DFX.L Regulatory News (DFX)

29 July 2019

Defenx PLC

("Defenx", the "Company" or the "Group")

Full Year Results for the Year Ended 31 December 2018

and

Notice of AGM

Defenx Plc (AIM: DFX), the cyber-security software group, announces its full year results for the year ended 31 December 2018 ("2018 Accounts").

Notice of AGM

The Annual General Meeting ("AGM") of the Company will be held at the offices of Strand Hanson, 26 Mount Row, London, W1K 3SQ, on 2 September 2019 at 12:00 p.m.

The Company's 2018 Accounts are now available on its website and will be posted to shareholders, along with the Notice of AGM, shortly.

Following the publication of the 2018 Accounts, the Company is pleased to announce that it is expected that trading in the Company's ordinary shares on AIM will be restored at 7:30 a.m. today, 29 July 2019.

Enquiries

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

Chairman's statement

Whilst 2018 was a challenging year for the Company and one of great change, we have emerged more appropriately positioned for the future. Given that Defenx is an IT company, perhaps the best way to describe 2018 was as a 'reboot' year.

Strategic partnership with BV Tech

Our relationship with BV Tech continues to develop, with them as both a supportive, and now majority, shareholder and as our key strategic partner.

The €950,000 loan announced in October 2018 was subsequently switched into a convertible loan. That amount was drawn (and converted into shares) in three stages in October 2018 and in January and March 2019. As a consequence, BV Tech now owns 67.1% of Defenx.

In April 2019, we signed a sales and distribution agreement with BV Tech with two main elements. The first gives them sole rights to sell our products to certain organisations within the Italian defence, space, national security and critical infrastructures sectors until December 2023. In return, Defenx has received €1.0 million and going forward will receive 50% of any sales in excess of €5.0 million across that period. The second made BV Tech a (non-exclusive) distributor of our products through to the end of 2021, and they have committed to purchase products to a minimum value of €150,000 per quarter (total €1.2 million) in the period to December 2020. In addition, we entered into a software services agreement with BV Tech which defines our product development roadmap with a cap of €1.2 million for 2019 development spend with BV Tech.

Product Development

As has been reported previously, we terminated our relationship with our product developers in Romania in Q1 2018; moving that responsibility to BV Tech. In April 2019 we cemented further that relationship with a software services agreement with BV Tech until at least December 2020, working to an agreed product route-map.

Our next generation data security products for personal computers and mobile devices provide three pillars of protection, securing devices, data and messaging. We are particularly excited by some of the innovations in the new product portfolio.

The English language version of our Security Suite (antivirus for Windows devices) was released in January 2019, followed by the Italian language version in June 2019 and further languages are expected to follow. Next generation versions for mobile are expected to be available shortly, with the Mobile Parental Control modules for Apple and Android having already been released in February and April 2019 respectively. Secure Mail is currently in final testing for imminent release with Mobile Communications expected shortly thereafter. Finally, we are upgrading the infrastructure for Cloud backup; migration is scheduled for completion in Q4 2019. We will work with BV Tech to develop our secure messaging for delivery in 2020.

Management

A significant element of the reboot has been in the changed composition of the Board and senior management. In April 2018, the Company's founder Andrea Stecconi resigned from the Board, followed by Alessandro Poerio a month later. Andrea has continued with the Group in a customer relations role, whereas Alessandro left to pursue other interests. As a consequence of those departures, I became interim Executive Chairman on 1 June 2018.

In July 2018, both Chief Financial Officer Philipp Prince and Non-executive Director Leonard Seelig also resigned, whilst Raffaele Boccardo, the President of BV Tech, assumed the additional role of interim Deputy Executive Chairman. Philipp was replaced by Clive Eplett as interim-CFO, but given the interim nature of his appointment, he did not join the Board.

In August 2018, Nic Hellyer and Giorgio Beretta were appointed as Non-executive Directors, and chairs of the remuneration and audit committees respectively.

Our search for the right person to become CEO continues, with our preference being to make that appointment first, then recruit a permanent CFO to work alongside the new CEO.

Current trading, outlook and funding

As expected, and inevitably in the circumstances, 2018 revenues were again lower than past years, whilst we prepared our next generation products for launch readiness.

Offsetting that, we have reduced costs wherever possible. In particular, we eradicated marketing contributions to distributors that, in practice, were not generating a worthwhile return on spend. Headcount costs have also been reduced, both during the year and subsequently. Other operating costs have also been cut where possible without jeopardising the Group's future.

Our biggest charge to the profit and loss account was a further €1.9 million amortisation against development intangible assets. This non-cash charge represents 95% of cost of sales and 32% of all costs (excluding interest).

The consequence of these changes is a reduction in the operating loss to €3.5 million from €11.9 million in 2017.

The first quarter of 2019 continued in very similar vein to 2018, but the second quarter benefited from the sales agreements with BV Tech reported above. Marketing of our next generation products is expected to commence in during the second half of 2019, restarting the business after our 'reboot'.

As at 24 July 2019, the Group had cash resources of approximately €120,000, which is sufficient through to the end of August 2019, and, therefore, the Company remains reliant on the continued financial support of its major shareholder, BV Tech, going forward.

After a difficult period, we therefore look forward to the future with renewed optimism, with the release of our next generation products supporting our three pillars strategy and a further strengthened relationship with our largest shareholder, BV Tech.

Anthony Reeves

Interim Executive Chairman26 July 2019

Products and technology

Defenx is a cyber security company that offers a range of products for the mobile, PC and network security markets.

Broad product portfolio

The Defenx proposition is to solve our end-user's data security needs on all their connected devices.

Our new generation products provide consumers, corporates and public-sector organisations with three pillars of data security on personal computers and mobile devices, securing devices, data and messaging.

Our current portfolio comprises the following products:

Our market and opportunity

Global and regional drivers

Our target markets are extensive, comprising consumer, corporate and public-sector users of digital devices. Our opportunity lies in the increasing number of connected devices, the volume and sophistication of cyber-attacks and the growth in users' willingness to use online services and regulation.

More connected devices

·; According to the GSMA, at the end of 2018, two-thirds of the world's population had a mobile subscription - a total of 5.1 billion unique subscribers. By 2025, GSMA forecast this to rise to nearly 5.8 billion. Smartphone penetration also continues to grow with an estimated 3.1 billion mobile internet users in 2018 increasing to 4.0 billion by 2025 (GSMA The Mobile Economy 2019).

·; It is not just mobile devices, but the internet of things ("IoT") too. GSMA forecasts that the IoT market will grow from an installed base of 9.1 billion devices in 2018 to 25.2 billion devices by 2025, the implications of which are only just beginning to be felt.

Industrialisation of cyber-crime

Computer fraud is becoming industrialised.

·; Some concentrate on developing new methods of attack and seeking to stay ahead of the legitimate software industry and cyber-security providers, who then franchise their methodologies to operators who can use them in a variety of ways.

·; Those franchisees then operate the bought-in technologies and exploit them for criminal gain.

More attacks and data breaches

·; Form-jacking became the new 'get-rich-quick' scheme for cyber-criminals, with a monthly average of 4,800 websites being compromise and consumer credit card details harvested.

·; Ransomware continues to plague businesses and consumers, though lower returns to criminals resulted in lower activity.

·; Android remains the key target for hackers because so many devices are not regularly updated to the latest software. Android's dominant market share makes it our key focus.

·; Adoption of IoT technology continues with many devices having poor security; once connected to home or corporate networks, they offer an easy way in for hackers.

·; Following the plunge in Bitcoin values, Symantec identified a decline in 'coin mining' in 2018, although it remained popular due to low barriers to entry and minimal overhead for the attacker.

More data/online digital services

·; Migration to smartphones that operate on highspeed mobile networks, coupled with increasing consumer propensity to engage in the digital world, is driving mobile data traffic up in all regions. According to Ericsson, global mobile data traffic for all devices will increase eight-fold between 2017 and 2023, reaching 110 exabytes per month. Smartphones will account for close to 95% of total mobile data traffic by 2023 (Ericsson Mobility Report, November 2017).

More regulation

·; Regulatory compliance has been stimulating spending on security, notably in Europe with the GDPR that came into effect 25 May 2018.

