TIDMNARF
RNS Number : 6905F
Narf Industries PLC
11 July 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED
UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014
WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN UNION
(WITHDRAWAL) ACT 2018, AS AMED. ON PUBLICATION OF THIS ANNOUNCEMENT
VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS
CONSIDERED TO BE IN THE PUBLIC DOMAIN.
11 July 2023
NARF INDUSTRIES PLC
FINAL RESULTS
ANTICIPATED LIFTING OF SUSPENSION OF SHARE TRADING
Narf Industries plc ("Narf", the "Company", or the "Group"),
(LSE: 'NARF')(OTCQB: NFIN.F) the cybersecurity group specializing
in high-end threat intelligence and critical infrastructure
security, today announces its audited results for the year ended 31
December 2022 ("FY2022"). In addition, the Company announces the
anticipated lifting of the suspension from trading of its Ordinary
Shares, shortly.
OVERVIEW
-- Suspension of share trading to be lifted in the coming days as 2022 audit is now complete
-- Record-breaking multi-year contracted backlog) of $10.4 million at the close of FY2022
-- FY2022 Revenue of $2.5 million to more than double in 2023 from backlog alone.
-- Projected year-on-year revenue growth of 130% to $5.8 million in 2023
-- Forecasting a 50% other operating expense reduction of $1.4
million in 2023, when compared to 2022
-- Targeted break-even EDITDA for 2023 in contrast to FY2022 Operating Loss of $2.6 million
-- Sufficient cash-flow from internal cash generation and credit
line facilities to accomplish 2023 plan
-- Appointment of new Executive Chairman
-- Remaining audit disclaimers and qualifications continue to be addressed by new CFO
Executive Chairman, John Herring said : "We are experiencing an
exciting 2023 delivering high growth with fiscal discipline. That
said, we also continue to address challenges transitioning from an
acquisition vehicle to an operating group, most prominently with
our audit. To avoid any further delays in returning our shares to
trading we took the difficult decision of accepting a number of
disclaimers and qualifications to the audit report at this time,
but are working to resolve all 2022 matters and preclude any future
disruption to timely reporting. I want to assure you that the
disclaimers and opinion in the audit report do not diminish the
value of the team's achievement or the underlying strength of our
business."
EXECUTIVE CHAIRMAN STATEMENT
Dear Shareholder,
As the recently appointed Executive Chairman, this statement
offers me the opportunity to share your Company's accomplishments
while acknowledging the challenges transitioning from a private and
entrepreneurial led venture to the main operating business of an
LSE listed company.
Accomplishment and Goals
It has been a year of significant growth and development within
the Group. Our committed team of 15 research and software
developers led by our CEO, Steve Bassi, delivered record breaking
year-end contracted backlog of $10.4 million. It speaks to the
trust and confidence government entities place in our highly
specialized team and underscores its strong reputation as an
innovative and reliable partner.
The backlog is 4x our 2022 revenue of $2.5 million. The increase
in government contract backlog translates into a sustainable
revenue stream for our Group These contracts provide a stable and
predictable source of income, enabling us to plan and execute
business strategies with confidence.
From this backlog alone, the Group forecast $5.8m revenue in
2023, delivering 130% year on year ("YOY") growth (up from 30%
growth in 2022). A significant decrease in expenses is also
targeted this year. As we transition from an acquisition vehicle to
focus on our core operations, we are expecting operating expenses
to drop by over 40% ($1.4 million) in 2023.
This combination of growing revenues and operational
efficiencies help position the Company to achieve break-even EBITDA
for 2023. This compares to a $2.6m operating loss in 2022. The plan
looks to accomplish this performance financed by internal cash
generation and current credit line facilities.
In summary, our team in 2023 looks to execute an invaluable,
high growth, fiscally responsible Company that protects and builds
shareholder value and confidence. From this foundation, we plan to
aggressively grow our government revenue, a market we are well
positioned to scale and expand. The attractive net margins, along
with our innovative government funded R&D work, can fuel our
intellectual property (IP) commercialisation targeted to
multi-billion dollar cybersecurity market segments.
I'd like to express my appreciation to the team for their work
ethic that delivered this outstanding business performance to date.
I'd like to thank our customers that acknowledge our worth through
repetitive contract awards.
Fiscal Year 2022 Audit
This is the first financial reporting period for which
consolidated financial statements, incorporating the businesses
acquired in March 2022 (see Note 8 to the Financial Statements),
are subject to International Finance Reporting Standards
(IFRS).
This administrative burden introduced by IFRS presented a
significant hurdle for a small team of 15 research and software
developers busy meeting contract deadlines, generating revenue and
cash flow. Previously, the private businesses produced records and
internal documents only needed for servicing its contracts and
primarily for tax purposes. This lack of infrastructure and
resources caused the Company to miss its 30 April 2023 deadline and
led to suspension of trading in its shares.
Today we've announced the completion of the audit expect the
trading suspension will be lifted within a matter of days. However,
not without accepting and acknowledging significant auditor
disclaimers.
I've taken this decision to accept the auditor's disclaimers
now. It's become evident that resolution will require more time and
extending the trading suspension of our shares would unfairly
impact our shareholders, limiting their ability to engage with the
market and potentially eroding investor confidence.
I want to assure you that this disclaimer of opinion does not
diminish the value of the team's achievement or the underlying
strength of our business. We are committed to resolving these
issues and bringing the Company's consolidated financial reporting
practices up to standards.
There are several matters linked to the disclaimer that need
resolution, but it's our inability to date to provide auditors
access to a sensitive contract (and all materials associated with
that contract), and our estimated timeline for resolution, that's
most influenced my decision.
This contract accounts for about 50% of our reported 2022
revenue with terms that state disclosing the name of the customer,
their address, or the nature of the work to restricted parties, is
a basis for termination. We are navigating this situation carefully
and executing a plan to resolve this matter over the course of the
next quarter in the interest of all parties.
As you read this annual report and the Company's accounts,
please be aware any financial figures presented are subject to
adjustment for overstatement or understatement as we work with
auditors to confirm the appropriate accounting treatment. The
Company believes it has taken a conservative approach in its
presentation of the accounts, for example applying a revenue
recognition that errs on the side of understatement.
Period of Transition
This year's audit circumstance speaks to the challenges we face
managing record revenue growth while building the infrastructure
required of a publicly reporting entity. While growth is a positive
indicator, it requires us to remain agile and adapt our
administrative systems to meet the evolving needs of our expanding
organisation.
While establishing the necessary administrative and financial
infrastructure during this transitional phase is important, it's
equally vital to instill a shared understanding among our team that
effective governance and responsible management extend beyond mere
structures and processes. For these reasons, your CEO strengthened
the Board and executive team in late April 2023, with my
appointment as Executive Chairman and appointment of our CFO.
Although posing short-term challenges, we recognise the
long-term benefit of investing now to improve the quality of our
executive leadership, financial reporting, and business execution
to instill confidence in our stakeholders and facilitating better
analysis and decision-making.
In respect to our most pressing challenge, our team, now
resourced with a new CFO, will continue to work diligently, and
resolve all matters.
Looking Forward
I am privileged to lead the Board, and as Executive Chairman,
join the CEO and his team to actively develop, lead, and execute
strategies to grow the business. I would like to express my
gratitude to our shareholders for their understanding during this
initial, difficult past few months.
Here's what to expect in the next 6 months:
-- Scale and expand our government business. We have the
potential to turbo-charge our growth, in a market we already know,
with a proven competitive position. Our team is already fast at
work in driving success and identifying 18, 36, and 54 month
strategic growth goals.
-- Unlock the value of our IP with innovative and efficient go to market strategies.
-- Build an experienced and capable Board. We look to align
strategic objectives with specific areas of expertise, source
qualified candidates, and appoint new members over the course of
the year.
-- Strengthen our internal and external financial reporting. A
solid foundation to support our decision-making processes, protect
the interests of our shareholders, and maintain the trust of our
stakeholders is paramount. Included is a resolution of our
auditor's disclaimers and opinion.
-- Maximize shareholder value. We are committed to engaging with
the investment community to ensure our accomplishments and
strategies are reflected in the valuation of our Company.
