FLX.L Regulatory News (FLX)

FALANX GROUP LIMITED

("Falanx"or the "Company")

Preliminary results for the year ended 31 March 2020 (unaudited)

Falanx Group Limited (AIM: FLX), the global cyber security and intelligence services provider, is pleased to announce its unaudited preliminary results for the year ended 31 March 2020.

Financial highlights

Results for the year to 31 March 2020 as per trading update 28 September 2020

· Revenues increased 12% to £5.85m (2019: £5.21m)

· Contribution from monthly recurring revenues consistent with 2019 at 56% of total revenues, with an overall increase of circa £0.3m in recognitions, attributable to strong growth and long-term recurring contracts

· The monthly recurring revenue run rate at 31 March 2020 was £0.26m (2019: £0.24m)

· Large scale rollout of Assynt recurring revenue contracts fuelled its revenue growth of 30% to 2.14m (2019: £1.64m)

· H2 gross margins increased to 43% from 32% following operational restructuring in the Cyber division. Overall gross margins were 38% (2019: 44%)

· New operational structure in the second half of the year greatly benefited the Cyber division improving divisional gross margins from 30% to 45%

· Majority of infrastructure investment programme completed in the first half of the year resulting greatly reduced spend in the second half

· Adjusted EBITDA* loss £1.56m (2019: £1.25m) following investment in sales and marketing program in the first 6 months

· Overall loss £2.88m (2019: £1.83m)

· Loss per share 0.72p (2019: 0.58p)

· Shareholders' funds £4.97m (2019: £7.63m)

Operational highlights

· Furnace platform spun out December 2019 reducing cash spend by c£40,000 per month

· In March 2020 the Company moved to a 'virtual structure' fully able to support clients in a COVID-19 environment. All staff safe and protected

Post period highlights

· Monthly Cyber services customer orders now back to pre COVID-19 levels

· Sales pipeline is now stronger and opportunities starting to progress including uptake of new cyber service offerings

· The move to an online world with remote working post COVID-19 will increase cyber risk and a resultant increase in the demand for protective cyber security services.

· New Cyber Security monitoring service (Triarii) launched August 2020, major new reseller into UK government sector appointed, contracts won and generating revenue

· Cyber Security monitoring service expanded to include endpoint detection, creating a strong margin and volume growth opportunity into smaller SMEs

· Joined SolarWinds TAP programme, Falanx now well positioned with Triarii to address their global base of over 22,000 MSPs

· Assynt division profitable with strong pipeline of new recurring revenue opportunities with some of the world's largest companies

· Total spend** in the six months to 30 September 2020 circa 30% lower than the same period in 2019, two offices closed with physical presence now at the Reading Security Operations Centre ("SOC")

· Balance sheet strengthened following £1.25m equity fundraising completed 29 September 2020 and remains debt free

· Stifel appointed sole broker

· Cash of £1.33m at 1 October 2020, following receipt of initial tranche of net proceeds from fundraising, sufficient cash for organic operations, normal working capital profile

* Adjusted EBITDA is a non-IFRS headline measure used by management to measure the Group's performance and is based on operating profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and highlighted items.

** Total spend is the total operating costs, cost of sales, capital expenditure and any highlighted costs.

Mike Read, Chief Executive, said: 

"In the second half of the year under review the streamlined business was growing well, and we were on target to achieve profitability. Clearly the impact of COVID-19 has created some delays, but we have seen a strong resurgence in orders in the Cyber division since August as organisations need to deal with an increasing cyber security risk, and orders are now very close to pre pandemic levels. Our new cyber security monitoring service Triarii is getting positive customer uptake in the UK and US, and it is now part of the SolarWinds global TAP program with its access to over 22,000 Managed Service Providers ("MSPs") globally. The Assynt division is profitable and has a solid basis of contracts as well as new prospects with the world's largest companies. We continue to tightly control our costs as we push to profitability and we are optimistic about the future"

The Company will post its report and accounts onto its website (www.falanx.com) for the financial year ended 31 March 2020 together with its notice of AGM shortly and these will be available to download in accordance with AIM Rule 20.

Enquiries:

About Falanx

Falanx Group Limited, is a global intelligence and cyber defence provider working with blue chip and government clients. For more information: http://www.falanx.com/

Chairman's Statement

During the period under review and, indeed, subsequent to the financial year end in March 2020, your company has had to develop and adapt to the unprecedented times we are living in today. The past 12 months have seen the Cyber Security and Intelligence market evolve rapidly with the need for our cyber audit and monitoring services being paramount in the protection of data and potential security breaches. Ironically, the more distributed working environment engendered by COVID-19 working practices has increased the threat of cyber vulnerability at a time when many companies have forced to cut back their operating expense budgets in order to ensure they are well resourced to ride out the uncertain business environment. We have been working hard to educate the SME business community that the need for cyber testing and protection is increasing rather than diminishing and I believe that message is beginning to gain traction.

The almost daily announcements by companies, both big and small, that they have fallen victim to some form of cyber-crime, whether by data theft or system ransom, bears testimony to the gulf in understanding between those whose fiduciary duty it is to protect their corporate assets and those who are out to steal them. At the moment, we believe the threat actors have the upper hand due, in part, to the embedded complacency of directors about the extent of the cyber risk and vulnerability that exists within their organisations.

We are pleased to report that in the past financial year overall revenues have organically increased by 12% to £5.85m (2019: £5.12m), this was largely attributable to the increased performance shown in H2. Both divisions were making steady progress before the Coronavirus outbreak, demonstrating the Company was heading in the right direction and reconfirming the strategy adopted by the Board.

The structure of Falanx has been adjusted to streamline the operations of the Company. As announced in December 2019, the sale of the technology platform known as Furnace was completed. This reduced our cash expenditure requirements freeing us to progress our core Cyber Services and Business Intelligence businesses and provide a solid foundation for the Group to progress. Falanx Assynt, the Group's strategic intelligence division, has seen consistent progression due to its strong recurring revenue contracts with global companies. This has allowed the division to develop rapidly and move towards an even greater more recurring revenue model.

Group Strategy

After a positive end to the financial year, we were faced with the potential consequences of COVID-19. With the escalation of the pandemic, the Board responded quickly by implementing certain measures allowing operations to continue servicing our clients.

One measure introduced was all employees being encouraged to work remotely. This was possible due to the technical infrastructure and our processes and protocols which have resulted in negligible interruption to service provision. As announced on 31 March 2020, the Group had also implemented certain measures designed to strengthen the Company's balance sheet and expected cash performance. One of these measures included voluntary salary sacrifices by the directors, certain senior managers and staff.

Last month we announced that we secured an important contract for the provision of cyber security services to one of the major suppliers of services to the UK public sector. Whilst client confidentiality restricts the naming of this customer, we are delighted that such a significant customer has chosen to adopt our services and we hope to conclude similar sized deals in the future. The contract to supply our new integrated cyber technology platform, Triarii, to several UK public sector organisations has been progressing well and is gaining traction within that market.

We are pleased that the SolarWinds partnership announced in September 2018 has rapidly regained momentum in recent months. They have actively supported sales of our new cyber monitoring platform Triarii into the US and we have just been appointed to their TAP program which gives us access to their 22,000 MSP clients globally.

Corporate Governance

The Board sets out to deliver the highest standards of corporate governance and has remained abreast of developing governance standards. We have continued to prioritise a safe working environment for our staff across all locations and have improved the quality of safety across the business. During COVID-19 we have been focussing on our employees mental as well as physical health.

Outlook

This past year has witnessed the significant commercial impact of a global pandemic which has affected all businesses worldwide. Falanx has not been immune from this. However, whilst order levels for certain of our professional services were much reduced in the first few months of the pandemic, they have now recovered and are running at approximately double their levels in the first quarter. The need for organisations to spend on Cyber protection is rising in line with the apparent uncertainty in the world and the ever-increasing technical capabilities and resources of the cyber threat agents. At the same time the need for timely information on geopolitical risk has increased the need for Falanx's business intelligence products which allow organisations operating in overseas markets to be kept up-to-date and informed. The increase in the spread of the COVID-19, will continue to push the working environment away form centralised offices and out into the home environment thereby putting businesses at higher risk from cyber-attacks providing a consequent requirement for enhanced and vigilant protection. Our new platform Triarii and our continuing strategic relationship with SolarWinds significantly underpins our capability in this growing market.

Falanx's size and capabilities mean we are well positioned to adapt to changes in the industry and is highlighted by our healthy and debt-free balance sheet following the raising of £1.25m in September 2020. This should allow us to weather any ongoing macroeconomic disruption as a result of COVID-19. Our order book is strengthening, cyber order levels are close to pre COVID-19 levels and our sale pipelines are building in terms of quantum and quality. The Company will continue to work towards improving efficiencies and maintaining tight cash control as well as strengthening our client relationships in order to deliver a successful end to the current financial year.

