Crossword Cybersecurity Regulatory News (CCS)

Crossword Cybersecurity Plc

2022 Annual Report and Accounts, Convertible Loan Notes and Investor Presentation

19 April 2023 - London, UK - Crossword Cybersecurity Plc (AIM:CCS, "Crossword", the "Company" or the "Group"), the technology commercialisation company focused on cyber security and risk, is pleased to announce its final results for the year ended 31 December 2022. The Annual Report and Accounts along with the Notice of its Annual General meeting ("AGM") and a Form of Proxy will be posted to Shareholders shortly and will be available on the Company's website at www.crosswordcybersecurity.com.

AGM and Investor Meeting

The AGM will be held on Monday 22nd May 2023 at 11.00am at the offices of Shakespeare Martineau LLP, 6th Floor, 60 Gracechurch Street, London EC3V 0HR.

The Company will be hosting an update on the Investor Meet Company platform on Tuesday 25th April at 12.00pm.  The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free and join the Company presentation via:

https://www.investormeetcompany.com/crossword-cybersecurity-plc/register-investor

Financial Highlights

· Achieved highest growth rate since admission to AIM in 2018, with revenue growing 68% to reach £3.65m

· 55% organic revenue growth

· 81% growth in ARR, year-end ARR of £2.4m

· 54% recurring revenue in 2022

· Significant investment in sales and marketing and product development led to higher revenue per client, up 40% year on year

· Legal and Professional fees increased by c£250k, which included costs of £346k relating to a potentially transformational transaction which did not progress because the vendor made other choices for their business

· Oversubscribed £3.6m equity fund raise in September 2022

· Loss before taxation of £4.6 million (Restated 2021: £2.7 million). For 2022 and the adjusted 2021 comparative numbers, R&D tax credits are included in Tax and are no longer included in Other Operating Income as in previous years

· Loss before taxation using the 2021 presentation was £3.8m (2021: £2.4 million)

· Total loss for the year £3.4m, after £1.1m of tax credit.

· £2.1m cash and cash equivalents at year end

Operational Highlights

· Rizikon users grew to over 1,000 by the end of 2022

· Leonardo UK selected Rizikon to assist with assessment of supply chain cyber risks, underlining Rizikon's capacity to deliver at scale

· Acquisition of Threat Status Limited, adding two new products: Trillion™ (credential breach SaaS platform) and Arc (account protection for e-commerce platform and organisations)

· Size of sales deals being secured by Trillion increased significantly compared to before its acquisition by Crossword in March 2022

· Consulting increased its cross-selling drive, selling services into numerous Rizikon clients and successfully introducing Nightingale to several Consulting clients

· Integration of Arc into Sticky Password, one of the industry's most well-established secure password vaults

· Opened an office in Singapore to support the 24/7 monitoring services provided by Nightingale

· Launch of specialist Supply Chain Cyber Risk practice, with Rizikon wrapped in a full-service consulting offer

· Oman Data Park (ODP) signed a strategic cooperation agreement to provide cyber security risk services to over 800 government, corporate and SME organisations and enhance the protection of the cyber security structure of sensitive information in Oman

· The average number of Crossword employees grew to 63 during 2022, up from 51 in 2021, representing a 24% increase

Post Period Highlights

· Launch of Ransomware Readiness Assessment service in March 2023, helping organisations reduce their exposure to ransomware attacks.

Outlook

· Targeting revenue growth of circa 50% in 2023 to £6m

· Having invested significantly for rapid growth in 2022, the focus in 2023 is on establishing a clear path to profitability

· Increased emphasis on targeting larger clients that can make full use of Crossword's range of products and services

R&D Tax Credits in FY2022 accounts have been reported in Tax, due to the majority of the claim being under the SME scheme. Historically, R&D Tax Credits have been reported as Other Operating Income. There has also been a reclassification to R&D Tax Credits in FY2021. 