S
For further information on the Group please visit www.narfgroup.com or contact:
John Herring NARF jh@narfgroup.com
Catherine Leftley/Paul St Brides Partners narf@stbridespartners.co.uk
Dulieu /Isabel de Salis
------------------- ---------------------------
Peter Krens Tennyson Securities Tel: +44 (0)207 186 9030
------------------- ---------------------------
About NARF Industries plc
Narf Industries (LSE: NARF)(OTCQB: NFIN.F) is a US based cyber
security group specialising in high-end threat intelligence with a
focus on critical infrastructure. The Group leads commissioned
cyber security R&D and is commercialising a portfolio of
products including TIGR that can be used by utilities and cyber
first responders to restore power to electric grids and protecting
other key infrastructure that have suffered a cyber-attack. The
Group aims to further strengthen its portfolio organically and via
acquisition; its team of highly qualified cyber security experts is
well placed to identify opportunities.
STRATEGIC REPORT
Narf Industries plc (the "Parent" or the "Company") is the UK
parent company of two US subsidiaries Narf Industries LLC and Narf
Industries PR LLC (the "subsidiaries", "Operating Group" or "Narf
US" - together with the UK Company, the "Group") principally
involved in developing and marketing software aimed at enhancing
the cybersecurity measures of its clients. The directors of the
Company are pleased to present their report on the Group for the
year ended 31 December 2022.
This section contains the Strategic report, which includes the
information that the Group is required to produce to meet the need
for a strategic report in accordance with the Companies Act 2006.
Biographies of each director are on the Group's website at
narfgroup.com. The Directors' report is set out below. This
Strategic report is a consolidated report relating to the Group as
a whole. It includes matters relating to the Company and its
subsidiary undertakings.
Note any reference to $ will be for USD$ and any reference to
2022 or 2021 will be for the Financial Years (aligned with calendar
years) ending 31 December 2022 ("FY2022") and 31 December 2021
("FY2021") respectively.
Cautionary Statement
The Strategic report has been prepared for the shareholders of
the Company, as a body, and for no other persons. Its purpose is to
inform shareholders of the Company and to help them assess how the
Directors have performed their duty to promote the success of the
Company. This Strategic report contains forward-looking statements
that are subject to risk factors associated with, amongst other
things, the economic, regulatory, policy and business circumstances
occurring from time to time in the countries, sectors and markets
in which the Group operates. It is believed that the expectations
reflected in these statements are reasonable, but they may be
affected by a wide range of variables which could cause actual
results to differ materially from those currently anticipated. No
assurances can be given that the forward-looking statements in this
Strategic report will be realised. The forward-looking statements
reflect the knowledge and information available at the date of
preparation.
Review of the business
The Company was formed as an investment vehicle to undertake
acquisitions in the cybersecurity sector. In March 2021, the
Company listed on the Official List of the UK Listing Authority on
the London Stock Exchange ("LSE"). During the year the Company
raised $7.6 million (gross) in placings and issued shares at an
equivalent value of $19.4 million as consideration for the
acquisition of the Operating Group. The acquisitions completed on
15 March 2022 have been treated as a reverse takeover as explained
in Note 8.
Since the acquisition, the Company integrated the US Operating
Group, and it now constitutes the Company's sole business
operations.
The Group is a leading provider of cybersecurity research,
solutions, and services to government entities. With a steadfast
commitment to protecting national security and critical
infrastructure, we offer comprehensive expertise in addressing the
evolving cyber threats faced by our clients. We work with US
government agencies including the Department of Defense ("DoD"),
the Defense Advanced Research Projects Agency ("DARPA"), Department
of Homeland Security ("DHS"). The Group often collaborates with
world renowned private research companies in the performance of
contracts.
Our strong track record of successful contract performance
underscores our ability to deliver results. We understand the
critical nature of the work performed by these agencies and the
importance of maintaining the confidentiality and integrity of
their missions. With our industry-leading expertise, advanced
technologies, and unwavering commitment to excellence, we provide
the government with the confidence and peace of mind they need to
navigate the complex and ever-changing cybersecurity landscape.
The Group's strategy leverages government funded research and
business to create and fund innovative and disruptive products for
billion-dollar commercial cybersecurity markets. Government
Research and Development (GR&D) work produces valuable
Company-owned IP and Government Solutions and Services (GS&S)
work generates favourable net margins to fund commercialization.
Our 2022 revenues were split evenly between the two.
Government Research and Development ("GR&D")
The Group has a successful history of tendering for, and
winning, government R&D contracts for groundbreaking
technologies, predominantly from DARPA. Our research work is
focused on three, multi-billion cybersecurity market segments:
critical infrastructure protection; open-source software (OSS)
vulnerabilities; and threat intelligence.
For these contracts, the agency retains government purpose
rights, but the Group has the sole right to sell new solutions
using the IP to the government (i.e., GS&S business). For
commercial markets, we own the IP rights.
The GR&D contracting process may range from 9 to 15 months
and once awarded performance can range up to 18 months or longer.
The Group projects stepped growth in its GR&D business
targeting synergistic research areas that complement its current
rich IP portfolio.
For Note 3 of the Financial Statements, GR&D revenues are
included as part of Professional Services.
Government Solutions and Services ("GS&S")
The Group develops solutions and performs services for various
US government agencies. Its software solutions address immediate
cybersecurity mission needs. These needs continually evolve as the
nature of cybersecurity threats change. We also provide on-going
services supporting the operations of the delivered software
solution.
The Group enjoys a unique competitive position with GS&S
work through a recently renewed 5-year omnibus contract. This
streamlines government procurement cycles and gives multiple
agencies access to the Group's solutions and services. Agencies
execute task orders, many with awards justified on a sole source
basis. The timing from ideation of task to award is 3 to 6 months.
Tasks performance typically range from 6 to 12 months to complete,
at which time software is delivered and integrated into an
operational system.
The Group believes GS&S offers the highest growth potential
and its strategy is to scale and expand this segment.
For Note 3 of the Financial Statements, GS&S revenues
include SaaS, Installation, and a portion of the Professional
Services revenues.
Commercialization
By collaborating closely with government agencies and tapping
into their R&D resources, we gain access to cutting-edge
technologies, methodologies, and insights. Through strategic
partnerships, knowledge transfer, and technology transfer programs,
we unlock the potential of these innovations for commercial
markets.
The Group's most advanced commercialization effort targets
critical infrastructure protection, specifically vulnerabilities in
Industrial Control Systems/Operational Technology (ICS/OT) systems.
This effort leverages years of the Company's work with the Rapid
Attack Detection and Incident Capability ("RADICS") and a critical
subprogram, the Threat Intelligent Grid Recovery ("TIGR")
project.
In April 2022, the Group licensed from SRI International, a
partner on the RADICS and TIGR projects, complementary IP that in
combination creates a uniquely competitive software and hardware
solution for the Oil, Gas, and Electrical utility customer base.
We've since demonstrated the capabilities are engaged with
customers with known requirements.
The Group is currently limited in the resources it can apply to
its commercialization goals within the bounds of its 2023 plan.
Until government business grows sufficiently to organically finance
commercialization initiatives, the strategy is to rely on paid
development from prospects or investments by strategic
partners.
The Group expects to incrementally build its commercialization
resources as its government business grows and provides organic
investment capability. Currently, for 2023, no material
commercialization revenues are projected.
Financial position
The following presents key financial metrics of the Group:
-- At year-end, the consolidated statement of financial position
presents Current Assets totaling $1.2 million. This included cash
of $443,000 and trade receivables of $640,000 that were collected
in Q1 2023.
-- Total liabilities at year-end were $2.1 million, with 70% of
the balance being cash advances from the founder and CEO for
working capital purposes and the remainder being trade and other
payables of $600,000.
-- After year-end, the CEO agreed to convert these advances
(which then had a balance of $1,322,000) to a $2 million credit
facility not due until June 2024, leaving the Company $678,000 from
which to further draw, from which none has been drawn as of the
date of this report.
-- At 31 December, 2022, the Group had a $10.4 million backlog
(representing contracts in progress), of which $5.9 million is
expected to be realized in 2023.
-- The Company has available net operating loss carryforwards of
$5.9 million to offset future taxes.