Finally, I would like to take this opportunity to thank our shareholders and everyone at Falanx for their contribution during a volatile year and for their continued hard work in the face of the uncertain business environment.

Approved by the Board on 29 October 2020 and signed on its behalf by

A Hambro

Chairman

Chief Executive Officer's Report

Falanx Group Limited is a provider of Cyber Security and Strategic Intelligence services to over 440 customers. Customer range from governments and some of the world's largest companies to SME. These operate as separate divisions and are supported by common corporate services.

Falanx Cyber 

Financial Performance

Our core division recorded increased revenues year on year despite the impact of COVID-19 disruption from mid-February 2020. Revenues for the year were £3.71m (2019: £3.57m) representing growth of 4%. Revenues in the second half grew by 17% to £2.0m and this was driven by increased contract momentum from a realigned sales force and also by much improved professional services utilisation from September 2019 onwards as revised operational management structures were put in place. Average monthly divisional revenues were £0.33m in the second half of the year. We were pleased to see the commencement of cross selling of our MDR services into the customer bases acquired with First Base LLP (March 2018) and Secure Storm (July 2018).

Following operational management changes in August 2019 professional services utilsiation increased significantly and consequently gross margins improved to 45% in the second half of the year from 30% in the first half. Overall gross margins were 38% (2019: 49%) with the change being due to service mix, and the weak utilisation in the first half of the year referenced above.

Investment was made in expanding sales and marketing capacity in the year as well as upgrading infrastructure in anticipation of the large-scale rollout of the SolarWinds opportunity which had been expected in the year under review. Consequently, the division generated an adjusted EBITDA loss of £0.41m (2019: profit £0.05m). Improving revenues, a lower operating cost base, and improved gross margins enabled the division to become profitable on a more consistent basis in the second half of the year prior to the onset of COVID in February.

Upgraded Manage Detect Respond ("MDR") Offering

The division has evolved it's MDR offering into a new service offering, Triarii which is built upon world-class leading technology solutions. This combined with our highly skilled Security Operations Centre ("SOC") monitoring team, creates a market-leading offering to compete with all-comers whilst leveraging the development resources of key technology providers. Triarii has also been accepted by SolarWinds as an alternate offering to its own Threat Monitor platform. We have successfully joined the SolarWinds Technology Alliance Partner ("TAP") Program and can sell Triarii to their entire MSP channel of over 22,000 MSPs globally - as well as a new Managed Service offering supporting those MSPs with deployments of SentinelOne through the SolarWinds channel. We anticipate this now being a low touch and high-volume channel and hope to see the benefit of that over the coming months

As part of the release of Triarii MDR we have also now introduced our own new service for monitoring endpoints such as laptops and desktops. This capability, known as Managed Endpoint Detection and Response ("M-EDR") can be sold separately, opening up an entire new market for Falanx Cyber, or as an integral part of our Triarii MDR service. Our own M-EDR service is a leading market contender in its own right and further illustrates the strength of our full MDR service.

During the year the division relocated its SOC from Birmingham to Reading to support the expected rollout of SolarWinds opportunities and the expected increase in volumes as the Cyber security market accelerates. This move has enabled a wider talent pool of skilled staff to be reached.

Professional Services

Falanx Cyber now offers an extended portfolio of professional cyber security services, along with our upgraded Triarii MDR (Managed Detection and Response) service. We offer a wide range of ethical offensive services designed to simulate real-word cyber criminals and, in doing so, enable us to identify weaknesses in clients' defences and advise them as to how they can better protect themselves and their assets. These services range from specific penetration testing services through to social engineering techniques (such as phishing and red teaming inter alia) which can then be integrated into tailored security awareness training. We continue to serve customers in a diverse range of sectors including Government, Finance, Legal, Insurance, Retail, IT and Telecoms.

Route to Market

To accelerate growth beyond the confines of traditional direct sales and cross-selling opportunities between service lines, Falanx Cyber exploits a 'Channel' model, providing security services via its growing network of MSP partners. These IT outsourcing organisations have a longstanding and trusted status with their customers for the provision of essential business IT functions, as such they are natural partners for Falanx Cyber and a significant extension of our market reach. The SolarWinds channel remains a significant opportunity along with some recent additional new partners.

The combination of strong and growing demand for the Falanx Cyber portfolio of services, market pull of the MSP 'Channel' model, the opportunity still offered by SolarWinds and the transformed service offerings for MDR and M-EDR indicate strong growth potential. In anticipation to that we have launched a completely refreshed website and integrated digital marketing model to better inform visitors of all backgrounds about what we do and how we can help them. Overall the cyber sector is experiencing strong macroeconomic drivers and is forecast to grow significantly over the next few years. To keep pace with this continuing high growth, the division has further invested in people, processes, services and infrastructure to expand capacity and maximise the revenue growth opportunities of the current year and beyond. 

COVID-19 impact

Clearly the current financial year has been impacted by the COVID-19 crisis. As referenced previously this began to affect customer buying and project cycles from February 2020 onwards as they moved into precautionary modes. The Cyber division moved to a fully remote model in March 2020 and we have been able to provide the bulk of our services without interruption, although where client site visits are needed these have been disrupted and delayed. All of our staff are safe, we have some very limited use of furlough programmes and we have kept a skilled workforce in place ahead of recovery. We have also been able to return limited numbers of staff to the Reading office in a COVID-safe manner, offering staff a choice between home working and an office environment. We have maintained investment in sales and marketing and of course service innovation in support of Triarii and its new service offerings, and we are pleased that this is now gaining customer and partner adoption. We reviewed our physical infrastructure and have closed a leasehold premise (at very small cost) in Sussex so we can maintain flexibility as the wider office environment remains fluid and now only have the Reading SOC premises on an operating lease.

Cyber trading performance for the six months to 30 September 2020

The move to remote working opens up inevitable cyber security risks for organisations and we have positioned our offerings to address this growing market opportunity, and whilst orders and revenues were lower at the start of the year than those pre COVID-19 as clients were in disaster recovery mode, orders have since recovered strongly from July onwards and this began to flow through to revenues and margins shortly in September. The Cyber security market is expected to grow strongly with the shift to a more digital economy and we expect this to benefit Falanx.

We have just joined the SolarWinds TAP program and this will help us address their 22,000 MSPs globally. This partnership has already delivered revenues and in September, and we have won our first US cyber deal through them. We expect value from this partnership to grow significantly and are actively working on multiple prospects through this relationship for both the provision of Triarii monitoring services (including endpoint detection) as well as for professional services such as penetration testing.

In August we announced a significant sale of Triarii to UK public sector clients achieved through a partner who is a major supplier to the UK government. This partnership is active and is expected to deliver further sales of existing services as well as working with us to address a much larger market opportunity.

We will migrate some of our existing user base onto Triarii over the coming months. This will not only improve our client delivery but to also make our delivery more cost effective with significantly lower overall external licencing fees which will enhance our margins.

In the six months to 30 September 2020 the division recorded revenues of circa £1.4m (2019: £1.7m). Orders for penetration testing which had been most affected by COVID-19 delays recovered strongly from the start of August onwards and since then have been running at approximately £0.2m per month compared to c£0.1m per month at the start of the current financial year. The initial uplift in order volumes has already resulted in a much improved financial performance of the division in September and this trend is expected to continue. This is broadly similar to order levels pre-COVID. Despite reduced revenues arising from COVID-19 delays effective cost management has reduced the adjusted EBITDA loss to c£0.3m (2019: £0.4m).

Falanx Assynt

Our strategic Intelligence business unit, Falanx Assynt, provides market-leading geopolitical reporting and analysis focused on key major emerging markets and overarching global themes. Its client base includes some of the largest and most recognised global corporate names. Assynt's two principal business lines are the subscription-based Assynt Report service and the Embedded Analyst business. These are supplemented by an Intelligence Consulting practice which provides tailored reports to address specific client requirements.

Annual revenue of £2.14m (2019: £1.64m) was generated, an uplift of 30% on the back of larger recurring revenue contracts rolled out in the second half of the year. Approximately 94% (2019: 85%) of total revenues were from monthly recurring contracts for Assynt report subscriptions and embedded analyst services. The balance of revenues was comprised of specific business intelligence reports. Gross margins consequently improved to 38% (2019: 33%).

Investments in sales and marketing were made in the first half of the year, and this resulted in a positive trading result in the second half of the year. Overall the division reported an EBITDA profit of £0.01m (2019: loss £0.05m), the second half was profitable, and this trend has carried on into the current financial year as set out below.

Over the year we continued to consolidate and build on the significant investment we had put into upgrading our flagship product, the Assynt Report, the previous year, including introducing an App based distribution system. Feedback from customers remains overwhelmingly positive. 

