RNS Number : 5456Y
Narf Industries PLC
31 July 2024
 

31 July 2024

NARF INDUSTRIES PLC

 

Audited Financial Results

For the 15-month period ended 31 March 2024

 

Narf Industries plc ("NARF", the "Company", or the "Group") (LSE: NARF), the cybersecurity group specializing in high-end threat intelligence and critical infrastructure security, is pleased to announce that its Audited Financial Results for the 15-month period ended 31 March 2024 have been approved and extracts are attached to this announcement. They are available in full on the Company's website at https://narfgroup.com/investor-relations/corporate-document

 

All reference to $ are for USD$ and any reference to 2024 or 2022/FY2022 are for the 15-month period ended 31 March 2024 and the calendar year ended 31 December 2022 respectively.

 

OVERVIEW

·    Increased total revenue 200% to $7.6 million

·    Scaled and expanded US Government business

Government Research & Development ("GR&D") revenue increased 231% to $4.5 million

Government Solutions & Services ("GS&S") revenue increased 159% to $3.0 million

·    Reported positive Adjusted EBITDA* of $165,000 from FY2022 Adjusted EBITDA* loss of $2.5 million

·    Reduced operating loss to $1.4 million from FY2022 operating loss of $3.3 million

·    Formed a skilled Board of Directors to advance the Company to its next stage

·    Strengthened the Group's internal and external financial reporting 

·    Extended line of credit with the CEO to 31 July 2025 and increased facility from $2 million to $2.5 million

 

*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and share based payments.

 

EXECUTIVE CHAIRMAN'S STATEMENT

I am pleased to present the audited financial results for Narf Industries PLC for the 15-month period to 31 March 2024, which aligns to our new financial year end.  

 

This has been a transformative period in which the Group achieved record revenue growth, positive Adjusted EBITDA* performance, increased its intellectual property portfolio through cutting-edge government funded research and development, and announced it was accelerating the launch of its break-through new social cyber-Software as a Service ("SaaS") product, narf.ai. 

 

As significantly, we have worked to advance our corporate infrastructure by building our executive team and Board of Directors and enhancing our financial and planning functions to establish much improved corporate governance. We will continue to mature our organization and maintain our focus on meeting the highest standards.

 

Looking ahead, alongside its government business, the Company is excited about wider opportunities in the cybersecurity markets in which it is emerging as a welcome disruptor with leading edge technologies borne from advanced government programs. One of these capabilities, is SocialCyber, and as part of the Company maximizing its competitive advantage, it  is looking to increase investment and evaluate strategic alliances with industry partners. The Company is also undergoing a reallocation of resources and will provide a fuller update on the impact of this to the Company's financial profile in the coming months. The Board remains confident to deliver on its plan to achieve its three-year revenue targets.

 

In closing, I would like to express my gratitude to our shareholders, clients, and employees for their support and trust. Together, we will continue to navigate the dynamic cybersecurity landscape and drive Narf Industries PLC to new heights.

 

Thank you for your continued support.

 

John Herring

Executive Chairman

 

For further information visit www.narfgroup.com or contact:

                            

Narf Industries plc

John Herring

jh@narfgroup.com

Joint Broker

Canaccord Genuity Limited

Simon Bridges

Harry Rees

Tel: +44 (0) 207 523 8000

Joint Broker

Tennyson Securities plc

Peter Krens

Tel: +44 (0)207 186 9030

Financial PR, UK

St Brides Partners

Paul Dulieu

Isabel de Salis

narf@stbridespartners.co.uk

 

About NARF Industries plc

Narf Industries (LSE: NARF) (OTCQB: NFIN.F) is a US based leading provider of cybersecurity research, solutions, and services to government entities. With a steadfast commitment to protecting national security and critical infrastructure, it offers comprehensive expertise in addressing the evolving cyber threats faced by its clients.

 

 

NARF INDUSTRIES PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE 15 MONTH PERIOD ENDED 31 MARCH 2024

 

 


15 months

Year



ended

Ended



31 March 2024

31 December 2022




(Restated)


Notes

US$

US$

Continuing operations

 



GR &D Revenue

3

4,509,908

1,360,684

GS & S Revenue

3

3,012,545

1,165,203

Commercial Revenue


49,000

-

Total revenue


7,571,453

2,525,887

Direct salaries


(3,037,080)

(1,504,792)

Sub-contracting


(1,092,696)

(267,985)

Gross profit


3,441,677

753,110

Operating expenses

4

(3,276,580)

(3,250,418)

Profit/(loss) before depreciation and software licence amortisation, share based payments, interest and taxes


165,097

(2,497,308)





Depreciation and software license amortisation


(509,756)

(329,999)

Share-based payment expense

16

(1,023,074)

(493,549)





Operating loss


(1,367,733)

(3,320,856)





RTO share based payment expense


-

(15,355,123)

Interest receivable and other finance income


13

3,376

Finance costs


(71,259)

(3,197)





Loss before taxation


(1,438,979)

(18,675,800)





Corporate tax

6

(15,248)

(7,839)





Loss for the period


(1,454,227)

(18,683,639)



 


Other comprehensive income

 



Items that may be reclassified subsequently to profit or loss:




Exchange differences on foreign operations


54,756

-






 

 


Total comprehensive loss for the period attributable to the owners of the company

 

(1,399,471)

(18,683,639)





Earnings per share

 



Earnings per share (basic and diluted) attributable to the equity holders (cents)

7

(0.1)

(1.3)

 

The above results relate entirely to continuing activities.

 

NARF INDUSTRIES PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2024



As at

As at

As at 31



31 March 2024

31 December 2022

(Restated)

December 2021 (Restated)


Note

US$

US$

US$






NON-CURRENT ASSETS

 




Intangible assets

8

1,198,096

1,620,663

-

Right of use assets

17

42,981

-

-

Tangible assets

9

-

15,990

49,519



1,241,077

1,636,653

49,519

CURRENT ASSETS

 




Trade and other receivables

11

605,544

735,243

48,074

Cash and cash equivalents

12

654,365

442,751

446,879



1,259,909

1,177,994

494,953






TOTAL ASSETS

 

2,500,986

2,814,647

544,472



 



CURRENT LIABILITIES

 






 



Trade and other payables

13

2,739,573

2,781,272

1,559,631

NON-CURRENT LIABILITIES


 



Lease liabilities

14

-

1,727

22,312

TOTAL LIABILITIES


2,739,573

2,782,999

1,581,943

 


 



NET (LIABILITIES)/ASSETS


(238,587)

31,648

(1,037,471)






EQUITY

 




Share capital

15

204,012

204,012

-

Share premium

15

35,294,816

35,074,061

-

Reverse acquisition reserve


(16,747,959)

(16,747,959)

-

Foreign exchange reserve


11,345

(43,411)

-

Share based payment reserve

16

1,483,635

575,154

-

Members' equity


-

-

(1,037,471)

Retained deficit


(20,484,436)

(19,030,209)

-



 



TOTAL SHAREHOLDERS (DEFICIT)/EQUITY


(238,587)

31,648

(1,037,471)

 

Note the 2021 numbers are those for Narf US only as they pre-date the reverse takeover.

 

NARF INDUSTRIES PLC

PARENT COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2024

 

 


As at

As at

 


31 March 2024

31 December 2022 (restated)

 

Note

US$

US$





NON-CURRENT ASSETS

 



Intangible assets

8

1,198,096

1,620,663

Investment in subsidiary undertakings

10

18,002,000

25,600,000


 

19,200,096

27,220,663

CURRENT ASSETS

 



Trade and other receivables

11

60,705

67,364

Cash and cash equivalents

12

5,126

210,282


 

65,831

277,646





TOTAL ASSETS

 

19,265,927

27,498,309


 

 


CURRENT LIABILITIES

 




 

 


Trade and other payables

13

210,317

335,526

TOTAL LIABILITIES

 

210,317

335,526

 

 

 


NET ASSETS

 

19,055,610

27,162,783





EQUITY

 



Share capital

15

204,012

204,012

Share premium

15

35,294,816

35,074,061

Share based payment reserve

16

1,483,635

575,154

Foreign exchange reserve


11,345

(43,411)

Retained deficit


(17,938,198)

(8,647,033)


 

 


TOTAL EQUITY

 

19,055,610

27,162,783

 

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from presenting the Parent Company profit and loss account. The Parent Company loss for the fifteen-month period was $9,291,165 (year to 31 December 2022: Loss $3,082,511).