These key measurements show the Groups ability to execute its
2023 business plan funded through organic cash generation and
available credit facilities. the need to seek additional funds from
the
Key performance indicators
The Company's major KPI since its founding and through March
2022 was completion of an acquisition of a suitable target and all
activities necessary to that end. The Company completed an
acquisition in March 2022 of the Operating Group. Since March 2022,
and up until end of 2022, the Group's main KPIs included:
-- Appoint a CEO, a role that had been vacant since the Group's founding;
-- Ensure integration activities with the Company does not
impact the Operating Group's; management focus on revenue, cash
flow, and new business generation;
-- Communicate the vision of the combined entities to stakeholders; and
-- Identify activities for the continued transition of the Company for 2023.
Regarding 2022 performance:
-- Steve Bassi, the founder of Narf US, was appointed the Group CEO in June 2022
-- The Operating Group grew revenue from 2021 to 2022; managed
cash within set guidelines; and delivered record setting backlog.
However, the 2022 audit has adversely impacted operations.
-- RNS updates and shareholder briefing were conducted on a regular basis
-- The CEO targeted on-boarding experienced executive and financial talent early in 2023.
For 2023 with the new Executive Chairman and CFO in place, KPIs
include:
-- Deliver at least 100% YOY revenue growth; reduce operating
expenses by 50%; manage to nominal EBITDA gain/loss; and finance
within the bounds or organic cash flow and current financing
facilities.
-- Build an experienced and capable Board of Directors.
-- Strengthen our internal and external financial reporting.
-- Scale and expand our government business.
-- Unlock the value of our IP with innovative and efficient go to market strategies.
Principal risks and uncertainties
The principal risks and the steps taken by the Group to mitigate
these risks are as follows:
The Group is still in the early stages of its life and operating
history
We face the inherent risk of all early-stage companies with
limited operating history. We further acknowledge the risk in
transition as we integrate and advance a private and
entrepreneurial led venture to the main operating business of an
LSE listed Company. We understand these factors may impact investor
perceptions, but we are confident in our immediate-term prospects.
Specifically:
-- The increase in our government contract backlog translates
into a sustainable revenue stream for our Company. These contracts
provide us with a stable and predictable source of income, enabling
us to plan and execute our business strategies with confidence. The
multi-year nature of these contracts not only ensures a consistent
cash flow but also provides a solid foundation for future growth
and investment opportunities.
-- We can scale and expand our government business where we have
a proven track-record and demand for cybersecurity capabilities is
in limited supply.
-- The founder of Narf US and now CEO of the Group, is driving
the on-boarding of executives, as evidenced by the Executive
Chairman and CFO appointments, with experience in to navigate the
risk in transition and growth.
Reliance on a limited number of products and customers
We acknowledge this risk but embrace it as strategic and
competitive advantage for an early-stage company. We are delivering
highly specialized capabilities to government agencies with
multi-billion-dollar budgets and a mission that only grows. We are
building our reputation as demonstrated by our growing backlog and
award of our largest contract to date, of $6.7 million. Our market
share even in this small niche is minuscule.
These achievements and reputation will serve as the foundation
to attract new customers. Our growing government R&D work is
leading to creation of new products.
Technology risk
Cybersecurity is a rapidly changing industry with many
competitors seeking to further develop their technologies, any of
which can be displaced by new and innovative approaches. We work at
the most advanced edges of cybersecurity technologies where it so
specialized and the mission so critical that only US government
agencies can justify the cost/benefit. We do not see this work
exposed to material technology risk.
Our primary technology risk is in our ability to commercialize
government R&D work, a core strategy of the Group. The risk
lies in identifying commercial use cases where the Group can embed
advanced capabilities into products with functionality at price
points meeting market demand.
The Group does not project material commercialization revenues
until such time as government revenues grow to enable organic
investments to fund product development. The Company will then
assemble an experienced team to execute its commercialization
strategies.
Key-person risk
Our success and prospects are significantly influenced by the
knowledge, experience, and expertise of key individuals within our
organization. The loss of any key person, including members of our
senior management team or technical experts, could have a material
adverse effect on our business, operations, and financial
performance.
This risk is largely mitigated largely at this stage as the
three most critical employees are major shareholders in the
Company.
We continuously strive to attract, retain, and motivate key
personnel through competitive compensation packages, employee
engagement initiatives, and a supportive work environment. However,
there is always a risk that key individuals may leave the company
for various reasons, including career opportunities elsewhere or
unforeseen circumstances.
Inability to Fund Operations
As an emerging company in a rapidly evolving industry, we face
certain financial risks, including the potential inability to fund
our operations. The success of our business and our ability to
achieve our strategic objectives depend on our access to adequate
funding sources, including cash reserves, credit facilities, and
capital markets.
While we acknowledge this risk, we are committed to taking
proactive measures to mitigate it. Our Financial position and going
concern disclosures present our 2023 plans to leverage our strong
backlog, achieve operational efficiency, and manage cash flow to
ensure alignment with our available resources.
We also actively evaluate potential strategic alliances,
partnerships, and collaborations that can provide access to
additional resources to fund our commercialization goals.
While we have taken and continue to take reasonable measures to
address the risk of funding constraints, there can be no assurance
that we will be successful in maintaining performance or securing
the necessary funding on favourable terms (see 'Going Concern'
section in the Directors Report below).
Reputational Risk
Reputational risk is a critical consideration for the Board as
it plays a pivotal role in shaping our relationships with
stakeholders and influencing their perceptions of the Group. We
recognize that any adverse event or negative perception can
significantly impact our reputation, market standing, and long-term
success.
Our reputational risk is mitigated to a significant extent due
to the strong track record and exemplary conduct of our key
executives with decades of experience in their respective fields.
Their unwavering commitment to integrity, transparency, and ethical
business practices has established a solid foundation of trust
among our stakeholders.
As we continue to expand and grow, we remain committed to
upholding the values and principles instilled by Management.
Economic Risk
The Group could be affected by unforeseen events outside its
control including economic and political events and trends,
inflation and deflation or currency exchange fluctuations. The
impact is likely to include disruption to financial markets and
higher inflation. Any economic downturn either globally or where
the Group operates, in the US, may have an effect on the demand for
the Group's products and services. However, the Board consider the
US market and the US Government to be a fairly stable counter party
in terms of economic risk. The Group strategy to focus on
strengthening and building further on that relationship only
enhances the mitigation.
Employee information
At present, there are no female Directors in the Company. The
Company has an Executive Chairman, an Executive Chief Executive
Officer and one Non-Executive Director. The Company is committed to
gender equality and diversity. If future roles are identified, a
wide-ranging search would be completed with the most appropriate
individual being appointed irrespective of gender, religion or
certain additional needs.
Social/Community/Human rights matters
The Company ensures that employment practices take into account
the necessary diversity requirements and compliance with all
employment laws. The Board has experience in dealing with such
issues and sufficient training and qualifications to ensure they
meet all requirements.
Anti-corruption and anti-bribery policy
It is our policy to conduct all our business in an honest and
ethical manner. We take a zero-tolerance approach to bribery and
corruption and are committed to acting professionally, fairly and
with integrity in all our business dealings and relationships.
Greenhouse Gas (GHG) Emissions/TCFD
As the Company has not consumed more than 40,000 kWh of energy
in the year period, it qualifies as a low energy user under SI
2018/1155 and is not required to report on its emissions, energy
consumption or energy efficiency activities. Furthermore, given the
size and nature of the business the Directors consider that it is
not possible to provide meaningful TCFD information as would
otherwise be required under the Listing Rules. Until the Group has
reached break-even the Directors intend to focus on growing the
business whilst minimising their carbon footprint to the extent
practicable and will look to focus on disclosures thereafter.
Section 172(1) Statement - Promotion of the Company for the
benefit of the members as a whole
The Directors believe they have acted in the way most likely to
promote the success of the Company for the benefit of its members
as a whole, as required by s172 of the Companies Act 2006.
The requirements of s172 are for the Directors to:
-- Consider the likely consequences of any decision in the long term;
The Company undertakes decisions aligned with its strategic
vision. The focus is multi-billion-dollar cyber security market
segments which are essential to societies' fabric. The Company
meets the most demanding needs of the US government's mission to
protect critical infrastructure, ensure the integrity of software
to thwart malware and related ransomware extortion, and deliver
threat intelligence solutions to stop adversary attacks. This
demand will not abate and consequently our most important decisions
are directed towards the fulfilment of this long-term goal.