·; The Facebook-Cambridge Analytica scandal is just one example where data privacy concerns may well see further regulation likely to affect security costs on corporates and public sector organisations.

Financial review

2018 was a challenging year for Defenx and, as a consequence, the financial key performance indicators shifted from operational measures to cash management and funding. With new sales effectively stalling, it became imperative to control costs and ensure cash was and continues to be sufficient to bridge the business until sales revenue from our next generation of products can provide positive cashflow for the Group.

Revenue

Reported revenue in the year was €1.42 million (2017:€2.93 million), of which 59% (€0.84 million) of this comes from the release of previously deferred income. Further, new invoicing in the second half of 2018 was only €0.31 million.

Sales via distributors were suspended during 2018 when it became clear that, after accounting for our marketing cost contributions to distributors and difficulties in cash collection, this channel was not proving profitable.

Gross margin

On those new sales that were made in 2018, there were no significant marginal (additional) costs on each sale. Therefore, cost of sales comprises primarily fixed costs of hosting (for the Defenx backup products), interim updates of security suite products and amortisation of the development costs. Hence, as a KPI, gross margin becomes a largely academic measure for the year.

Operating costs

The Board has focused more therefore on reducing overheads wherever possible. Headcount, excluding the Board, has been reduced significantly, to 6 at the year-end compared to an average of 15 in 2017. Discretionary costs have been minimised wherever possible, though the AIM quote makes a certain level of cost unavoidable, €289,000 (2017:€234,000).

There were no performance-related bonuses during this or the preceding year.

Impairments

We took the precaution to write down a further €1.35 million (being 100% of the unimpaired balance) against debtors in dispute, where collection against a legal settlement agreement is proving more troublesome than anticipated.

Having reviewed the development cost intangible asset, we determined that, after the year's amortisation charge of €1.9 million, no further impairment provision was warranted.

During the year, the Company converted €2.9 million of intercompany debt owed by Defenx Italia SRL into shares, recapitalising that business to make good historical losses. That amount was immediately impaired in full in the books of the Company.

Operating loss

The pre-tax Group loss for the year consequently was only 32% of that reported in 2017, at €3.8 million (2017: €11.8 million)

Taxation

There is no current tax charge in the year and a small release of deferred taxation arising for the treatment of interest on the convertible bond. Deferred tax assets have not been recognised on temporary timing differences or accumulated losses as it is not sufficiently certain that the Group will be able to utilise them in the near future.

Net loss and loss per share

The loss after tax attributable to ordinary shareholders of Defenx was €3.73 million (2017: €11.64 million). This equates to a loss per share of €0.154 (2017: €1.030) undiluted and €0.150 (2017: €0.796) diluted.

In light of the Group's loss for the year and substantial profit and loss reserves deficit, the Board cannot propose a dividend. Future dividend policy will be kept under review.

Cash flow

Non-cash charges to the profit and loss account resulted in the net cash outflow for the year being €1.4 million, funded by €1.4 million net proceeds of share issues. The Group also repaid €0.46 million of debt in the year, resulting in a reduction in cash holdings of €0.8 million.

Since the year-end, the Company has drawn down on the remaining €0.7 million of the convertible loan from BV Tech, which was subsequently converted in full into new ordinary shares in the Company, as well as receiving €1.0 million from the sales agreement entered into BV Tech entered into in April 2019. Following payments to BV Tech under the services agreement entered into as the same time and the payment of historic liabilities, the Group had cash of approximately €120,000 as at 24 July 2019.

Intangible assets

During the year, the company spent €0.9 million on its software codebase, of which €0.5 million was capitalised, with the remainder being treated as of a maintenance nature, so charged to cost of sales. The development cost intangible asset of €3.5 million will be written off over three years.

Financing

In October 2018 the Company entered into a €0.95 million convertible, unsecured loan arrangement with BV Tech. The loan was drawn in three instalments, in October 2018 and January and March 2019, with the cash being used for general corporate purposes. In each case, the loan was converted to new ordinary shares in the Company immediately following drawdown, at the price agreed at the outset, being £0.08 per share.

There were no other new borrowings in the year across the Group.

Gross debt at the year-end was €1.79 million (2017: €2.20 million) and net debt was €1.69 million (2017: €1.24 million). This equates to a debt-equity ratio of 107.8% (2017: 30.9%) compared to the Board's target of 25%. The substantial change reflects the significant reduction in net assets caused by the posted losses, which exceeded the reduction in the cash value of the Company's debt.

Going concern

As noted above, at 24 July 2019, the Group had cash resources of approximately €120,000, which is sufficient through to the end of August 2019, and, therefore, the Company remains reliant on the continued financial support of its major shareholder, BV Tech, going forward.

The sales and distribution agreements signed with BV Tech in April 2019 also provide a baseline cash revenue stream for 2019 and 2020. Those and any other sales in Italy bring an additional cash benefit; rather than having to pay over Italian output VAT to the exchequer, it can be offset against the R&D tax credit claimed in 2017, boosting the Group cash flow by a further 22% (the current VAT rate in Italy).

On the basis of the above, with the general release of next generation Defenx products and the continuing support of BV Tech, satisfy the Board that Defenx remains a going concern.

Principal risks and uncertainties

The Board is responsible for developing a comprehensive risk framework and a system of internal controls.

Board of Directors

As set out in the Directors' report, Philipp Prince, Chief Financial Officer, and Leonard Seelig, Non-executive Director, resigned from the Board on 11 July 2018.

Chairman's statement on governance

Dear shareholder

As Chairman of the Board of Directors of Defenx Plc (Defenx, or the Company/Group as the context requires), it is my responsibility to ensure that Defenx has both sound corporate governance and an effective Board. As Chairman of the Company, my responsibilities include leading the Board effectively, overseeing the Company's corporate governance model, communicating with shareholders, and ensuring that good information flows freely between the Executive and Non-executives Directors in a timely manner. My leadership of the Board is undertaken in a manner which ensures that the Board retains integrity and effectiveness and includes creating the right Board dynamic and ensuring that all important matters, in particular strategic decisions, receive adequate time and attention at Board meetings.

It is the Board's job to ensure that Defenx is managed for the long-term benefit of all shareholders, with effective and efficient decision-making. Corporate governance is an important part of that role, reducing risk and adding value to our business.

The Directors recognise the value of good corporate governance in every part of its business. As Defenx is an AIM quoted company, it is required to adopt a recognised corporate governance code and disclose how it complies with that code and, to the extent Defenx departs from the corporate governance provisions outlined by that code, it must explain its reasons for doing so. The Directors have adopted the requirements of the Quoted Companies Alliance's Corporate Governance Code for Small and Mid-Size Quoted Companies (the "QCA Code"), to the extent that they consider it appropriate having regard to the Company's size, board structure, stage of development and resources. The Directors considers that compliance with the QCA Code will enable them to serve the interests of all our key stakeholders, including the Company's shareholders, and will promote the maintenance and creation of long-term value in the Company. This report describes our approach to governance, including information on relevant policies, practices and the operation of the Board and its Committees. A statement detailing how the Company has applied and complies with the QCA code, and areas of any non-compliance, is provided in the corporate governance section of our website https://investors.defenx.com/corporate-governance.

The reports from the Committees' Chairmen explain how Defenx is seeking to develop its governance framework following the strategic partnership with BV Tech. We see the evolution of good governance going hand-in-hand with renewed growth of the Group. We believe that high standards of governance make an important contribution to shareholder value now and in the future.

Key governance related matters that have occurred during the financial year include the following:

·; On 24 May 2018, Alessandro Poerio tendered his resignation as Director of the Company in order to pursue other interests and left the Company on 31 May 2018. As set out in the circular sent to shareholders on 6 April 2018, it was envisaged that Philipp Prince, Chief Financial Officer, and Leonard Seelig, independent Non-executive Director, would step down from the Board. As announced on 11 July 2018, Philipp Prince completed the handover of his responsibilities to our interim Chief Financial Officer, Clive Eplett, and resigned from the Board. Leonard Seelig resigned from the Board at the same time.

On 1 August 2018, Giorgio Beretta and Nic Hellyer were appointed to the Board as Non-executive Directors.

