push ahead with our high growth plans.
Cyber security growth strategy
The solid base that we have built for future growth is fully supported by the financial resources generated from the disposal of Assynt in October 2021 and the facility provided by BOOST&Co. This has allowed us to invest in the high growth phase, with significant additional resources across the business, but particularly in sales and marketing. Our goal is to more than double the size of our business organically, and we have adopted the strategies set out below to achieve this goal.
Sales execution strategy
We have operated two functional sales areas - the pre-existing team as Business as Usual ("BAU"), which is predominantly direct business, and a new team assembled under the Net New Names ("NNN") designation. This team is dedicated to winning new clients via both channel and direct models and their key task is to grow our Defensive SOC services leading to enhanced MRR. Nicola Hartland, an established cyber security entrepreneur, joined us towards the end of the financial year, to lead the NNN team and they have been solidly building an incremental pipeline of opportunities.
Our Partner Engagement Model has been restructured with the objective of generating regular deal flow across the mix of our Tier 1 and Tier 2 partners. Tier 1 partners generally require a higher level of attention, and our aim is to target £1m business per annum from each such client, limited to six overall. Tier 2 partners provide us with similar sales opportunities, but these are likely to be smaller in volume. We are actively trialling the use of co-funded resources within partners to demonstrate their commitment to expanding Falanx, thereby creating a larger and more diverse sales team dedicated to selling Falanx services. Through this restructured partnering model, we are no longer dependent on a single channel opportunity to drive our growth, instead spreading that opportunity across a broader network.
NNN's focus on partners is specifically to grow MRR from SOC and associated services with an approximate 75% / 25% emphasis on Defensive (SOC & MRR) versus Offensive (i.e., Penetration Testing) services - almost the exact opposite (and therefore complementary) to our BAU team.
The use of f:CEL as an on-ramp tool, as well as a revenue opportunity in itself, is being well received for its completeness, ease of use and digestible output and recommendations. We have begun development of f:CEL '2.0', in which we will bring together all customer feedback from engagements so far. This will create an even more complete product and compelling use-case across a variety of industry sectors, including insurance and IT services and the sale of our cyber security offerings through channel partners.
As we focus in on our core offerings (SOC and PT), we have chosen to exit from any low-margin, non-core legacy consulting contracts and we expect to replace their margins from further SOC sales.
Service Innovation Strategy
As a service business, we focus on service innovation and delivery excellence and not on the development of proprietary technology. This allows us to use the most appropriate technology to deliver for our clients, whilst not carrying the development overhead. This means that we can invest in client delivery as opposed to developing solutions which are already provided by (often much larger) technology companies. We will develop functionality in certain niche areas (for example f:CEL), although this is built on standard technologies. As we are technology agnostic, we can explore additional managed services with new, strategic partnerships as well as opportunities to generate significant returns.
We are further expanding our services portfolio based on customer demand and feedback to drive incremental revenues. This includes the previously announced Continuous Vulnerability Scanning ("CVS") service and the Retained Incident Response ("R-IR") services. These complement our ad-hoc IR service and provide SLAs and guarantee our availability to support our customers when an incident occurs.
Our targeted MRR growth is planned to move the SOC to being cash generative on a stand-alone basis, and this will improve our overall margins. Our SOC currently has the necessary infrastructure (typically with a fixed cost), and therefore significant operational leverage, and we expect incremental sales to further improve performance. We are looking to make further automation investments aimed at improved client delivery and margin improvement.
As a knowledge-based business, we continue to attract and retain experienced and expert resources across all functions of the business. All attracted by the attractive growth opportunities in front of us as well as our excellent culture which offers support, training and career progression opportunities to people with much sought-after skills.
Post Period update
The NNN team is now established and consequently the overall cyber sales pipeline is now building on a weekly basis, and it is already at a record value of £6.0m (£4.1m on 1 April 2022). This also represents growth of 46% in the current financial year, and very significantly the pipeline is now 66% MRR compared to 40% in April 2022 (and 17% in April 2021). Our team has a high energy level and a strong execution focus and as well as building new partnerships, our existing relationships have been revitalised and expanded. Sales orders for our core services in the first five months of FY23 were 18% ahead of the same period in FY22. This includes five new MDR deals which we sold, with a total minimum contract value of over £0.2m, with the potential for significant expansion and extension beyond this. Three of these MDR deals were signed in August 2022 when we also signed up two new Tier 1 partners. Furthermore, we have also won our first four clients for CVS and also sold more than 1000 f:CEL licenses.
Outlook
Our previous investment in Triarii has transformed our customer delivery in the SOC. We have a highly relevant set of services which are well aligned to client needs in a growing market. Our focus is now on growing market share, and we are achieving this through indirect and direct routes. Since Falanx became a pure play cyber business in October 2021, we have invested in an expanded sales and marketing capability, and this is now starting to deliver results. We have new partners on board and they are already generating sales from a strong pipeline of potential business. Our penetration testing business remains strong, and we have a growing customer base of around 400 organisations, which provides us with a good basis for cross selling of MRR generating services. With the conversion of this pipeline, which is now underway, and the planned cessation of certain spends incurred in the first half of FY23, we expect an improving financial performance in the second half of FY23.
Falanx is now firmly in growth mode, and our objective, which we are confident we will achieve, is to generate very significant, organic growth over the coming months and years. We are well financed and expect our existing financial resources to be sufficient to see us through to profitability.
Approved by the Board on 28 September 2022 and signed on its behalf by
M D Read
Chief Executive Officer
Chief Financial Officer's Report
Financial Review Continuing Operations
Revenue
Group revenues increased by 14% to £3.54m (2021: £3.12m). This was partly due to the recovery from the COVID-19 period and the consequential significant increase in professional services revenues which benefitted from much stronger utilisation levels. Recurring revenues from monitoring contracts were consistent with the prior year at £0.86m. Contract wins for monitoring business increased towards the end of FY22, with monthly recurring revenues growing by approximately 25% across FY22. This was despite a deliberate move away from legacy 'on premises' contracts serviced under the previous monitoring platforms to an all-cloud delivery on Triarii.
The pipeline of potential sales increased from £2.8m in August 2021, to £4.1m at the start of April 2022 and is now approximately £6.0m. The pipeline is the total contract value of all current sales prospects with a potential to close in the current financial year.
Cost of sales
This comprises of both people cost related to the delivery of customer services related to penetration testing, SOC monitoring and consultancy, as well as external software licencing and data services related to their delivery.
Gross margins
These strongly recovered in the year to 41% from 33% in FY21. This reflected much improved professional services utilisation following the end of COVID-19, and the benefits of moving to a single monitoring platform with lower external licence fees.