 

NARF INDUSTRIES PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024

 

 

 

 

15 months

Year

 

 

ended

Ended

 

 

31 March 2024

31 December 2022 (restated)

 

Note

US$

US$


 

 


OPERATING ACTIVITIES

 

 


Loss for the period before interest and taxation

 

(1,367,733)

(18,675,979)

Adjusted for:




Depreciation

9

15,990

33,529

Amortisation of intangibles

8

493,766

296,470

Amortisation of right of use asset

17

48,173

-

Unrealised foreign exchange adjustment

 

(16,408)

176

RTO and other share-based payment expenses

 

1,023,074

15,848,672

Operating cash flow before movements in working capital:

 

196,862

(2,497,132)





Increase/(decrease) in trade and other receivables

 

129,699

(680,485)

(Decrease)/increase in trade and other payables

 

(153,502)

184,806





Net cash generated from/(used in) operating activities

 

173,059

(2,992,811)


 

 


INVESTING ACTIVITIES

 

 


Net amounts paid to former members to acquire control

 

-

(3,615,433)

Licence fee expenditure 

 

-

(500,000)


 

 


Net cash outflow from investing activities


-

(4,115,433)





FINANCING ACTIVITIES

 

 


Proceeds on the issue of shares

 

-

7,650,881

Costs recovered/(paid) related to share issues

 

106,162

(1,145,814)

Loan amount (repaid to)/received from Director

 

(22,500)

702,000

Decrease in vehicle financing loan

 

(22,312)

(20,292)

Drawings by former members

 

-

(75,000)

Net interest (paid)/received

 

(7,547)

180


 

 


Net cash inflow from financing activities

 

53,803

7,111,955





Taxation paid

6

(15,248)

(7,839)





Net increase/(decrease) in cash and cash equivalents

 

211,614

(4,128)

Cash and cash equivalents at beginning of the period

 

442,751

446,879

 

 

 


Cash and cash equivalents at end of the period

 

654,365

442,751





Supplemental information non-cash transactions

 

 


Shares issued to former members upon acquisition in lieu of cash consideration

 

-

18,048,690

 

 

NARF INDUSTRIES PLC

PARENT COMPANY STATEMENT OF CASH FLOWS

FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024




 

 

15 months

Year

 

 

 

ended

Ended

 

 

 

31 March 2024

31 December 2022 (Restated)

 

 

Note

US$

US$


 

 

 


OPERATING ACTIVITIES

 

 

 


Loss for the period before interest and taxation

 

 

(9,287,928)

(3,082,511)

Adjusted for:





Amortisation of intangibles

 

8

493,766

296,470

Impairment of investment in subsidiary

 

10

7,600,000

-

Share based payments

 

 

1,023,074

474,440

Unrealised foreign exchange adjustment

 

 

(16,408)

-






Operating cash flow before movements in working capital:

 

 

(187,496)

(2,311,601)






Increase/(decrease) in trade and other receivables

 

 

6,660

(63,147)

(Decrease)/increase in trade and other payables

 

 

(125,209)

59,027







 

 

 


Net cash used in operating activities

 

 

(306,045)

(2,315,721)


 

 

 


INVESTING ACTIVITIES

 

 

 


Decrease/(Increase) in prepaid consideration

 

 

-

2,000,000

Cash invested to acquire license

 

 

-

(500,000)

Cash amounts paid to acquire subsidiary undertaking

 

10

(2,000)

(5,754,046)


 

 

 


Net cash outflow from investing activities

 

 

(2,000)

(4,254,046)






FINANCING ACTIVITIES

 

 

 


Proceeds on the issue of shares

 

 

-

7,650,881

Costs recovered/(paid) related to share issues

 

 

106,162

(1,145,814)

Interest received

 

 

11

-


 

 

 



 

 

 


Net cash inflow from financing activities

 

 

106,173

6,505,067






Taxation paid

 

 

(3,284)

-






Net decrease in cash and cash equivalents

 

 

(205,156)

(64,700)

Cash and cash equivalents at beginning of the period

 

 

210,282

274,982






 

 

 

 


Cash and cash equivalents at end of the period

 

 

5,126

210,282

 

 

NARF INDUSTRIES PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024

 


Share

Share

FX

Share-based

Reverse

Retained

Members'

Total

 

Capital

 Premium

Reserve

Payment

Acquisition

Deficit

equity






Reserve

Reserve





US$

US$

US$

US$

US$

US$

US$

US$

AS AT 1 JANUARY 2022 (As originally stated)

-

-

-

-

-

-

821,527

821,527

Prior year adjustments (Note 24)







(1,858,998)

(1,858,998)

AS AT 1 JANUARY 2022 (Restated)







(1,037,471)

(1,037,471)

Loss for the year (restated)

-

-

-

-

-

(18,683,639)

-

(18,683,639)

Total comprehensive loss for the year (restated)

-

-

-

-

-

(18,683,639)

-


Drawings by former members

-

-

-

-

-

-

(75,000)

(75,000)

Reclassification of members' equity at acquisition

-

-

-

-

-

(1,112,471)

(1,112,471)

-

Recognition of Plc equity at acquisition date

112,346

15,804,717

(1,840,675)

-

3,097,995

765,901

-

17,940,284

Issue of shares for acquisition

84,330

17,964,360

1,797,264

-

(19,845,954)

-

-

-

Share based payments (Note 16)

7,336

1,419,577

-

-

-

-

-

1,426,913

Issue of warrants and options (restated)

-

(114,593)

-

575,154

-

-

-

460,561

AS AT 31 DECEMBER 2022

204,012

35,074,061

(43,411)

575,154

(16,747,959)

(19,030,209)

-

31,648

(Restated)

 









Loss for the period

-

-

-

-

-

(1,454,227)

-

(1,454,227)

Foreign exchange gain on conversion of parent

-

-

54,756

-

-

-

-

54,756

Total comprehensive loss for the period

-

-

54,756

-

-

(1,454,227)

-

(1,399,471)

Shares issue costs recovered

-

106,162

-

-

-

-

-

106,162

Cancellation of warrants

-

114,593

-

(114,593)

-

-

-

-

Share based payments (Note 16)

-

-

-

1,023,074

-

-

-

1,023,074










AS AT 31 MARCH 2024

204,012

35,294,816

11,345

1,483,635

(16,747,959)

(20,484,436)

-

(238,587)

See notes below parent company statement of changes in equity for explanation as to the reserves.

 

 

 

NARF INDUSTRIES PLC

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024


Share

 

Share

 

Share-based

 

FX

 

Retained

 

Total

 

Capital

 

 Premium

 

Payment

 

Reserve

 

Deficit

 







Reserve

 







US$

 

US$

 

US$

 

US$

 

US$

 

US$

AS AT 1 JANUARY 2022

84,293

 

7,447,611

 

32,578

 

(17,767)

 

(5,575,591)

 

1,971,124

 












Loss for the year (restated)

-


-


-


-


(3,082,511)


(3,082,511)

Total comprehensive loss for the year

-


-


-


-


(3,082,511)


(3,082,511)

Warrants expired during the year

-


-


(12,215)


-


-


(12,215)

Shares issued during the year

127,828


25,893,481


(20,363)


2,972,867


-


28,973,813

Costs related to share issues

-


(1,147,989)


-


-


-


(1,147,989)

Issue of warrants and options (restated) - Note 16

-


(114,593)


575,154


-


-


460,561

FX reserve arising on conversion to reporting currency

(8,109)


2,995,551


-


(2,998,511)


11,069


-













AS AT 31 DECEMBER 2022

204,012

 

35,074,061

 

575,154

 

(43,411)

 

(8,647,033)

 

27,162,783

 












Loss for the year

-


-


-


-


(9,291,165)


(9,291,165)

Foreign exchange gain on conversion of parent

-


-


-


54,756


-


54,756

Total comprehensive loss for the year

-


-


-


54,756


(9,291,165)


(9,236,409)

Shares issue costs recovered

-


106,162


-


-


-


106,162

Cancellation of warrants- Note 16

-


114,593


(114,593)


-


-


-

Share based payments - Note 16

-


-


1,023,074


-


-


1,023,074













AS AT 31 MARCH 2024

204,012

 

35,294,816

 

1,483,635

 

11,345

 

(17,938,198)

 

19,055,610

 

Share capital - the ordinary issued share capital of the Company.

Share premium - consideration less nominal value of issued shares and costs directly attributable to the issue of new shares.

Warrant reserve - the value of equity settled share-based payments provided to employees, including key management personnel, and third parties for services provided.