Anthony ReevesInterim Executive Chairman26 July 2019

The Board

The Board comprises a balanced mix of Executive and Non-executive Directors with a combination of relevant skills and experience, designed to ensure there is effective leadership of the Group.

Anthony Reeves (formerly a Non-executive Director), Giorgio Beretta and Nic Hellyer are considered by the Board to be independent. In determining that they are independent the Board considered the individual's interests in the Company's shares and the share options granted to them. The Board determined that these interests aligned the Directors' interests with those of the Group and bearing in mind the small percentages held, that they remained independent. Raffaele Boccardo is not considered to be independent by virtue of his employment as CEO of BV Tech and his majority ownership stake in BV Tech, the Company's majority shareholder.

The Board is responsible for setting strategy, performance and for the stewardship of the Group, within the framework of effective controls which enable risk to be assessed and managed. Importance is placed on maintaining a robust control environment.

Anthony Reeves as interim Executive Chairman is responsible for the leadership of the Board, ensuring its effective operation and setting the agenda.

Advisers

The Board has regular contact with its advisers to ensure that it is aware of changes to generally accepted corporate governance procedures and requirements and that the Group remains, at all times, compliant with applicable rules and regulations. The Company holds appropriate insurance cover in respect of possible legal action against its Directors. The Company's Nomad supports the Board's development, specifically providing guidance on corporate governance and other regulatory matters, as required.

All Directors may receive independent professional advice at Defenx's expense, if necessary, for the performance of their duties.

The Directors have access to the services of a Company Secretary through Liam O'Donoghue, who provides advice on company secretarial and corporate governance matters. In addition, the Directors are able to take independent legal advice at the Company's expense if so required.

The Executive Directors work full time for the Company. The Non-executive Directors are each contracted to spend a minimum of 12 days per annum on Defenx business.

In order to keep Director skillsets up to date, the Board uses third parties to advise the Directors of their responsibilities including receiving advice from the Company's external lawyers, including upon the Convertible Loan Agreement signed in October2018 and the agreements signed with BV Tech in April 2019. The Board proposes to introduce a facility for Directors to receive training on relevant developments on a more regular basis. The Board reviews the appropriateness and opportunity for continuing professional development in order to keep each Director's skillset up-to-date. In addition to their general Board responsibilities, Non-executive Directors are encouraged to be involved in specific workshops or meetings, in line with their individual areas of expertise. The Board shall review annually the appropriateness and opportunity for continuing professional development, whether formal or informal.

The Board will seek to take into account any Board imbalances for future nominations. The Company is committed to a culture of equal opportunities for all employees regardless of gender. The Board aims to be diverse in terms of its range of culture, nationality and international experience. It is the Board's intention as the size and complexity of the Company grows, to set and aim to achieve gender diversity objectives pursuant to a defined diversity policy.

Board meeting attendance

The Board normally meets on a monthly basis. During the year, the Board met on sixteen scheduled occasions.

* figures based on number of meetings held whilst the Director was in-post, being only part of the year.

There were also four ad-hoc Board meetings convened in relation to items of special business in April, July, August and October 2019, which were attended by all Directors in post at the time the meeting was held.

Board performance evaluation

The Board is committed to undertaking reviews of Board and Committee performance and of individual Board members every year. The first review will be conducted once new executive directors have been appointed and in post for a reasonable period.

Risk management and internal control

The structure of the Board is subject to continual review to ensure that it is appropriate for the Company. Over the next 12 months the Company intends to review the performance of the Board as a whole to ensure that its members collectively function in an efficient manner, focusing more closely on defined objectives and targets for improving performance, as well as reviewing the effectiveness of each Committee. The Directors consider that the Company and Board are not yet of a sufficient size for a full Board performance evaluation to make commercial and practical sense, although the Board currently runs a self-evaluation process whereby the Chairman annually assesses the individual contributions of each of the members of the team to ensure that:

- Their contribution is relevant and effective;

- That they are committed; and

- Where relevant, they have maintained their independence.

Therefore, the Board accepts that the Company does not comply with this aspect of the QCA Code, although in frequent Board meetings/calls, the Directors discuss areas where they feel a change would be beneficial for the Company, and the Company Secretary remains on hand to provide advice. As the Company grows, it intends to expand the Board and, with expansion, re-consider the need for a formal Board evaluation.

The Company has not yet adopted a policy on succession planning. The Company will consider succession planning in respect of the Board and other members of senior management as appropriate, as part of its review of Board effectiveness over the next 12 months.

Corporate Culture

The Board recognises that its decisions regarding strategy and risk may impact the corporate culture of the Company as a whole and that this will impact the performance of the Group. It is aware that the tone set by the Board and by its decisions regarding strategy and risk may impact the corporate culture of the Company as a whole and on the way that employees and other stakeholders behave.

The Group operates in a manner that encourages an open and respectful dialogue with employees, customers and other stakeholders and the Board considers that sound ethical values and behaviours are crucial to the ability of the Company to achieve its corporate objectives. The Group is committed to the highest standards of personal and professional ethical behaviour, and this must be reflected in every aspect of the way in which the Company operates. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Company does.

The Directors consider that at present the Group has an open culture facilitating comprehensive dialogue and feedback and enabling positive and constructive challenge. The Executive Directors regularly meet with senior management and discuss staff well-being, development and staff feedback. Employees are encouraged to engage directly with Directors, and the Group seeks to promote Group values and behaviour through a top-down approach.

Strategy, Risk management and internal control

A description of the Group's business model and strategy can be found in the Strategic Report.

The Board is responsible for determining the nature and extent of major risks facing the Group and for establishing and maintaining a risk management framework and system of internal financial controls. The Executive Directors report any new or changed risks, and any changes in risk management/control to the Board. The Board discusses all business matters having regard to the risks for the Group and to the extent that risks inherent in a particular activity are considered significant, appropriate action is taken and steps taken to mitigate the issue. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company's competitiveness and flexibility.

The Board is satisfied that the procedures in place meet the particular needs of the Group in managing the risks to which it is exposed. The Board is satisfied with the effectiveness of the system of internal controls, but by their very nature, these procedures can provide reasonable, not absolute, assurance against material misstatement or loss. The Board has delegated responsibility to the Audit Committee for ensuring that the Company's management reviews, monitors and reports on the integrity of the consolidated financial statements of the Company and related financial information. The Audit Committee will maintain effective working relationships with the Board of Directors, executive management and the external auditors and will monitor the independence and effectiveness of the auditors and the audit. The Company has strict segregation of duties and authority controls which are reviewed annually by the auditors whom report their findings to the Audit Committee.

The Board has reviewed the need for an internal audit function and has decided that, given the nature of the Group's business and assets and the overall size of the Group, the systems and procedures currently employed provide sufficient assurance that a sound system of internal controls are in place, which safeguards the shareholders' investment and the Group's assets. An internal audit function is therefore considered unnecessary. However, the Board will continue to monitor the need for this function.

A summary of the principal risks identified by the Group and how these are mitigated is set out. The key elements of the Group's risk framework and internal control systems are:

·; A schedule of matters reserved for decision by the Board;

·; Defined responsibilities and authority limits;

·; Close involvement of the Executive Directors and other members of senior management in day-to-day operations;

·; Monthly management reporting; and

·; Comprehensive annual budgeting process and monitoring of performance against budget.

Going concern

As at 24 July 2019, the Group had cash resources of approximately €120,000, which is sufficient through to the end of August 2019, and, therefore, the Company remains reliant on the continued financial support of its major shareholder, BV Tech, going forward.

In considering the Group's going concern position, the Directors have taken into account BV Tech's support for the Group to date, that has included the provision of a loan facility of €0.95 million in October 2018, now fully drawn and converted to equity, bring its aggregate investment in the Company's equity to €4.6 million, the sales agreements signed in April 2019 and receipt of a non-binding letter of support from BV Tech for €350,000 in July 2019.

Taking into account the above, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, continue to adopt the going concern basis in preparing the Group and Company financial statements.

Relations with shareholders

The Directors are committed to regular engagement with shareholders and prospective investors and will make themselves available as appropriate.