Operating costs
| £'000 | 31 March 2022 | 31 March 2021 |
| Gross margin | 1,443 | 1,017 |
| Underlying operating costs* | (2,715) | (2,367) |
| Adjusted EBITDA loss | (1,272) | (1,350) |
| | | |
| *Analysed as | | |
| Sales and distribution | 1,706 | 1,463 |
| Corporate | 1,009 | 904 |
| | 2,715 | 2,367 |
Underlying operating costs, were £2.71m (2021: £2.37m). The prior year benefitted by approximately £0.2m from COVID-19 related cost reductions (including salary sacrifice schemes and furlough), and the balance of the increase arose from investment in sales expansion post the disposal of Assynt in October 2021. Average headcount was 51 (2021: 55).
Share option charges
Share option charges were £0.02m (2021: £0.18m) with the comparative period reflecting the issue of share options under the COVID-19 salary sacrifice scheme.
Adjusting income items
As in previous years, highlighted items to credit adjustment on rental costs to exclude the impact of IFRS 16 on the Reading lease of £108,000 (2021: £108,000), with the prior year reflecting some restructuring which was mainly as a result of COVID-19.
Adjusted EBITDA
Adjusted EBITDA loss for the year was £1.27m (2021: £1.35m) after adjusting for the items highlighted above. Overall reported EBITDA loss (excluding share option charges) was £1.16m (2021: £1.34m) after adjusting for highlighted income.
Depreciation, amortisation, and impairment
This charge was £0.6m (2021: £1.9m). Customer intangible amortisation was slightly reduced to £0.25m (2021: £0.29m) following the completion of the amortisation of Securestorm. The impairment of goodwill (£0.13m) related to that acquisition of Securestorm being impaired in full, and the prior period reflected the £1.44m impairment of the investment in Furnace Technologies which was spun out of Falanx in December 2019. The amortisation of the right of use asset represents IFRS16 charges arising from the Reading office lease and was £108,000 in each year.
Operating loss
The operating loss reduced to £1.78m (2021: £3.45m) with £1.44m of the reduction arising from the impairment of Furnace which was reflected in the previous year.
Financing costs
Net financing costs were £0.2m (2021: £0.03m) of which £0.17m represented interest payments (including amortised costs) on the £2.5m loan drawn down between August and October 2021, with the remainder representing financing costs associated with IFRS 16: Leases.
Discontinued operations
On 6 October 2021 the Group disposed of the Assynt strategic intelligence division to focus on growing the cyber security division. The division recorded revenues of approximately £1.03m during the period (2021: £2.12m) and an adjusted EBTIDA loss of approximately £0.05m (2021: profit £0.10m). The purchaser was an organisation backed by US private equity investors. The terms of the transaction were an enterprise value of £4.6m payable in cash, adjusted for approximately £0.5m of working capital (mainly related to deferred incomes). Of this £0.35m is held in escrow until October 2022, and as of the date of this report the board is not expecting any claim against this. Overall, following advisory transaction costs including contingent success related items based on value achieved, the transaction produced a profit of £3.46m.
Result for the year
The overall result for the year was a profit of £1.48m (2021: loss £3.55m) due to the gain on the disposal of Assynt. Earnings per share were 0.28p (2021: loss 0.77p). The loss per share from continuing operations was 0.37p (2021: 0.75p).
Statement of Financial Position
Non-current assets
Goodwill arising on the acquisitions of Falanx Cyber Defence, First Base and Securestorm was £1.72m (2021: £1.85m) with the difference relating to the impairment of the entire balance of £0.13m related to Securestorm due to its small customer base and non-core nature of consultancy services.
Customer relationships from First Base were carried at a total of £1.42m (2021: £1.68m) with the reduction mainly arising from the 10-year straight line amortisation of this asset. The Group's non-current assets also include the future value of the five-year lease (commenced July 2019) of the Reading premises of £0.25m (2021: £0.35m). A creditor of £0.15m (2021: £0.25m) is carried to reflect future liabilities and £0.10m (2021: £0.09m) are included in current liabilities. Fixed assets which include furniture, plant and equipment were £0.10m (2021: £0.16m).
Working capital
Trade receivables fell from £0.68m to £0.52m with the prior period reflecting Assynt balances. Cash collections were strong, and average debtor days for that division were 31 vs 47, and no bad debts were experienced in the year.
Other debtors (including prepayments) increased to £0.67m (2021: £0.39m) due to the £0.35m held in escrow till October 2022 relating to the disposal of Assynt.
Trade and other payables fell to £0.80m (2021: £1.59m) mainly due to the repayment of £0.62m HMRC deferred payments from the prior year in response to COVID-19 as well as the impact of the disposal of Assynt. HMRC is fully in terms on all liabilities, both current and agreed deferred payment plans, with only trivial amounts remaining outstanding on the latter.
Contract liabilities (deferred incomes) fell from £1.11m to £0.53m due to the disposal of the Assynt, which had a high level of advance payments from larger customers which were received before the year ended 31 March 2021. Contract liabilities in the ongoing cyber security business increased from £0.46m to £0.53m reflecting the growth in business volumes.
Non-current liabilities
Between August 2021 and October 2021, the Group drew down a loan of £2.5m from BOOST&Co. The principal terms of the loan are:
· 11% interest rate, secured over Group's assets fixed and floating charge
· Amortisation commencing over 4 years from October 2022
· No covenants or equity components
It is recorded at amortised cost under IFRS, and this increased the overall non-current liabilities from £0.31m to £2.25m.
Capital structure
During the year approximately 0.5m employee share options were exercised and consequently there were approximately 526m shares in issue at 31 March 2022. No other equity issues took place during the year.
Following the general meeting held in February 2021 and the reduction in the share premium account, a special non distributable reserve (the "2022 Liabilities Reserve") was credited with £1.0m. This is expected to be released back into retained losses in December 2022.
Overall, on 31 March 2022 the Company had approximately 76.7m (2021: 83.9m) employee share options and warrants outstanding representing approximately 14% of the issued capital.
The Group continues to rationalise legal entity structure to best align it with the current opportunity as well as to reduce costs and streamline tax management. The Group's incorporation status as a BVI entity is a legacy of its pre 2013 IPO business plan and the Board will review moving it to a UK status at an appropriate time, considering the significant professional fees which would be associated with such a change. The Group's memorandum and articles of association were revised in March 2019 to align with UK incorporated entities more closely. The Group is fully resident and registered in the UK from a tax perspective. Since the disposal of Assynt, the Group only operates through two main legal entitles as opposed to seven before, including four overseas companies.
Total equity
The profit on the disposal of Assynt enabled the total equity position to increase to £4.35m (2021: £2.73m).
Statement of cash flows
Cash balances were significantly strengthened to £3.48m (2021: £0.55m) by the disposal of Assynt for cash and the drawdown of the loan from BOOST&Co referenced above. This enabled a return to a normalised working capital position following the COVID-19 period and the repayment of HMRC liabilities. Overall cash performance remains closely correlated to operational EBITDA.