Foreign exchange reserve - a reserve arising on conversion of company balances in the functional currency of sterling and the reporting currency of US$.

Reverse acquisition reserve - the difference between the cost of acquiring the parent company and the fair value of the parent company's net assets on the acquisition date together with the deemed cost of listing.

Retained deficit - Cumulative net gains and losses recognised in the Statement of Comprehensive Income

Members' equity - the net assets belonging to the former members.

 

NARF INDUSTRIES PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024

 

1          GENERAL INFORMATION

The principal activity of Narf Industries Plc (the "Company") and its subsidiaries (the "Group'') is the provision of research and software development services aimed at enhancing the cybersecurity measures of its US government agency clients. The subsidiaries consist of Narf Industries LLC, a California limited liability company, Narf Industries PR, LLC, a Puerto Rican limited liability company ("Narf US" or the "Operating Group") and Narf Holdings US, Inc. a Delaware corporation which was dormant throughout the period. The Company is the parent and sole member/shareholder of all three subsidiaries.

The Company is domiciled in the United Kingdom and incorporated and registered in England and Wales as a public limited company. The Company's registered office is 5 Fleet Place, London EC4M 7RD. The Company's registered number is 11701224.

2          ACCOUNTING POLICIES

2.1          Basis of preparation

The Consolidated Financial Statements of the Group have been prepared in accordance with UK-adopted international accounting standards.

The Financial Statements have been prepared under the historical cost convention unless otherwise stated. The principal accounting policies are set out below and have, unless otherwise stated, been applied consistently.

They have been prepared to reflect the acquisition of Narf Industries LLC and Narf Industries PR LLC via a reverse takeover on 15 March 2022, which resulted in the Company becoming the ultimate holding company of the Group.

The Financial Statements are prepared in US Dollar ("US$", "USD" or "$") and presented to the nearest dollar.

2.2     Consolidation and Acquisitions

The Financial Statements consolidate the financial information of the Company and companies controlled by the Group (its subsidiaries) at each reporting date following the reverse takeover on 15 March 2022.

In the consolidated statement of financial position, the share capital and share premium as at 31 December 2022 and 31 March 2024 is that of Narf Industries Plc with the reverse acquisition reserve representing the difference between the deemed cost of the acquisition and the net assets of Narf Industries plc at 15 March 2022. The consolidated statement of comprehensive income for 2022 represents the results of Narf US only up to the acquisition date (15 March 2022) at which point the results reflect the combined group, including both Narf US and the Company up to the year-end. The consolidated statement of comprehensive income for the fifteen-month period ended 31 March 2024 include the results of both the parent and the Operating Group throughout the period.

Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity, has the rights to variable returns from its involvement with the investee entity and has the ability to use its power to affect its returns. The results of subsidiaries acquired or sold are included in the financial information from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the results of acquired subsidiaries to bring their accounting policies into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. The financial statements of all Group companies are adjusted, where necessary, to ensure the use of consistent accounting policies.

The Group applies the acquisition method to account for business combinations that fall within the scope of IFRS 3.

Acquisition-related costs are expensed as incurred.

 

2.3          Comparative information

The Parent Company extended its period end from 31 December 2023 to 31 March 2024. Accordingly, current period information covers the fifteen-month period to 31 March 2024 and therefore is not directly comparable to the previous 12-month period, part of which pre-dated the reverse acquisition and therefore does not include the costs of the Parent Company.

2.4          Going concern

The Directors believe the Company and the Group have sufficient resources to continue in operational existence for the foreseeable future and at least until 31 July 2025, being 12 months after the date these financial statements were issued.

 

Over the 15 months to 31 March 2024, the Group demonstrated its ability to generate increasing revenue and manage expenses whilst accessing its existing line of credit ("LOC") to advance operations and achieving positive Adjusted EBITDA.  This was a marked improvement from the previous reporting period and a demonstration of the new Board and Executive team's ability to plan and execute its business strategy. 

 

The Group recently increased its existing LOC provided by the Group's CEO from $2 million to $2.5 million to provide additional resources to support its growth objectives.  It also closely manages its operational expenses and has significant flexibility to adjust its resources and expenses in line with its contracted revenues. Management can rapidly make decisions to redeploy resources on the exciting new projects discussed elsewhere in these report and accounts.

 

The Board also notes its announced intentions during this period to pursue joint venture funding of the Group, specifically to capitalise on its disclosed social cyber business opportunity.  The Board believes these initiatives, along with new expected social cyber contract awards. ensure its continued operation. 

 

The Board further notes the Company's potential  to pursue an LSE market fundraise in the event this is deemed appropriate and market conditions allow. 

 

Since the Group's plans, to a certain extent, are reliant on market conditions and/or third parties there remains a material uncertainty as to the Group's ability to remain a going concern as highlighted in the audit report. The Group has current liabilities (primarily due to the LOC from the CEO) which are greater than current assets at the reporting date and there is a deficit on shareholders' equity.

The Directors believe the Group's plan is based on sound analysis, with a high degree of confidence in both outcomes from either the joint venture funding or LSE market fundraise.  The primary risk determined by the Directors is timing of new contract awards for which management presented viable short-term remedies, through expense reductions and further LOC increases, to ensure the Group remains a going concern up to 31 July 2025.

2.5          Revenue Recognition

 

Substantially all of the Group's revenues derive from long-term contracts with service providers.  The contracts have monthly or quarterly milestones with contractual payments due on completion of deliverables identified with those milestones. The contractual arrangements fall into three types:

 

Research where the principal asset transferred to the client are ideas about potential cybersecurity threats and source code to test those threats;

 

Infrastructure where the principal asset transferred is a test environment along with the ongoing maintenance of the ability to test various scenarios and meetings where the principal asset transferred is the intellectual input to those meetings.

 

Meetings-based where there the contract specifies a requirement for Group employees to prepare for and attend meetings where they will share their expertise and provide insights to the meeting.

 

The nature of the research and infrastructure contracts is such that the deliverables themselves are of little value to the customer. The main value of the contract to the customer is the inherent promise that the Group will continue to provide the ideas and support to allow the customer to enhance its understanding of cybersecurity threats and how to counter them. Given that the deliverables themselves have no inherent value, the Group takes the view that revenue from research and infrastructure contracts should be recognized over time based on progress towards a milestone. For meetings-based contracts revenue is recognized when the meeting(s) occur as this is the point at which an asset is transferred to the client.

 

2.6          Segmental Reporting

 

The Group operates as two separate business segments, GR & D and GS &S (see page 8 for details), each headed by a team leader whose remuneration is linked to the success of their business segment. The revenues attributable to each business segment are detailed in the Statement of Comprehensive Income whilst an analysis of those costs attributable to each business segment is provided in Note 3.

2.7          Foreign currency translation

The financial information is presented in US Dollars which is the Group's presentational and functional currency as substantially all of the Group's operational activities are undertaken in US Dollars. The  Company's functional currency is Sterling. Sterling amounts recorded in the accounting records of the Company are converted using the year-end foreign exchange rate for the year end balances and the average foreign exchange rate for movements during the year.

Transactions in currencies other than the functional currency are recognised at the rates of exchange on the dates of the transactions.  At each balance sheet date, monetary assets and liabilities are retranslated at the rates prevailing at the balance sheet date with differences recognised in the Statement of Comprehensive Income in the period in which they arise.

2.8          Cash and cash equivalents

Cash and cash equivalents comprise cash at hand and current and instant access deposit balances at banks.

2.9          Intangible assets

Intangible assets comprise non-physical assets comprising the cost of acquiring the licensing rights in relation to the commercialisation of TIGR that can be determined with reasonable certainty. Royalty payments due to the licensor upon future sales cannot be determined with any certainty and accordingly have not been included in cost.

The license is amortised over the useful life of the license, which is based on the term of that license agreement.

All intangible assets have been assessed by management for impairment. Management consider the assets for impairment by considering if any impairment indicators, such as those listed in IAS 38, are met and that if any are met, they assess the recoverable value of the asset, being the higher of the fair value less costs to sell and value in use, and then compare this to the carrying value of the asset. Although the Group has made the decision not to seek to commercialise the TIGR license at this point, the license has been used in meeting other service obligations and is a key-component of a number of other projects that the Group has submitted proposals for. Accordingly, no impairment provision has been considered necessary.

 

In the prior year financial statements the Group recognised software development costs which represented amounts capitalized related to SaaS products available for subscription.  During the current period the new Board carried out an assessment of the treatment of this asset and came to the conclusion that the asset had not met the criteria to be recognized as an intangible under IAS 38. Accordingly, the software development costs have been derecognized resulting in a reduction in Members Equity at 31 December 2021 of $1,303,351 and the reversal of $226,938 amortisation in the comparative numbers (see note 24). 