For our Assynt Report subscriber base of global corporates (many of which are headquartered outside of the UK), we have produced over 1,300 reports analysing key geopolitical events in 40 countries, including specialist analysis of international jihadist trends. Over the course of the year we have expanded our country coverage to include further counties in sub-Saharan Africa as well as regular reports addressing significant global themes such as the geopolitics of environmental issues, global trade and great power politics. We continue to look for new reporting areas of significant client interest, including Covid related analysis, which we introduced just before the end of the financial year.

The reputation of and demand for the Embedded Analyst service, aimed firmly at the FTSE-100 and NASDAQ-100 market, continued to grow strongly, with two existing clients seeking additional capacity in addition to positions with new clients. As a result, the total number of embedded analysts increased by 25% over the course of the financial year. 

In addition to our increased focus on high quality recurring revenue via the Assynt Report and Embedded Analysts, we are continuing to undertake Intelligence Consulting projects which are more clearly aligned with our core geopolitical analysis and emerging market expertise as well as on legal support projects. This has enabled us to pitch at a higher price point and increased share of the 'value-add' components of projects with in-house resources, further improving traditionally high levels of customer retention and account expansion.

COVID-19 Impact

So far, the Assynt business has successfully weathered the COVID-19 pandemic. To ensure the safety of our staff we have closed the London office and exited the lease in the new financial year. We have instituted home working with no impact on productivity or output. We have encountered very little customer churn, and all of our major clients have maintained or increased their spend. We have also rigorously controlled costs to ensure profitability and cashflow, and to ensure we have headroom should the economic impact of the pandemic be more sustained or severe than envisaged. Providing clients with analysis of the geopolitical effects of COVID-19 has been a potential opportunity for the Assynt business, and we have capitalised on this with a series of new reports focusing on the impact of the pandemic on key emerging markets and the global political economy.

Assynt trading performance for the six months to 30 September 2020.

Revenues for the six months to 30 September 2020 were circa £1.1m (2019: £0.9m) and the division recorded adjusted EBITDA of circa £0.1m (2019: break even). Recurring revenues were circa 96% of total revenues.

Future Prospects

The Assynt business has a robust platform for growth over the next three years. The significant revenue growth on the previous year resulting from, the increased marketing spends, and the continuing product refinement all provide a strong underpinning for developing the business further as a stand-alone division of Falanx Group.

Approved by the Board on 29 October 2020 and signed on its behalf by

M D Read

Chief Executive Officer

Chief Financial Officer's Report

Revenue 

Group revenues grew by 12% to £5.85m (2019: £5.21m). Revenues in the second half of the year were approximately £3.2m and this represented growth of 22% compared to the first six months. This was as a result of increased contract momentum in each division as well as much stronger professional services delivery and better utilisation of professional services resources in the Cyber division combined with the rollout of large recurring revenue client contracts in Assynt. The business was regularly experiencing monthly revenues in excess of £0.5m in the months before the onset of COVID which impacted from late February onwards due to customer delays caused by crisis management.

The business has continued to benefit from a strong element generated from the recurring contracts in each division, and overall this was constant at 56%. At the end of the period monthly recurring revenues across the Group stood at approximately £0.26m per month (2019: £0.24m). Our future order book of work remained strong with an order book of c£2.7m (2019: £3.2m) as well as deferred incomes (contract liabilities) of £1.2m (2019: £1.1m). Orders had been growing well in the second half of the year, but there were inevitable delays as the COVID-19 pandemic commenced, but since August 2020 order momentum has been regained.

During the year we added over 40 new cyber accounts including several larger accounts as well as significantly expanding existing client spend on professional services. Our churn in acquired customer bases has been low and as an example, the churn for First Base (acquired March 2018) has been less than 1% although the overall business has grown by circa 15% per annum. The Assynt division has a different customer profile to the Cyber division with approximately 75% of its clients being international and approximately 90% of them paying in advance with an average advance period of seven months.

Overall our number of customers invoiced was 284 (2019: 340) with the reduction arising from a move to larger deals from some customers. Overall the company dealt with over 440 (2019: 400) customers.

Cost of sales 

Cost of sales represents cost items which vary more closely as a function of sales demand and therefore revenues. The Intelligence division's cost base is largely employment costs for full time and external consultants who produce intelligence reports for customers as well as certain database access licences. The Cyber division costs include the team who deliver the monitoring and professional services, external licence fees for technology platform and its support (some of which are fixed and some of which are variable) as well as certain consultants for delivery of specific client assignments.

Gross margin 

The Group's gross margin was 38% (2019: 44%). The reduction was mainly due to utilisation issues at the start of the year in the Cyber division, which were resolved in September 2019 by the streamlining of the operational management of that division. Overall gross margins in the second half were 44% compared with 32% in the first six months, with the Cyber division's gross margin improving from 30 to 45% in the second half.

Operational and cash-based costs 

Administrative expenses excluding depreciation and amortisation and highlighted costs increased to £3.8m from £3.5m with most of the increase arising from expansion of sales and marketing costs in the Cyber division. Average headcount in the year was 81 (2019: 72) with a significant proportion of the increase being from additional analysts to support Assynt customer contracts.

Highlighted costs

Highlighted costs were £0.32m (2019: £0.18m) mainly represented certain restructuring and investment in infrastructure which was not capitalised fees. £0.24m related to investment in the cyber security platform Triarii and general corporate infrastructure around IT. Restructuring costs included post acquisition integration costs, legal entity restructure and rationalisation, management changes as well as certain corporate development professional fees around specific projects. Rental costs were normalised to exclude the impact of IFRS16, reducing the overall adjustment by £76,000 and a further credit adjustment of £67,000 was made in respect of the disposal of Furnace.

Share Option Charges

Share option charges increased to £0.23m (2019: £0.06m) with the increase due to the option grant in September 2019. The options were valued on a Monte Carlo basis.

EBITDA

Adjusted EBITDA loss for the year was £1.56m (2019: £1.25m) after adjusting for the items highlighted above. Headline reported EBITDA loss was £1.88m (2019: £1.48m).

Depreciation and amortisation 

Depreciation of fixed assets was broadly flat with 2019 at £87,000, and a further IFRS 16 amortisation charge of £77,000 was recorded in respect of the right of use asset related to the Reading lease acquired in July 2019. The remainder of the amortisation charge arose from the amortisation of acquired customer base intangible assets from First Base (ten-year amortisation period, straight line basis, acquired March 2018) and Secure Storm Limited (three-year amortisation period, straight line basis, acquired July 2018). £0.26m of investment in Furnace was impaired (2019: nil).

Financing costs 

Net financing costs were £24,000 (2019: £4,000) and mainly arose from the implementation of IFRS 16 and arrangement fees for the invoice discounting facility which were unused in the year and remain unused as at the date of this report.

Result for the year 

Due to the investment made in the year, higher noncash charges such as amortisation, impairment and share option charges the loss increased from £1.83m to £2.88m and loss per share increased to 0.72p from 0.58p.

Non-current assets 

Investment in Furnace

In December 2019 the group spun out its investment in the Furnace technology platform into a separate entity under the control of John Blamire who left the board at the same time. Falanx has 20% of the equity carried at £0.6m and a loan note of £1.1m for an aggregate investment of £1.7m (compared to an original cost of £1.63m). Consequently, previous development costs were no longer carried. Furnace has won its first sales and is now is actively seeking external investment and is in dialogue with a number of parties and its directors have prepared a three-year business plan. Falanx's forward business plans do not have any dependency of Furnace's financial performance and Falanx has no obligation to provide further financial support. A small impairment charge of £0.26m was recorded against this asset.

Goodwill and Customer Intangibles

Goodwill was £1.85m and arose from the acquisitions of First Base in March 2018 and Secure Storm in July 2018. The reduction compared to the previous year arose from £175,000 of goodwill arising from previous acquisitions to Furnace in December 2019 and is now included as part of the investment in Furnace referenced above. Customer relationships from First Base and Secure Storm were carried at a total of £1.97m (2019: £2.26m) with the reduction arising from straight line amortisation referred to above.

The Group's noncurrent assets include the future value of the lease of the Reading premises of £0.47m (2019: nil) which commenced in July 2019. A creditor of £0.44m is carried to reflect future liabilities (£89,000 of which are current liabilities).

Working capital  

Amounts due from customers (including contract assets), net of bad debt provision increased to £1.6m (2019: £1.4m) due to greater business volumes and the timing of certain billings. Collections since the year end have been normal and no incidence of bad debt has been recorded since the previous annual report. Overall debtor days increased from 47 to 66, mainly attributable to large contract billing in March 2020 thereby increasing the debtor position at year end. Prepayments have decreased due to revised billing arrangements for certain expenses. Accrued incomes fell during the year with certain items being billed earlier and are therefore included in the increased amounts due from customers. The Group continued to have a very low incidence of delayed and/or non-payment of debts by customers and our average losses over the last three years were only 0.06% of revenue and no bad debts were experienced in the year under review.