Post Balance Sheet Events
On 22 June 2022, the Company signed a deed of variation for the lease for the premises in Reading. The lease was varied to delete the break option and reduce the principal rent by 50% for the period from 1 August 2022 to 31 July 2023.
I R Selby
Chief Financial Officer
Key Performance Indicators for continuing operations
| Performance Indicator | Description | Why measured | 2022 | 2021 | Comment |
| Group revenue - £'m | Changes in total revenue compared to prior year | Revenue growth gives a quantified indication of the rate at which the Group's business activity is expanding over time | £3.54 | £3.12 | Recovery in professional services revenues since Covid 19 |
| Gross margin | Percentage of total revenue retained by the Group after direct costs deduction | Provides an indication of sales profitability and proportion of revenue available to cover other running costs
| 40.7% | 32.6% | Stronger professional services utilisation and single cyber security monitoring platform |
| Adjusted EBITDA - £'m | A management measure of profits adjusted for non-underlying items such as restructuring, and acquisition related and excluding the impact of IFRS 16 | Underlying performance of business operations | £(1.27) | £(1.35) | Investment in sales expansion in the year offset by greater revenues |
| Cash conversion | Operational cash flow / EBITDA | Measures the ability of the Group to convert profit into cash and correlation between EBITDA and cash performance | 81% | 29% | Move to a normal working capital profile since the end of Covid 19 |
| Recurring revenue % | Recurring revenue lines / total revenue | Shows visibility of recurring revenue growth rate | 31% | 35% | Growth in professional services revenues in year lowered mix |
| Monthly recurring revenue ("MRR") - £'m | Revenue from the provision of monitoring and similar services on a recurring basis in the final month of each financial year. | Shows predictable monthly metrics to track progress against objective of becoming profitable solely on recurring revenue
| £0.08 | £0.06 | Contract wins |
| Number of customers ordering | Number of customers invoiced over the preceding 12 months | Measure of customer concentration (includes acquired customer base)
| 205 | 225 | Total live client base of approximately 400 ordering customers |
| Headcount | Average headcount during the year | Shows average number of employees in the year | 51 | 55 | |
| Contract liabilities (deferred income) - £'m | Contracted and invoiced revenue yet to be recognised (deferred income) | Shows visibility into invoiced amounts to be recognised in future periods | £0.53 | £0.46 | Growth in business and deal timing. |
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Consolidated income statement
for the year ended 31 March 2022
|
| | | |
| | | 2022 | 2021 |
| | Note | £ | £ |
| Revenue | 4 | 3,542,308 | 3,119,724 |
| Cost of sales | | (2,099,732) | (2,102,787) |
| Gross profit | | 1,442,576 | 1,016,937 |
| Administrative expenses | | (3,220,878) | (4,472,095) |
| Operating loss | 6 | (1,778,302) | (3,455,158) |
|
| |
| |
| Analysis of operating loss | |
| |
| Operating loss | | (1,778,302) | (3,455,158) |
| Share option expense | | 17,839 | 173,636 |
| Depreciation and amortisation | | 465,417 | 503,895 |
| Impairment of goodwill | | 130,347 | - |
| Impairment of Furnace equity and debt investments | | - | 1,440,000 |
| Highlighted income | 5.1 | (107,285) | (12,893) |
| Adjusted EBITDA loss | 5.2 | (1,271,984) | (1,350,520) |
| | |
| |
| Finance income | | 104 | 4 |
| Finance expense | | (201,568) | (32,574) |
| Finance expense - net | | (201,464) | (32,570) |
| Loss before income tax | | (1,979,766) | (3,487,728) |
| Income tax credit | 7 | 8,479 | - |
| Loss for the year from continuing operations | | (1,971,287) | (3,487,728) |
|
| |
| |
| Discontinued operations | |
| |
| Profit / (Loss) for the year from discontinued operations | 8 | 3,455,869 | (64,212) |
| Profit / (Loss) for the year | | 1,484,582 | (3,551,940) |
|
| |
| |
| Loss per share from continuing operations | |
| |
| Basic loss per share | 9 | (0.37) p | (0.75) p |
| Diluted loss per share | 9 | (0.37) p | (0.75) p |
Consolidated statement of comprehensive income
for the year ended 31 March 2022
| | | 2022 | 2021 |
| | | £ | £ |
| Profit / (Loss) for the year | | 1,484,582 | (3,551,940) |
| Other comprehensive income: | |
| |
| Re-translation of foreign subsidiaries | | - | 5,403 |
| Exchange differences recycled to the income statement on disposal of business | | 109,030 | - |
| Other comprehensive income for the year, net of tax | | 109,030 | 5,403 |
| Total comprehensive income for the year | | 1,593,612 | (3,546,537) |
| Attributable to: | |
| |
| Owners of the parent | | 1,593,612 | (3,546,537) |
| Total comprehensive income for the year | | 1,593,612 | (3,546,537) |
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 7.