 

2.10       Tangible fixed assets

Tangible assets comprise physical assets such as cars, office furniture and leasehold improvements which will benefit the Group over their useful life. Tangible fixed assets are being depreciated on a straight-line basis over their estimate useful lives as follows:

                Cars                                                        4 years
                Office furniture                                    4 years
                Leasehold improvements   Life of the lease  

2.11        Leased assets

Identification of leased assets

For any new contracts entered into, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for over a year in exchange for consideration'. To apply this definition the Group assesses whether the contract meets two key evaluations which are whether:

 

i)              the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group

ii)             the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract the Group has the right to direct the use of the identified asset throughout the period of use.

 

The Group assess whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.

 

Measurement and recognition of leases

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, , and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest accrued.

 

2.12       Trade and other receivables

Trade receivables are amounts due from customers for goods or services rendered in the ordinary course of business. Trade receivables are initially recognised at the amount of consideration that is unconditional, i.e. fair value and subsequently measured at amortised cost using the effective interest method, less loss allowance. Prepayments and other receivables are stated at their nominal values.

 

Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.

2.13        Trade and other payables

Trade payables are recognised initially at their fair value and subsequently measured at amortised cost, less repayments.

2.14        Financial instruments

Initial recognition

A financial asset or financial liability is recognised in the Statement of Financial Position when it arises or when the Group becomes part of the contractual terms of the financial instrument.

Classification

Financial assets at amortised cost

The Group measures financial assets at amortised cost if both of the following conditions are met

·        the asset is held within a business model whose objective is to collect contractual cash flows; and

·        the contractual terms of the financial asset generating cash flows at specified dates only pertain to capital and interest payments on the balance of the initial capital.

Financial assets which are measured at amortised cost, are measured using the Effective Interest Rate Method (EIR) and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

 

Financial liabilities at amortised cost

Financial liabilities measured at amortised cost using the effective interest rate method include current borrowings and trade and other payables that are short term in nature. Financial liabilities are derecognised if the Company's obligations specified in the contract expire or are discharged or cancelled.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate ("EIR"). The EIR amortisation is included as finance costs in profit or loss. Trade payables other payables are non-interest bearing and are stated at amortised cost using the effective interest method.

 

Derecognition     

A financial asset is derecognised when:

·       the rights to receive cash flows from the asset have expired, or

·       the Company has transferred its rights to receive cash flows from the asset or has undertaken the commitment to fully pay the cash flows received without significant delay to a third party under an arrangement and has either (a) transferred substantially all the risks and the assets  of the asset or (b) has neither transferred nor held substantially all the risks and estimates of the asset but has transferred the control of the asset.

Impairment

The Company recognises a provision for impairment for expected credit losses regarding all financial assets. Expected credit losses are based on the balance between all the payable contractual cash flows and all discounted cash flows that the Company expects to receive. Regarding trade receivables, the Company applies the IFRS 9 simplified approach in order to calculate expected credit losses. Therefore, at every reporting date, provision for losses regarding a financial instrument is measured at an amount equal to the expected credit losses over its lifetime without monitoring changes in credit risk. To measure expected credit losses, trade receivables and contract assets have been grouped based on shared risk characteristics.

2.15        Equity

Share capital is determined using the nominal value of shares that have been issued.

The Share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from the Share premium account, net of any related income tax benefits.

Equity-settled share-based payments are credited to a "Share based payments reserve" within the Consolidated statement of financial position and the Parent statement of financial position as a component of equity until related options or warrants are exercised or lapse.

The share-based payment reserve comprises share warrants issued to service providers and options issued to employees under long-term incentive schemes. Both share options and warrants are measured at fair value at the date of issue and treated as a separate component of equity.

The Foreign exchange reserve includes all exchange differences arising from translating the net assets of the parent from sterling into US Dollars, being the presentational currency.

Members equity represents the combined interests of each member of Narf US and Narf PR prior to the RTO acquisition.

The Reverse acquisition reserve relates to the costs associated with the acquisition of Narf Industries Plc. A reverse acquisition occurs if the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes and the entity whose equity interests are acquired (legal acquiree) is the acquirer for accounting purposes.

The reverse acquisition in the prior year did not constitute a business combination and was accounted for in accordance with IFRS 2 "Share-based Payments" and associated IFRIC guidance. Although the reverse acquisition was not a business combination, the Company has become a legal parent and is required to apply IFRS 10 and prepare consolidated financial statements.

The Directors have prepared these financial statements using the reverse acquisition methodology, but with the result that rather than recognising goodwill, the difference between the equity value given up by Narf US's former owners and the share of the fair value of the net assets gained by these former owners, is charged to the Consolidated Statement of Comprehensive Income as a share-based payment on reverse acquisition.

Retained earnings includes all current and prior period results as disclosed in the income statement.

2.16        Foreign currency

For the purposes of the of the consolidated financial statements, the results and financial position of each Group company are expressed in US Dollars ("$"), which is the functional currency of all of the operating entities in the Group, excluding the Company, and the presentation currency for the consolidated financial statements.

Exchange differences are recognised in the Statement of Comprehensive Income in the period in which they arise other than those arising on conversion of the Company's Statement of Financial Position on consolidation which are recognised as a foreign exchange reserve.

2.17        Earnings per share

Basic earnings per share is calculated by dividing:

The Group loss attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares by the weighted the average number of ordinary shares outstanding during the financial period.

As the Group is currently loss making none of the options or warrants in issue are dilutive to the basic earnings per share figure.

2.18        Share-based payments

The Parent Company has issued options to Directors and Group employees under long-term incentive arrangements.

Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at date of grant. The fair value so determined is expensed on a straight-line basis over the vesting period, based on the Parent Company's estimate of the number of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

Fair value is measured using the Black Scholes pricing model. The key assumptions used in the model have been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

At the time of the RTO, Narf US had entered into agreements with a number of key employees whereby they were entitled to an interest in Narf Industries LLC. Ahead of the RTO those employees entered into redemption agreements so as to release Narf US from the obligation to provide such an interest. The amounts payable under these redemption agreements had previously only been recognised as paid but at 1 January 2021 $555,647 was still outstanding. Accordingly, the Members Equity at 1 January 2021 has been reduced by $555,647 to reflect the full amounts due under these agreements at that time and the operating costs reported in the Statement of Comprehensive Income for the year ended 31 December 2022 have been reduced by $148,384 to reflect amounts payable now recognised in earlier periods.

The difference between the fair value of the net assets of the Parent Company acquired on the reverse takeover and the market value of the shares in issue on that date has been treated as a share-based payment in the comparative numbers representing the cost of Narf US obtaining a listing.

2.19       Taxation

The Parent Company is subject to taxes in the United Kingdom tax jurisdiction and, to the extent there are look through profits in the Operating Group, is also subject to taxes in the United States.  Substantially all revenue related operations are conducted by Narf Industries LLC.  Both operating subsidiaries are limited liability companies taxed as partnerships for US federal taxes.  As partnerships, neither operating subsidiary is subject to US federal income tax and the federal tax effect of those activities accrue to the Parent Company, the sole member.  Narf Industries LLC is also subject to a nominal California franchise tax, whilst  Narf Industries PR LLC is subject to the Government of the Commonwealth of Puerto income tax rate of 4%.  The Operating Group currently has substantial tax losses attributable to the Parent Company, for which no deferred tax has been recognised and accordingly, differences between Narf US's taxable income per IFRS and the basis used for tax reporting have not given rise to any deferred tax assets or liabilities.

Taxable losses of the Parent Company from its activities in the United Kingdom and that inure to the Parent Company from the two members of the Operating Group as their sole partner differ from losses for the Parent Company as reported in the accompanying consolidated income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Parent Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the accompanying parent company financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Parent Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Parent Company intends to settle its current tax assets and liabilities on a net basis.

2.20    Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the entity's accounting policies, management makes estimates and assumptions that have an effect on the amounts recognised in the financial information. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. The Directors consider that the following judgements are critical to an understanding of these accounts:

Licenses

The Parent Company was granted certain licenses during the prior year relating to the commercialisation of cybersecurity software which potentially could be key to the future business strategy. The license was granted by SRI International for a combination of cash, shares and a royalty equal to 7.5% of future revenues deriving from the license. The Directors recognised the fair value of the license on acquisition as being the cash paid plus the market value of shares issued to SRI International. No value has been assigned to the future royalty payments as they are uncertain. Accordingly future royalty payments will be expensed as incurred.