Contract liabilities (deferred income) increased to £1.2m (2019: £1.1m) on greater volume of advanced billings. Trade creditors increased due to the timing of certain supplier invoices. Taxes payable increased due to initial measures to manage cash at the outset of COVID19 in March 2020. Since the year end creditors including HMRC are within agreed terms and this is detailed in below.

Capital structure 

The Company did not issue any shares in the year (2019: 138,500,000 ordinary shares) with there being 400,401,185 shares at the start and end of the year. 26,281,250 warrants lapsed during the year which had an average price of 6p. 30 million options over ordinary shares were issued under the EMI (and unapproved but similar to EMI schemes) in September 2019 with a price of 1.92p per share. 5,468,367 options were forfeited during the year primarily as a result of staff changes.

The Group has been rationalising its legal entity structure to best align it with the current opportunity as well as to reduce costs and streamline tax management. The Groups incorporation status as a BVI entity is a legacy of its pre 2013 IPO business plan and the Board will review moving it to a UK status at an appropriate moment, clearly taking into account the significant professional fees which would be associated with such a change. The Group's memorandum and articles of association were revised in March 2019 to more closely align with UK incorporated entities. The Group is fully resident and registered in the UK from a tax perspective.

At the year-end shareholders' funds stood at £5.0m (2019: £7.6m). 

Statement of Cash Flows 

The Company did not issue any shares in the year and consumed £1.6m of cash in operations (2019: £1.9m). This was supported by a net working capital inflow arising from short term timing differences of £0.3m (2019: outflow £0.4m). Operational cash flow remained closely aligned with EBITDA performance with operating cash outflow being 80% of EBITDA loss (2019: 123%). Over on average over the last four years there is a near 100% correlation between these metrics. The business invested £0.44m in its technology platform (Furnace, which was spun out December 2019) and a further £0.26m in upgrading its infrastructure and the new SOC in Reading.

No shares were issued in the year (2019: £4.15m). Closing cash balances at 31 March 2020 were £0.08m (2019: £2.44m).

Post balance sheet events

As part of its COVID-19 response plans the company undertook the following actions;

· On 21 April 2020 approximately 31 million new share options and warrants were issued to staff and directors in exchange for salary reductions for the six months to 30 September 2020. These options were priced at 1p each and have a life of 10 years from the date of grant. Staff and directors waived approximately 25.7m options and a further 9m lapsed in June 2020. Where options were not at the point of grant qualifying for EMI benefits, they may be cancelled and reissued in the future under similar terms to optimise the overall tax position.

· In July 2020 the premises in Sussex and London were closed following the non-renewal of expired leases. The business moved to remote and home working in March 2020 and the expense of keeping such leases as well as the ongoing office costs were not justified in the new remote working model.

· A deferred payment plan was agreed with HMRC to reschedule up to £0.64m of payroll taxes outstanding at 30 June 2020 over 2 years as well as taking advantage of published time to pay plans on VAT. The group is fully in compliance with these plans.

· On 29 September 2020 Falanx announced the completion of a fundraising exercise for £1.25m by issuance of 125,000,000 new ordinary shares of nil nominal value. Of these £1,125,000 (gross) has been received by the date of the accounts with the remaining £75,000 (7,500,000 shares) intended to be subscribed by the directors and senior managers post the release of these results and them being allowed to participate under the MAR framework. A significant proportion of this fundraising is through long-term EIS & VCT investment and overall it included new and existing institutional investors.

Post Balance Sheet Trading

In the six months ended 30 September 2020 the Group recorded revenues of approximately £2.5m (2019: £2.6m) and a much-reduced adjusted EBITDA loss of £0.6m (2019: £0.9m). Revenues in the cyber division were impacted by reduced professional services demand in the Cyber division in the first few months with the onset of COVID-19, but since the start of August monthly orders for these have increased significantly and are now running at circa £0.2m per month compared to £0.1m per month in the first quarter during the peak of COVID-19. The sales pipeline has strengthened with the launch in August 2020 of the cyber security monitoring platform Triarii and it is winning important sales orders. The current order run rate of orders for these services is very similar to that in the second half of the previous financial year to 31 March 2020 and they are broadly back to the pre COVID-19 run rate. September's revenues were much stronger following acceleration of client deliveries and the order momentum has continued into October. These levels are ahead of where the Group had conducted its stress testing. Closing cash at 30 September 2020 was £0.2m (2019: £0.7m) but this excluded the proceeds of the fundraising announced on 25 September 2020 which were received alongside the admission of the new shares on 1 October 2020. On that day cash balances stood at circa £1.33m. The Group's customers are paying normally, and no bad debt has been experienced, furthermore creditors including HMRC are in agreed terms.

I R Selby

Chief Financial Officer

Key Performance Indicators

Consolidated statement of comprehensive income

for the year ended 31 March 2020

Consolidated statement of comprehensive income

for the year ended 31 March 2020

Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 7.

Consolidated statement of financial position

as at 31 March 2020

Consolidated statement of changes in equity

for the year ended 31 March 2020

The share capital account represents the amount subscribed for share capital, net of share issue expenses. Share issue expenses comprise the costs in respect of the issue by the Company of new shares.

Retained earnings represents the cumulative earnings of the Group attributable to the owners of the parent.

The translation reserve represents the cumulative movement in the translation of foreign subsidiaries into the presentation currency.

The share option and warrant reserve represents the cumulative share option and warrant charges.

Consolidated cash flow statement

for the year ended 31 March 2020

Notes to the consolidated financial statements

for the year ended 31 March 2020

1. General information

Falanx Group Limited (the "Company" or "Falanx") and its subsidiaries (together the "Group") operate in the cyber security and intelligence markets.

The Company is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the British Virgin Islands. The address of its registered office is PO Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands. The UK registered office The Blade, Abbey Square, Reading, RG1 3BE.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently to all the years presented unless otherwise stated.

2.1 Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and International Financial Reporting Interpretations Committee ("IFRIC") interpretations. The functional and presentational currency for the financial statements is Sterling. The financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

2.1.1 Going concern

The Group's activities, together with the factors likely to affect its future development, performance and position, are set out in the business review. Our financial position, cash and borrowing facilities are described within the Financial Review.

The Directors have acknowledged the Covid-19 Thematic Review published by the Financial Reporting Council in July 2020.

The Financial Statements have been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons.

The Directors have prepared cash flow forecasts to the period to the end of December 2021 which indicate that, taking account of reasonably possible downsides and the anticipated impact of Covid-19 on the operations and its financial resources, the Group and Company will have sufficient funds to meet its liabilities as they fall due for that period. Cash flow projections have been taken into account to reflect the equity raise of £1.25m gross on 29 September 2020. The Group is primarily financed through equity and has an unused invoice discounting facility of up to £0.5m for use in its Cyber division and this remains a source of additional headroom should it be needed. The Group has no bank borrowings and is debt free. The Groups operational cash flow usage profile has for the last four financial years averaged at close to 100% of EBTIDA and the incidence of bad debts is trivial and recurring revenues reflect approximately 56% of current revenue run rate with the remainder being mainly from repeat revenues. At the date of these accounts the Group has a broadly normalised working capital position and HMRC are in agreed payment terms with a significant majority of their debts being paid by equal instalments over 2 years to July 2022.

The Group's markets in Cyber Security and Strategic Intelligence are showing resilience to the ongoing COVID-19 economic fallout, particularly with increased Cyber security risks for enterprises as they move to remote operations and online business models, but clearly, they cannot be immune from wider macroeconomic conditions. COVID-19 began to impact operations in February 2020 onwards and reduced certain professional services revenues in the Cyber division (primarily around assessment and penetration testing) by approximately £100,000 per month compared to where they were between September 2019 and February 2020. At the start of the COVID crisis sales orders for penetration business fell as a result of delays and deferrals from circa £0.2m per month in the second half of the year to 31 March 2020 to c£0.1m per month but that has since recovered to c£0.2m per month since the start of August 2020 and this further supports the groups view that financial performance should start to improve. Furthermore, the Group has begun to win new orders for its new cyber monitoring platform (Triarii) which was launched in August 2020 and has recently joined the SolarWinds TAP program which significantly expands Falanx's customer reach. The general move to remote working is increasing cyber security risks for organisations, and this is expected to increase demand for Falanx's services.

However given the ongoing macro-economic uncertainty around COVID-19 and UK recessionary impacts, alternative stress test scenarios have been examined around an extended downturn in consulting revenues across the full financial years to 31 March 2021 and 31 March 2022 with no recovery in the economic environment, and in context this represents a c20% fall in revenues compared to the annual run rate achieved in second half of the year to 31 March 2020 which mostly represented the period pre COVID commencement in March 2020. This sensitivity analysis has been conducted at a revenue level only. Even after applying these stringent sensitivities (which for example ignore the stronger historic revenue performance in the second half of the year) the Group stays within its existing resources for at least 12 months from the date of signing the annual report.