Consolidated statement of financial position
as at 31 March 2022
| | | 2022 | 2021 |
| | Note | £ | £ |
| Assets | |
| |
| Non-current assets | |
| |
| Property, plant and equipment | | 104,352 | 155,831 |
| Intangible assets | | 3,262,662 | 3,702,840 |
| Right of use asset | | 254,290 | 363,271 |
| | | 3,621,304 | 4,221,942 |
| Current assets | |
| |
| Trade and other receivables | | 1,192,220 | 1,076,216 |
| Cash and cash equivalents | | 3,483,063 | 545,321 |
| | | 4,675,283 | 1,621,537 |
| Total assets | | 8,296,587 | 5,843,479 |
| Equity | |
| |
| Capital and reserves attributable to equity holders of the Company | |
| |
| Share capital | | 4,043,194 | 4,033,161 |
| Translation reserve | | - | (107,777) |
| Shares based payment reserve | | 703,151 | 747,243 |
| 2022 liabilities reserve | | 1,000,000 | 1,000,000 |
| Accumulated losses | | (1,397,476) | (2,943,989) |
| Total equity | | 4,348,869 | 2,728,638 |
| Liabilities | |
| |
| Non-current liabilities | |
| |
| Deferred tax liability | | - | 9,529 |
| Lease liability | | 149,691 | 252,874 |
| Borrowings | 10 | 2,094,739 | 42,129 |
| Other payables | | - | 5,409 |
| | | 2,244,430 | 309,941 |
| Current liabilities | |
| |
| Trade and other payables | | 804,908 | 1,592,715 |
| Contract liabilities | 4 | 529,496 | 1,108,317 |
| Lease liability | | 103,182 | 95,997 |
| Borrowings | 10 | 265,702 | 7,871 |
| | | 1,703,288 | 2,804,900 |
| | |
| |
| Total liabilities | | 3,947,718 | 3,114,841 |
| Total equity and liabilities | | 8,296,587 | 5,843,479 |
Consolidated statement of changes in equity
for the year ended 31 March 2022
| | | Share | Accumulated | Translation | Share based | 2022 | |
| | Note | capital | losses | Reserve | payment reserve | Liabilities reserve | Total |
| | | £ | £ | £ | £ | | £ |
| Balance at 1 April 2020 | | 17,903,427 | (13,408,080) | (113,180) | 587,325 | - | 4,969,492 |
| Loss for the year | | - | (3,551,940) | - | - | - | (3,551,940) |
| Re-translation of foreign subsidiaries | | - | - | 5,403 | - | - | 5,403 |
| Transactions with owners: | | | | | | | |
| Capital reconstruction | | (15,000,000) | 14,000,000 | - | - | 1,000,000 | - |
| Issue of share capital | | 1,247,600 | - | - | - | - | 1,247,600 |
| Costs of issue of share capital | | (117,866) | - | - | - | - | (117,866) |
| Share based payment charge | | - | - | - | 175,949 | - | 175,949 |
| Forfeited share options reversed through reserves | | - | 16,031 | - | (16,031) | - | - |
| Balance at 31 March 2021 |
| 4,033,161 | (2,943,989) | (107,777) | 747,243 | 1,000,000 | 2,728,638 |
| Profit for the year | | - | 1,484,582 | - | - | - | 1,484,582 |
| Re-translation of foreign subsidiaries | | - | - | (1,253) | - | - | (1,253) |
| Exchange differences recycled to the income statement on disposal of business | | - | - | 109,030 | - | - | 109,030 |
| Transactions with owners: | | | | | | | |
| Issue of share capital | | 10,033 | - | - | - | - | 10,033 |
| Share based payment charge | | - | - | - | 17,839 | - | 17,839 |
| Forfeited share options reversed through reserves | | - | 61,931 | - | (61,931) | - | - |
| Balance as at 31 March 2022 |
| 4,043,194 | (1,397,476) | - | 703,151 | 1,000,000 | 4,348,869 |
The share capital account represents the amount subscribed for share capital, 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 cumulative movement in the translation of foreign subsidiaries into the presentation currency.
The share option and warrant reserve represents the cumulative share option and warrant charges.
Consolidated cash flow statement
for the year ended 31 March 2022
| | | 2022 | 2021 |
| | Note | £ | £ |
| Cash flows from operating activities | |
| |
| Profit / (loss) before tax | | 1,475,052 | (3,551,940) |
| Adjustments for: | |
| |
| Depreciation | | 64,275 | 75,753 |
| Amortisation and impairment of intangibles | | 305,538 | 348,748 |
| Amortisation of right of use assets | | 108,982 | 108,981 |
| Impairment of goodwill | | 130,347 | - |
| Impairment of investment and receivable in Furnace | | - | 1,440,000 |
| Share based payment | | 17,839 | 175,949 |
| Gain on disposal of subsidiaries | 8 | (3,498,102) | - |
| Amortisation of borrowing costs | | 23,659 | - |
| Net finance expense recognised in profit or loss | | 178,081 | 32,569 |
| | | (1,194,329) | (1,369,940) |
| Changes in working capital: | |
| |
| (Increase) / Decrease in trade and other receivables | | (290,025) | 1,093,419 |
| Decrease in trade, contract liabilities and other payables | | (749,745) | (126,756) |
| Cash used in operations | | (2,234,099) | (403,277) |
| Interest paid | | (9,745) | (3,774) |
| Net cash used in continued operating activities | | (2,243,844) | (407,051) |
| Cash flows from investing activities | |
| |
| Interest received | | 104 | 4 |
| Acquisition of property, plant and equipment | | (13,315) | (36,161) |
| Expenditure on development cost | | - | (157,779) |
| Proceeds on disposal of subsidiaries, net of cash disposed | | 3,163,674 | - |
| Net cash generated from / (used in) investing activities | | 3,150,463 | (193,936) |
| Cash flows from financing activities | |
| |
| Repayment of lease liabilities | | (95,998) | (89,313) |
| Interest on lease interest | | (22,114) | (28,799) |
| Proceeds from borrowings | | 2,500,000 | 50,000 |
| Repayment of borrowings | | (7,906) | - |
| Loan transaction costs | | (205,347) | - |
| Interest paid on borrowings | | (146,291) | - |
| Proceeds from issue of shares | | 10,033 | 1,247,600 |
| Costs of share issuance | | - | (117,866) |
| Net cash generated from financing activities | | 2,032,377 | 1,061,623 |
| Net increase in cash equivalents | | 2,938,996 | 460,636 |
| Cash and cash equivalents at beginning of year | | 545,321 | 79,282 |
| Foreign exchange (losses)/gains on cash and cash equivalents | | (1,254) | 5,403 |
| Cash and cash equivalents at end of year | | 3,483,063 | 545,321 |
Notes to the consolidated financial statements
for the year ended 31 March 2022
1. General information
Falanx Group Limited (the "Company" or "Falanx") and its subsidiaries (together the "Group") operate in the cyber security market.
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. The UK registered office The Blade, Abbey Square, Reading, RG1 3BE.
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 UK adopted International Accounting Standards. 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 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 Financial Statements have been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons.
The Group made a loss from continuing operations in the year ended 31 March 2022 of £1.98m (2021: £3.45m) in the year of which £1.27m (2021: £1.35m) relates to the Adjusted EBITDA performance of the business, which most closely correlates to its underlying cash performance. Cash balances as at 31 March 2022 stood at £3.5m and these were seen by the Board as sufficient to achieve break even and cash generation on its organic plans. The Group's significant investment in sales and marketing expansion from the start of 2022 has built a strong pipeline of business, and these have now recently begun to deliver significant contract wins, particularly for recurring monitoring revenues. This provides the board with further confidence in its projections. During the year ended 31 March 2022, approximately £0.62m of HMRC legacy COVID-19 related liabilities were paid down, and the small remaining balance of circa £70,000 was fully repaid under the agreed payment plan by August 2022. HMRC are fully in terms. The Group expects to receive the final £0.345m of cash consideration, which has been held in escrow, from the disposal of Assynt in October 2021 in October 2022. £1.5m of the cash balance was reserved for use on acquisitions, but this can be used for reasonable non acquisitive purposes, with BOOST&Co's consent, such consent not to be unreasonably withheld or delayed. The Group's base case scenario does not require the use of this cash. The Group's current strategy, reflecting recent low equity valuations, is for organic growth to be a priority as the Group believes that it can generate greater shareholder returns than potentially dilutive acquisitions, and therefore the Board expects that, should it be required, then this consent will be forthcoming. The monthly repayment of the BOOST&Co £2.5m loan commences in October 2022 and is reflected in detailed forecasts which demonstrate that this repayment obligation will be met in full and on schedule.