The value of the license has been assessed by management for impairment. Management consider the asset value for impairment by considering if any impairment indicators, such as those per IAS 38, are met and that if any are met, they assess the recoverable value of the license, being the higher of the Fair value less costs to sell and Value in use, and then compare this to the carrying value of the license. No impairment provision has been considered necessary. Further details are provided in Note 8.

Impairment of Narf US

The Parent Company Statement of Financial Position includes the investment in Narf US at cost less impairment. The Directors undertook an impairment review ahead of the issue of the interim financial statements for the year to 31 December 2023. At that time, the Directors took the view investment should be written down and applied an impairment provision of $7.6 million due to the Group having decided to delay commercialisation efforts until these can be funded from growth in revenues from government contracts and due to the significant reduction in the share price. A further impairment review was conducted ahead of the issue of these financial statements and no further impairment was deemed appropriate. This review involves judgements about potential future cash flows which are highly subjective and subject to matters outside the control of the Directors.

Segmental Reporting

Note 3 seeks to analyse the contribution of each business segment to the profitability of the Group. The allocation of costs includes the costs of some employees who work on both business segments which requires judgements as to the allocation of resources. Management have not sought to allocate costs related to the time of the CEO because he has agreed to waive any remuneration until his loan is repaid.

Share Based Payments

Equity-settled share-based payments are measured at fair value. Fair value is measured using the Black Scholes pricing model. The key assumptions used in the model have been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value also makes certain assumptions about whether non-market vesting conditions will be met and such assumptions are highly subjective.

Revenue recognition

The Group's revenues arise from contracts which generally have monthly or quarterly payment milestones. Some of these contracts span more than one accounting period, whilst others have an overriding omnibus agreement to provide ongoing services, with specific tasks detailed in contract amendments. The Group generally recognises revenue based on milestones that have been met or the amount of time that has progressed towards a milestone which has been met post period-end.

 

Nonetheless there is some uncertainty at each milestone date as to the extent to which additional work may have been completed and the extent to which the contracted amount attributable to each milestone represents a fair proportion of the overall contract. Management rely on the output method to allocate revenue between accounting periods.

 

2.21    Standards, amendments and interpretations to existing standards that are not yet effective

New standards, amendments to standards and interpretations:

The Company has adopted all of the new and revised Standards and Interpretations that are relevant to their operations and effective for accounting periods beginning 1 January 2023. The Company has not adopted any standards or interpretations in advance of the required implementation dates.

               

The following Standards and Interpretations have become effective and have been adopted in these financial statements. No other Standards or Interpretations have been adopted early in these financial statements.

 

Standard/Interpretation

Subject

IAS 8

Amendments - Definition of Accounting Estimates

IAS 1

Amendments - Disclosure of Accounting Policies

IFRS 3

Amendments - Business Combinations

 

The new standards have not had a material impact on these consolidated financial statements.

 

Standards not yet applied

At the date of authorisation of these financial statements, the following relevant Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective.

 

Standard

Impact on initial application

Effective date





The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

 

2.22    Financial Risk Management Objectives and Policies

The Group does not enter into any forward exchange rate contracts nor does it have any other market risks apart from the Sterling assets held by the Parent Company which are matched by Sterling liabilities.

The main financial risks arising from the Group's activities are interest rate risk, credit risk, liquidity risk and capital risk management. Further details on the risk disclosures can be found in Notes 19 and 20.

3.      REVENUE AND SEGMENTAL REPORTING

The Group records contract revenue in accordance with IFRS 15 Revenue from Contracts with Customers, which requires that revenue be recorded over time as/when performance obligations within contracts are performed/delivered. Whilst some performance obligations are defined within the Group's contracts, management consider that the main asset transferred to the customers over the term of the contract is the implied promise that the customer will have access to Group employees throughout the duration of the contract. The customer is expecting that those employees will be able to come up with ideas, explaining outputs from the software developed and generally push the boundaries to understand how to develop what may start as a concept into something that has commercial value. The Group invoices customers based on a billing schedule contained within each contract.  The Group considers trade and other receivables to be fully collectible as it has no history of non-payment; accordingly, no allowance for doubtful accounts has been recorded at either period end. Costs incurred to obtain contracts are expensed as incurred and losses on contracts are recognised in the period when determined. The Group sometimes warrants that its deliverables will perform within parameters contained in the statements of work referenced in the contracts. 

Revenue for performance obligations is generally recognised as each performance obligation is completed and, to the extent applicable, delivered - an output measurement. Where a performance obligation crosses a period end, revenue for that performance allocation is pro-rated on a time expired basis and allocated proportionately to the relevant period.

As performance obligations are completed and delivered, invoices are issued to customers and the debtor recorded in the Trade Accounts Receivables, which represents a conditional right to consideration, which generally becomes an unconditional right on payment.  There were no amounts invoiced that were subsequently challenged as being in excess of completed performance obligations as at 31 March, 2024 or 31 December, 2022 (although the Group has issued a small credit for amounts overbilled). To the extent that the measurement of outputs suggests that a future milestone has been met in part, a debtor is recorded in the caption Prepayments and Accrued Income.

During the period under review the Group established the two separate business segments of GR & D and GS & S, with each segment having a business head. The prior year numbers have been restated to reflect the different business segments.

Based on the above categories, disaggregated contract revenues and their related costs as follows:

 


 

15 months ended

31 March

2024

US$

Year ended

31 December 2022
US$


GR & D

GS& S

Comm

Total

GR & D

GS & S

Total

 

Revenue

4,509,908

3,012,545

49,000

7,571,453

1,360,684

1,165,203

2,525,887

 

Sub-contractors

(1,092,696)

-

-

(1,092,696)

(267,985)

-

(267,985)

 

Direct salaries

(1,964,774)

(1,072,306)

-

(3,037,080)

(1,170,292)

(334,500)

(1,504,792)

 

Gross profit/(loss)

1,452,438

1,940,239

49,000

3,441,677

(77,593)

830,703

753,110

 

 

Customers comprising 10% or more of Contract Revenue were as follows:


 15 months ended 31 March 2024 US$

 Percent

 Year ended 31 December 2022 US$ 

 Percent

US government procurement agency

3,012,545

39.8%

1,165,203

46.1%

DARPA

3,068,234

40.5%

1,154,939

45.8%

Others - less than 10%

1,490,674

19.7%

205,745

8.1%


7,571,453

100.0%

2,525,887

100.0%






For contractual reasons, the Company may not disclose the name of the US government procurement agency or the agencies for which this entity is pass-through. DARPA stands for Defense Advanced Research Projects Agency, a US government research and development organisation.  

4.         OPERATING LOSS

This is stated after charging:

 

15 months to

31 March

2024

US$

 

Year to

31 December 2022 (restated)
US$

Auditor's remuneration

 


-      audit of the Parent Company

137,464

174,000

-      non-audit services

 


   Reporting accountant services

-

12,000

   Review of interim financial statements

-

1,800

Amortisation of intangible assets

493,766

285,999

Depreciation of tangible fixed assets

15,990

33,529

Amortisation of right of use asset

48,173

-

Directors' remuneration

476,614

1,173,701

Other staff costs

4,989,973

1,761,070

Legal, professional and consultancy fees

548,113

451,628

 

 

5.         DIRECTORS AND STAFF COSTS

The average number of persons employed by the Group, including Directors, was:


 

 

 

15 months to 31 March 2024

 

Year to 31

Dec 2022

 


 

 

 

 

Management and technical


18

17


 

 Remuneration, other benefits supplied and social security costs to the directors and staff during the period was as follows:


 

 

 

15 months to

31 March 2024

US$

Year to

31 December 2022
US$

 

Directors and Employees:


 



Director fees and salaries


263,908

393,788


Other salaries


3,396,771

1,446,546


Social security costs


286,216

92,245


Pension costs and other benefits


496,518

222,369


Director share- based payments


212,706

404,928


Other share-based payments


810,368

-


Director bonuses


-

374,986




5,466,587

2,934,772


 

6.         TAXATION

 

 

 

 

 

 

15 months ended 31 March 2024

US$

Year ended

31 December 2022
US$

The charge for the period is made up as follows:


 


Penalties, Federal and State filing fees


15,248

7,839

Deferred tax


-

-

Taxation charge


15,248

7,839

 

 

A reconciliation of the tax charge / credit appearing in the income statement to the tax that would result from applying the standard rate of tax to the results for the period is:


 


 

15 months ended 31 Mar 2024 

US$

 

Year ended 31 December 2022 (restated)

US$


Loss before taxation


(1,438,979)

(18,675,800)


Tax credit at the small company rate of corporation tax in the UK (19%) 


(273,406)

(3,548,402)


Impact of expenses disallowed for tax purposes


291,038

3,066,878


Penalties, Federal and State filing fees


15,248

7,839


Impact of (tax losses utilised)/unrelieved tax losses carried forward


(17,632)

481,524




15,248

7,839


Estimated tax losses of $6.1 million (2022 restated: $5.9 million) are available for relief against future UK profits and estimated tax losses of $1.2 million (2022: $1.1 million) are available for relief against future US profits. No related deferred tax asset has been provided for in the accounts based on the uncertainty as to when profits will be generated against which to relieve said asset. The amount of the deferred tax asset not recognised in relation to losses for the Group is $1.4 million (2022: $1.3 million) and for the Company $1.1 million (2022: $1.1 million).