Should this significantly reduced revenue scenario above occur, further mitigating actions would be carried out to ensure that the Group remains within its resources and these would include a reduction of planned capital expenditure, headcount reduction, reducing discretionary spend and sales investment, freezing or reducing pay and cancelling recruitment, and all of these are within the directors control. Further incremental measures could also involve the potential disposal of assets as well as seeking further support from shareholders or potential debt providers. These stringent stress tests scenarios show that even without any significant mitigating actions being implemented show that the Group is able to operate within its current resources, and that therefore the Group will have sufficient funds to meets its liabilities as they fall due for that period.

2.1.2 New and Revised Standards

Standards in effect in 2020

The following IFRS and IFRIC Interpretations have been issued and have been applied by the Group in preparing these financial statements for the year beginning 1 April 2019:

· IFRS 16, 'Leases'

IFRS 16 Leases has introduced a single, on-balance sheet accounting model for lessees, eliminating the distinction between operating and finance leases.

The Group has applied IFRS 16 using the modified retrospective approach; accordingly, the comparative information presented for 2019 has not been restated - i.e. it is presented, as previously reported, under IAS 17 and related interpretations.

The Group has applied the practical expedient permitted under the modified retrospective approach of IFRS 16 of not recognising right-of-use assets and liabilities for leases with less than 12 months of the lease term remaining, therefore the Birmingham lease which had four months remaining at 1 April 2019 has not been accounted for under IFRS 16.

As the only lease recognised under IFRS 16 started after 1 April 2019, the Group has not recognised any right-of-use assets or lease liabilities on the date of initial application (1 April 2019).

Further details presenting the impact on the Group of adopting IFRS 16 from 1 April 2019 are shown in note 15.

· IFRIC 23, 'Uncertainty over income tax treatments'

IFRIC 23 clarifies how to recognise and measure current and deferred income tax assets and liabilities when there is uncertainty over income tax treatments. The Directors have assessed that there is no material impact on the Group or the Company in applying IFRIC 23 and so it has not been discussed in detail in the notes to the financial statements.

The following standards/amendments to standards have been endorsed by the EU but are effective subsequent to the year end, in accounting periods beginning 1 January 2020:

· IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

· IFRS 3 Business Combinations (Amendment - Definition of Business)

· Revised Conceptual Framework for Financial Reporting

Interest Rate Benchmark Reform (IBOR) reform Phase 1 (Amendments to IFRS 9, IAS 39 and IFRS 7)

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Group in future periods.

A number of IFRS and IFRIC interpretations are also currently in issue which are not relevant for the Group's activities and which have not therefore been adopted in preparing these financial statements.

2.1.3 Alternative performance measures (APM)

In the reporting of financial information, the Directors have adopted the APM 'Adjusted EBITDA" (APMs were previously termed 'Non-GAAP measures'), which is not defined or specified under International Financial Reporting Standards (IFRS).

This measure is not defined by IFRS and therefore may not be directly comparable with other companies' APMS, including those in the Group's industry.

APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

Purpose

The Directors believe that this APM assists in providing additional useful information on the underlying trends, performance and position of the Group. This APM is also used to enhance the comparability of information between reporting periods and business units, by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group's performance. Furthermore, the use of EBITDA means a closer correlation with the cash performance of the business. Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and this remains consistent with the prior year.

The key APM that the Group has focused on is as follows:

Adjusted EBITDA: This is the headline measure used by management to measure the Group's performance and is based on operating profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and other highlighted items. Highlighted items (note 5.1) relate to certain costs that derive from events or transactions that fall within the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

2.2 Consolidation

Subsidiaries

Subsidiary undertakings are entities that are controlled by the Company. The definition of control involves three elements: power over the investee; exposure or rights to variable returns and the ability to use the power over the investee to affect the amount of the investor's returns. The Group generally obtains power through voting rights. Subsidiaries are consolidated from the date at which the Group obtains the relevant level of control and are de-consolidated from the date at which control ceases.

The acquisition method of accounting is used for all business combinations. On acquisition, the cost is measured at the aggregate of their fair values at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquire. Any costs directly attributable to the business combination are expensed as incurred. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (Revised), "Business Combinations" are recognised at fair values at the acquisition date.

Goodwill represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the difference is recognised directly in profit or loss. Any subsequent adjustment to reflect changes in consideration arising from contingent consideration amendments are recognised in profit or loss.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group. All subsidiaries are wholly owned by the Group.

2.3 Segmental reporting

In accordance with IFRS 8, segmental information is presented based on the way in which financial information is reported internally to the chief operating decision maker. The Group's internal financial reporting is organised along product and service lines and therefore segmental information has been presented about business segments. A business segment is a group of assets and operations engaged in providing products and services that are subject to risks and returns which are different from those of other business segments.

2.4 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities.

Revenue is recognised on the following bases:

Class of revenue Recognition criteria

Subscription fees straight line basis over the life of the contract

Managed services straight line basis over the life of the contract

Consultancy on delivery of service to customers

Vulnerability assessment on delivery of service to customers

Revenue is recognised as the client receives the benefit of the services provided under a commercial contract, in an amount that reflects the consideration to which the provider expects to be entitled for the transfer of the goods or services.

Performance obligations and timing of revenue recognition

Revenue from the provision of professional services such as penetration testing, consultancy and strategic intelligence assignments are recognised as services are rendered, based on the contracted daily billing rate and the number of days delivered during the period. Revenue from pre-paid contracts are deferred in the balance sheet and recognised on utilisation of service by the client.

Revenue from cyber monitoring contracts (including installation), intelligence embedded analyst and report subscriptions includes advance payments made by the customer is deferred (as a contract liability) and is then subsequently recognised on a straight-line basis over the term of the contract. Where they are billed periodically in a monthly in arrears basis, revenues are recognised at that point.

Contracts values are typically fixed price and the pricing level is based on management experience of pricing adequate mark up of prime cost. Where additional services need to be delivered outside of the contract a time and materials basis based on day rates is used.

Determining the transaction price

The Group's revenue is derived from fixed price contracts and therefore the amount of revenues to be earned from each contract is determined by reference to those fixed prices. Costs of obtaining long-term contracts and costs of associated sales commissions are prepaid and amortised over the terms of the contract on a straight-line basis. Commissions paid to sale staff for work in obtaining the Prepaid Consultancy are recognised in the month of invoice. The timing and any conditionality for the payment of commissions is governed under the then applicable sales incentive plan.

Revenues are exclusive of applicable sales taxes and are net of any trade discounts. There are no financing components in any of our revenue streams.

Contract Assets (accrued incomes) balance were £27,747 (2019: £197,230) and is included in prepayments and accrued income (note 20) and the change compared to the previous year was due to short term timing differences. Contract Liabilities (deferred incomes) balance of £1,237,347 (2019: £1,109,831). Included in the Contract Liabilities at the 31 March 2020 were approximately £40,926 (2019: £154,000) residual balance from prior year. All Contract Assets at the 2020 year end arose towards the end of the period. All contract assets have short cash conversion periods and all assets at the year end have since been monetised.

The Board considers that the information in note 4 adequately depicts how the nature, amount, timing and uncertainty of revenue and cash flow are affected by economic factors.

2.5 Taxation

The tax expense for the year represents the total of current taxation and deferred taxation. The charge in respect of current taxation is based on the estimated taxable profit for the year. Taxable profit for the year is based on the profit as shown in the income statement, as adjusted for items of income or expenditure which are not deductible or chargeable for tax purposes. The current tax liability for the year is calculated using tax rates which have either been enacted or substantively enacted at the reporting date.

Deferred tax is provided in full, using the liability method on temporary differences arising between the tax base of assets and liabilities and their carrying values in the financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates which have been enacted or substantively enacted at the reporting date and are expected to apply when the related deferred tax asset is realised, or the deferred income tax liability is settled.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of tax assets and unutilised tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, and the carrying forward of tax assets and unutilised tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and adjusted to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the statement of financial position date.

2.6 Foreign Currency

The Company has determined Sterling as its functional currency, as this is the currency of the economic environment in which the Company predominantly operates.

Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, the monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary assets and liabilities are carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on exchange are included in profit or loss.

Foreign currency differences arising on retranslation are recognised in profit or loss.