Should the Group not achieve its revenue and growth targets, the Board routinely prepares alternative stress test scenarios to deal with lower performance and any ensuing shortfall in working capital. This model assumes that cost reductions mainly around overheads and discretionary expansion spend would be curtailed as well as certain investment spends. Other measures could involve the disposal of assets. Furthermore, the Group could seek, as in previous years, the support of investors (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 2022 and 2023
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2022:
- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);
- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
- Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
- References to Conceptual Framework (Amendments to IFRS 3).
The following amendments are effective for periods beginning on or after 1 January 2023:
- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
- Definition of Accounting Estimates (Amendments to IAS 8); and
- Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
The Group does not expect any of the amendments issued by the IASB, but not yet effective, to have a material impact on the Group.
2.1.3 Alternative performance measures (APM)
In the reporting of financial information, the Directors have adopted the APM "Adjusted EBITDA" (APMs were previously termed 'Non-GAAP measures'), which is not defined or specified under International Financial Reporting Standards (IFRS). This is a key metric which the Board uses to assess the performance of the Group and its divisions as it reflects the costs. Rental costs are charged against this measure as they are largely under the control of the division and correlate closely with cash performance.
This measure is not defined by IFRS and therefore may not be directly comparable with other companies' APMS, including those in the Group's industry.
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
Purpose
The Directors believe that this APM assists in providing additional useful information on the underlying trends, performance and position of the Group. This APM is also used to enhance the comparability of information between reporting periods and business units, by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group's performance. Furthermore, the use of EBITDA means a closer correlation with the cash performance of the business. Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and this remains consistent with the prior year.
The key APM that the Group has focused on is as follows:
Adjusted EBITDA: This is the headline measure used by management to measure the Group's performance and is based on operating profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and other highlighted items. Highlighted items (note 5.1) relate to certain costs that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.
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 treated as disposed of, and so de-consolidated from the date at which that 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 adjusted where necessary to ensure consistency with the policies adopted by the Group. All subsidiaries are wholly owned 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.
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 delivery of service to customers
Vulnerability assessment on delivery of service to customers
Revenue is recognised as the client receives the benefit of the services provided under a commercial contract, in an amount that reflects the consideration to which the provider expects to be entitled for the transfer of the goods or services.
Performance obligations and timing of revenue recognition
Revenue from the provision of professional services such as penetration testing, consultancy and strategic intelligence assignments are recognised as services are rendered, based on the contracted daily billing rate and the number of days delivered during the period. Revenue from pre-paid contracts are deferred in the statement of financial position and recognised on utilisation of service by the client.
Revenue from cyber monitoring contracts (including installation), intelligence embedded analyst and report subscriptions includes advance payments made by the customer is deferred (as a contract liability) and is then subsequently recognised on a straight-line basis over the term of the contract. Where they are billed periodically in a monthly in arrears basis, revenues are recognised at that point.
Contracts values are typically fixed price and the pricing level is based on management experience of pricing adequate mark up of prime cost. Where additional services need to be delivered outside of the contract a time and materials basis based on day rates is used.
Determining the transaction price
The Group's revenue is derived from fixed price contracts and therefore the amount of revenues to be earned from each contract is determined by reference to those fixed prices. Costs of obtaining long-term contracts and costs of associated sales commissions are prepaid and amortised over the terms of the contract on a straight-line basis. Commissions paid to sale staff for work in obtaining the Prepaid Consultancy are recognised in the month of invoice. The timing and any conditionality for the payment of commissions is governed under the then applicable sales incentive plan.
Revenues are exclusive of applicable sales taxes and are net of any trade discounts. There are no financing components in any of our revenue streams.
Contract Assets (accrued incomes) balance were £27,100 (2021: £63,692) and is included in notes and the change compared to the previous year was due to short term timing differences. Contract Liabilities (deferred incomes) balance of £529,496 (2021: £1,108,317). Included in the Contract Liabilities at the 31 March 2022 were approximately £29,981 (2021: £121,327) residual balance from prior year. All Contract Assets at the 2022-year end arose towards the end of the period. All contract assets have short cash conversion periods and all assets at the year-end have since been monetised.
The Board considers that the information in note 4 adequately depicts how the nature, amount, timing and uncertainty of revenue and cash flow are affected by economic factors.
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 tax assets and unutilised 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 tax assets and unutilised 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
The Company has determined Sterling as its functional currency, as this is the currency of the economic environment in which the Company predominantly operates.
Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, the monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary assets and liabilities are carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on exchange are included in profit or loss.
Foreign currency differences arising on retranslation are recognised in profit or loss.
In the case of foreign entities, the financial statements of the Group's overseas operations are translated as follows on consolidation: assets and liabilities, at exchange rates ruling on reporting date, income and expense items at the average rate of exchange for the period and equity at exchange rates ruling on the dates of the transactions. Exchange differences arising are classified as equity and transferred to a separate translation reserve. Such translation differences are recognised in profit or loss in the period in which the operation is disposed of. Foreign exchange gains and losses arising from monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely within the foreseeable future, are considered to form part of net investment in a foreign operation and are recognised directly in equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Foreign currency gains and losses are reported on a net basis.
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
• Leasehold: 5 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. The brand and software licences have been fully amortised in previous accounting periods.
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.
Government tax credits available on eligible Research and Development expenditure ('R&D Tax Credits') and not reclaimable through other means are recognised in income and treated as a government grant.
Customer relationships
Customer relationships are amortised over the period expected to benefit as follows:
· First Base: 10 years
· Securestorm: 3 years (fully amortised in the year ended 31 March 2022)
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 Financial instruments
The Group applies a simplified method of the expected credit loss model when calculating impairment losses on its financial assets which are measured at amortised cost such as trade receivables, other debtors and prepayments. This resulted in greater judgement due to the need to factor in forward-looking information when estimating the appropriate amount to provisions
(a) Financial Assets
The Group's Financial Assets include Cash and Cash Equivalents, Trade Receivables and Other Receivables.
· Initial Recognition and Measurement: Financial Assets are classified as amortised cost and initially measured at fair value.
· Subsequent Measurement: Financial assets are subsequently measured at amortised cost, using the effective interest method, less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial. The company only offers short periods of credit to its customers and recorded average debtor days of 31 at 31 March 2022 (2021: 47)
· Derecognition of Financial Assets: The Company derecognises a Financial Asset only when the contractual rights to the cash flows from the asset expire, or it transfers the Financial Asset and substantially all the risks and rewards of ownership of the asset to another entity.
(b) Financial Liabilities and Equity Instruments
The Group's Financial Liabilities include Trade Payables, Accruals and Other Payables. Financial Liabilities are classified at amortised cost.
(c) Investments
Investments not in subsidiary undertakings are carried at fair value through profit and loss.