7.         EARNINGS AND DILUTED EARNINGS PER SHARE

Basic earnings 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 period.


 

 

 

 

15 months ended 31 March 2024

US$

Year ended

31 December

 2022
US$

Loss from continuing operations attributable to equity holders of the company


(1,399,471)

(18,683,639)

Weighted average number of ordinary shares in issue


1,697,381,100

1,475,948,904

Basic and fully diluted loss per share from continuing operations (cents)


(0.04)

(1.27)


No dilution has been applied in respect of the options outstanding at the period end because the Group is loss making.

 

8.            INTANGIBLE ASSETS - GROUP AND PARENT COMPANY

 

 

Licenses

 US$




Cost



At 1 January 2023


1,906,662

Foreign exchange movement


90,161

At 31 March 2024

 

1,996,823

 



Amortisation



At 1 January 2023


285,999

Charge for the period


493,766

Foreign exchange movement


18,962

At 31 March 2024


798,727

 



Net book amount



At 31 March 2024


1,198,096

At 31 December 2022 (restated)


1,620,663

 

Amortisation of licenses is charged to the Income statement in the period to which it relates and disclosed within "Depreciation and software license amortisation".  Note 24 details software development costs that were previously capitalised but now written off as a prior-year adjustment.

 

9.         TANGIBLE ASSETS - GROUP

 

 

 Cars

 

 US$

Leasehold Improvements US$

Furniture &

Equipment

US$

Total

 

US$







Cost






At 1 January 2023


147,098

25,425

222,723

395,246

Additions


-

-

-

-

At 31 March 2024

 

147,098

25,425

222,723

395,246

 






Depreciation/Impairment






At 1 January 2023


147,098

9,435

222,723

379,256

Charge for the period


-

15,990

-

15,990

At 31 March 2024


147,098

25,425

222,723

395,246

 






Net book amount






At 31 March 2024


-

-

-

-

At 31 December 2022


-

15,990

-

15,990

 

 Depreciation of tangible assets is charged to the Income statement in the period to which it relates and disclosed within "Depreciation and software license amortisation".

 

10.       INVESTMENTS IN SUBSIDIARY UNDERTAKINGS - PARENT COMPANY





 


 

 

US$


Acquisition of member interests in subsidiary undertakings:

Opening balance at 1 January 2023

 



25,600,000

Acquisition of Narf Holdings US, Inc




2,000

Impairment




(7,600,000)

Closing balance at 31 March 2024

 

 

 

18,002,000

 

Investments in subsidiary undertakings are valued at cost less the Directors' impairment assessment which reflects changes in the business plan of the subsidiaries since the reverse takeover.

 

Principal subsidiaries

The group's subsidiaries at 31 March 2024 are set out below. Two of the subsidiaries are LLCs, which have no issued share capital and accordingly the proportion of ownership interests held equals the voting rights held by the group. The country of incorporation or registration is also their principal place of business.



 

 

 

 

Ownership

Name

Country of Incorporation

Registered office

 

Principal Activity

2024

2022

Narf Industries LLC

USA

548 Market St. #37005
San Francisco, CA 94104

Provision of security goods and services to USG and affiliated entities

100%

100%

Narf Industries PR LLC

USA

1413 Avenue Ponce de León, San Juan, Puerto Rico 00907

 

Provision of security goods and services to Non-USG entities

100%

100%

Narf Holdings US, Inc

USA

251 Little Falls Drive, Wilmington, DE 19808

Dormant

100%

0%

11.       TRADE AND OTHER RECEIVABLES - GROUP AND PARENT COMPANY



Group

Company

 



As at

31 Mar

2024

US$

As at

31 Dec

2022

US$

As at

31 Mar 2024

US$

As at 31 Dec 2022
US$

 


 

 

 

 

 


Accounts receivable

314,429

640,622

252

-



Prepayments and accrued income

250,150

33,851

19,488

7,094



Other receivables

40,965

60,770

40,965

60,270




605,544

735,243

60,705

67,364


 

The Directors consider that the carrying value amount of trade and other receivables approximates to their fair value.

 

Ageing analysis

The following presents an ageing analysis of Accounts Receivable:

 

 

 

As at 31 March 2024

US$

 

As at 31 December 2022

US$

Current


157,006

-

0-30 days


157,423

640,622



314,429

640,622

 

The Group considers trade and other receivables to be fully collectible; accordingly, no bad debt provision or expenses have been recorded in either financial period ending 31 March 2024 and 31 December 2022 respectively and all amounts listed in Accounts Receivable were received post period-end.

12.       CASH AND CASH EQUIVALENTS - GROUP AND PARENT COMPANY



       Group

Company



31 Mar

2024

US$

31 Dec

2022

US$

31 Mar 2024

US$

31 Dec 2022
US$


Cash at bank and in hand

654,365

442,751

5,126

210,282



654,365

442,751

5,126

210,282

 

Cash at bank comprises balances held by the Company in current bank accounts, instant access deposit account and electronic wallets. The carrying value of these approximates to their fair value. The majority of cash is held in a bank with a BBB+ credit rating.

13.       TRADE AND OTHER PAYABLES - GROUP AND PARENT COMPANY



       Group

Company



31 Mar

2024

US$

31 Dec

2022

US$ (restated)

31 Mar 2024

US$

31 Dec 2022
US$ (restated)


Accounts payable

291,499

100,291

90,155

73,593


Loan from Director and CEO

1,550,595

1,513,727

-

-


Lease liabilities (Note 17)

93,793

-

-

-


Other payables due within one year

168,862

128,649

-

-


Accrued expenses

634,824

1,038,605

120,162

261,933



2,739,573

2,781,272

210,317

335,526

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and continuing costs. The Directors consider that the carrying value amount of trade and other payables approximates to their fair value. Refer to Note 19.

 

The Loan from Director and Chief Executive Officer represents advances to the Group (plus accrued interest of $61,095) for working capital purposes from Steve Bassi, CEO (see Note 21).  The loan was, until 28 June 2024, part of a $2 million credit facility accruing simple interest daily at the US Federal short term 1 year interest rate (4.86% at 11 April, 2023).  On 28 June 2024 the credit facility was increased to $2.5 million and the term extended to 31 July 2025, with the same rate of interest. A portion or all of the note may be repaid early without penalty and the Director may request the Group to pay amounts when working capital exceeds $500,000 at the end of any given month.  This credit facility is being presented without any discount to account for time as the facility may be partially or fully repaid prior to the due date of 31 July, 2025.  As the lender can demand repayment within one year under certain circumstances the presentation has been corrected and included in creditors falling due within one year which is a change to the prior year presentation.

14.       CREDITORS AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR - GROUP

 


 

31 March 2024

US$

 

31 December 2022
US$

Instalment note on a vehicle

-

1,727


-

1,727

 

15.       SHARE CAPITAL / SHARE PREMIUM - GROUP AND PARENT COMPANY

The Company has only one class of share. All ordinary shares of 0.1p each ("Shares") have equal voting rights and rank pari passu for the distribution of dividends and repayment of capital. As at 31 March 2024 and 31 December 2022 the Company's issued and outstanding capital structure comprised 1,697,381,100 shares and there were no other securities in issue and outstanding.