Cash and Convertible Loan Notes

On 13 July 2022, the Company announced that Tom Ilube, CEO of Crossword, intended to extend his £250,000 loan notes on the same terms as other loan note holders; these loan notes expired in December 2022.  Tom Ilube had been unable to extend his convertible loan notes due to being in possession of inside information relating to the potentially transformational transaction referred to in the Chairman's Statement, which terminated earlier this year, and due to the Company subsequently being in a closed period. Tom Ilube is now in a position to complete loan notes of £250,000. These will be on the same terms as other loan notes issued or extended in 2022 with the conversion price based on the share price immediately prior to the date of issue. In addition, other potential investors, including Dr. Robert Coles Non-Executive Director of Crossword Cybersecurity Plc, have expressed interest in completing additional convertible loan notes on the same terms. The Company expects to make a further announcement shortly. Cash raised will be used to provide additional general capital for the Group.

Following payment of fees relating to the potentially transformational transaction which did not progress because the vendor made other choices and 1st anniversary earn out payment for Threat Status Limited, cash at 31 March 2023 was £0.5 million. The Company anticipates that it will need to raise additional capital later this year as it continues to progress towards cash break-even and further announcements in connection with this will be made in due course.

Tom Ilube, CEO of Crossword Cybersecurity plc, commented:

"In 2022, Crossword achieved its highest growth rate since admission to AIM in 2018, with total revenue growing 68% to reach £3.65m in 2022.

In an environment of increasing number and complexity of cyber-attacks, Crossword's business model centred around a strongly growing Consulting division and specialist cyber security products and services with distinct USPs, thrived in 2022.

Services (Consulting and Nightingale) recorded overall growth of 80%, of which 51% was recurring, as clients requested increased cyber consulting services and monitoring to better evaluate their current and potential exposure to cyber-attacks. In Products, Rizikon and Trillion both experienced strong growth, with their specialist features acting as a distinct draw for clients. 

Rizikon user numbers grew to over 1,000 users by the year end, with continuous improvement and the launch of new Rizikon modules based on client feedback strengthening its offering year on year. We are confident in continued growth for Rizikon as companies turn to technology solutions supported by specialist consulting to address their supply chain cyber risk requirements.

The size of sales deals being secured by Trillion became noticeably larger compared to before its acquisition by Crossword in March 2022, supported by an increase in dedicated and specialist sales people, an increase in cross-selling, supporting a number of Consulting activities, and inclusion in the sales partnerships launched by Crossword during the period.

Increasing Annual Recurring Revenue (ARR) is a key objective for Crossword. The value of the acquisitions made by Crossword in recent years shone through powerfully in 2022, with all products and services experiencing strong growth. In 2022, Crossword made solid progress in increasing ARR, posting an excellent 81% growth in ARR, with 54% recurring revenue in 2022 for the Company as a whole.

In terms of specific products and services, Rizikon's ARR grew 43% during the year, Nightingale's grew 29%, and vCISO's (virtual Chief Information Security Officer) ARR grew 68%.

Crossword's focus on increasing the proportion of larger clients in its client mix continued apace. Larger clients are able to make use of Crossword's range of products and services and incrementally add to revenues year on year as client relationships grow. We were pleased to see that Crossword's increased investment in sales and marketing and products development is reaping results, with average product and consulting revenue per client increasing by 40% to £28,700 per client, up from £20,500 in 2021.

2022 was a year of significant investment for Crossword, as the Company strengthened its foundations to seize the many market opportunities available. Total cost of sales and administrative expenses increased by £2.6m in 2022 compared to 2021. The increase reflects the acquisition of Threat Status Limited in March 2022, and their inclusion of Stega UK Limited, acquired in August 2021, and Verifiable Credentials Limited, acquired in May 2021, for a full year in the 2022 accounts. Legal and professional fees increased by c£250k, reflecting Crossword's ongoing drive for acquisitions during 2022.  As an ambitious company, Crossword attempted to execute a transformational acquisition in 2022. This would have doubled the size of the company and given us critical mass in one step. However, after spending considerable effort and resources, including £346,000 of legal and professional costs, we were unable to complete the deal because the vendor made other choices for their business, late in the process. We were able to minimise the impact on our core business whilst we worked on this transaction, and therefore continued to drive significant organic growth.

A primary driver for the increase in costs was a 24% increase in the average number of staff during the year compared with 2021. In 2022, Crossword invested significantly in sales and marketing and product development, which are the areas that saw the largest FTE growth.