In the case of foreign entities, the financial statements of the Group's overseas operations are translated as follows on consolidation: assets and liabilities, at exchange rates ruling on reporting date, income and expense items at the average rate of exchange for the period and equity at exchange rates ruling on the dates of the transactions. Exchange differences arising are classified as equity and transferred to a separate translation reserve. Such translation differences are recognised in profit or loss in the period in which the operation is disposed of. Foreign exchange gains and losses arising from monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely within the foreseeable future, are considered to form part of net investment in a foreign operation and are recognised directly in equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Foreign currency gains and losses ae reported on a net basis.

2.7 Property, plant and equipment

All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

All assets are depreciated in order to write off the costs, less anticipated residual values of the assets over their useful economic lives on a straight-line basis as follows:

• Fixtures and fittings: 5 years

• Computer equipment: 3 years

2.8 Intangible assets

Acquired intangible assets are shown at historical cost. Acquired intangible assets have a finite useful life and are carried at cost, less accumulated amortisation over the finite useful life. All charges in the year are shown in the income statement in administrative expenses.

Goodwill

Goodwill arising on acquisition is stated at cost. Goodwill is not amortised, but subject to an annual test for impairment. Impairment testing is performed by the Directors. Where impairment is identified, it is charged to the income statement in that period.

Software and brand licences

Acquired software and brand licences are shown at historical cost. Software and brand licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of software and brand licences over the period of the licence. The brand and software licences have been fully amortised in previous accounting periods.

Research and development

Research expenditure is charged to the income statement in the year incurred.

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

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

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

· it can be demonstrated how the software product will generate probable future economic benefits;

· adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

· the expenditure attributable to the software product during its development can be reliably measured.

Other development expenditures that do not meet these criteria are charged to the income statement in the year incurred. Development costs recognised as assets are amortised over their estimated useful life, which does not exceed 5 years.

Government tax credits available on eligible Research and Development expenditure ('R&D Tax Credits') and not reclaimable through other means are recognised in income and treated as a government grant.

Customer relationships

Customer relationships are amortised over the period expected to benefit as follows:

· First Base: 10 years

· Securestorm: 3 years

2.9 Impairment of non-financial assets

Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. A review for indicators of impairment is performed annually. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Any impairment charge is recognised in the income statement in the year in which it occurs. When an impairment loss, other than an impairment loss on goodwill, subsequently reverses due to a change in the original estimate, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, up to the carrying amount that would have resulted, net of depreciation, had no impairment loss been recognised for the asset in prior years.

2.10 Inventories

Inventories mainly comprises finished goods which is stated at the lower of cost and net realisable value. Cost is based on purchase price and net realisable value is based on estimated selling price less disposal costs.

2.11 Financial instruments

The Group applies a simplified method of the expected credit loss model when calculating impairment losses on its financial assets which are measured at amortised cost such as trade receivables, other debtors and prepayments. This resulted in greater judgement due to the need to factor in forward-looking information when estimating the appropriate amount to provisions. This is not applied to the loan to Furnace Technologies which is reviewed on an individual basis.

(a) Financial Assets

The Group's Financial Assets include Cash and Cash Equivalents, Trade Receivables, Loan Receivables and Other Receivables.

· Initial Recognition and Measurement: Financial Assets are classified as amortised cost and initially measured at fair value.

· Subsequent Measurement: Financial assets are subsequently measured at amortised cost, using the effective interest method, less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial. The company only offers short periods of credit to its customers and recorded average debtor days of 66 at 31 March 2020 (2019: 47)

· Derecognition of Financial Assets: The Company derecognises a Financial Asset only when the contractual rights to the cash flows from the asset expire, or it transfers the Financial Asset and substantially all the risks and rewards of ownership of the asset to another entity.

(b) Financial Liabilities and Equity Instruments 

The Group's Financial Liabilities include Trade Payables, Accruals and Other Payables. Financial Liabilities are classified at amortised cost.

(c) Investments

Investments not in subsidiary undertakings are carried at fair value through profit and loss.

Classification as Debt or Equity. Financial Liabilities and Equity Instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a Financial Liability and an Equity Instrument.

2.12 Share capital

Ordinary shares (of nil par value) in the Company are classified as equity. By definition all amounts arising from the issue of these shares are attributable to Share Capital as are any directly attributable (including any warrants issued as commissions) to issue of new shares are shown in equity as a deduction to the share capital account. The Company does not maintain a separate share premium account.

2.13 Reserves

The consolidated financial statements include the following reserves: translation reserve, share option reserve and retained earnings. Premiums paid on the issue of share capital, less any costs relating to these, are posted to the share capital account as referenced above.

2.14 Trade payables

Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method. As the payment period of trade payables is short, future cash payments are not discounted as the effect is not material.

2.15 Leases

Lease accounting under IFRS 16 (applicable after 1 April 2019)

When entering into a contract the Group assesses whether or not a lease exists. A lease exists if a contract conveys a right to control the use of an identified asset under a period of time in exchange for consideration. Leases of low value items and short-term leases (leases of less than 12 months at the commencement date) are charged to the profit or loss on a straight-line basis over the lease term in administrative expenses.

The Group recognises right-of-use assets at cost and lease liabilities on the statement of financial position at the lease commencement date based on the present value of future lease payments. The right-of-use assets are amortised on a straight-line basis over the length of the lease term. The lease liabilities are recognised at amortised cost using the effective interest rate method. Discount rates used reflect the incremental borrowing rate specific to the lease.

Lease accounting under IAS 17 (applicable before 1 April 2019)

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases and are accounted for on a straight-line basis over the term of the lease.

2.16 Pensions

The Company operates a defined contribution pension scheme under which fixed contributions are payable. Pension costs charged to the income statement represent amounts payable to the scheme during the year.

2.17 Share-based payments

The cost of share-based payment arrangements, which occur when employees receive shares or share options, is recognised in the income statement over the period over which the shares or share options vest.

The expense is calculated based on the value of the awards made, as required by IFRS 2, 'Share-based payment'. The fair value of the awards is calculated by using the Black-Scholes and Monte Carlo option pricing models taking into account the expected life of the awards, the expected volatility of the return on the underlying share price, vesting criteria, the market value of the shares, the strike price of the awards and the risk-free rate of return. The charge to the income statement is adjusted for the effect of service conditions and non-market performance conditions such that it is based on the number of awards expected to vest. Where vesting is dependent on market-based performance conditions, the likelihood of the conditions being achieved is adjusted for in the initial valuation and the charge to the income statement is not, therefore, adjusted so long as all other conditions are met.

Where an award is granted with no vesting conditions, the full value of the award is recognised immediately in the income statement.

2.18 Provisions

Provisions are recognised in the statement of financial position where there is a legal or constructive obligation to transfer economic benefits as a result of a past event. Provisions are discounted using a rate which reflects the effect of the time value of money and the risks specific to the obligation, where the effect of discounting is material.

Provisions are measured at the present value of expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time, value of money and the risks specific to the obligation. The increase in provision due to the passage of time is recognised as interest expense.

3. Critical accounting estimates and judgements

The preparation of the Group financial statements in conformity with IFRSs as adopted by the European Union requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the present circumstances. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group financial statements are disclosed below.

Judgements:

Investment in Furnace Technologies Limited

The investment agreement in Furnace Technologies Limited has allocated Falanx Group Limited 20% of its equity. It is considered a financial as opposed to an operational investment as Falanx does not have the right to appoint a board member and plays no part in its operations or policymaking. There is no interchange of management personnel and any transactions between the companies are small and are on an arms length basis. Consequently, it has not been treated as an associated company.

Impairment of intangible assets

Management have assessed indicators of impairment and conducted an impairment review of intangible assets. They have made judgements as to the likelihood of them generating future cash flows, the period over which those cash flows will be received and the costs which are attributable against them. The recoverable amount is determined using the value in use calculation. The use of this method requires the estimation of future cash flows and the selection of a suitable discount rate in order to calculate the present value of these cash flows (refer to note 15.2).

In support of the assumptions, management use a variety of sources. In addition, management have undertaken scenario analyses, including a reduction in sales forecasts, which would not result in the value in use being less than the carrying value of the cash-generating unit. However, if the business model is not successful, the carrying value of the intangible assets may be impaired and may require writing down.

4. Segmental reporting

As described in note 2, the Directors consider that the Group's internal financial reporting is organised along product and service lines and, therefore, segmental information has been presented about business segments. The categorisation of business activities into segments is analysed per division to be consistent with the views of the chief operating decision maker, as highlighted in the Chief Executive Officer's report. The segmental analysis of the Group's business is derived from its principal activities as set out below. The information below also comprises the disclosures required by IFRS 8 in respect of products and services as the Directors consider that the products and services sold by the disclosed segments are essentially similar and therefore no additional disclosure in respect of products and services is required. The other segment consists of the parent company's administrative operation.