At 31 March 2024 the Company had 183.4 million options outstanding and no warrants outstanding (see note 16)

 

 

Number of shares on issue

Share capital
US$

Total
US$

Balance as at 1 January 2023

1,697,381,100

204,012

35,074,061

35,278, 073

Cancellation of warrants

-

-

114,593

VAT recovery on issue costs

-

-

106,162


 

 

 


 

Balance at 31 March 2024

1,697,381,100

204,012

35,294,816

35,498,828

 

 

16.       SHARE BASED PAYMENT RESERVE- GROUP AND PARENT COMPANY

Details of the options that were outstanding at 31 March 2024 are as follows:

Options

Granted

Exercisable from

Expiry date

Number outstanding

Exercise price

 

24.05.22

24.05.22

24.05.25

50,000,000

£0.02

08.09.23

08.09.23

08.09.33

92,325,000

£0.01

08.09.23

31.12.23

08.01.25

12,000,000

£0.01

08.09.23

31.12.23

08.09.33

13,283,333

£0.01

08.09.23

03.01.24

08.09.33

1,250,000

£0.01

08.09.23

01.02.24

08.09.33

750,000

£0.01

08.09.23

31.03.24

08.09.33

13,783,333

£0.01

An additional 236.6 million £0.01 options had been granted at the period end which are subject to vesting conditions which hadn't been met at 31 March 2024 but are expected to be met in the future.


2024
US$

2022
USS$ (restated)

At beginning of period

575,154

32,578

Fair value of warrants exercised during the period

-

(20,363)

Fair value of warrants waived during the period

(114,593)

(12,215)

Fair value of warrants and options issued during the period

1,023,074

575,1541

At end of period

1,483,635

575,154

 

1 The fair value of the options issued in 2022 has been increased by $345,969 from that previously stated to reflect the fact that the options vested on grant rather than over three years as previously disclosed. The inputs to the pricing model are detailed in the table below.

Of the amount credited to share based payment reserve $1,023,074 (year to 31 December, 2022: $460,561) related to options issued for services provided and therefore resulted in a charge to the Statement of Comprehensive Income and $nil (year to 31 December, 2022 $114,593) related to brokerage services and therefore resulted in a reduction to the share premium account.

A share-based payment credit of $114,593 (year to 31 December 2022 $12,215) was recognised during the period on waiver of the warrant by the warrant holder.

The estimated fair value of the options granted in September 2023 was calculated by applying the Black-Scholes option pricing model. The assumptions used in the calculation were as set out below:


2023/4

2022

Model input/output

10 year options

5 year options

16 mth options

3 yr options

10 mth warrants

Share price at grant date

0.75p

0.75p

0.75p

2p

2p

Exercise price

1p

1p

1p

2p

2p

Expected volatility*

76%

76%

76%

86%

86%

Expected dividends

Nil

Nil

Nil

Nil

Nil

Vesting criteria

Mainly time

Governance

Handover

None

None

Risk-free rate

4.1%

4.2%

4.9%

1.6%

1.6%

Fair value per option

0.73 cents

0.56 cents

0.25 cents

0.96 cents

0.43 cents

\* The expected volatility was calculated using historical 360-day volatility of the share price of Narf Industries plc for the year to 31 March 2023 (since the shares were suspended for a significant part of the period from 1 April 2023 to the date of grant).

The movements in share options and share warrants are as follows:


Number of options

Weighted average exercise price

Number of warrants

Weighted average exercise price

 

Outstanding as at beginning of period

50,000,000

2p

63,000,000

2p

Granted

370,036,175

1p

-

-

Waived

-

-

(63,000,000)

2p

Outstanding as at end of period

420,036,175

1p

-

-

Exercisable as at end of period

183,391,667

1p

-

-

Unvested as at end of period

236,644,508

1p

-

-

 

17.       LEASES - GROUP

As further discussed in Note 21, the Group had a lease agreement in relation to their office in California which expired on 1 June, 2023, including minimum rental payments of $4,800 per month. As this lease had a term of one year it was considered a short term lease under the requirements of IFRS 16 - Leases and the monthly rent was accounted for the in the Statement of Comprehensive Income as it became due.

Commitments payable in respect of short-term leases comprise:


31 March 2024
US$

At 31 December 2022
USS$

Less than 1yr

-

24,000

 

Effective 1 June 2023, the Group entered into a lease agreement in relation to their office in California which expires on 31 December 2024, including minimum rental payments of $5,000 per month. As this lease had a term of over one year it has been accounted for in accordance with the provisions of IFRS 16

- Leases with a right of use asset recognised in the Statement of Financial Position and an offsetting lease liability.

Additional information on the right of use asset is as follows:

 


Carrying

Amount Recognised

Depreciation

Carrying

Amount C/Fwd

 

Office

$91,154

$(48,173)

$42,981

 

The net present value of lease liabilities accounted for under IFRS 16 are all due within 1 year and comprise

 

 

 

As at 31

March 2024

As at 31

December

2022


$

$

 



Lease payments

91,154

-

Finance charges

2,639

-





93,793

-

 

18.       CONTINGENT LIABILITIES

There were no contingent liabilities at 31 March 2024 (31 December 2022: £nil).

 

19.       FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Group's financial instruments comprise primarily cash and various items such as trade debtors and trade payables which arise directly from operations. The main purpose of these financial instruments is to provide working capital for the Group's operations. The Group does not utilise complex financial instruments or hedging mechanisms.

 

Financial assets by category

The categories of financial assets are as follows:



       Group

Company



31 Mar

2024

US$

31 Dec

2022

US$

31 Mar 2024

US$

31 Dec 2022
US$


Current assets at amortised cost:

 

 

 



Accounts receivable

314,429

640,622

252

-


Other receivables

40,965

60,770

40,965

60,270


Cash and cash equivalents

654,365

442,751

5,126

210,282



1,009,759

1,144,143

46,343

270,552

 

Financial liabilities by category

The categories of financial liabilities are as follows:



Group

Company



31 Mar

2024

US$

31 Dec

2022

US$

31 Mar 2024

US$

31 Dec 2022

US$


 

 

 

 


Current Liabilities measured at amortised cost:

 


 



Accounts payable

291,499

100,291

90,155

73,593


Other payables

262,655

130,376

-

-


Short term loans

1,550,595

1,513,727

-

-



2,104,749

1,744,394

90,155

73,593

All amounts owed by the Parent Company and the Group are short term and payable in 0 to 3 months, apart from the short-term loan which is disclosed in Notes 13 and 21 and the lease liabilities disclosed in Note 17. Other payables includes an amount of $nil (2022: $20,585) which was repayable in equal monthly instalments over the 14 months to 28 February 2024. The short-term loan facility has been extended to 30 June 2025 but is repayable on demand under certain circumstances.

Credit risk

Credit risk is the risk that an amount owed to the Parent Company or the Group will not be settled as a result of the failure of the counterparty. Credit risk is considered to be minimal as accounts receivable are due from US government agencies with no history of non-payment, other receivables represent VAT due from the UK government and cash is held in high street banks with most of the deposits protected.

The maximum exposure to credit risk at the reporting date by class of financial asset was:

 



 

Group

Company



 

 

 

31 Mar

2024

 

US$

31 Dec

2022

 

US$

31 Mar 2024

 

US$

31 Dec 2022
US$


 

 

 

 

 


Accounts receivable


314,429

640,622

252

-


Other receivables


40,965

60,770

40,965

60,270


Cash and cash equivalents


654,365

442,751

5,126

210,282




1,009,759

1,144,143

46,343

270,552

 

Foreign exchange risk

The Group operates principally in the USA with income and operating costs possibly arising in US Dollars. The majority of the operating revenues and costs are incurred in US Dollars although there are a number of Sterling costs incurred by the Parent Company in relation to the costs of maintaining a listing. The Company does not hedge potential future income or costs, since the existence, quantum and timing of such transactions cannot be accurately predicted. The Company's and therefore the Group's exposure to non- US Dollar assets and liabilities is detailed below.


 


Company and Group

 

 

Sterling assets

 

 

 

 

 



31 Mar 2024

US$

31 Dec 2022
US$

 


 

 

 

 

 

Accounts receivable


 


252

-

 

Other debtors




40,965

60,270

 

Cash and cash equivalents




4,736

210,282

 





45,953

270,552

 


 



 

 

Sterling liabilities

 

 

 

 

 



31 Mar 2024

US$

31 Dec 2022
US$

 


 

 

 

 

 

Accounts payable


 


90,155

73,593

 

Other current liabilities




-

240,236

 





90,155

313,829

 

Net sterling exposure




(44,202)

(43,277)

 

 

Given the insignificant foreign exchange exposure management do not believe that sensitivity analysis would provide any meaningful information to readers of these accounts.