Having invested significantly for rapid growth in 2022, Crossword has now shifted its focus in 2023 towards establishing a clear path to profitability. Staff numbers have stabilised in 2023, with a strong foundation now in place to drive the revenue growth and path to profitability. Profitability will be underpinned by improving margins, as Consulting revenue scales to achieve critical mass and as product revenues increase. Crossword's diversified product and services offering will drive scale while containing risk.

The momentum from 2022 places Crossword in a strong position to achieve at least 50% revenue growth in 2023 and our focus on margin improvement will ensure that there is a clear, carefully managed route to achieving profitability in the medium term."

- Ends -

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain

Contacts

Crossword Cybersecurity plc - Tel: +44 (0) 333 090 2587

Email: info@crosswordcybersecurity.com

Tom Ilube, Chief Executive Officer

Mary Dowd, Chief Financial Officer

Grant Thornton (Nominated Adviser) - Tel: +44 (0) 20 7383 5100

Colin Aaronson / Jamie Barklem / Ciara Donnelly

Hybridan LLP (Broker) - Tel: +44 (0)203 764 2341

Claire Louise Noyce

For media enquiries contact:

Financial PR:

David Hothersall, Kinlan Communications

davidh@kinlan.net - Tel: +44 (0) 207 638 3435

General:

Duncan Gurney, GingerPR

duncan@gingerpr.co.uk - Tel: +44 (0)1932 485 300

About Crossword Cybersecurity plc

Crossword offers a range of cyber security solutions to help companies understand and reduce cyber security risk. We do this through a combination of people and technology, in the form of SaaS and software products, consulting, and managed services. Crossword's areas of emphasis are cyber security strategy and risk, supply chain cyber, threat detection and response, and digital identity and the aim is to build up a portfolio of cyber security products and services with recurring revenue models in these four areas. We work closely with UK universities and our products and services are often powered by academic research-driven insights. In the area of cybersecurity strategy and risk our consulting services include cyber maturity assessments, industry certifications, and virtual chief information security officer (vCISO) managed services.

Crossword's end-to-end supply chain cyber standard operating model (SCC SOM) is supported by our best-selling SaaS platform, Rizikon Assurance, along with cost-effective cyber audits, security testing services and complete managed services for supply chain cyber risk management. Threat detection and response services include our Nightingale AI-based network monitoring, our Trillion and Arc breached credentials tracking platforms, and incident response. Crossword's work in digital identity is based on the World Wide Web Consortium W3C verifiable credentials standard and our current solution, Identiproof, enables secure digital verification of individuals to prevent fraud.

Crossword serves medium and large clients including FTSE 100, FTSE 250 and S&P listed companies in various sectors, such as defence, insurance, investment and retail banks, private equity, education, technology and manufacturing and has offices in the UK, Poland and Oman. Crossword is traded on the AIM market of the London Stock Exchange.

Visit Crossword at https://www.crosswordcybersecurity.com/

Chair's Statement

Growth accelerates rapidly in 2022

Crossword continued to build a strong and stable business, backed by our strategy of building a significant intellectual property-based, AIM quoted cyber security business.

Crossword recorded impressive revenue growth of 68% in 2022. The Company completed its third acquisition and continued to reap the benefits of successfully integrating previous acquisitions, with annual recurring revenue growing by 81%. Rizikon ended 2022 with over 1,000 organisations using the platform and our blue chip cyber security consulting team is growing its client base with major FTSE and Fortune clients.

Our focus now is to drive to profitability, underpinned by targeting healthy revenue growth of over 50% in 2023.

Further progress with our acquisition strategy

Crossword continued to build on its acquisition strategy in 2022 with the successful acquisition of Threat Status Ltd., a threat intelligence company. This added two additional products to the Crossword portfolio, Trillion™ and Arc. Arc is a similar product to Nixer, so post-acquisition, management took the decision to merge the two products, under the Arc product brand.

Later in the year, in line with its stated acquisition strategy, Crossword tested a further acquisition opportunity and decided it would not be in the interests of the company to proceed at that time. This exploratory approach signals the scale of Crossword's ambition to build a scaled up, profitable

cyber security company.

A strong balance sheet and robust governance

To ensure that we had the funds to progress with our rapid growth, Crossword issued additional £550k of Convertible Loan Notes in July 2022 and carried out a £3.6m oversubscribed equity fund raise in September 2022. We are very pleased that our shareholders continue to see the growth opportunities for Crossword and we would like to thank them for their commitment.