Reportable segments

The reportable segment results for the year ended 31 March 2020  (unaudited) are as follows:

The reportable segment results for the year ended 31 March 2019  (unaudited) are as follows:

Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, trade and other receivables and cash and cash equivalents. Unallocated assets comprise deferred tax assets, financial assets held at fair value through profit or loss and derivatives. Segment liabilities comprise operating liabilities; liabilities such as deferred taxation, borrowings and derivatives are not allocated to individual business segments.

Segment assets and liabilities as at 31 March 2020 and capital expenditure for the year then ended (unaudited) are as follows:

Segment assets and liabilities as at 31 March 2019 and capital expenditure for the year then ended are as follows:

Geographical information 

The Group's business segments operate in six geographical areas, although all are managed on a worldwide basis from the Group's head office in the United Kingdom.

A geographical analysis of revenue and non-current assets is given below. Revenue is allocated based on location of customer; non-current assets are allocated based on the physical location of the asset.

Major customers

No customer contributed 10% or more to the Group's revenue in 2020 (2019: nil). The highest individual customer contributed c6% of revenues.

Contract Assets (accrued incomes) balances were £27,747 (2019: £197,230). Included in the Contract Liabilities (deferred incomes) at the 31 March 2020 were approximately £40,926 (2019: £154,000) residual balance from prior year. All Contract Assets at the 2020 year end arose towards the end of the period and were billed and collected in the normal course of business in the next financial year.

5. Highlighted costs and Adjusted EBITDA

Operating loss includes the following items which the Directors consider to be one-off in nature, non-cash expenses or necessary elements of expenditure to derive future benefits for the Group which have not been capitalised on the consolidated statement of financial position.

5.1 Highlighted costs

a) Acquisition costs

Advisory and introduction costs incurred on acquisition of subsidiaries not capitalised.

b) Restructuring costs

Cost of corporate development and professional services associated with the restructuring. Prior year cost related to cost of restructuring the key management including severance payment and transition costs for integration of acquired subsidiary (First Base). This did not include any impact of COVID-19.

c) Infrastructure upgrade

Cost of technology, infrastructure and upgrade of applications for internal use and customer delivery.

d) Rent

Re-instatement of accounting charge in respect of rental payments on the Reading lease not reflected under IFRS 16. There were no leases in 2019 which IFRS16 was applicable to and hence no adjustment was reflected.

e) Gain on furnace operations

Gain on the spin out of furnace IP disposed of in the year (refer to note 11).

5.2 Adjusted EBITDA

6. Operating loss

Operating loss for the year is stated after charging the following:

7. Income tax expense

The parent Company is resident in the UK for tax purposes together with certain subsidiaries. Other subsidiaries are resident in foreign tax jurisdictions; however, no group company currently has taxable profits.

Potential deferred tax asset

The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group's future taxable income against which the deferred tax assets can be utilised. This is based on projected forecasts and budgets which are reviewed by the Directors and judgement is made as to whether the deferred tax asset can be recognised. At 31 March 2020, a deferred tax asset has not been recognised (2019: £nil). Accumulated tax losses (subject to HMRC) agreement stood at approximately £13m (2019: £10.9m). No asset in respect of these losses has been recognised.

The tax charge for the year is different from the standard rate of corporation tax in the United Kingdom of 19% (2019: 19%). The difference can be reconciled as follows:

8. Disposal of IP

During the year, the Board took the decision to dispose of the business assets of Furnace, a pre-revenue component of the Group. The component was sold on 19 December 2019.

Details of the sale of Furnace

In the event that Furnace is sold on during the five years following the initial sale, the Group will receive an additional variable amount of consideration not exceeding 20% of the proceeds of a sale in the first 12 months, amortising down to zero over the remaining four years.

The Group have assessed the likelihood of Furnace being sold on in the next 5 years, alongside the projected cashflows and estimated fair value of the company and have concluded that the likelihood of a sale occurring in which a profit is realised and inflow of economic resources occurs is not probable. The Group have therefore not disclosed a contingent consideration asset.

The carrying amounts of assets and liabilities as at the date of the sale (19 December 2019) were:

9. Basic and diluted earnings per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. There are no dilutive share options at present as these would currently increase the loss per share.

Weighted average number of shares used as the denominator

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume the conversion of all dilutive potential ordinary shares. The Company's dilutive potential ordinary shares arise from warrants and share options. In respect of the warrants, a calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to the outstanding warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the warrants.

At 31 March 2020, the potentially dilutive ordinary shares were anti-dilutive because the Group was loss-making. The basic and diluted earnings per share as presented on the face of the income statement are therefore identical. All earnings per share figures presented above arise from continuing and total operations and, therefore, no earnings per share for discontinued operations is presented. If the placing and subscription announced on 29 September 2020 had taken place on 1 April 2019 loss per share would have been reduced to 0.55p.

10. Intangible assets

10.1 Goodwill

As detailed in note 2.8 to the consolidated financial statements, the Directors test goodwill annually for impairment by calculating the value in use of each cash generating unit using discounted cash flow techniques and comparing it to the carrying amount of goodwill.

In the previous year ended 31 March 2019, and as required under IFRS 3, the allocation of the fair value of the purchase consideration across the tangible and intangible assets acquired on 23 March 2018 was reassessed within 12 months of purchase. The main changes were around the discount rate used which was increased from 12.75% to 15.00% and also adjustments made to reflect the value of an assembled workforce and full tax charges (ignoring the Group's £10.9m of tax losses). This resulted in a reduction in the potential value of the acquired customer base from £2.84m as originally recorded to £2.37m. This is shown as an adjustment on opening balances in the tabular note above

The Directors have undertaken an impairment review of the goodwill at the reporting date relating to the acquisition of Falanx Cyber Defence Limited, the trade and assets of First Base Technologies LLP and Securestorm Limited.

Goodwill on acquisition of Falanx Cyber Defence, the trade and assets of First Base Technologies LLP and Securestorm Limited, relates to the professional services line of business brought in to enhance the Cyber division's service offering. As of 1 April 2019, the operations of all the entities have been amalgamated into Falanx Cyber Defence Limited to streamline operations.

The purchase of Cloudified Limited led to the development of the Group's technology platform Project Furnace which was disposed of in December 2019 and further detailed in note 8.

Analysis of development cost and goodwill allocated to the Cyber segment:

a) Recoverability of development costs - Project Furnace

The intangible asset created from the R&D investment in Project Furnace was disposed of on 19 December 2019, see note 11 Disposal of IP above. Other development costs relate to items which were not yet ready for market at the balance sheet date.

b) Other elements of Cyber Segment

The recoverable amount of the CGU is based on fair value less costs of disposal estimated using discontinued cash flows. The measurement was categorised as Level 3 on the inputs sued in the valuation technique.

The cash generating unit's value in use has been assessed using the following assumptions:

In determining value in use, the Directors have prepared financial and business forecasts. These forecasts indicate growth rates that increase by various rates throughout the 10-year forecast period (excluding any periods beyond this). The discount rate applied is an estimate based on industry weighted average cost of capital.

Goodwill of First Base has been evaluated by reviewing similar inputs save for growth scenario reflecting current growth rates of 10% over the 10-year horizon to reflect overall growth in the asset from new customers, and then comparing the excess of the NPV of future cash flows to the overall intangible including the customer relationships asset. This testing indicates that NPV will be less than carrying value if a discount rate in excess of 24% is used.

The estimated recoverable amount of the CGU exceeded its carrying amount (including developments costs and customer relationship intangibles) by £2.4m (2019: £0.4m) The Directors have prepared a sensitivity analysis which shows that scenarios including:

· an increase in the discount rate from 15% to 26%

· a reversal of a growth rate of +10% to a net shrinkage of -1%. Recent Cyber security industry statistics indicated growth rates of 10-15% CAGR being expected

· a fall in expected net EBTIDA contribution from 35% of revenues to 24% of revenues

would result in the value in use falling below the carrying value but do not consider these likely so no adjustment is reflected.

Following the impairment review the Directors do not consider that the carrying value of goodwill detailed above is impaired at the reporting date.

10.2 Customer relationships

The customer relationships intangible assets arise on the acquisition of subsidiaries when accounted for as a business combination and relate to the expected value to be derived from contracted and non-contractual relationships. These customer assets are valued on a value in use basis. The value placed on the contractual customer relationships, as per the third-party valuation carried out, is based on the expected cash revenue inflows over the estimated remaining life of each existing contract. The value placed on the non-contractual customer relationships is based on past revenue performance by virtue of the customer relationships; but using the 0.82% average annual attrition rate since acquisition in March 2018. Associated cash outflows have been based on historically achieved margins. The net cash flows are discounted at a rate of 15% which the Directors consider is commensurate with the risks associated with capturing returns from customer relationships and reflects the group's WACC. This is further described in note 3 to these accounts.

The Directors consider that the period expected to benefit in respect of the customer relationships acquired with the trade and assets of First Base Technologies LLP is ten years. The Directors consider that the period expected to benefit in respect of the customer relationships acquired with Securestorm Limited is three years as it is a smaller and newer business than First Base and has a significant level of customer concentration.