 

Interest rate risk

The only Parent Company or Group's asset or liability that is subject to any material interest rate risk is the loan from the CEO which has a variable interest rate. All deposits are placed with main clearing banks with minimal amounts attracting interest.

Liquidity risk

The Parent Company and the Group seeks to maintains adequate bank balances to meet those financial liabilities that are payable in the short term (between 0 to 3 months) but has access to the CEO's credit facility in the event of a shortfall.

 

20.       CAPITAL MANAGEMENT

The Group manages its capital with a view to ensuring that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the balance between debt and equity. The Group utilizes options on its shares to seek to incentivize the Directors and Group employees to remain loyal and meet strategic goals which will add shareholder value.

The capital structure of the Group as at 31 March, 2024 consisted of negative equity attributable to the equity holders of the Group, totalling $238,587 (2022: positive$31,648) bolstered by working capital advances from an officer and shareholder of $1,550,595 (2022: $1,512,000) (see Notes 13 and 21).

The Group reviews the capital structure on an on-going basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. The Group will balance its overall capital structure through new share issues or potentially through the issue of convertible debt instruments. There are no plans to pay dividends for the foreseeable future.

21.       RELATED PARTY TRANSACTIONS

The compensation payable to Key Management personnel, who comprise the Directors, comprised $263,908 in amounts payable by the Group together with the fair value of options issued in respect of services to the Group. Full details of the compensation for each Director are provided in the Directors' Remuneration Report. At year-end, an amount of $16,014 was due to a director and officer in respect of Directors remuneration.

Included in the caption Trade and Other Payables on the accompanying Consolidated Statement of Financial Position are $16,000 and $61,700 at 31 March, 2024 and 31 December, 2022 respectively, related to an office operating lease agreement with a term of one year between the Group and an entity in which an officer and shareholder is an owner. Included in the caption Trade and Other Payables on the accompanying Consolidated Statement of Financial Position are $93,793 and $nil at 31 March, 2024 and 31 December, 2022 respectively, related to an office operating lease agreement with a term of over one year between the Group and an entity in which an officer and shareholder is an owner. The amount reported in the caption Right of Use Asset in the Consolidated Statement of Financial Position of $42,981 (2022: $nil) is a right over an asset owned by that same entity.

Included in Administrative Expenses on the accompanying Consolidated Statement of Comprehensive income is US$24,000 (2022: US$57,600) in operating lease expense, $48,173 (2022: $nil) in amortisation of right of use asset and $2,639 (2022: $nil) of lease interest relating to leases entered into with that related entity  This operating lease agreement was renewed effective 1 June, 2023 through to 31

December 2024 and minimum rental payments commitments of $5,000 per month are $45,000 for the year ending 31 March, 2025. 

As further discussed in Note 13, a Director and CEO made loans to the Company which at period end totalled $1,550,595 including accrued interest (2022: $1,512,000). The amounts represent a drawdown on a $2 million credit facility with a variable rate of interest.

22.       EVENTS SUBSEQUENT TO YEAR END

Effective 28 June 2024 the loan facility from the Director and CEO was increased to $2.5 million and the term extended to 31 July 2025.

Effective 1 April 2024 the Company transferred its 100% interests in Narf Industries LLC and Narf Industries PR LLC to Narf Holdings Inc so that Narf US became indirect subsidiaries rather than direct subsidiaries of the Company.

23.       CONTROL

In the opinion of the Directors there is no single ultimate controlling party.

24.       PRIOR YEAR ADJUSTMENTS

 

The prior year financial statements were subject to a disclaimer of opinion by the auditors. Although the new auditors have not been asked to express an audit opinion on the prior year comparatives, the audit work in the current year and further analysis by management have identified a number of material misstatements in the prior year, the most significant of which are summarized below:

 

The prior year financial statements included an intangible asset relating to software development costs with a net book amount of $1,076,413. Further analysis by the Directors indicated that this asset did not meet the criteria to be recognised under IAS 38 - Intangible assets. Accordingly, the asset was derecognised effective 1 January 2021 resulting in a reduction in consolidated net assets at 31 December 2022 of $1,076,413 and a decrease in losses of $226,938 for the year ended 31 December 2022.

 

Prior to the RTO the Operating Group had granted certain key employees rights to acquire interests in Narf Industries LLC. Ahead of the RTO each of those employees entered into redemption agreements whereby those rights were converted into a cash payment entitlement. These liabilities were previously only recognised when paid but the Directors are of the view that they should have been recognised ahead of the RTO on execution of the redemption agreement. Accordingly, a liability of $555,647 has been recognised effective 1 January 2021 resulting in a reduction in consolidated net assets at 31 December 2022 of $407,263 and a reduction in net losses of $148,384 for the year ended 31 December 2022.

 

Share options issued to the Directors in 2022 were previously treated as vesting over three years but further investigation revealed they invested immediately but had a three-year term. A prior year adjustment has therefore been posted to increase the loss for the Group and Parent Company by $345,969 with a commensurate increase in the share-based payment reserve.

 

The Group had a sub-contract agreement whereby it was due to pay a proportion of fees earned on a DARPA contract to a sub-contractor.

Whilst the revenue under this contract for Q4 2022 was recognised in the Consolidated Statement of Comprehensive Income for the year ending 31 December 2022, the corresponding sub-contract cost was not. This correction has resulted in an increased loss of $141,786 for the year to 31 December 2022 and a reduction of $141,786 in the consolidated net assets at 31 December 2022.

 

The prior year financial statements reported the loan from the directors as being due after more than one year but the Director had the right to repayment in less than one year in certain circumstances and therefore the comparatives have been restated to include the amount in creditors falling due within one year to correct this error.

 

The Group significantly underestimated the audit fee accrual in 2022. A prior year adjustment has been made to increase the charge in 2022 in line with the actual cost. This resulted in an increased loss of $124,261 for the year to 31 December 2022 and a reduction of $124,461 in the consolidated net assets at 31 December 2022. The impact on the Parent Company net assets was a reduction of $21,697.

 

In addition the Directors have chosen to restate the prior year statement of comprehensive income to provide greater clarity on the comparative numbers and align the presentation with how the Group has operated in the current period. The amounts as originally presented and restated are detailed below:

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 


Year

Year

 


ended

Ended

 


31 December 2022

31 December 2022

 


(As originally stated)

(Restated)

 


US$

US$

 

Continuing operations



 

Contract revenue

2,547,125

-

 

Cost of sales

(1,828,887)

-

 

GR &D Revenue

-

1,360,684

 

GS & S Revenue

-

1,165,203

 

Gross profit

718,238

-

 

Total revenue

-

2,525,887

 

Sub-contractors

-

(267,985)

 

Administrative expenses

(3,303,583)

-

 

Operating expenses

-

(4,755,210)

 

Loss before depreciation and software licence amortisation, share based payments, interest and taxes

(2,585,345)

(2,497,308)

Depreciation and software license amortisation

(329,999)

(329,999)

Cost of sales

(147,580)

(493,549)

Operating loss

(3,062,924)

(3,320,856)

RTO Share based payment expense

(15,355,123)

(15,355,123)

Interest receivable and other finance income

3,376

3,376

Finance costs

(3,197)

(3,197)

Loss before taxation

(18,417,868)

(18,675,800)

Corporate tax

(7,839)

(7,839)

Loss for the year

(18,425,707)

(18,683,639)




Earnings per share (cents)

(1.3)

(1.3)




 

             CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

               

As at

As at


31 December 2022

(As originally stated)

31 December 2022

(Restated)


US$

US$




NON-CURRENT ASSETS



Intangible assets

2,697,076

1,620,663

Tangible assets

15,990

15,990


2,713,066

1,636,653

CURRENT ASSETS



Trade and other receivables

756,481

735,243

Cash and cash equivalents

442,751

442,751


1,199,232

1,177,994




TOTAL ASSETS

3,912,298

2,814,647




CURRENT LIABILITIES






Trade and other payables

595,962

2,781,272

NON-CURRENT LIABILITIES



Loans

1,513,727

1,727

TOTAL LIABILITIES

2,109,689

2,782,999

 



NET ASSETS

1,802,609

31,648




EQUITY



Share capital

204,012

204,012

Share premium

35,074,061

35,074,061

Reverse acquisition reserve

(16,747,959)

(16,747,959)

Foreign exchange reserve

(43,411)

(43,411)

Share based payment reserve

229,185

575,154

Retained deficit

(16,913,279)

(19,030,209)




TOTAL SHAREHOLDERS EQUITY

1,802,609

31,648

 

 

 

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