To ensure that we maintain a robust framework of controls and high standards, the Board continues to adhere to the Quoted Companies Alliance ("QCA") Corporate Governance Code (the "QCA Code") in line with the London Stock Exchange's requirement for all AIM quoted companies to adopt a recognised corporate governance code. The Corporate Governance Statement on page 38 of this report provides

further details.

Continued healthy growth with a clear path to profitability

Having invested significantly in 2022 to achieve impressive growth of nearly 68% over the past year, Crossword has now shifted its focus to defining a clear path to profitability. This is backed by strong current momentum, which aims to grow revenue in the region of 50% in 2023.

I am very proud of what our expert team has achieved over the past year and I would like to acknowledge them all. Crossword has a very strong culture and its core values of responsibility, openness, flexibility and learning underpin everything we do and are a source of particular strength that

we will leverage to grow into a strong, stable and profitable business.

Sir Richard Dearlove KCMG OBE

Chair, Crossword Cybersecurity

18 April 2023

Chief Executive Officer's review

It is my pleasure, as Chief Executive Officer, to present the Annual Report and audited accounts for Crossword Cybersecurity Plc ('Crossword' or the 'Company' or the 'Group') for the financial year ended 31 December 2022.

Crossword grew revenue by a very impressive 68% to reach £3.65m in 2022, its highest growth rate since admission to AIM in 2018. This proves that Crossword's services and products

have achieved real traction with a wide range of clients. With this momentum, we expect to see our growth rate continue strongly into 2023, whilst we drive towards profitability, which is our main priority now.

We were particularly pleased to see annual recurring revenue increase by 81% over the prior year and reach £2.4m. Whilst acquisitions naturally contributed to this strong growth in revenues, Crossword also recorded 55% growth in organic revenues.

The constantly increasing number and the growing sophistication of cyberattacks means that spending on cyber security defence is a key priority for business and governments. In 2021, the average number of cyberattacks and data breaches increased by 15.1 per cent. from the previous year. Over the next two years, security executives from over 1,200 companies polled by ThoughtLab in its 2022 cybersecurity benchmarking study see a rise in attacks from social engineering and ransomware as nation-states

and cybercriminals grow more sophisticated. As a result,"Cybersecurity failure" was ranked as a top-five risk over the next two years in East Asia and the Pacific as well as in Europe in the World Economic Forum's 2022 Global Risks Report, while four countries, namely Australia, Great Britain, Ireland and New Zealand ranked it as the number one risk. Many small, highly digitalized economies such as Denmark, Israel, Japan, Taiwan (China), Singapore and the United Arab Emirates also ranked the risk as a top-five concern.

With the ever increasing cybersecurity market, in 2022 we made it our mission to achieve critical mass by investing for growth. The executive team wanted to accelerate Crossword's growth aiming to achieve real momentum that would carry us into 2023 and beyond. We also made the decision to continue with our acquisition strategy and we succeeded in closing another excellent transaction by securing Threat Status Limited. Threat Status brought two excellent products into Crossword's portfolio, Trillion™ and Arc. Both products deliver recurring revenue to the business and brought a range of

new clients to Crossword. Trillion™ is a data breach platform that contains billions of carefully curated and continuously updated credentials that organisations can search to check the status of their usernames and passwords. Arc makes this same vast pool of information available in a different form to

product websites to protect against credential attacks. Due to Arc's overlap with our existing product, Nixer, we made the decision to merge the two products, under the product brand

name of Arc.

Rizikon, Crossword's lead product, ended 2022 with more than 1,000 organisations using the freemium version, trialling or contracted to use the product. In June we launched a new service, Supply Chain Cyber, with Rizikon at its heart wrapped in a full-service consulting offer. We are developing new leading edge modules for Rizikon and are in conversation with several potential large scale supply chain cyber clients. Increasing regulatory pressure on companies to monitor and take control of supply chain cybersecurity risks is also aiding the growth of Rizikon's sales pipeline.