Within this framework, the following are the consequences of
recent Board decisions on the long-term business:
Acquisition of the Operating Group - The Company undertook a
thorough review of the cybersecurity industry before identifying
Narf US as an ideal acquisition candidate. This decision meets the
Company's strategic goal to pursue business in the cyber security
industry and sets the Company's long-term vision for the benefit of
all stakeholders.
Licensing SRI IP - The Group's strategy leverages government
cyber-security funded research to create commercial products for
multi-billion market opportunities. SRI owns IP and work product
complementary to the Group's R&D assets and relationships in
the critical infrastructure protection market segment. The Group's
decision to license SRI assets offers more value to prospective
customers and an enhanced competitive position. This decision
advances the long-term potential of the Group's declared
commercialization strategy.
Scaling GS&S Revenues - The Group relies on government work
to fund its operations and enable commercialization investments.
Leveraging 2022 historic contract wins in its GS&S business,
the Board is deciding to "grow where we know" and turbo-charge this
core business. The consequence is increased revenue and net margins
that fund operations and commercialization initiatives through
organic growth.
Performance Discipline and Fiscal Responsibility - The Company
decided to manage its 2023 performance assuming only backlog
business generates revenue, resulting margins, and cash flow; to
reduce expenses by in 2023 from 2022 by 50%; and work to EBITDA
neutral results; and cash flow break even within its current credit
facilities. The impact is an attractive non-dilutive model during
challenging microcap markets as the Company bridges to execute its
long-term strategy.
Governance and Public Company Standards - The Company attracted
experienced executives, is executing on a governance plan, and
working to achieve public company financial standards. A CEO was
appointed in June 2022, an Executive Chairman and CFO in April
2023, a baseline of identified financial reporting standards
shortfall identified in in the audit, and a Company commitment to
resolve shortfalls over the next quarter. The consequences of these
decisions are the longer-term benefit of capital market access on
future favourable terms.
The Board and executives routinely engage in decisions that
impact the long term, set plans to execute, monitor execution, and
pivot as necessary from informed and valued employee insights that
lead to better progress.
-- Act fairly between the members of the Company;
We are dedicated to acting fairly towards our stakeholders.
We are driven to maximizing shareholder returns while
considering the sustainability and resilience of our business.
Alongside value creation, we also prioritize the preservation of
shareholder value. We strive to manage risks, maintain financial
stability, and make prudent decisions that safeguard the assets and
investments entrusted to us by our shareholders.
We prioritize transparent and timely communication with our
shareholders. We will strive to improve our offering regular
updates on our performance, financial results, and key developments
so shareholders are well-informed and have a clear understanding of
our business activities.
We look to uphold the highest standards of corporate governance
to protect and enhance shareholder rights. We recognize the
importance of treating all shareholders fairly and equally,
irrespective of their shareholding size. We are committed to
providing fair and equitable treatment to minority shareholders,
ensuring that their rights and interests are respected.
We work to align management incentives with shareholder
interests to promote responsible and sustainable value creation.
Our executive compensation structure is designed to reward
performance, promote long-term value creation, and align the
interests of management with those of our shareholders.
-- Maintain a reputation for high standards of business conduct;
The Company strives for the highest standards of conduct with
all its stakeholders.
We conduct our business with the utmost integrity, adhering to
ethical principles and demonstrating honesty and transparency in
all our interactions. We work to uphold the highest standards of
ethics and integrity in all business activities. We are dedicated
to delivering high-quality products/services that meet or exceed
our customers' expectations.
We treat all stakeholders fairly and equally, and a commitment
to resolving any concerns or issues in a fair and timely manner. We
maintain open and clear lines of communication and value effective
communication to build strong and lasting relationships.
Our employees embody professionalism in their interactions,
displaying courtesy, respect, and a commitment to understanding and
fulfilling their needs. They take accountability and responsibility
for their actions, decisions for roles and performance.
We maintain strict compliance with legal and regulatory
requirements, as well as industry standards and best practices. We
prioritize the privacy and security of our customers' data,
implementing robust measures to safeguard their information and
comply with applicable data protection laws.
-- Consider the interests of the Company's employees;
For context, the Company is a close-knit group of 15 highly
research scientist and experienced software developers, that have
chosen to come together in an environment that allows them the
freedom to advance their craft without bureaucracy and make
meaningful impact.
We embrace the principle of equality, treating all employees
with fairness and respect. Our flat organizational structure
ensures that every team member has an equal voice and opportunity
to contribute their skills and expertise.
-- Consider the interests of the Company's employees (continued);
Our organization operates on the principles of meritocracy,
where recognition and advancement are based on individual
abilities, accomplishments, and contributions. We value and reward
performance, enabling employees to excel based on their skills,
dedication, and results.
We foster a collaborative work environment where ideas are
valued irrespective of hierarchy. Our culture encourages open
communication, teamwork, and the exchange of diverse perspectives,
allowing everyone to contribute to the success of the
organization.
We empower our employees to make decisions, take ownership of
their work, and contribute to the growth and development of the
company. This empowers individuals to utilize their skills and
knowledge effectively, promoting a sense of ownership and
responsibility.
We maintain a transparent and inclusive environment, where
information is shared openly, and decisions are communicated
clearly. We encourage open and constructive feedback, fostering a
culture of continuous improvement.
-- Foster the Company's relationships with suppliers, customers and others;
We strive to foster strong relationships with customers and
research organizations.
We are committed to fostering strong and enduring relationships
with our customers. We strive to exceed customer expectations,
building trust, loyalty, and long-term partnerships.
We actively seek collaboration with other research
organizations. Through partnerships and joint research initiatives,
we aim to drive innovation, accelerate discoveries, and advance the
field of cybersecurity.
We recognize the importance of being responsive and adaptable to
changing customer requirements. We are agile in our approach,
quickly adapting our research, solutions, and services to address
customer challenges effectively.
We actively engage with customers and other research
organizations to share our expertise, insights, and thought
leadership. By participating in conferences, industry events, and
collaborative forums, we contribute to the broader cybersecurity
community, promoting knowledge exchange, best practices, and
collective learning.
-- Consider the impact of the Company's operations on the community and the environment.
At the core of our work lies a commitment to safeguarding
society from cyber threats and promoting a secure digital
environment. Our team's expertise and research have had a profound
positive impact on individuals, businesses, and critical
infrastructure. Through our relentless efforts, we have contributed
to strengthening the cybersecurity landscape, protecting sensitive
data, and ensuring privacy in an increasingly interconnected
world.
We take great pride in empowering society through our
cybersecurity solutions. By enabling digital transformation,
innovation, and economic growth, our work paves the way for
organizations to embrace technology securely. We firmly believe
that a secure digital ecosystem fosters productivity, connectivity,
and access to information, leading to a thriving society that
benefits all stakeholders.
-- Consider the impact of the Company's operations on the
community and the environment (continued)
Our dedication to ethical and responsible cybersecurity
practices is unwavering. We adhere to stringent ethical guidelines
and prioritize the protection of human rights. Respecting user
privacy and fostering digital trust are foundational principles
that drive our research and recommendations. We understand the
responsibility we bear in creating a secure and inclusive digital
environment, and we actively champion these principles in our daily
operations.
While our primary focus is on societal impact, we also recognize
the importance of minimizing our environmental footprint. We have
taken steps to ensure our operations and research activities have a
minimal impact on the environment. Through energy-efficient
infrastructure, responsible resource consumption, and proper
electronic waste management, we strive to reduce our carbon
footprint and promote environmental sustainability.
Looking ahead, we remain committed to continuous improvement in
both societal and environmental impact. We will continue to enhance
our positive contributions to society while exploring ways to
integrate sustainability practices into our operations. By
partnering with environmental organizations, supporting community
projects, and advocating for sustainable cybersecurity practices,
we will further our commitment to being responsible corporate
citizens.
Gender analysis
A split of our employees and directors by gender during the year
is shown below:
Male Female
---------- ----- -------
Directors 4* -
*- At the time of this report the number of Directors is 3 (all
Male).
Sustainability
We aim to conduct our business with honesty, integrity and
openness, respecting human rights and the interests of our
shareholders and employees. We aim to provide timely, regular and
reliable information on the business to all our shareholders and
conduct our operations to the highest standards.
We strive to create a safe and healthy working environment for
the wellbeing of our staff and create a trusting and respectful
environment, where all members of staff are encouraged to feel
responsible for the reputation and performance of the Company.