Classification as Debt or Equity. Financial Liabilities and Equity Instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a Financial Liability and an Equity Instrument.
2.11 Share capital
Ordinary shares (of nil par value) in the Company are classified as equity. By definition all amounts arising from the issue of these shares are attributable to Share Capital as are any directly attributable (including any warrants issued as commissions) to issue of new shares are shown in equity as a deduction to the share capital account. The Company does not maintain a separate share premium account.
2.12 Reserves
The consolidated financial statements include the following reserves: translation reserve, share option reserve, 2022 Liabilities reserve and accumulated losses. Premiums paid on the issue of share capital, less any costs relating to these, are posted to the share capital account as referenced above.
2.13 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.
2.14 Leases
When entering into a contract the Group assesses whether or not a lease exists. A lease exists if a contract conveys a right to control the use of an identified asset under a period of time in exchange for consideration. Leases of low value items and short-term leases (leases of less than 12 months at the commencement date) are charged to the profit or loss on a straight-line basis over the lease term in administrative expenses.
The Group recognises right-of-use assets at cost and lease liabilities on the statement of financial position at the lease commencement date based on the present value of future lease payments. The right-of-use assets are amortised on a straight-line basis over the length of the lease term. The lease liabilities are recognised at amortised cost using the effective interest rate method. Discount rates used reflect the incremental borrowing rate specific to the lease.
2.15 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.
2.16 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 and Monte Carlo option pricing models taking into account the expected life of the awards, the expected volatility of the return on the underlying share price, vesting criteria, 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.
2.17 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 applied in accordance with the provisions of the Companies Act 2006 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.
Judgements:
Investment in Furnace Technologies Limited
The investment agreement in Furnace Technologies Limited has allocated Falanx Group Limited 20% of its equity. It is considered a financial as opposed to an operational investment as Falanx does not have the right to appoint a board member and plays no part in its operations or policymaking. There is no ongoing obligation to provide further investment to Furnace and Furnace has no part in the business plans of Falanx. There is no interchange of management personnel and any transactions between the companies are small and are on an arm's length basis. Consequently, it has not been treated as an associated company. The investment balance was impaired in full in the year ended 31 March 2021 on the following basis;
· Furnace had not yet generated material revenues
· Furnace had not received external funding at the date of the 2021 report which would allow an objective measure of the equity value which would validate the capital structure and its carrying value.
· Since then, there has been no further development in Furnace which justify a change in treatment.
Estimates:
Management do not consider there to be significant accounting estimates in respect of the year ended 31 March 2022.
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.
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 the remaining Cyber Security division business segment only following the disposal of the strategic intelligence division in October 2021. 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 results for the business operating segment for the years ended 31 March 2022 and 31 March 2021 are as follows:
| | | | | | | |
| |||||
| | 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | ||||||
| | £ | £ | £ | £ | £ | £ | ||||||
| | Continuing | Discontinued | Total | Continuing | Discontinued | Total |
| |||||
| Professional services | 2,683,204 | 21,102 | 2,704,306 | 2,272,951 | 108,375 | 2,381,326 | ||||||
| Monitoring managed services | 859,104 | - | 859,104 | 876,773 | - | 876,773 | ||||||
| Assynt report & embedded analysts | - | 1,005,191 | 1,005,191 | - | 2,016,062 | 2,016,062 | ||||||
| Revenues from external customers | 3,542,308 | 1,026,293 | 4,568,601 | 3,119,724 | 2,124,437 | 5,244,161 | ||||||
| Gross Margin | 1,442,576 | 224,270 | 1,666,846 | 1,016,937 | 559,048 | 1,575,985 | ||||||
| | | | | | | | ||||||
| Cyber operating expenses | (1,598,143) | - | (1,598,143) | (1,435,957) | - | (1,435,957) | ||||||
| Corporate operating expenses | (1,009,132) | - | (1,009,132) | (918,607) | - | (918,607) | ||||||
| Segment Reported EBITDA | (1,164,699) | (29,664) | (1,194,363) | (1,337,627) | (32,312) | (1,369,939) | ||||||
| Highlighted costs (Note 5) | (107,285) | - | (107,285) | (12,893) | 123,247 | 110,354 | ||||||
| Segment Adjusted EBITDA | (1,271,984) | (29,664) | (1,301,648) | (1,350,520) | 90,935 | (1,259,585) | ||||||
|
|
|
|
|
|
|
| ||||||
| Finance expense-net | (201,464) | (241) | (201,705) | (32,570) | - | (32,570) | ||||||
| Depreciation and amortisation | (465,417) | (13,378) | (478,795) | (503,895) | (29,587) | (533,482) | ||||||
| Impairment of goodwill | (130,347) | - | (130,347) | - | - | - | ||||||
| Impairment of Furnace equity and loan investment | - | - | - | (1,440,000) | - | (1,440,000) | ||||||
| Share option expense | (17,839) | - | (17,839) | (173,636) | (2,313) | (175,949) | ||||||
| Profit on sale of discontinued operations | - | 3,498,102 | 3,498,102 | - | - | - | ||||||
| Segment loss before tax for the year | (1,979,766) | 3,454,819 | 1,475,053 | (3,487,728) | (64,212) | (3,551,940) | ||||||
Segment assets consist primarily of property, plant and equipment, intangible assets, trade and other receivables and cash and cash equivalents. Unallocated assets comprise deferred tax 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, liabilities and capital expenditure for the year then ended are as follows:
| | | | | |
| | 2022 | 2021 | 2021 | 2021 |
| | Continuing | Continuing | Discontinued | Total |
| | £ | £ | £ | £ |
| Contract assets | 27,100 | 62,141 | 1,551 | 63,692 |
| Other assets | 8,296,487 | 5,267,711 | 374,615 | 5,642,326 |
| Contract liabilities (deferred income) | 529,496 | 465,000 | 643,317 | 1,108,317 |
| Other liabilities | 3,418,222 | 1,617,349 | 318,175 | 2,006,524 |
| Capital expenditure - Tangible | 13,315 | 36,161 | - | 36,161 |
| Capital expenditure - Intangible | - | 157,780 | - | 157,780 |
Geographical information
The Group's business segments operate in five geographical areas, although all are managed on a worldwide basis from the Group's head office in the United Kingdom. All non-current assets are 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 based in the United Kingdom.