Crossword's profitable and fast growing consulting business is now a trusted supplier to a number of large and medium sized companies, as well as continuing to work with smaller, entrepreneurial companies. Our vCISO (virtual Chief Information Security Officer) service, continues to be popular with all sizes of client and delivers a growing stream of recurring revenue. Along with our Nightingale network monitoring platform, which we acquired the previous year with the Stega acquisition, the Services business saw very positive overall growth of 80%, of which 51% is recurring.

On the international front, Crossword invested time and effort to firmly establish itself in Oman and is using that as a base to explore opportunities in the wider Gulf region. This effort has put us in prime position for a major Government contract in the region that, if we are successful, will generate significant revenue as well as make Crossword a strategic cyber security supplier across Government. We also signed a distribution agreement with Oman's major cloud services provider who will offer our Trillion™ product and other Crossword services to their 600 client organisations. Outside of Oman, we won business in the insurance sector in Bermuda as well as established a small team in Singapore to enable us to offer our Nightingale network monitoring service on a 24 hour basis to major clients.

During 2022, Crossword took steps to ensure that it had the funding it needed to continue executing on its strategy. Crossword extended its Convertible Loan Note programme by adding a further £550k of loan notes in July and completed a £3.6m equity fundraise in September through an oversubscribed subscription of Crossword Ordinary Shares. I was very pleased to welcome several major new

shareholders and delighted that our existing shareholders continue to back our vision and support our commitment to the journey.

Crossword is now a 70-strong, well respected, British cyber security business, with a growing reputation in the UK and beyond. We take our wider social responsibilities seriously and have supported our Polish colleagues in their efforts to help Ukrainians exiled in Poland, by matching staff donations each month for a period of 6 months up to PLN 2,500 each month.

As I close, I particularly wish to thank everyone who has helped Crossword achieve this record revenue growth which, at 68% is our fastest annual growth rate since Crossword joined AIM. Having invested significantly for rapid growth in 2022, we have now shifted our focus in 2023 towards a clear

path to profitability. The momentum from last year places us in a strong position to achieve at least 50% revenue growth in 2023 and our focus on margin improvement will ensure that there is a clear, carefully managed route to achieving profitability in the medium term. Crossword's exceptional team and its culture of responsibility, openness, flexibility and learning, gives me and the whole Executive team the confidence that we will achieve our goals for our staff, our clients and our investors.

Tom Ilube, Chief Executive Officer

Crossword Cybersecurity

18 April 2023

Notes to the Financial Information

1 Accounting Policies

1.1 The Group and its operations

Crossword Cybersecurity plc (the "Company") is a Company incorporated on 6 March 2014 in England and Wales under the Companies Act 2006. The Company is the parent company of the Crossword Group of Companies focusing on the cybersecurity sector. Crossword offers a range of cyber security solutions to help companies understand and reduce cyber security risk. We do this through a combination of people and technology, in the form of SaaS and software products, consulting, and managed services.

The financial information includes the results of the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities").

The principal accounting policies applied in the preparation of the financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

1.2 Basis of preparation of financial information

The financial information has been prepared in accordance with the requirements of the London Stock Exchange plc AIM Rules for Companies and in accordance with International Financial Reporting Standards as adopted in the United Kingdom ("UK adopted IFRS") and those parts of the Companies Act 2006 applicable to companies reporting in accordance with UK adopted IFRS.

The financial information has been prepared on the historical cost basis. The preparation of financial information in conformity with UK adopted 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. Changes in assumptions may have a significant impact on the financial information in the year the assumptions changed. Management believes that the underlying assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial information are disclosed in note1.21.

Changes in accounting policy and disclosures

During the year the Group has reviewed presentation of Gross Margin in the Income Statement to align with general principles adopted by Software-as-a-Service industry. The costs to be included in Costs of Sales are primarily application hosting expenses, customer success and customer service costs. Research and Development expenses, which were previously included in Costs of Sales, have been reclassified to Administrative expenses.

Furthermore, Amortisation and Depreciation have been separated from Administrative expenses into Other operating expense category. Prior period has been reclassified.

The Group has revised the treatment of Research and development tax credits from the approach where these get recorded following the receipt of tax relief to being recognised in the period they relate to. Prior year has not been restated.

During the period the Group has changed presentation of Research and development tax credits from Other operating income to Income tax to reflect the fact that most of the credit relates to tax relief for small and medium-sized enterprises.