We aim to establish a diverse and dynamic workforce with team
players who have the experience and knowledge of the business
operations and markets in which we operate. Through maintaining
good communications, members of staff are encouraged to realise the
objectives of the Company and their own potential.
Steve Bassi
CEO
11 July 2023
DIRECTORS REPORT
The Directors present their report and the audited consolidated
financial statements for the year ended 31 December 2022
("FY2022"). The Company was incorporated on 28 November 2018 and on
27 February 2020 extended its initial accounting reference date to
31 March 2020. On 7 March 2021 the Company shortened its accounting
period to 31 December 2020 to align with the accounting periods of
its target acquisition companies. On 3 August 2022 the Company
changed its name from Cyba plc to Narf Industries plc to align its
identity with that of the operating subsidiaries.
Principal Activity
The principal activity of the Group during the year was the
development and marketing of software offering cybersecurity
solutions.
Results
The Group recorded an operating loss of $2.6 million (2021:
$0.9m for Narf US). Group losses for the year before taxation were
US$18.4 million (2021: $0.8m for Narf US), which included a one-off
charge of $15.4 million representing the deemed cost of the listing
achieved by Narf US as a result of the reverse acquisition takeover
as further explained further below and in note 8 to the accounts).
Revenue grew by over 30% to $2.5 million and the Group ended the
year with contracted backlog of $10.4 million.
Operating expenses were up, primarily in relation to the work
involved in completing the RTO. Otherwise they would have been
consistent with 2021. The Board is expecting them to fall by $1.4m
(50%) to 2023 as a result of the one-off costs in 2022 not being
incurred in 2023 matched with our plan to streamline to core
business.
Basis of presentation and RTO
These financial statements have been prepared to reflect the
acquisition of Narf Industries LLC and Narf Industries PR LLC via a
reverse takeover on 15 March 2022, which resulted in the Company
becoming the ultimate holding company of the Group.
The RTO has been accounted for by showing the consolidated
financial statements as a continuation of the Narf US subsidiaries.
As such, the comparatives of the consolidated primary statements
represent the combined results and assets, liabilities and equity
of the Narf US subsidiaries.
The transactions were accounted for as reverse acquisitions
since they did not meet the definition of a business combination
under IFRS 3. In accordance with IFRS 2, a share based payment
expense equal to the deemed cost of the acquisition less the fair
value of the net assets of the Company at acquisition was
recognised.
The comparatives within the consolidated statement of
comprehensive income, the consolidated statement of financial
position, the consolidated cashflow statement and the consolidated
statement of changes in equity represent the combined numbers of
the legal subsidiaries and accounting acquirers, Narf Industries
LLC and Narf Industries PR LLC. In the consolidated statement of
financial position, the share capital and premium as at 31 December
2022 is that of Narf Industries Plc with the reverse acquisition
reserve representing the difference between the deemed cost of the
acquisition and the net assets of Narf Industries plc at 15 March
2022. The consolidated statement of comprehensive income for 2021
represents the results of Narf US only and for 2022 represents the
results of Narf US only up to the acquisition date (15 March 2022)
at which point the results reflect the combined group, including
both Narf US and the Company up to the year-end.
As a result of the acquisition the functional currency of the
Group is now USD$. As such we were required to restate the Parent
Company Statement of Financial Position as historically it had been
presented in GBP GBP.
Dividends
No dividend has been paid during the year nor do the Directors
recommend the payment of a final dividend (prior year: $nil).
Prior to the acquisition, the previous members of Narf US drew
US$75,000 and US$360,000 for the years ended 31 December, 2022 and
2021 (unaudited), respectively.
Directors
The Directors who served at any time during the period were:
Steve Bassi Chief Executive Officer
John Herring Executive Chairman
Rory Heier Non-Executive Director
Robert Mitchell Non-Executive Chairman (resigned 23 April 2023)
Details of the Directors' holding of Ordinary Shares and
Warrants are set out in the Directors' Remuneration Report from
page 21.
Further details of the interests of the Directors in the
Warrants of the Company are set out in Note 18 of the financial
statements.
Share Capital
The Company is incorporated as a public limited company and is
registered in England and Wales with the registered number
11701224. Details of the Company's issued share capital, together
with details of the movements during the period, are shown in Note
17. The Company has one class of Ordinary Share and all shares have
equal voting rights and rank pari passu for the distribution of
dividends and repayment of capital.
Substantial Shareholding
At 30 June 2023, the Company had been informed of the following
substantial interests over 3% of the issued share capital of the
Company.
Shareholder No of Ordinary Shares Percentage
of issued Share
Capital
-------------------- ---------------------- -----------------
Steve Bassi 502,079,484 29.58%
Banque Heritage 160,000,000 9.43%
Nick Davis 92,948,078 5.48%
Ben Schmidt 88,447,438 5.21%
Hadron Master Fund
Series II 65,064,542 3.83%
SRI International 59,856,100 3.53%
-------------------- ---------------------- -----------------
Directors' Remuneration Report (Audited)
Remuneration Policies (unaudited)
The Board believes that share ownership by Executive Directors
strengthens the link between their personal interests and those of
shareholders. To date the Board members have not traded in the
Company shares since the admission to LSE.
With the late recent appointment of the Executive Chairman there
are a number of immediate governance actions that will be addressed
in Q3 2023, including the shareholding policy.
The Directors' remuneration comprises a basic fee and
discretionary bonuses and/or long-term incentives to reflect their
contribution to significant events such as the reverse takeover.
Directors also receive reimbursement for expenses incurred whilst
performing services for the Company.
Service contracts (unaudited)
The Directors have entered into Service Agreements with the
Company and continue to be engaged under these agreements until
terminated by the Company.
In the event of termination or loss of office the Director is
entitled only to payment of their basic salary in respect of his
notice period. In the event of termination or loss of office in the
case of a material breach of contract the Director is not entitled
to any further payment.
Directors are allowed to accept external appointments with the
consent of the Board, provided that these do not lead to conflicts
of interest. Directors are allowed to retain fees paid.
UK 10-year performance graph
The Directors have considered the requirement for a UK 10-year
performance graph comparing the Company's Total Shareholder Return
with that of a comparable indicator. The Directors do not currently
consider that including the graph will be meaningful because the
Company has only been listed for less than 2 1/2 years, is not
paying dividends, is currently incurring losses as it gains scale,
Its focus during the year ended 31 December 2022 was to integrate
Narf US. In addition and as mentioned above, the remuneration of
Directors was not linked to performance but to one-off events and
we therefore do not consider the inclusion of this graph to be
useful to shareholders at the current time. The Directors will
review the inclusion of this table for future reports. r,
Implementation Report
Particulars of Directors' Remuneration (audited)
Particulars of directors' remuneration under the Companies Act
2006 are required to be audited, are given in Notes 5 and further
referenced in the Directors' report.
Remuneration approved for the Directors' during the year ended
31 December 2022 was:
Base fee Bonus Long-term Total
US$ US$ incentive US$
US$
--------------------------- --------- -------- ----------- --------
Robert Mitchell (resigned
23.4.23) 149,994 187,493 29,479 366,966
Steve Bassi 60,000 - - 60,000
John Herring 60,000 - - 60,000
Rory Heier 123,794 187,493 29,479 340,766
393,788 374,986 58,958 827,732
--------- -------- ----------- --------
Particulars of Directors' Remuneration (audited) (continued)
For the comparative period being the year to 31 December
2021:
Base salary Additional Pension Total
US$ time-based contribution US$
payments US$
US$
--------------------------- ------------ ------------ -------------- --------
Robert Mitchell*(resigned
23.4.23) 81,000 81,000 - 162,000
Steve Bassi 60,000 - - 60,000
John Herring 60,000 - - 60,000
Rory Heier* 81,000 81,000 - 162,000
282,000 162,000 - 444,000
------------ ------------ -------------- --------
* Mr Heier and Mr Mitchell were contracted to provide a maximum
of ten hours of their time per month to the Company. Additional
hours beyond this were charged on a time spent basis.
There were no performance measures associated with any aspect of
Directors' remuneration during the year.
Payments to past Directors (audited)
There are no payments in the year to past Directors.