Whilst certain sales orders received by the business fell in the first few months of the financial year ended 31 March 2021 this is due to the ongoing COVID 19 situation. Orders fell in March, April and May but have been since recovering well and further growth is expected from new and old clients. This growth has been reflected in the overall assessment of the intangibles (both goodwill and customer list) and more than supports their carrying values against a range of sensitivity tests carried out around expected growth rates and discount rates. The following other sensitivities have been applied to the determination of the value of the customer base. This was carried out by a multi period excess earnings model and was based on a 10-year horizon. A stress test has been carried out on the same basis as the overall going concern testing which assumes that there is no recovery in cyber consulting revenues until 1 April 2022 and this shows that there is still sufficient headroom. This assumes that post the COVID scenario Cyber revenues return to their previous growth rate of c15%.

Growth rate (long term economic average) 1.5% (achieved growth rate c15%)

EBITDA Margin 24.0 - 35.0%

Return on Workforce 1.81%

Tax Rate 17-19%

A similar analysis has been carried out on the intangibles arising from the purchase of Securestorm Limited in July 2018. This has generated a customer intangible of £0.16m and a goodwill balance of £0.1m. The customer base will be amortised on a straight-line basis over a period of 3 years due to high customer concentration (although the main customer is under a multi-year contract which has recently renewed in July 2020) and relatively short existence (founded 2014).

Similar tests to those performed on the First Base intangibles have been applied to the intangibles arising from this transaction and no impairment of goodwill has been identified. An analysis has been conducted which shows that the NPV of the customer bases commences to fall below the carrying value when a discount rate of 24% is used.

11. Right of use assets

This asset relates to the Reading office lease, refer to note 14.

12. Investments with fair value through profit and loss

On 19 December 2019, the Group disposed of the business and assets of Furnace. The total consideration received was £1,700,000, which included the issue and allotment of 20% of the share capital in Furnace Technologies, the buyer's company. The equity value at completion was £600,000. In April 2020 Furnace Technologies received an external equity investment of £30,000 at the same valuation.

The Group are satisfied that it does not have a significant influence over Furnace Technologies and have recognised the shareholding as a financial asset. At the reporting date, the Group continued to hold 20% in Furnace Technologies. The Group consider the carrying value of the asset satisfactory at 31 March 2020 and no fair value adjustment is required.

13. Loan Receivable

On 19 December 2019, the Board disposed of the business and assets of Furnace. The total consideration received was £1,700,000, partly funded by the way of an unsecured loan note for £1,100,000 to Furnace Technologies Ltd, the buyer. The loan note has a five-year term and carries a 5% coupon.

The Group are satisfised that the loan has been recognised at fair value in line with the requirements of IFRS 9 and are satisfied that the loan interest of 5% represents a market rate.

The Loan together with all accrued interest is repayable on the earlier of the following circumstances:

· if the Borrower reaches an enterprise value (as determined by subsequent financing rounds of the Borrower) of £16 million and the Seller may request a valuation of the Borrower (at the Borrower's expense) to determine the enterprise value at any time after the third anniversary of the date of this Agreement;

· an Event of Default occurs; or

· a Change of Control of the Borrower occurs (and for these purposes "Control" means the beneficial ownership of more than 50% of the issued share capital of the Borrower or the legal power to direct or cause the direction of the general management of the Borrower, and the expression "Change of Control" shall be construed accordingly)

· the 19th December 2024

Furnace is currently undergoing an investment round and it is possible that within 12 months of the balance sheet date that it could achieve an enterprise value of £16m or greater.

Therefore, Group is satisfised that the loan has been recognised at fair value in line with the requirements of IFRS 9 and is satisfied that the loan interest of 5% represents a market rate and therefore it is valued at an amortised cost.

The Directors have completed high-level analysis, which considers both qualitative and quantitative information, including reviewing shareholder quarterly reports received from Furnace management, to determine if the loan receivable is low credit risk. The Directors have concluded that there has not been an increase in credit risk since the loan was initially granted. Estimations regarding the credit risk of Furnace Technologies Ltd and the underlying probability of a default were deemed low as Furnace management have prepared a 3-year business plan. It has therefore been concluded that no ECL is necessary at 30 March 2020.

14. Lease liability

Nature of leasing activities

In July 2019 the Company entered into a lease for premises in Reading primarily for the SOC of Falanx Cyber. This was done after an extensive review of the optimal position to locate the Cyber Security Operations Centre (SOC) from an access to relevant skills perspective and to help the overall expansion of the business. This premises will be operationally leveraged for maximum utilisation. This has been recognised under IFRS 16. Leases exempt from IFRS 16 include rentals payable by the Group and its subsidiaries for the office premises at Five Kings House in London (expired 8 March 2020), Fazeley Studios in Birmingham (expired 31 August 2019), King Business Centre in Hassocks (expired 24 March 2020) and a serviced office at the Leeming Building in Leeds (lapsed 31 January 2020) respectively.

The Group at the date of this report only has one property lease and this is for the Reading office which is now the Group's registered office.

Lease terms are negotiated on an individual basis and contains separate terms and conditions.

Lease liability at year end

15. Related party transactions

· In December 2019 the Group disposed of part of its interest in the Furnace IP development to Furnace Technologies Limited, a company founded by John Blamire, a former director of the Group. Mr Blamire stepped down from the board at that point.

The Board viewed that whilst there was a strong potential market opportunity for Furnace, but determined that Furnace, which was and still is pre-revenue and loss making, is non-core to Falanx's cyber services market. Furnace had consumed approximately £0.4m of cash resources in the financial year up to its disposal in December 2019.

Falanx sold the business and assets of Furnace for a sale price of £1.1m, to be funded by way of an unsecured loan note, plus the issue and allotment to Falanx of 20% of the shares in Furnace Technologies Limited. The loan note has a five-year term and carries a 5% coupon. Furthermore, in the event that Furnace is sold during the five years following the initial sale by Falanx, Falanx will receive an additional 20% of the proceeds of a sale in the first 12 months, amortising down to zero over the remaining four years. Falanx also benefits from certain accelerated loan repayment arrangements in the event of a sale or change of control in Furnace. This resulted in a reclassification of Falanx's current R&D and other intangibles to investments.

Mr Blamire did not participate in board meetings concerning this and was kept offside. The sale of Furnace to Furnace Technologies Limited, a company in which John Blamire is a substantial shareholder and director, was a related party transaction pursuant to rule 13 of the AIM Rules for Companies.

Mr Blamire waived his contract of employment at that point and entered into a compromise agreement under which further no monies were payable (save for routine expenses) and he was allowed to keep his share options until June 2020.

16. Events after the reporting period

· On 21 April 2020 approximately 31 million new share options and warrants were issued to staff and directors in exchange for salary reductions for the 6 months to 30 September 2020. These options were priced at 1p each and have a life of 10 years from the date of grant. Staff and directors waived approximately 25.7m options and a further 9m lapsed in June 2020. Where options were not at the point of grant qualifying for EMI benefits, they may be cancelled and reissued in the future under similar terms to optimise the overall tax position.

· In July 2020 the premises in Sussex and London were closed following the non-renewal of expired leases. The business moved to remote and home working in March 2020 and the expense of keeping such leases as well as the ongoing office costs were not justified in the new remote working model.

· A deferred payment plan was agreed with HMRC to reschedule up to £0.64m of payroll taxes outstanding at 30 June 200 over 2 years as well as taking advantage of published time to pay plans on VAT. The group is fully in compliance with these plans.

· On 29 September 2020 Falanx announced the completion of a fundraising exercise for £1.25m by issuance of 125,000,000 new ordinary shares of nil nominal value. Of these £1,125,000 (gross) has been received by the date of the accounts with the remaining £75,000 (7,500,000 shares) due from the directors and senior managers post the release of these results and them being allowed to participate under the MAR framework. A significant proportion of this fundraising is through long-term EIS & VCT investment and overall it included new and existing institutional investors.

· In the six months ended 30 September 2020 the Group recorded revenues of approximately £2.46m (2019: £2.64m) and an adjusted EBITDA loss of £0.6m (2019; £0.93m). Revenues in the cyber division were impacted by reduced professionals services demand in the first few months with the onset of COVID, but since the start of August monthly orders for these have increased significantly and are now running at c£0.2m per month compared to £0.1m per month in the first quarter. September's revenues were much stronger, and the order momentum has continued into October. These levels are ahead of where the Group had conducted its stress testing. Closing cash at 30 September 2020 was £0.2m (2019: £0.71m) but this excluded the proceeds of the fundraising which were received on 1 October 2020. The Group's customers are paying normally, and no bad debt has been experienced, furthermore creditors are in agreed terms.