The following table demonstrates re-classification of 2021 Consolidated Income Statement:

At the year end, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective. The Group is considering their impact but do not expect a material on the future results of the Group.

New standards, interpretations and amendments effective in current period

None of the new standards and amendments to the existing standards effective in the current period have been applicable to the Group's consolidated financial statements.

New standards, interpretations and amendments not yet effective

The Group adopt early the following amendments to standards which are not yet mandatory.

IFRS 17 Insurance Contracts (including the June 2020 Amendments to IFRS 17, effective from 1 January 2023)

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Accounting Estimates (effective 1 January 2023).

Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (effective 1 January 2023).

Amendments to IAS 12 Income Taxes - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective 1 January 2023).

Amendments to IAS 1 Presentation of Financial Statements - Classification of Liabilities as Current or Non-current (effective 1 January 2023).

1.3 Going Concern

The financial information has been prepared on a going concern basis. The Group's business model has been enhanced following the two acquisitions in 2021 and a further acquisition in early 2022. The Group's operations have incurred a loss in the financial year whilst the Group's products and services continue to be enhanced, developed and brought to market. The Directors' forecast in 2023 shows a trading loss with net cash outflows as the business continues to develop and enhance its products and services and grows revenue. In 2022, the Group's operations have been supported by cash inflows from customers and from the issue of £3.6m equity gross during 2022.

The Directors have considered the Group's future and forecast business and cash requirements. Following the completion of a successful fundraise in 2022, the Directors have determined that the group wants to continue to expand, while having a clear and determined focus on a path to profitability, which is expected to require successful additional fundraise.

On 12 July 2022 holders of £700,000 of loan notes extended their loan notes to be repayable 30 June 2025 and two loan note holders loaned a further £150,000 to the Company on the above terms. In both cases the conversion price was amended to 25.2p.

On 15 July 2022 a further £550,000 of loan notes were issued repayable on 14 July 2025, otherwise on the same terms as above save that the conversion price is 26.1p.

Currently, £1.5 million of loan notes remain outstanding.

The Directors have concluded that these circumstances could give rise to a material uncertainty arising from events or conditions that may cast significant doubt on the entity's ability to continue as a going concern if a further fund raise was unsuccessful. However, considering recent successful fund raises the Directors are confident that they can continue to adopt the going concern basis in preparing the financial statements.

The financial statements do not include any adjustment that may arise in the event that the Group is unable to raise finance, realise its assets and discharge its liabilities in the normal course of business.

1.4 Basis of consolidation

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control exists when then the Group has:

- the power over the investee;

- exposure, or rights, to variable returns from its involvement with the investee;

- the ability to use its power over the investee to affect the amount of the investor's returns.

All intra-Group transactions balances income and expenses are eliminated on consolidation. Uniform accounting policies are applied by the Group entities to ensure consistency.

1.5 Revenue

Revenue comprises the fair value of consideration received or receivable for licence income and the rendering of services in the ordinary course of the Group's activities. Revenue is shown net of value added tax and trade discounts. Income is reported as follows:

(a) Licence Income

Technology and product licensing revenue represents amounts earned for licenses granted under licensing agreements and recognized over time. Revenues relating to up-front payments are recognised when the obligations related to the revenues have been completed.

Revenues for maintenance and support services are recognised in the accounting periods in which the services are rendered.

(b) Rendering of Services

Services relate to implementation and deployment fees for the technology and products licensed to customers. Revenue is recognised in the accounting periods in which the services are rendered.

(c) Consulting

Consulting revenue is recognised when the performance obligation is met, primarily at a point of time. Contracts are structured to support the revenue recognition process by stating what the objectives and deliverables are for each part of the project, and the revenue attributable to each deliverable. 

(d) Software Engineering Services

Revenues for software engineering services are recognised in the accounting periods in which the services are rendered.

Contract balances

Contract related balances comprise of contract assets and contract liabilities.

Contract assets - are recognised when services are transferred to customers before consideration is received or before the Group has an unconditional right to payment for performance completed to date. Contract assets are subsequently transferred to receivables when the right of payment becomes unconditional.

Contract liabilities - are recognised when amounts are received from customers in advance of transfer of goods or services. Contract liabilities are subsequently recognised in revenue as or when the Group performs under contracts.