In accordance with good governance, the Company entered into a relationship agreement with its major shareholder, BV Tech, to ensure that the Company is capable at all times of carrying on its business independently of BV Tech and its associates and for the benefit of the shareholders as a whole.

BV Tech is the Company majority shareholder and is currently interested in 25,964,850 ordinary shares representing approximately 67.1% of the Company's issued share capital.

In October 2018 BV Tech agreed to provide the Company with an unsecured loan of €0.95 million with repayment due by 1 January 2020. That loan was drawn in three instalments in October 2018, December 2018 and March 2019 and in each instance the loan was converted immediately to ordinary shares at the agreed issue price of 8 pence per share.

Information received by the Board

The Board receives information on at least a monthly basis enabling it to review operational and financial performance (including sales activity, software development progress and working capital management); forecasts (including comparison with market expectations); potentially significant transactions; and strategy.

Website

Our corporate website at investors.defenx.com provides access to Company information, announcements, published financial reports and contact details.

AGM

The forthcoming AGM will be held on 2 September 2019, providing an opportunity for the shareholders to meet and raise questions of the Chairman, other Directors and senior management.

Audit committee report

Dear shareholder

I present my Audit Committee Report for the year ended 31 December 2018, which has been prepared by the Committee and approved by the Board.

The Committee is responsible for reviewing and reporting to the Board on financial reporting, internal control and risk management, and for reviewing the performance, independence and effectiveness of the external auditors in carrying out the statutory audit. The Committee advises the Board on the statement by the Directors that the Annual Report when read as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

During the year, the Committee's primary activity involved meeting with the external auditors, considering material issues and areas of judgement, and reviewing and approving the interim and year end results and accounts.

In addition, the Committee reviewed the audit and tax services provided by Haysmacintyre LLP, the Group's external auditors. The Committee concluded that Haysmacintyre LLP are delivering the necessary audit scrutiny and that the tax services provided did not pose a threat to their objectivity and independence. Accordingly, the Committee recommended to the Board that Haysmacintyre LLP be re-appointed for the next financial year.

In the coming year, in addition to the Committee's ongoing duties, the Committee will:

·; consider significant issues and areas of judgement with the potential to have a material impact on the financial statements, including impairments of the Company's debtors, investments and technologies; and

·; keep the need for an internal audit function under review, having regard to the Company's strategy and resources.

Giorgio BerettaChairman of the Audit Committee26 July 2019

Audit committee and attendance

The Audit Committee currently comprises Giorgio Beretta (Chair) and Nic Hellyer. On 1 August 2018, Anthony Reeves and Raffaele Boccardo stepped down from the Audit Committee pending the appointment of full time Executive Directors.

Prior to his resignation on 11 July 2018, Leonard Seelig chaired the Committee. Giorgio Beretta was appointed as chairman on 1 August 2018. The Board considers that Giorgio Beretta has sufficient relevant financial experience to chair the Audit Committee given that he is a qualified accountant with over 30 years' experience and is a partner at BDO Italia.

The Committee is required by its terms of reference to meet at least twice a year.

Objectives and responsibilities

The Committee is responsible for monitoring the integrity of the Group's financial statements, including its Annual and Interim Reports, preliminary results announcements and any other formal announcements relating to its financial performance prior to release.

The Committee's main responsibilities can be summarised as follows:

·; to review the Company's internal financial controls and risk management systems;

·; to monitor the integrity of the financial statements and any formal announcements relating to the Group's financial performance, reviewing significant judgements contained in them;

·; to make recommendations to the Board in relation to the appointment of the external auditors and to recommend to the Board the approval of the remuneration and terms of engagement of the external auditors;

·; to review and monitor the external auditors' independence and objectivity, taking into consideration relevant UK professional and regulatory requirements;

·; to develop and implement policy on the engagement of the external auditors to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external auditors; and

·; to report to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and to make recommendations as to steps to be taken.

The terms of reference are reviewed annually and are available on the Company's website at investors.defenx.com.

Significant issues considered during the year ending 31 December 2018

During 2018, the Committee:

·; met with the external auditors to review and approve the annual audit plan and receive their findings and report on the annual audit;

·; considered significant issues and areas of judgement with the potential to have a material impact on the financial statements, including impairments of the Group's investments and technologies;

·; considered the integrity of the published financial information and whether the Annual Report and Accounts taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Group's position and performance, business model and strategy;

·; Agreed the change of auditors of Defenx Italia SRL from RSM to Mazars; and

·; reviewed and approved the interim and year end results and accounts.

The significant accounting areas and judgements considered by the Committee were:

Revenue recognition

The Committee again discussed the limited information available on the activation of licences sold to B2B2C customers. The Committee also considered the change in policy wording to state explicitly that deferred revenues would not be released if the related trade receivable had not been collected. On this basis and under the Group's current revenue recognition policy, the Committee continued to be satisfied that the consequential judgement taken on licences sold and not activated and the timing of release of deferred revenue in the accounts was appropriate.

The Committee also appraised the implications on revenue recognition of IFRS 15, concluding that the existing policy applied equally to the principles of IFRS 15.

Recoverability of debtors

The Committee continued to review the track record of receipts from slow-paying debtors and deterioration following the announcement of performance and integration issues in October 2017. The Committee sought regular updates from management as to the status of trade receivables (and related customer claims) and negotiations with customers to reach commercially acceptable settlements. In light of this, the Committee reviewed and accepted management proposals for a further exceptional impairment of trade receivables and was satisfied that net trade receivables were fairly stated.

Valuation of intangible assets

The Committee reviewed the basis of capitalisation and considered the intangible value attributed to its intangible software development costs.

It considered the asset impairment calculations prepared by management in light of the current and projected trading levels and is satisfied that the full year impairments and resultant net book values were prepared appropriately and on a reasonable basis.

Going concern

The Committee reviewed the cash flow forecasts for the Group and discussed the key assumptions and risks relevant to their achievement. The Committee was satisfied that the basis for adopting the going concern basis in preparing the Group and Company financial statements, set out in note 1, was reasonable.

Risk review process

The Audit Committee is responsible for reviewing the financial risks and the internal controls relating thereto but the Board as a whole has responsibility for reviewing the overall business risks and risk management framework. The Group's principal risks and uncertainties are set out in the Strategic Report together with mitigating actions and the internal controls and risk management procedures are summarised in the Corporate Governance Report.

External auditor

The Committee reviewed the effectiveness of the audit process in respect of the year ended 31 December 2017 and immediately prior to publishing this report in respect of the year ended 31 December 2018. In doing so, the Committee considered the reports produced by Haysmacintyre LLP, met the audit engagement partner and discussed the audit with the Chief Financial Officer. The Committee continues to be satisfied that the external auditors are delivering the necessary scrutiny and robust challenge in their work. Accordingly, the Committee recommended to the Board that it is appropriate to re-appoint Haysmacintyre LLP as the Group's external auditors for the next financial year.

External audit and non-audit services

During the year, Haysmacintyre LLP provided tax advisory services. An analysis of the audit and non-audit fees is provided in note 6 to the financial statements. The Committee considered the independence and objectivity of Haysmacintyre LLP in carrying out both tax and audit services. The Committee was satisfied with the written assurances received that the non-audit work undertaken by Haysmacintyre LLP did not pose a threat to their objectivity and independence.

Remuneration committee report

Dear shareholder

As Chairman of Defenx's Remuneration Committee, I present the Remuneration Committee Report for the year ended 31 December 2018, which has been prepared by the Committee and approved by the Board.

The Remuneration Committee is responsible for determining the remuneration policy for the executive Directors and other members of senior management, and for overseeing the Company's long-term incentive plans. The Board as a whole is responsible for determining Non-executive Directors' remuneration.

As an AIM quoted company, the Directors' Remuneration Report Regulations do not apply to Defenx and so the report that follows is disclosed voluntarily and has not been subject to audit. The Annual Report on remuneration will again be subject to an advisory vote by shareholders at our forthcoming AGM and we hope to receive your support.

The Committee will continue to monitor market trends and developments in order to assess those relevant for the Group's future remuneration policy.

Remuneration decisions for 2018

In light of the financial performance of the Group, no annual bonuses are payable for the year ended 31 December 2018.