Bonus and incentive plans (audited)
During the year of Mr Mitchell and Mr Heier were awarded 25
million options (2021: nil) over the ordinary shares of the Company
with a strike price of 2p per Share. These options vest immediately
and have a three year term (see note 18) .
Percentage change in the remuneration of the Chief Executive
(audited)
The Chief Executive was appointed in June 2022 and therefore no
information on the percentage change is presented. The CEO
currently receives $5,000 per month for his Board service and
currently does not take any other remuneration.
Other matters
The Company does not have any pension plans for any of the
Directors and does not pay contributions in relation to their
remuneration. The Company has not paid out any excess retirement
benefits to any Directors.
Approval by members (unaudited)
The remuneration policies established during the transition will
be put to members for approval at the next Annual General
Meeting.
Directors' interests in shares
The Company has no minimum Director shareholding
requirements.
The beneficial interest of the Directors in the Ordinary Share
Capital of the Company at 30 June 2023 was:
% age of issued
Number share capital
-------------- ------------ ----------------
Rory Heier 11,375,000 0.67%
Steve Bassi 502,079,484 29.58%
John Herring 26,000,000 1.53%
549,454,484 32.37%
------------ ----------------
Remuneration Committee (unaudited)
There is no separate Remuneration Committee at present, instead
all remuneration matters are considered by the Board as a whole. It
meets when required to consider all aspects of Directors'
remuneration, share options and service contracts.
Auditor Information and Opinion
The Directors who held office at the date of approval of the
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
Auditor is unaware with the exception of the matters included in
the Auditor's report, which contains specific information on the
areas which resulted in a disclaimer of opinion.
This is the first financial reporting period for which
consolidated financial statements, incorporating the businesses
acquired in March 2022 (see Note 8 to the Financial Statements),
are subject to International Finance Reporting Standards (IFRS).
This administrative burden introduced by IFRS presented a
significant hurdle which was the main reason for delay in
completion of the Audit.
In addition to the record keeping matter, certain other
challenges hindered the completion of the audit, the most
significant being our ability to provide the auditors with various
contracts and underlying records related to a sensitive contractual
relationship as further discussed in the Executive Chairman's
Statement (see the Sensitive Contract component of his
Statement).
A decision was made to accept the auditor' disclaimers, as
resolution will require more time and extending the trading
suspension of our shares would negatively impact stakeholders.
Our team, now resourced with a new CFO, will continue to work
diligently, and resolve all matters with our auditors to give all
stakeholders the assurances they need in our reported
financials.
Emissions
The Company is aware that it needs to measure its operational
carbon footprint in order to limit and control its environmental
impact. However, since the Company, due to its limited activities
in the year under review, did not consume more than 40,000kWh of
energy, the Company's emissions are not disclosed for this
reason.
In the future, the Company will only measure the impact of its
direct activities, as the full impact of the entire supply chain of
its suppliers cannot be measured practically.
Financial Instruments
The Company has exposure to credit risk, liquidity risk and
market risk. Note 21 presents information about the Company's
exposure to these risks, along with the Company's objectives,
processes and policies for managing the risks.
Events after the reporting period (see Note 24)
There have been no material events since the reporting date
which have a material impact on an understanding of these financial
statements.
Directors' Indemnity Provisions
The Company has taken out Directors and Officers Liability
Indemnity insurance.
Going concern
The following represents key financial metrics of the Group.
-- At year-end, the consolidated statement of financial position
presents Current Assets totaling $1.2 million. This included cash
of $440,000 and trade receivables of $690,000.
-- Total liabilities at year-end were $2.1 million, with 70% of
the balance being cash advances from the founder and CEO for
working capital purposes and the remainder being trade and other
payables of $600,000.
-- At 31 December, 2022, the Group had a $10.4 million backlog
(representing contracts in progress), of which $5.9 million is
expected to be realised in 2023.
-- The Company has available net operating loss carryforwards of
$5.9 million to offset future taxes.
Since the year-end, the CEO agreed to provide a $2 million
credit facility not due until June 2024, leaving the Company
$680,000 from which to further draw as of the date of this report.
The year-end receivables of $690,000 were all collected in Q1 2023.
The Company is on course for its revenue projections of at least
100% YoY growth, out of its $10.4 million backlog, whilst reducing
operating expenses by 50% resulting in estimated break-even EBITDA
and finance within the bounds or organic cash flow and current
financing facilities.
These above points mean the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
the Directors continue to adopt the going concern basis in
preparing the financial statements. Further details are given in
Note 2.3.
Auditors
The Board appointed PKF Littlejohn LLP as auditors of the
Company on 21 March 2019 and thus this is their fourth period of
appointment. They have expressed their willingness to continue in
office and a resolution to reappoint them will be proposed at the
Annual General Meeting.
Donations
The Company made no political donations during the current and
prior periods.
Statement of Directors' Responsibilities in respect of the
Annual Report and the financial statements
The Directors are responsible for preparing this report and the
financial statements in accordance with applicable United Kingdom
law and regulations and those UK-adopted international accounting
standards.
Company law requires the Directors to prepare financial
statements for each financial period which present fairly the
financial position of the Company and the financial performance and
cash flows of the Company for that period.
In preparing those financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- state whether applicable UK-adopted international accounting
standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Company financial statements comply with the Companies Act 2006
and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations, and for ensuring
that the Annual report includes information required by the Listing
Rules of the Financial Conduct Authority.
The financial statements are published on the Groups's website.
The work carried out by the Auditor does not involve consideration
of the maintenance and integrity of this website and accordingly,
the Auditor accepts no responsibility for any changes that have
occurred to the financial statements since they were initially
presented on the website. Visitors to the website need to be aware
that legislation in the United Kingdom covering the preparation and
dissemination of the financial statements may differ from
legislation in their jurisdiction.
The Directors confirm that to the best of their knowledge:
these financial statements, prepared in accordance with IFRS (UK
adopted IASs), give a true and fair view of the assets,
liabilities, financial position and profit of the Group and
Company;
this Annual report includes the fair review of the development
and performance of the business and the position of the Group and
Company together with a description of the principal risks and
uncertainties that it faces; and
the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide information
necessary for shareholders to assess the Group and Company's
performance, business and strategy.
ON BEHALF OF THE BOARD
Rory Heier
Non-Executive Director
INDEPENT AUDITORS' REPORT TO THE MEMBERS OF NARF INDUSTRIES
PLC
Disclaimer of opinion
We were engaged to audit the financial statements of Narf
Industries Plc (the 'parent company') and its subsidiaries ("the
group") for the year ended 31 December 2022 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated
Statement of Financial Position, the Parent Company Statement of
Financial Position, the Consolidated Statement of Cashflows, the
Parent Company Statement of Cashflows, the Consolidated Statement
of Changes in Equity, the Parent Company Statement of Changes in
Equity and notes to the financial statements, including significant
accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and UK-adopted
international accounting standards and as regards the parent
company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
We do not express an opinion on the accompanying financial
statements of the group and the parent company. Because of the
significance of the matters described in the Basis for disclaimer
of opinion section of our report, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an
audit opinion on these financial statements.
Basis for disclaimer of opinion
We identified weaknesses in management's internal processes and
controls which meant that proper accounting records were not
maintained by management. Given the potential wider consequences of
this on our audit, we sought to extend our procedures. However, we
were unable to complete our audit procedures as management was
unable to provide sufficient and appropriate audit evidence in
response to our extended testing requests. For this reason, we are
unable to form an opinion on the reasonableness of the balances
presented in the financial statements and the related note
disclosures.
Management acquired two subsidiaries in one transaction during
the year and in relation to the acquisition, we were unable to
validate the opening balances. The financials of the acquired
subsidiaries for the period ending 31 December 2021 were unaudited.
Our audit opinion on the financial statements for the year ended 31
December 2022 is also disclaimed due to the inability to gain
sufficient and appropriate audit evidence in respect of the opening
balances of these subsidiaries.
Other matter
The financial statements of the two acquired subsidiaries for
the year ended 31 December 2021 were not audited and as such, the
comparatives of the consolidated primary statements within these
financial statements are unaudited.