1.6 Functional and presentation currency

The presentation currency of the Group is pounds sterling (GBP). The functional currency of the Company is pounds sterling. The functional currency of the Company's polish subsidiary is Polish Zloty (PLN).

1.7 Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured as the aggregate of the 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 acquiree. Acquisition related costs are recognised in the income statement as incurred.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in the consolidated income statement. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash generating unit ("CGU") that is expected to benefit from the synergies of the combination. CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. Any impairment loss is recognised directly in the income statement.

1.8 Foreign operations

The assets and liabilities of foreign operations are translated into Pound sterling using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Pound sterling using the average exchange rates, which approximate the rates at the dates of the transactions, for the period.

All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

1.9 Intangible assets - research and development

Expenditure on research is written off in the period in which it is incurred.

Development expenditure incurred on specific projects is capitalised where the management is satisfied that the following criteria have been met:

• it is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the software product;

• 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.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditure that does not meet these criteria is recognised as an expense as incurred.

1.10 Property, plant and equipment

Property, plant and equipment is stated at purchase price less accumulated depreciation and impairment losses. The cost includes all expenses directly related to the purchase of a relevant asset.

All other repair and maintenance costs are charged to the income statement for the period during the reporting period in which they are incurred.

1.11 Depreciation and amortisation

Each item of property, plant and equipment is depreciated using the straight-line method over the estimated useful life and depreciation charge is included in the income statement for the period.

The depreciation is charged to the income statement for the period and determined using the straight-line method over the estimated useful life of the item of property, plant and equipment.

The expected useful lives of property, plant and equipment in the reporting and comparative periods are as follows: Useful lives in years

Computers 3.33

Furniture & fittings 3.33

Computer software development expenditure recognised as assets is amortised on a straight-line basis over their estimated useful lives, which does not exceed 5 years.

1.12 Impairment of non-financial assets

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its physical life.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

At the end of each reporting period management assesses whether the indicators of impairment of property, plant and equipment exists.

The carrying amounts of property, plant and equipment and all other non-financial assets are reviewed for impairment if there is any indication that the carrying amount may not be recoverable.

For the purpose of impairment testing the recoverable amount is measured by reference to the higher of value in use (being the net present value of expected future cashflows of a relevant cash generating unit) and fair value less costs to sell (the amount obtainable from the sale of an asset or cash generating unit in an arm's length transaction between knowledgeable, willing parties who are independent from each other less the costs of disposal).

Where there is no binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect the amount the Group would receive for the cash generating unit.

A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the income statement so as to reduce the carrying amount in the statement of financial position to its recoverable amount.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment.

This reversal is recognised in profit or loss for the period and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in prior years.

1.13 Financial Instruments

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit  or loss are recognised  immediately in profit or loss.

All financial instruments are classified in accordance with the principles of IFRS 9 Financial Instruments.

1.13 a Financial assets

Classification of financial assets

Debt instruments that meet the following conditions are subsequently measured at amortised cost:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments that meet the following conditions are subsequently measured at FVTOCI:

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

By default, all other financial assets are subsequently measured at FVTPL.

Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

For financial instruments other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including expected credit losses, to the amortised cost of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

Impairment of financial assets

The Company recognises a loss allowance for expected credit losses on financial assets that are measured at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

Expected credit loss measurement

The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.

1.13 b Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company entity are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

All financial liabilities are subsequently measured at amortised cost using the effective interest method or at "Fair Value Through Profit or Loss" ("FVTPL").

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is contingent consideration of an acquirer in a business combination to which IFRS 3 applies, or it is designated as at FVTPL.

Financial liabilities subsequently measured at amortised cost

Financial liabilities that are not 1) contingent consideration of an acquirer in a business combination, 2) held-for-trading, or 3) designated as at FVTPL, are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in the statement of comprehensive income.

1.14 Leases

The Company assesses whether a contract is or contains a lease, at inception of the contract. The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company recognises the lease payments as an administrative expense on a straight-line basis over the term of the lease.

1.15 Taxes

Current tax is calculated using rates and laws enacted or substantively enacted at the reporting date. Current tax is recognised in profit or loss unless it relates to an item of other comprehensive income or equity whereby it is recognised in other comprehensive income or equity respectively.