There were no long-term incentive awards during the year.

In recognition of his switch from Non-executive to interim Executive Chairman, and his additional time commitment in the management of Defenx, Anthony Reeves' remuneration was increased commensurately from £30,000 per year to £90,000 per year.

Remuneration policy for 2019 and future years

Future salary awards and increases will be set in line with relevant market levels and to retain and attract high quality executives. Performance elements of remuneration will have clearly defined and challenging targets that link rewards to business performance in the short and medium-term. All variable elements of remuneration are subject to clawback or repayment in the event of serious financial misstatement or misconduct.

There have been no long-term incentive awards since admission to AIM. It remains our intention to make performance-based awards once the Board has been rebuilt.

Nic HellyerChairman of the Remuneration Committee26 July 2019

Committee members and attendance

In the first part of the year, the members of the Committee were Anthony Reeves (Chairman), Leonard Seelig and Raffaele Boccardo. The Committee were aware that the Company Chairman should not chair the Remuneration Committee. Following Leonard Seelig's resignation on 11 July 2018, Nic Hellyer and Giorgio Beretta were appointed on 1 August 2018 both joined the Remuneration Committee and the former took over the role of Chairman. Anthony Reeves and Raffaele Boccardo then stepped down from the Committee pending the appointment of full time Executive Directors.

The terms of reference are reviewed annually and are available on the Company's website at investors.defenx.com.

Single total figure of remuneration for the Directors

The table below sets out the total single figure remuneration received by each Director who served during the year ended 31 December 2018.

Alessandro Poerio was appointed to the Board as Chief Executive Officer on 20 November 2017 replacing Andrea Stecconi, who remained on the Board as an Executive Director during the year but resigned from the Board on 24 April 2018. There were no termination payments during the year. Subsequent to the year end, Alessandro Poerio and Philipp Prince received termination payments of €40,000 and €29,000 respectively.

The table below sets out the total single figure remuneration received by each Director who served during the year ended 31 December 2017.

Base salary

The Executive Directors' service agreements are as follows:

Andrea Stecconi resigned from the Board on 24 April 2018. Alessandro Poerio resigned from the Board on 24 May 2018. Philipp Prince resigned from the Board on 11 July 2018.

Benefits and pension

Alessandro Poerio and Andrea Stecconi received customary benefits by way of social contributions to relevant authorities in Italy and Switzerland respectively. Philipp Prince received medical and life insurance cover and was entitled to pension contributions of 5% of salary plus up to a further 5% of salary on a matched basis consistent with other UK staff.

Annual bonus

For the year ended 31 December 2018

The financial performance targets, primarily based on revenue growth and free cash flow, have not been met. Accordingly, no annual bonuses are payable for the year ended 31 December 2018.

Remuneration policy for Non-executive Directors

The current annual fees together with the dates of the letters of appointment are:

Following the resignation of Alessandro Poerio, from 1 June 2018, Anthony Reeves became Interim Executive Chairman, involving a greater time commitment. In recompense, his base remuneration was increased from £2,500 per month to £7,500 per month with effect from that date. With effect from 11 July 2018, when Raffaele Boccardo become Interim Executive Chairman, it was agreed that the Company would pay BV Tech £7,500 per month for his services, subject to a maximum of £70,000 in any 12 month period.

Long-term incentives for Executive and Non-executive Directors

Option Schemes

The Company established an EMI Option Scheme to provide incentives to employees, including Directors, to achieve the longer-term objectives of the Group, to give suitable recognition to the ability and industry of the individuals concerned and to attract and retain suitably experienced and able people, by providing them with the opportunity to acquire ownership interests in the Company.

The vesting of the existing options is not conditional on performance conditions; the only condition being that the individual remains an employee of the Group. Future awards will vest solely on performance.

The following share option awards have been granted to Executive Directors under the EMI Option Scheme:

The EMI status of the EMI Option Scheme ceased upon the approval of the subscription and open offer at an EGM on 23 April 2018 as a result of BV Tech's resultant shareholding exceeding 50%.

The Company established an Unapproved Share Option Scheme and the following options have been granted under this scheme:

As a result of their resignation, any options (in either scheme) held by Philipp Prince and Leonard Seelig had lapsed without exercise by 31 December 2018.

Directors' interests in shares and share scheme interests

The Directors' beneficial interests in shares, together with their respective families, as at 31 December 2018 are shown below together with their interests in share schemes.

*Raffaele Boccardo is President and CEO of BV Tech and is deemed to be beneficially interested in the shares in the company held by BV Tech on account of his 86% interest in BV Tech.

BV Tech have acquired a total of 25,964,850 ordinary shares, representing 67.1% of the Company's issued share capital, between 31 December 2016 and 18 March 2019. Save for this, there have been no changes to the Directors' shareholdings between 31 December 2016 and 30 June 2019.

None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group save as set out in note 25 to the financial statements.

Terms of office for Executive and Non-executive Directors

Alessandro Poerio's and Andrea Stecconi's service agreements were subject to termination by either party on six-months' notice. Philipp Prince's service agreement was subject to termination by either party on three-months' notice. Anthony Reeves and Leonard Seelig, whilst acting as Non-executive Directors provided their services under letters of appointment, which were terminable on three-months' notice by either party. On becoming Interim Executive Directors, Anthony Reeves' and Raffaele Boccardo's revised service contracts provide for an initial notice period of three months followed by a rolling one-month period thereafter (and their Non-executive Director terms of appointment, should their roles revert as such, are terminable on three months' and one months' notice, respectively). Giorgio Beretta and Nic Hellyer's contracts are terminable on three months' notice.

Directors' report

The Directors present their report together with the audited financial statements for the year ended 31 December 2018.

Principal activity

Defenx PLC is a public limited company incorporated in England and Wales, registered number 08993398, with its registered office at 201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT. Defenx PLC is quoted on the AIM market of the London Stock Exchange.

Its principal activity is to provide security solutions with a range of products for mobile devices and PCs, protecting them against hackers and data loss. Management and control is exercised from the UK and Defenx's main countries of operation are Italy and Switzerland.

Review of business

The Strategic Report provides a review of the business, the Group's trading for the year ended 31 December 2018, key performance indicators and an indication of research and future developments, as well as the principal risks and uncertainties facing the business.

Future developments

Working with BV Tech, Defenx will continue to develop its next generation products, releasing in 2019 first the security suite, then backup, before moving onto secure messaging in 2020. Sales and marketing efforts will focus on direct sales to the public sector, corporate and retail sectors.

Results and dividend

The results for the year ended 31 December 2018 are set out in the consolidated statement of comprehensive income. As the Company has no distributable reserves, the Directors are not able to recommend the payment of a dividend. Further, the Board believes it is in the Company's interests to retain future earnings to fund working capital needs and achieve capital growth.

Directors

The Directors who served during the year ended 31 December 2018 and up to the date of signing the financial statements were as follows:

In accordance with the Articles of Association, each Director must retire from office at the third AGM after the AGM or general meeting, as the case may be, at which he was appointed or last re-appointed.

Accordingly, Anthony Reeves will retire at the forthcoming AGM and, being eligible, will offer himself for re-election.

Directors' interests

Details of the Directors' interests in the shares of the Company and details of options granted under the Group's share scheme are set out in the Remuneration Report. No Director has any beneficial interest in the share capital of any subsidiary undertaking.

Qualifying indemnity provision

The officers of the Company are indemnified in respect of proceedings which might be brought by a third party. No cover is provided in respect of fraudulent or dishonest transactions.

Financial risk management policies and objectives

A summary of the Group's key operating risks is set out. The Group's risk management policies and objectives including exposure to price risk, credit risk, liquidity and cash flow risk are contained in note 20 to the financial statements.

Share capital

Full details of changes in the Company's share capital during the year and after the year end are set out in notes 21 and 27 to the financial statements respectively. Details of employee share options and warrants are set out in note 21 .

Substantial shareholdings

At 30 June 2019, the Company's significant shareholders were:

Political donations

During the year ended 31 December 2018 the Group made no political donations.

Events after the reporting date

Details of significant events since the balance sheet date are contained in note 27 to the financial statements.