Revenue by geographical location
|
| 2022 | 2022 | 2022 | 2021 | 2021 | 2021 |
|
| Continuing | Discontinued | Total | Continuing | Discontinued | Total |
| | £ | £ | £ | £ | £ | £ |
| United Kingdom | 2,948,696 | 572,575 | 3,521,271 | 2,788,215 | 1,129,441 | 3,917,656 |
| Europe | 181,808 | 112,051 | 293,859 | 189,005 | 338,898 | 527,903 |
| The Americas | 376,539 | 150,678 | 527,217 | 114,104 | 341,307 | 455,411 |
| Australasia | 35,265 | 64,029 | 99,294 | 28,100 | 157,800 | 185,900 |
| Middle East and Africa | - | 126,960 | 126,960 | - | 157,291 | 157,291 |
| | 3,542,308 | 1,026,293 | 4,568,601 | 3,119,424 | 2,124,737 | 5,244,161 |
| Non-current assets | 2022 | 2021 | 2021 | 2021 |
| | Continuing | Continuing | Discontinued | Total |
| | £ | £ | £ | £ |
| United Kingdom | 3,621,304 | 4,203,752 | 18,190 | 4,221,942 |
| | 3,621,304 | 4,203,752 | 18,190 | 4,221,942 |
Major customers
No customer contributed 10% or more to the Group's revenue in 2022 (2021: nil). The highest individual customer contributed c9% of revenues.
Contract Assets (accrued incomes) balances were £27,100 (2021: £63,992). Included in the Contract Liabilities (deferred incomes) at the 31 March 2022 were approximately £29,981 (2021: £121,327) residual balance from prior year. All Contract Assets at the 2022-year end arose towards the end of the period and were billed and collected in the normal course of business in the next financial year.
| | Contract | Contract | Contract | Contract |
| | Assets | Assets | Liabilities | Liabilities |
| | 2022 | 2021 | 2022 | 2021 |
| | £ | £ | £ | £ |
| At 1 April | 63,992 | 27,747 | (1,108,317) | (1,237,347) |
| Transfers in the year from contract assets to trade receivables | (63,992) | (27,747) | - | - |
| Transfers from contract liabilities to revenue in the year | - | - | 842,732 | 1,116,019 |
| Disposal in the year | - | - | 235,604 | - |
| Amount recognised as revenue in the year not yet invoiced | 27,100 | 63,992 | - | - |
| Amount invoiced in advance not recognised as revenue in the year | - | - | (499,515) | (986,989) |
| At 31 March | 27,100 | 63,992 | (529,496) | (1,108,317) |
5. Highlighted 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 Highlighted costs / (income)
| |
| 2022 | 2021 |
| |
| £ | £ |
| Restructuring and other costs | a) | - | (40,738) |
| Infrastructure upgrade | b) | - | 66,887 |
| Rent | c) | (107,285) | (107,285) |
| Closed premises | d) | - | 68,243 |
| |
| (107,285) | (12,893) |
a) Restructuring costs
Cost of corporate development and professional services associated with the restructuring. This did not include any impact of COVID-19.
b) Infrastructure upgrade
Cost of technology, infrastructure, and upgrade of applications for internal use and customer delivery.
c) Rent
Re-instatement of accounting charge in respect of rental payments on the Reading lease not reflected under IFRS 16. The group uses Adjusted EBITDA as a metric for business unit assessment and this reflects the actual rental payments, adjusted for rent free periods.
d) Closed premises
Costs including unused rental periods and lease dilapidations related to London and Sussex premises closed during summer 2020.
5.2 Adjusted EBITDA - continuing
| | 2022 | 2021 |
| | £ | £ |
| Operating loss | (1,778,302) | (3,455,158) |
| Depreciation and amortisation | 465,417 | 503,895 |
| Impairment of goodwill | 130,347 | - |
| Impairment of Furnace equity investment and loan | - | 1,440,000 |
| Share option expense | 17,839 | 173,636 |
| EBITDA | (1,164,699) | (1,337,627) |
| Highlighted costs (note 5.1) | (107,285) | (12,893) |
| Adjusted EBITDA | (1,271,984) | (1,350,520) |
6. Operating loss - continuing
Operating loss for the year is stated after charging the following:
| | 2022 | 2021 |
| | £ | £ |
| Depreciation of owned property, plant and equipment | 63,732 | 71,585 |
| Amortisation of right of use asset | 108,981 | 108,981 |
| Amortisation and impairment of intangible fixed assets | 292,703 | 323,329 |
| Impairment of goodwill | 130,347 | - |
| Impairment of Furnace equity investment and loan | - | 1,440,000 |
| Operating lease rentals - Land & Buildings | 10,865 | 20,300 |
| Share based payment expense | 17,839 | 173,636 |
| Foreign exchange loss | 4,483 | 2,959 |
| R&D tax credit | - | (19,894) |
7. Income tax expense
|
| 2022 | 2021 |
| | £ | £ |
| Current tax |
| |
| Current tax on loss for the year | - | - |
| Over provision in prior year | - | - |
| Total current tax | - | - |
| |
| |
| Deferred tax |
| |
| Deferred tax (credit)/expense for the year | (9,529) | - |
| Total deferred tax | (9,529) | - |
| Income tax expense | - | - |
The parent Company is resident in the UK for tax purposes together with all of its subsidiaries. Other subsidiaries which were resident in foreign tax jurisdictions were disposed of on the sale of Assynt in October 2021
Potential 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 judgement is made as to whether the deferred tax asset can be recognised. At 31 March 2022, a deferred tax asset has not been recognised (2021: £nil). Accumulated tax losses (subject to HMRC) agreement stood at approximately £11m (2021: £13.9m). No asset in respect of these losses has been recognised.
The tax charge for the year is different from the standard rate of corporation tax in the United Kingdom of 19% (2021: 19%). The difference can be reconciled as follows:
| | 2022 | 2022 | 2022 | 2021 | 2021 | 2021 |
| | Continuing | Discontinued | Total | Continuing | Discontinued | Total |
| | £ | £ | £ | £ | £ | £ |
| Profit / (Loss) before tax | (1,979,766) | 3,454,818 | 1,475,052 | (3,487,728) | (64,212 | (3,551,940) |
| Tax calculated at the applicable rate based on the loss for the year 19% (2021: 19%) | (376,155) | 656,415 | 280,260 | (662,669) | (12,200) | (674,869) |
| Tax effects of: |
|
|
|
|
| |
| Expenses not deductible for tax purposes | 3,552 | 72 | 3,624 | 306,591 | 439 | 307,030 |
| Chargeable gain not taxed | - | (664,639) | (664,639) | - | - | - |
| Non taxable income |
|
|
| (11,043) | - | (11,043) |
| Deferred tax not recognised | 364,124 | 7,102 | 371,226 | 367,121 | 11,761 | 378,882 |
| Current tax on loss for the year | (8,479) | (1,050) | (9,529) | - | - | - |
8. Discontinued operations
On 06 October 2021, Falanx announced that it had entered into a formal sale agreement to dispose of Assynt Strategic Intelligence Division ("Assynt") for cash consideration of £4.6 million to Cross Atlantic LLC. Assynt, which represented the entirety of the Assynt operating segment, was classified as a discontinued operation at that date. Consequently, Assynt has not been presented as an operating segment in the segment note.