Deferred income tax is calculated using rates and laws enacted or substantively enacted at the reporting date that are expected to apply on reversal of the related temporary difference, and is determined in accordance with the expected manner of recovery of the related asset.

Deferred income tax is recognised in profit or loss unless it relates to an item of other comprehensive income or equity whereby it is recognised in other comprehensive income or equity respectively.

1.16 Share Based Payments

On occasion, the Company has made share-based payments to certain Directors and employees by way of issue of share options. The fair value of these payments is calculated by the Company using the binomial option valuation model and Monte Carlo simulation model.

The expense, where material, is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of the number of shares that will eventually vest.

1.17 Investments

Shares in subsidiary undertakings are stated at cost less provision for impairment. Unlisted investments are measured at fair value through profit or loss.

1.18 Intercompany Financing arrangements

The amortised cost methodology is applied to the financing arrangement between the Company and subsidiary Crossword Consulting Limited. An assessment in undertaken to determine the market rate of interest for a similar loan given the credit rating of the subsidiary to apply discounting with the principal conceptually including a financing element.

1.19 Pension Obligations

The Group operates a defined contribution pension scheme for employees in the United Kingdom. A defined contribution scheme is a pension plan under which the Group pays fixed contributions into a separate entity.

Contributions payable to the Group's pension scheme are charged to the income statement in the year to which they relate. The Group has no further payment obligations once the contributions have been paid.

In Poland, the Group pays the statutory employer's contribution into the public pension scheme for each employee, but does not operate any pension schemes. The Group implemented the Employee Capital Plans (PPK) programme which involved employee consultation and selection of a financial institution.

1.20 Cash and Cash Equivalents

Cash comprises cash-in-hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of change in value.

1.21 Accounting for Government Grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.

Government grants are recognised as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in the income statement in the period in which they become receivable.

1.22 Critical accounting estimates and judgements and key sources of estimation uncertainty

Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The following are the key estimates that the directors have made in the process of applying the Group's accounting policies and have the most significant effect on the amounts recognised in the financial information. There are no further critical accounting judgements.

Fair value of options granted to employee

The Group uses the Binomial model and Monte Carlo simulation model in determining the fair value of options granted to employees under the Group's various share schemes. The determination of the fair value of options requires a number of assumptions. The alteration of these assumptions may impact charges to the income statement over the vesting period of the award. Details of the assumptions used are shown in note 4.

Convertible Loans

The Group has given consideration to the measurement and presentation of the convertible loans.

On legal execution of the loans the financial liability is initially measured at its fair value which is the face value of the loans. Immediately after recognition, at fair value, the financial liability is measured at amortised cost, using a reasonable estimate of the Group's cost of capital. The difference between the fair value and the amortised cost is taken to the P&L account.

Impairment

An impairment assessment of the carrying value in the Company of the investment in subsidiaries is undertaken using an NPV model over the projected cash flows, with a discount rate based on the assessment of weighted average cost of capital.

Business combinations

The recognition of business combinations requires management to make estimates in order to determine fair value of consideration payable on acquisition as well as fair value of identifiable assets, particularly intangibles, and liabilities acquired. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.

Deferred tax

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. The company has taxable temporary differences that partly support the recognition of the losses as deferred tax assets based on the above. The company has determined that it cannot recognise deferred tax assets on all of the tax losses carried forward however, based on the likely characteristics, timing and level of future taxable profits, together with future tax planning strategies. Further details on taxes are disclosed in note 11.

2 Revenue and segmental information

An analysis of the Group's revenue for each period for its continuing operations, is as follows:

The IFRS 8 Operating segments requires the Group to determine its operating segments based on information which is provided internally. Based on the internal reporting information and management structures within the Group, it has been determined that there are two operating segments established in accordance to differences in products and services provided - Software product and services and Cybersecurity consulting.

These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments.

The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information regarding the Group's reportable segments is presented below:

During the year ended 31 December 2022 approximately 14% (2021: 17%) of the consolidated entity's external revenue was derived from sales to a major United Kingdom client in Cybersecurity consulting segment. No other clients accounted for more than 10% of the consolidated entity's external revenue.

No analysis of net assets by geographic segment is provided as the net assets are principally all within the UK. 

3 Expenses by nature