Provision of information to the auditors

Each of the Directors who held office at the date of approval of this Directors' Report confirms that:

·; so far as he is aware, there is no relevant audit information of which the Company's and Group's auditor is unaware; and

·; he has taken all the steps he ought to have taken as a Director in order to make himself aware of any information needed by the Company and the Group's auditors in connection with their report and to establish that the auditors are aware of that information.

Auditor

Haysmacintyre LLP has expressed its willingness to continue in office as auditor to the Company. A resolution to reappoint Haysmacintyre LLP will be proposed at the forthcoming AGM.

AGM

The AGM will be held on 2 September 2019. The notice of AGM and the ordinary and special resolutions to be put to the meeting will be notified to shareholders separately from these accounts.

Approval

The Directors' report was approved on behalf of the Board on 26 July 2019.

Anthony ReevesInterim Executive Chairman

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable UK law and those IFRSs as adopted by the European Union.

Under Company law the Directors must not approve the Group and Company financial statements unless they are satisfied that they present fairly the financial position, financial performance, and cash flows of the Group and Company for that period. In preparing those financial statements, the Directors are required to:

·; Select suitable accounting policies;

·; Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·; Provide additional disclosures when compliance with the specific requirements in IRFSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

·; State that the Group and the Company have complied with IFRSs subject to any material departures disclosed and explained in the financial statements; and

·; Make judgements and estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the UK may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed in the Strategic Report above, confirms that, to the best of his knowledge:

·; The Group financial statements which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group.

·; The Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that it faces.

·; The Directors consider that the Annual Report and Accounts, taken as a whole is fair, balanced and understandable.

This responsibility statement was approved by the Board on 26 July 2019.

Anthony Reeves Raffaele BoccardoInterim Executive Chairman Interim Deputy Executive Chairman

Independent auditors' report to the members of Defenx PLC

Opinion

We have audited the financial statements of Defenx Plc (the 'parent company') and its subsidiaries (together the 'Group') for the year ended 31 December 2018 which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Company Statements of Financial Position, Consolidated and Company Statements of Cash Flows, Company and Consolidated Statements of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the financial statements:

·; give a true and fair view of the state of the Group's and Parent Company's affairs as at 31 December 2018 and of the Group's loss for the year then ended;

·; have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·; have been prepare in accordance with the requirements of the Companies Act 2006

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern

We draw attention to note 1 in the financial statements, which indicates that the Group and Company has prepared forecasts of its performance for the next two years and that these forecasts show a shortfall in funding under certain sales scenario sensitivities. These events or conditions, along with the other matters as set forth in note 1, indicate that a material uncertainty exists that may cast significant doubt on the parent company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Revenue recognition

The Group records significant revenues from business to business sales to third party distributers on a non-contingency basis with a commitment to ongoing maintenance. Our response to this presumed risk of material misstatement arising from improper revenue recognition was to consider the nature of classes of sales transactions and review methodologies for recognition and where appropriate, the deferral of income.

Recovery of trade receivables

The Group has continued to record slow recovery of trade receivable balances and has consequently made significant provision for those balances due at the reporting date.

Our audit work included but was not restricted to an assessment of the assumptions used in calculating bad debt provisions as well as referring to correspondence from third parties in respect to the likelihood of recoverability.

Going concern

The Group has recorded significantly reduced revenues, an operating loss and net cash outflow during the year which results in a risk to its ability to continue as a going concern by being unable to meet its liabilities as and when they fall due from twelve months of the approval of these financial statements.

Our audit work included but was not restricted to a review of forecasts over the forthcoming twelve months and comparison to the overall business plan; a review of the non-binding letter of support from BV Tech and their financial standing; analysis of detailed budgets and working capital forecasts; consideration of the Group's capacity to continue trading over the forthcoming twelve months; and review and confirmation of upcoming funding plans to ensure sufficient capital is available. We have noted a material uncertainty related to going concern which is highlighted in this audit report.

Valuation of intangible assets

The Group has significant intangible assets arising both from internal development and acquisitions of third party entities (namely Defenx Italia SRL, formerly Memopal SRL), including both goodwill and separately identifiable intangible assets. There is a risk that on consolidation the value of these assets is overstated.

Our audit work included but was not restricted to reviewing the impairment reviews prepared by management and giving scrutiny of associated calculations and forecasts used in determining expected future results. Our review was performed in conjunction with recent results and our understanding of the Group's business model.

Our application of materiality

The scope and focus of our audit was influenced by our assessment and application of materiality. We define materiality as the magnitude of misstatement that could reasonably be expected to influence the readers and the economic decisions of the users of the financial statements. We use materiality to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.

Materiality for the Group Financial Statements as a whole was set at €90,000, determined with reference to the revenue of the Group on a consolidated basis and the loss for the year. We report to the Audit Committee any corrected or uncorrected misstatements arising exceeding €4,500.

Performance materiality was set at €67,500, being 75% of materiality.

An overview of the scope of our audit

Our audit scope included all components and was performed to component materiality. Our audit work therefore covered 100% of group revenue, group profit and total group assets and liabilities. It was performed to the materiality levels set out above.

The audit of Defenx Italia SRL, one of the Group's subsidiaries, was performed by a component auditor in accordance with our group audit instructions.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

·; the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·; the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

·; adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·; the parent company financial statements are not in agreement with the accounting records and returns; or

·; certain disclosures of directors' remuneration specified by law are not made; or

·; we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Ian Cliffe (Senior Statutory Auditor) 10 Queen Street Place

For and on behalf of Haysmacintyre LLP, Statutory Auditors London

26 July 2019 EC4R 1AG

Consolidated statement of comprehensive income

The loss for the year arises from the Group's continuing operations.

There were no other items of comprehensive income.

Consolidated statement of financial position

Anthony Reeves Raffaele BoccardoExecutive Chairman Deputy Executive Chairman

Company statement of financial position

Company registration number: 08993398

The Company's loss for the year ended 31 December 2018 was €5,017,000 (2017: €7,694,000).

Anthony Reeves Raffaele BoccardoExecutive Chairman Deputy Executive Chairman

Consolidated statement of cash flows

Company statement of cash flows

Consolidated statement of changes in equity

Company statement of changes in equity

Notes to the consolidated financial statements

Defenx PLC is a public limited company incorporated in the UK on 11 April 2014, trading from 105 Victoria Street, London, SW1E 6QT. The Company's ordinary shares are traded on AIM. The consolidated financial statements comprise Defenx PLC and its subsidiaries, Defenx SA, a company incorporated in Switzerland, and Defenx Italia SRL (formerly Memopal SRL), a company incorporated in Italy (together referred to as the "Group"), for the year ended 31 December 2018.

The Company has taken advantage of the exemption available under section 408 of the Companies Act 2006 and has not presented the parent's own income statement. The parent's loss for the period ended 31 December 2018 amounted to €5,017,000 (2017: €7,694,000).

1. Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (adopted IFRSs).

The preparation of the financial statements in compliance with adopted IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 3.

Basis of measurement

These financial statements have been prepared on a historical cost basis, except for the following items (refer to individual accounting policies for details):

·; Financial instruments - fair value through profit or loss

·; Financial instruments - available for sale

·; Contingent consideration

·; Net defined benefit liability

·; Cash-settled share-based payment liabilities.

Basis of consolidation: business combinations and merger accounting

The financial statements have been prepared on a consolidated basis in line with the principles laid out in IFRS 3: Business Combinations. The Group's accounting policy on business combinations is set out in note 2a) below.

The standard states that in instances where group reconstructions have taken place, such as in the case of a share for share exchange, guidance should be taken from the appropriate national GAAP in preparing the financial statements. The Directors have therefore considered the implications of UK FRS 6: Acquisitions and Mergers and considered it appropriate to adopt merger accounting in respect of the acquisition of Defenx SA by the parent company in 2014. This resulted in a merger reserve in the consolidated statement of financial position, being the difference between the nominal value of new shares issued by the parent company for the acquisition of the shares and the subsidiary's own issued share capital.

The merger reserve is also used where more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue of new shares by the parent company, thereby attracting merger relief under the Companies Act 2006.

Going concern

The strategic report outlines the activities of the Group along with factors which may affect its future development and performance. The Group's financial position is discussed in the Financial Review along with details of its cash flow and liquidity.