Our application of materiality
The scope of our audit was influenced by our application of
materiality. The quantitative and qualitative thresholds for
materiality determine the scope of our audit and the nature,
timing, and extent of our audit procedures. Materiality for the
consolidated financial statements was set as $76,000 based upon
loss before tax. Materiality has been based upon loss before tax
due to the value and significance of revenue, cost of sales and
administrative expenses in the year Performance materiality and the
triviality threshold for the consolidated financial statements was
set at $53,200 and $3,800 respectively due to our accumulated
knowledge of the group, the number of significant risks identified
and their assessed risk.
Materiality for the parent company financial statements as a
whole was set as $66,000 (2021: GBP99,000). This was calculated
based upon the parent company's share of the group's loss before
tax (2021: net assets) due the focus in the parent company on
reducing costs and funding the subsidiaries operations. Performance
materiality and triviality threshold for the parent company was set
at $46,200 (2021: GBP69,300) and $3,300 (2021: GBP4,950)
respectively due to the assessed risk and our accumulated knowledge
of the parent company.
We also agreed to report to the Audit Committee any other
differences below that triviality threshold that we believe
warranted reporting on qualitative grounds.
Our approach to the audit
In designing our audit, we determined materiality and assessed
the risks of material misstatement in the financial statements. In
particular we looked at areas involving significant accounting
estimates and judgements by the directors and considered future
events that are inherently uncertain, such as revenue recognition
and the recoverable value of the investment in subsidiaries and
intangible assets. We also addressed the risk of management
override of internal controls, including among other matters
consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
A full scope audit was performed on the complete financial
information of the three components of the group. The three
components are based on geographical location being the United
Kingdom, the United States of America and Puerto Rico.
We audited the ultimate parent company, situated in the United
Kingdom, and the two other reporting components. All audit work was
conducted in the United Kingdom with regular interaction with the
entity during all stage of the audit. However, as referenced in the
Basis for disclaimer of opinion section of our audit report, we
were unable to gain sufficient and appropriate audit evidence and
therefore are unable to give an opinion on the financial
statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In addition to
the matter described in the Basis for disclaimer of opinion section
we have determined the matters described below to be the key audit
matters to be communicated in our report.
Key Audit Matter How our scope addressed this
matter
Revenue recognition
=============================================================
The group recognised revenues Our work in this area included
totaling $2,547k (Note 3) for but was not limited to:
the year ended 31 December 2022. * Obtaining an understanding of the information system
The revenue recognised in the and related controls relevant to each material income
year within the group relates stream;
to contracts entered into with
a small number of customers.
These contracts include a significant * Evaluating the appropriateness of the information
number of performance obligations system and the effectiveness of the design and
and are of significant value. implementation of the related controls;
As such, there is a risk that
the revenue recognised in the
year in respect of these contracts * Obtaining each contract that was active in the year,
may be materially incomplete reviewing management's revenue recognition accounting
or overstated as it has not policy and assessing whether this is in accordance
been recognised correctly in with IFRS 15;
accordance with IFRS 15 and
the performance obligations
met during the year. Furthermore, * For each contract obtained, reviewing the contract,
revenue may be materially misstated and ascertaining whether the performance obligations
due to cut-off errors as significant were met in the year; and
judgements may be required to
be made where milestones have
not been fully met by the year-end. * Ensuring that the revenue recognised in the year was
accurate and complete including whether revenue had
been appropriately deferred and/or accrued.
Sufficient and appropriate audit
evidence could not be obtained
in respect of the revenue and
therefore, as noted in the Basis
for disclaimer of opinion section,
we are unable form an opinion
on the reasonableness of the revenue
balances presented in the financial
statements and supporting disclosure
notes.
=============================================================
Business combinations accounting
treatment and disclosure
=============================================================
During the year, the parent Our work in this area included
company acquired two entities, but was not limited:
Narf Industries LLC and Narf * Obtaining the agreements in respect of the business
Industries PR LLC, through the combination transaction and ascertaining the key
issuance of shares as well as terms of the transaction;
cash consideration. The directors
have assessed these acquisitions
to fall outside the scope of * Assessing the accounting treatment of the
IFRS 3 as they do not believe acquisitions and management's justifications;
that Narf Industries Plc meets
the definition of a business
per IFRS 3 (Notes 2.16 and 8). * Obtaining management's acquisition workings and
The treatment and disclosure ensuring that they have correctly valued the
of business combinations during investment in the subsidiaries, the net assets of the
the year are a significant risk parent company at acquisition, the reverse takeover
area due to the complexity of share-based payment charge and the reverse
the accounting for such acquisitions, acquisition reserve;
the judgement required to be
made by management in assessing
the accounting treatment thereon * Ensuring that management have correctly consolidated
as the acquisitions falls outside the subsidiaries' results for 2022 and that the
the scope of IFRS 3 and the comparatives in the group primary statements
value of the consideration paid represent the subsidiaries combined results and
for the two subsidiaries. financial position; and
* Ensuring disclosures in the financial statements are
in line with UK-adopted IAS.
=============================================================
Carrying value of investment
in subsidiaries
=============================================================
As noted above, during the year Our work in this area included
the parent company acquired but was not limited:
two entities during the period * Obtaining and reviewing management's impairment
and the carrying value of the assessment in respect of the investment in
investments in these subsidiaries subsidiaries and supporting calculations; and
as at 31 December 2022 was $25,600k
(Note 12).
Given the value of the balances * Ascertaining and challenging management's key
and the group is still in its assumptions and inputs.
growth phase, there is a risk
that the investment in subsidiaries
may not be fully recoverable.
Furthermore, management are
required to make significant
estimates and judgements (Note
2.16) when assessing the recoverable
value of the investment in subsidiaries
and whether it is impaired.
=============================================================
Carrying value of capitalised
development costs
=============================================================
As at 31 December 2022, the Our work in this area included
carrying value of capitalised but was not limited:
development costs at group level * Obtaining the directors' assessment of impairment and
totalled $2,697k (Note 9). reviewing and challenging the key estimates and
Given the value of the balance, judgements used therein; and
the estimation required when
conducting impairment reviews
and the judgement required when * Reviewing disclosures in the financial statements to
capitalising costs (Note 2.16), ensure that they are in line with IAS 38.
there is a risk that capitalised
development costs may be materially
misstated as costs have been Sufficient and appropriate audit
inappropriately capitalised evidence could not be obtained
and/or the asset is not fully in respect of the carrying value
recoverable. of intangible assets and therefore,
as noted in the Basis for disclaimer
of opinion section, we were unable
to form an opinion on the reasonableness
of the capitalised development
costs balances presented in the
financial statements and supporting
disclosure notes.
=============================================================
Other information
The other information comprises the information included in the
strategic and directors' report, other than the financial
statements and our auditor's report thereon. The directors are
responsible for the other information contained within the
strategic and directors' reports. Our opinion on the group and
parent company financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and,
in doing so, consider whether the other information is materially
inconsistent with the financial statements, or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
As described in the Basis for disclaimer of opinion section of
our report, we have concluded that a material misstatement of the
other information exists.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion the part of the directors' remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Because of the significance of the matters described in the
Basis for disclaimer of opinion section of our report, we have been
unable to form an opinion, whether based on the work undertaken in
the course of the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
Notwithstanding our disclaimer of an opinion on the financial
statements, in the light of the knowledge and understanding of the
group and parent company and its environment obtained in the course
of the audit performed subject to the pervasive limitation
described above, we have not identified material misstatements in
the strategic report or the directors' report.
Arising from the limitation of our work referred to above:
-- we have not obtained all the information and explanations
that we considered necessary for the purpose of our audit; and
-- we were unable to determine whether adequate accounting
records have been kept by the parent company.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- returns adequate for our audit have not been received from branches not visited by us; or
-- the parent company financial statements and the part of the
directors' remuneration report to be audited are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made.
Responsibilities of directors
As explained more fully in the Statement of Directors
Responsibilities, the directors are responsible for the preparation
of the Group and Parent Company financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Group and Parent Company financial statements,
the directors are responsible for assessing the Group's and Parent
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the group and parent company or to cease operations, or
have no realistic alternative but to do so.
Extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
-- We obtained an understanding of the group and parent company
as well as the sector in which they operate to identify laws and
regulations that could reasonably be expected to have a direct
effect on the financial statements. We obtained our understanding
in this regard through discussions with management, industry
research and our cumulative audit knowledge and experience of the
sector.