The results of the discontinued operation and the effect of the disposal on the financial position of the Group were as follows:
Financial performance and cash flow information
| Results of the discontinued operations for the period to disposal | | | |
| | | 2022 | 2021 |
| Income statement | | £ | £ |
| Revenue | | 1,026,294 | 2,124,437 |
| Administrative expenses | | (1,069,336) | (2,188,649) |
| Operating loss | | (43,042) | (64,212) |
| Finance costs | | (241) | - |
| Loss before income tax | | (43,283) | (64,212) |
| Income tax credit | | 1,050 | - |
| Loss from discontinued operations before gain on sale | | (42,233) | (64,212) |
| Profit on sale of discounted operations | | 3,498,102 | - |
| Profit / (loss) from discontinued operation | | 3,455,869 | (64,212) |
| | | 2022 | 2021 |
| Cash flows from/(used in) discontinued operation | | £ | £ |
| Net cash flows from operating activities | | (388,485) | (759,283) |
| Net cash flows from investing activities | | - | - |
| Net cash flows from financing activities | | - | - |
| Net cash flows for the year | | (388,485) | (759,283) |
| Intra-Group funding and transactions | | 323,031 | 841,580 |
| Net cash flows from discontinued operations, net of intercompany | | (65,454) | 82,297 |
Effect of disposal on the financial position of the Group
| |
| | |
| 2022 |
| Net assets disposed of and the gain on disposal |
| | |
| £ |
| Assets of the disposal group |
|
|
| | |
| Property, plant & equipment |
| | | | 442 |
| Intangible assets |
| | | | 4,293 |
| Trade and other receivables |
| | | | 174,021 |
| Total assets |
| | | | 178,756 |
|
|
| | | | |
| Liabilities of the disposal group |
| | | | |
| Deferred tax liability |
| | | | |
| Trade and other payables |
| | | | 201,928 |
| Contract liabilities |
| | | | 420,286 |
| Total liabilities |
| | | | 622,214 |
|
|
| | | | |
| Net assets of the disposal group |
| | | | (443,458) |
| Consideration received in cash and cash equivalents, net of transactions costs |
| | | | 3,163,674 |
| Gain on sale before income tax and reclassifications of FX translation reserve |
| | | | 3,607,132 |
| Exchange differences received to the income statement |
| | | | (109,030) |
| Gain on sale of discontinued operation |
| | | | 3,498,102 |
|
|
| | | | |
| Net cash inflow arising on disposal: |
| | | | |
| Consideration received in cash and cash equivalents, net of transaction costs |
| | | | 3,163,674 |
| Less cash and cash equivalents disposed of |
| | | | - |
|
|
| | | | 3,163,674 |
9. Basic and diluted earnings per share
Basic loss per share is calculated by dividing the 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.
| Continuing operations |
| |
| | 2022 | 2021 |
| | £ | £ |
| Profit / (Loss) for the year attributable to equity holders of the Company | 1,484,582 | (3,551,940) |
| Less profit / (loss) from discontinued operations | 3,455,869 | (64,212) |
| Loss from continuing operations | (1,971,287) | (3,487,728) |
| Total basic and diluted loss per share (pence per share) | (0.37) | (0.75) |
| Continuing and discontinued operations |
| |
| | 2022 | 2021 |
| | £ | £ |
| Profit / (Loss) for the year attributable to equity holders of the Company | 1,484,582 | (3,551,940) |
| Total basic and diluted profit / (loss) per share (pence per share) | 0.28 | (0.77) |
Weighted average number of shares used as the denominator
| | 2022 | 2021 |
| Weighted average number of ordinary shares used as the denominator in the calculating basic earnings per share | 526,181,678 | 462,675,158 |
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 2022, 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.
10. Borrowings
Falanx Cyber Defence Ltd, a wholly owned subsidiary took out a £50,000 Coronavirus Business Interruption Loan (CBIL) with HSBC. The loan is repayable in 5 years from June 2021. The loans attract an interest rate of 2.5%. No arrangement fees were applied by the lender.
On 18 August 2021, the Company announced a 5-year growth loan facility from BOOST&Co taken via Falanx Cyber Defence Limited (a wholly owned subsidiary). The full £2.5m was drawn down in 2 tranches, the first of £1m on 18 August 2021 and the second of £1.5m on 13 October 2021. Annual interest is 11%, and straight-line amortisation of the loan commencing after 12 months. The loan carries a 3% early prepayment fee on the then amount outstanding.
| | | | | | 2022 | 2021 |
| | | | | | £ | £ |
| Non-current | | | | |
| |
| Bank loan | | | | | 32,414 | 42,129 |
| Term loan | | | | | 2,062,324 | - |
| | | | | | 2,094,738 | 42,129 |
| Current | | | | |
| |
| Bank loan | | | | | 9,715 | 7,871 |
| Term loan | | | | | 255,987 | - |
| | | | | | 265,702 | 7,871 |
| | | | | |
| |
| Total Loan liability | | | | | 2,360,440 | 50,000 |
|
Analysis of loan liability | | | | | | |
| At 1 April | | | | | 50,000 | - |
| Loan repayment | | | | | (7,871) | - |
| Additions | | | | | 2,500,000 | 50,000 |
| Loan costs | | | | | (205,347) | - |
| Amortised transaction cost | | | | | 23,658 | - |
| At 31 March |
|
|
|
| 2,360,440 | 50,000 |
|
Analysis of gross value of bank loan |
|
|
|
|
| |
|
|
|
|
|
|
| |
| Maturity of the bank loan is analysed as follows: |
|
|
| | 2022 | 2021 |
| |
|
|
| | £ | £ |
| Within 1 year |
|
|
| | 265,702 | 7,871 |
| Later than 1 year and less than 5 years |
|
|
| | 2,094,738 | 42,129 |
| At 31 March |
|
|
| | 2,360,440 | 50,000 |
11. Related party transactions
Falanx Group Limited provided head office and management services to subsidiary companies and supported them with working capital during the year ended 31 March 2022.
On 18 August 2021, the Company announced a new loan facility from BOOST&Co, and the facility was arranged by Welbeck Ventures Limited who received 2% of the loan on completion in respect of advisory fees. Alex Hambro (Non-Executive Chairman) is also a director of Welbeck Ventures Limited.
12. Events after the reporting period
On 22 June 2022, the Company signed a deed of variation for the lease for the premises in Reading. The lease was varied to delete the break option and reduce the principal rent by 50% for the period from 1 August 2022 to 31 July 2023.
The statutory accounts for the year ended 31 March 2022 have not yet been delivered to the Registrar of Companies. The auditors have reported on them and their report was unqualified and did not contain a statement, which had the Company been UK incorporated, would have been required under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis. This final results announcement does not constitute statutory accounts under Section 435 of the companies Act 2006
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