As at 31 December 2018 the Group had net assets of €1.57 million (31 December 2017: €4.03 million) as set out in the consolidated statement of financial position. The Directors have prepared detailed forecasts of the Group's performance for the two years commencing 1 January 2019. The forecasts contain certain assumptions about the level of future sales, margins and the level of cash recovery from trading, taking a more conservative view than the forecasts considered in determining the impairment of intangible fixed assets.

As at 24 July 2019, the Group had cash resources of approximately €120,000, which is sufficient through to the end of August 2019, and, therefore, the Company remains reliant on the continued financial support of its major shareholder, BV Tech, going forward. BV Tech has provided a non binding letter of support for €350,000 in this regard.

During 2017, BV Tech subscribed for an aggregate €1.43 million in ordinary shares in the Company. In April 2018, by way of a subscription and underwritten open offer, BV Tech invested a further €1.08 million in the Company. On 1 October 2018 a loan agreement was entered into with BV Tech, whereby BV Tech provided an unsecured loan of €0.95 million with repayment due by 1 January 2020. The loan was then amended such that it became a convertible loan of the same quantum and on the same material terms.

In April 2019, Defenx Italia SRL signed a sales and distribution agreement with BV Tech with two main elements. The first gives sole rights to sell Defenx products to certain organisations within the Italian defence, space, national security and critical infrastructures sectors until December 2023. The second appointed BV Tech as a (non-exclusive) distributor of Defenx products generally. The contractual value of the former is €1m plus 50% of any sales in excess of €5m and under the latter, a commitment to purchase products to a minimum value of €150,000 per quarter (total €1.2m) up to December 2020. Together, these agreements give a substantial minimum sales revenue and cash inflow.

After considering the forecasts and the risks, the Directors recognise the uncertainty over future performance, consider it attainable and are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future with the continued support of its major shareholder, BV Tech, and, accordingly, continue to adopt the going concern basis in preparing the Group and Company financial statements.

2. Principal accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies are consistent with those applied in the prior financial year and are applied by all Group entities unless otherwise stated.

a) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the statement of income.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units (CGU) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

b) Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured in accordance with IFRS 15 Revenue from Contracts with Customers. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or services provided in the normal course of business, net of all related discounts and sales taxes.

The Group's revenues to date comprise sales of software licences, the majority of which are for 12 months with a limited number for two, three and five years. These term-based agreements include free upgrades and enhancements on a when-and-if-available basis. The Group recognises the software licence portion of revenue at the time of delivery while the portion attributable to upgrades and enhancements is deferred and recognised in the statement of comprehensive income on a straight-line basis over the period of the relevant agreement.

To the extent that the related trade receivable has not been settled in cash, deferred revenue is not recognised in the statement of comprehensive income but transferred and offset against the trade receivables balance in the statement of financial position.

Customers have no right of return; once sold, licences are neither refundable nor returnable. However, where it is in the commercial interests of the Group, management may negotiate the return or exchange of unsold licences.

c) Foreign currency

The Group's and the Company's functional and presentation currency is the Euro.

Transactions in foreign currencies are initially recorded at the respective functional currency rates ruling when the transactions occurred. Foreign currency monetary assets and liabilities are translated at the rates ruling on the reporting date. Differences arising on settlement or translation are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

d) Trade and other receivables

Trade receivables are stated at fair value, being the lower of their original invoiced value and recoverable amount. A provision for impairment is made where there is objective evidence that the Group will not be able to recover balances in full. Indications of impairment include customers in financial difficulty or seriously in default against agreed payment terms. There is no material variance between carrying and fair values.

e) Property, plant and equipment

Property, plant and equipment are recognised initially at cost. After initial recognition, these assets are carried at cost less any accumulated depreciation and impairment losses. Cost comprises the aggregate amount paid, and the fair value of any other consideration given to acquire the asset.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, and is applied separately to each identifiable component, as follows:

·; Cloud equipment: 3 to 7 years

·; Office equipment: 5 to 10 years

An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is de-recognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

f) Intangible assets

Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributable to the asset will flow to the Group and the cost of the asset can be reliably measured. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.

Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.

Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:

·; The technical feasibility of completing the intangible asset so that the asset will be available for use or sale

·; Its intention to complete and its ability and intention to use or sell the asset

·; How the asset will generate future economic benefits

·; The availability of resources to complete the asset

·; The ability to measure reliably the expenditure during development

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete, and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

Amortisation is calculated on a straight-line basis over the estimated useful lives of the assets, and is applied separately to each identifiable component, as follows:

·; Development costs: 3 to 5 years

·; Customer relationships: 3 years

g) Impairment of assets

At each balance sheet date, the Directors review the carrying amounts of property, plant, equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment. If any such indication exists, the recoverable amount of the asset, which is the higher of its fair value less costs to sell and its value in use, is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent of other assets, the Directors estimate the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amounts are based on a calculation of expected future cash flows discounted to their present value using pre-tax discount rates that reflect market assessments of the time value of money and risks specific to the asset for which the expected future cash flows have not been adjusted.

Any impairment charge is recognised in the statement of income in the period in which it occurs for assets carried at cost if the recoverable amount is less than the carrying value. Where an impairment loss subsequently reverses due to a change in the original estimate, the carrying amount of the asset is increased to the lower of the initial costs and the revised estimate of its recoverable amount.

h) Research and development tax credits

Defenx Italia SRL received R&D tax credits in Italy in the year. On the basis that these are not calculated as a function of profits and the benefit can also be offset against tax liabilities other than taxes on profits, the most appropriate basis for accounting is under IAS20 relating to government grants.

Accordingly, the recoverable amount is disclosed as a current or non-current asset as appropriate.

The tax credit also forms a subsidy against the cost of the underlying intangible asset. This element is shown separately within Deferred Revenue (rather than netted off against the carrying value of the asset) and is released to the consolidated statement of comprehensive income to offset the part of the amortisation charge relating to the subsidised element of the asset cost.

i) Pension costs

The Group makes defined contributions to its employees' pension plans according to the laws of the country of employment. The pension costs charged in the financial statements represent the contributions payable by the Group and Company during the year.

j) Share-based payments

In accordance with IFRS 2 Share-based payments reflects the economic cost of awarding shares and share options to employees and Directors by recording an expense in the statement of income equal to the fair value of the benefit awarded. The expense is recognised in the statement of income over the vesting period of the award with a corresponding increase in equity via the share-based payment reserve.

Fair value is measured by the use of a Black-Scholes model, which takes into account conditions attached to the vesting and exercise of the options. The expected life used in the model is adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Where awards are granted to employees of the subsidiary, the fair value of the award at grant is recorded in the parent company's financial statements as an increase in the value of the investment with a corresponding increase in equity via the share-based payment reserve.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

k) Leased assets and obligations

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases.

l) Operating leases

Assets leased under operating leases are not recorded on the statement of financial position. Rental payments are charged directly to the statement of income on a straight-line basis over the lease term.

m) Current and deferred taxation

Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profits ('temporary differences') and is accounted for using the balance sheet liability method.

Deferred tax liabilities are generally recognised for all taxable temporary differences.

Deferred tax assets are generally recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Where there are deductible temporary differences arising in subsidiaries, deferred tax assets are recognised only where it is probable that they will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised.

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 is realised. Deferred tax is charged or credited to the statement of income.

n) Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

o) Trade and other payables

Trade payables are recognised at fair value. There is no material variance between book and fair values.

p) Borrowings

Bank loans and overdrafts are recorded initially at their fair value, net of direct transaction costs and finance charges and are recognised in the statement of income over the term of the instrument. There is no material variance between book and fair values.

q) Convertible debt

The proceeds received on issue of the Group's convertible debt are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond. The balance of the proceeds is allocated to the equity conversion option and is recognised in the 'Convertible debt option reserve' within shareholders' equity, net of income tax effects. Issue costs incurred are allocated between liability and equity in proportion to the value of each component.

3. Judgements and estimates

The Board makes judgements and assumptions concerning the future that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The resulting accounting estimates calculated using these judgements and assumptions will, by definition, seldom equal the related actual results but are based on historical experience and expectations of future events. Actual results may differ from these estimates.

The judgements and key sources of estimation uncertainty that may have a significant effect on the amounts recognised in the financial statements are discussed below:

Revenue recognition (note 2b)

Judgement is required in the assessment of licence activation timing and the resultant period over which deferred revenue is released to the statement of income. Licences can be activated immediately upon sale (e.g. for online sales), sometime after sale (e.g. through our B2B2C customers) or not at all (e.g. typically where our licences are sold as a bundle). Management has estimated the average period from which deferred revenues start to be released. The share of revenue attributable to upgrades and enhancements that is deferred represents a small proportion of total revenue. Therefore, although the period over which deferred revenue is released is uncertain, the impact on the financial statements is not materially dependent on this judgement.

Recovery of trade receivables

In July 2018 compromise agreements were reached with four major customers, including a write down of the amount payable to Defenx by those customers. An impairment provision was made in 2017 to reduce the carrying value of these trade debtors to reflect the amount collectable under the agreements. In 2018, the remaining balance has been impaired to nil, because payments scheduled in 2019 have not been received.

Impairment of assets (note 12)

Judgement is required in the impairment assessment of assets, notably intangible software development costs. Recoverable amounts are based on a calculation of expected future cash flows, which require assumptions and estimates of future performance to be made. Cash flows are discounted to their present value using pre-tax discount rates based on the Directors market assessment of risks specific to the asset.

4. Changes in accounting policies and disclosures

New standards adopted during the year

There were two new standards or interpretations effective for the first time for periods beginning on or after 1 January 2018 that apply to the Group's financial statements although neither has a significant impact.

IFRS 9 Financial Instruments

IFRS 9 replaced IAS 39 for accounting periods commencing on or after 1 January 2018. It impacts the classification and measurement of financial instruments and requires certain additional disclosures. The changes to recognition and measurement of financial instruments and changes to hedge accounting rules do not have major impact on the Group's current accounting treatment or hedging activities due to the simple nature of our financial instruments. The standard also requires entities to use an expected credit loss model for impairment of financial assets instead of an incurred credit loss model.

The Directors anticipate that IFRS 9 will not have a material impact on the financial statements due to the significant impairment against trade receivables in 2017 and 2018. Future provisioning policy will reflect improved customer credit assessment and acceptance procedures as the Group shifts towards a mix of retail and direct corporate customer bases.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The standard introduced a single, five-step revenue recognition model that is based upon the principle that revenue is recognised at the point that control of goods or services is transferred to the customer. The standard also updates revenue disclosure requirements.

Defenx currently sells products as conventional term licences or on a renewing subscription basis. The software licence portion of term licence sales is recognised at the time of delivery to third party distributors who assume the risks and rewards associated with the onward sale of these licenses to end users, with the portion attributable to upgrades and enhancements deferred and recognised on a straight-line basis over the activated licence term. Subscription sales and related direct costs are wholly recognised over the subscription term once all recognition criteria are met.

The Directors specifically considered the application of IFRS 15 to the revenue recognition of the Group's term licence contracts. Having assessed the commercial arrangements with customers in the context of IFRS 15, the Board concluded that the earlier accounting policy and methodology continued to be equally appropriate under the new accounting standard. Accordingly, no change in accounting treatment arose or was been applied as a consequence of IFRS 15 and no adjustment made to either sales or deferred revenue.

New standards, interpretations and amendments not yet effective

There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective in future accounting periods that the Group has decided not to adopt early. The most significant of these is IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019).

Their likely impact is as follows:

IFRS 16 Leases

IFRS 16 will replace IAS 17 for accounting periods commencing on or after 1 January 2019 and will require all leases to be recognised on the balance sheet. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right-of-use assets.

During the year, the Group had only one operating lease within the scope of IFRS 16 covering two vehicle leases. For the year ended 31 December 2018, reported EBITDA would have increased by the amount of its current operating lease cost, which was approximately €10,000 (2017: €nil). Therefore, the Directors anticipate that IFRS 16 will not have a material impact on the financial statements.

Other

None of the following other standards issued by the IASB have had, or are expected to have, a material impact on the Group:

·; IFRIC 22 Foreign Currency Translations and Advance Consideration (effective 1 January 2018)

·; Amendments to IFRS 2 classification and Measurement of Share-based payment Transactions (effective 1 January 2018)

·; Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (effective 1 January 2018)

·; Amendments to IAS 40: Transfers of Investment Property (effective 1 January 2018)

·; Annual Improvements to IFRS Standards 2014-2016 cycle dealing with matters in IFRS 1 First-time Adoption and IAS 28 Investments in Associates and Joint Ventures (effective1 January 2018)

·; IFRIC 23 Uncertainty over Income Tax Positions (effective 1 January 2019)

·; Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective 1 January 2019)

·; Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective 1 January 2019)

·; IFRS 17 Insurance Contracts (effective 1 January 2021)

5. Segmental analysis

The Group operates as a single division selling three main categories of product:

·; Security - anti-malware software protection for mobile, PC and network devices

·; Protection - client, server and web-based applications to monitor, manage and secure the online activities of individuals, families and corporate employees

·; Backup - Cloud-based backup and synchronisation solutions to protect data and securely share it

Accordingly, the Group has a single reportable segment. This is consistent with the internal reporting provided to the chief operating decision-maker, identified Executive Board Directors.

Revenue by product category for the Group is as follows:

Non-current assets (capitalised development costs) by product segment for the Group are as follows:

Impairment losses by segment are disclosed in note 12. The Group does not analyse costs or assets other than intangible assets by product platform.

Geographical segments

The Group is managed centrally and accordingly the Group does not analyse costs or assets by geographical region. Revenue by customer location is as follows:

6. Operating profit

In 2018, €156,000 (2017:€234,000) of share issuance costs in respect of the Open Offer in April 2018 and subscriptions by BV Tech and placing in April and August 2017 were charged to the share premium account.

7. Staff Costs

Staff costs (including Directors' emoluments) incurred in the year were as follows:

The average monthly number of permanent employees during the period was as follows:

8. Finance income and expenses

9. Taxation

No liability to UK, Swiss or Italian income tax arose on ordinary activities for the year ended 31 December 2018. The tax (credit)/charge for 2017 was as follows:

The reasons for the difference between the actual income tax charge for the year and the standard rate of corporation tax in the UK applied to the profit for the year are as follows:

The aggregate tax rate in Switzerland was 20% during the year (2017: 20.0%). The corporation tax rate in the UK was reduced from 20% to 19% effective 1 April 2017 and 17% effective 1 April 2020.

The accumulated tax losses available to the Group at 31 December 2018 were €9.3 million (2017: €4.2 million). These losses relate to activities and are available indefinitely for offsetting against future taxable profits, of Defenx PLC in the UK, Defenx SA in Switzerland and Defenx Italia SRL in Italy. Losses have, where permitted, been carried back for offset against prior year tax payable. Loss carry back is not permitted in Switzerland.

Deferred tax is calculated in full on temporary differences under the liability method using tax rates of 19%, (2017: 19.25%, 24% (2017: 24.0%) and 20% (2017: 20.0%) being the respective effective rates of tax applicable in UK, Italy and Switzerland where the deferred tax arises. There were no deferred tax liabilities arising from these calculations at the year end.

No deferred tax asset is recognised in respect of either temporary timing differences or accumulated tax losses as it is not sufficiently certain that the Group will be able to utilise them in the near future. Accordingly, the deferred tax credit for the financial year relates to the release of the brought forward deferred tax liability as follows:

If the Group were able to recognise all unrecognised deferred tax assets, the deficit in retained earnings would decrease by €1.1 million (2017: €0.76 million).

10. Earnings per share (EPS)

Basic EPS amounts are calculated by dividing the (loss)/profit for the year attributable to ordinary equity holders of the parent company, Defenx, by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the (loss)/profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the number of shares that the convertible bond would convert into plus the weighted average number of ordinary shares that would be issued on the exercise of dilutive options (note 21).

The following reflects the income and share data used in the basic and diluted EPS computations:

Relevant transactions involving ordinary shares or potential ordinary shares since 31 December 2018 are set out in note 27.

11. Property, plant and equipment