-- We determined the principal laws and regulations currently
relevant to the group and parent company in this regard to be those
arising from UK Company Law, rules applicable to issuers on the LSE
Standard List Main Market, including the FCA Listing Rules and the
Disclosure Guidance and Transparency Rules.
-- We designed our audit procedures to ensure the audit team
considered whether there were any indications of non-compliance by
the group and parent company with those laws and regulations. These
procedures included, but were not limited to:
o Discussions with management regarding compliance with laws and
regulations by the group and parent company;
o Review of board minutes; and
o Review of regulatory news announcements made throughout and
post year-end.
-- We also identified the risks of material misstatement of the
financial statements due to fraud. We considered, in addition to
the non-rebuttable presumption of a risk of fraud arising from
management override of controls, that there was potential for
management bias in relation to revenue recognition, the recoverable
values assigned to the investment in subsidiaries and the
intangible assets. We sought to address these risks by challenging
the assumptions and judgements made by management when auditing
these significant accounting estimates but were not able to
conclude thereof (see the Key audit matters section of our
report).
-- As in all of our audits, we addressed the risk of fraud
arising from management override of controls by performing audit
procedures which included, but were not limited to the testing of
journals; reviewing accounting estimates for evidence of bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk
that we will not detect all irregularities, including those leading
to a material misstatement in the financial statements or
non-compliance with regulation. This risk increases the more that
compliance with a law or regulation is removed from the events and
transactions reflected in the financial statements, as we will be
less likely to become aware of instances of non-compliance. The
risk is also greater regarding irregularities occurring due to
fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission, or misrepresentation.
Auditor's responsibilities for the audit of the financial
statements
Our responsibility is to conduct an audit of the group's and
parent company's financial statements in accordance with ISAs (UK)
and to issue an auditor's report.
However, because of the matters described in the Basis for
disclaimer of opinion section of our report, we were not able to
obtain sufficient appropriate audit evidence to provide a basis for
an audit opinion on these financial statements.
We are independent of the group and parent company in accordance
with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC's Ethical
Standard as applied to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
Other matters which we are required to address
We were appointed by the Audit Committee on 21 March 2019 to
audit the financial statements for the period ending 31 March 2020
and subsequent financial periods. Our total uninterrupted period of
engagement is 3 periods, covering the periods ending 31 March 2020,
31 December 2021 and 31 December 2022.
The non-audit services prohibited by the FRC's Ethical Standard
were not provided to the group and parent company and we remain
independent of the group and parent company in conducting our
audit.
Our audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone, other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Joseph Archer (Senior Statutory Auditor) 15 Westferry Circus
For and on behalf of PKF Littlejohn LLP
Canary Wharf
Registered Auditor London E14 4HD
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
Year ended (Unaudited)
31 December Year ended
Notes 2022 31
US$ December
2021
US$
Contract Revenue 3 2,547,125 1,939,516
Cost of Sales (1,828,887) (678,831)
---------------------------------------- -------- ------------- ------------
Gross profit 718,238 1,260,685
Administrative expenses (3,303,583) (2,133,711)
Loss before depreciation and software
license amortisation, share based
payment expenses, interest and taxes 4 (2,585,345) (873,026)
Depreciation and software license
amortisation (329,999) (47,379)
Other share based payment expense 18 (147,580) -
Operating loss (3,062,924) (920,375)
RTO share based payment expense 8 (15,355,123) -
Interest receivable and other finance
income 3,376 150,593
Finance costs (3,197) (767)
---------------------------------------- -------- ------------- ------------
Loss on ordinary activities before
taxation (18,417,868) (770,579)
Tax on loss on ordinary activities 6 (7,839) (72,090)
---------------------------------------- -------- ------------- ------------
Loss and total comprehensive income
for the period attributable to the
owners of the company (18,425,707) (842,669)
---------------------------------------- -------- ------------- ------------
Earnings per share (basic and diluted)
attributable to the equity holders
(cents) 7 (1.3) (0.1)
The comparative information is presented for Narf US, the
accounting acquirers (see note 2.2)
The above results relate entirely to continuing activities.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
As at (Unaudited)
31 December 2022 As at
Notes 31 December 2021
US$ US$
FIXED ASSETS
Intangible assets 9 2,697,076 1,303,351
Tangible assets 11 15,990 49,519
----------------------------- -------- ------------------ ------------------
2,713,066 1,352,870
CURRENT ASSETS
Trade and other receivables 13 756,481 48,074
Cash and cash equivalents 14 442,751 446,879
----------------------------- -------- ------------------ ------------------
1,199,232 494,953
----------------------------- -------- ------------------ ------------------
TOTAL ASSETS 3,912,298 1,847,823
----------------------------- -------- ------------------ ------------------
CURRENT LIABILITIES
Trade and other payables 15 595,962 193,984
----------------------------- -------- ------------------ ------------------
NON-CURRENT LIABILITIES
Loans 16 1,513,727 832,312
----------------------------- -------- ------------------ ------------------
TOTAL LIABILITIES 2,109,689 1,026,296
----------------------------- -------- ------------------ ------------------
NET ASSETS 1,802,609 821,527
----------------------------- -------- ------------------ ------------------
EQUITY
Share capital 17 204,012 *-
Share premium 17 35,074,061 -
Reverse acquisition reserve 8 (16,747,959) -
Foreign exchange reserve (43,411) -
Share based payment reserve 18 229,185
Retained deficit (16,913,279) -
Members' equity - 821,527
TOTAL EQUITY 1,802,609 821,527
----------------------------- -------- ------------------ ------------------
* - The comparative numbers for 2021 are that of the Narf US
subsidiaries and as they are LLCs do not issue shares.
The comparative information is presented for the two
subsidiaries Narf Industries LLC and Narf Industries PR LLC
(together "Narf US"), the accounting acquirers (see note 2.2).
The accompanying notes form part of these financial
statements.
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
As at As at As at 31 December 2020
31 December 2022 31 December 2021 (Restated)*
Notes (Restated)*
US$ US$ US$
FIXED ASSETS
ITIntangible assets 10 1,620,663 - -
Investment in subsidiary
undertakings 12 25,600,000 - -
---------------------------- -------- ------------------ ---------------------------- ----------------------------
27,220,663 - -
CURRENT ASSETS
Trade and other receivables 13 67,364 2,007,220 222,752
Cash and cash equivalents 14 210,282 274,982 1,703,330
---------------------------- -------- ------------------ ---------------------------- ----------------------------
277,646 2,282,202 1,926,082
---------------------------- -------- ------------------ ---------------------------- ----------------------------
TOTAL ASSETS 27,498,309 2,282,202 1,926,082
---------------------------- -------- ------------------ ---------------------------- ----------------------------
CURRENT LIABILITIES
Trade and other payables 15 313,829 311,078 493,650
---------------------------- -------- ------------------ ---------------------------- ----------------------------
TOTAL LIABILITIES 313,829 311,078 493,650
---------------------------- -------- ------------------ ---------------------------- ----------------------------
NET ASSETS 27,184,480 1,971,124 1,432,432
---------------------------- -------- ------------------ ---------------------------- ----------------------------
EQUITY
Share capital 17 204,012 84,293 70,796
Share premium 17 35,074,061 7,447,611 4,871,168
Share based payment reserve 18 229,185 32,578 32,578
Foreign exchange reserve (43,411) (17,767) -
Retained deficit (8,279,367) (5,575,591) (3,542,110)
TOTAL EQUITY 27,184,480 1,971,124 1,432,432
---------------------------- -------- ------------------ ---------------------------- ----------------------------
* - The 2021 and 2020 comparative figures have been restated as
the presentational currency has been changed from GBP GBP to USD
$.
The Company has elected to take the exemption under Section 408
of the Companies Act 2006 from presenting the Parent Company profit
and loss account. The Parent Company loss for the year was
$2,714,845 (2021: $1,963,034).
The accompanying notes form part of these financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
Year ended (unaudited)
31 December Year ended
2022 31 December
Notes US$ 2021
US$
Cash flow from operating activities
Loss on ordinary activities before
taxation (18,417,868) (770,579)
Adjustments for:
Depreciation and software license amortisation 329,999 47,379
Software development amortisation 226,938 269,658
RTO and other share based payment expenses 15,502,703 -
------------------------------------------------ --------- ------------- -------------
(Increase)/decrease in trade and other
receivables (701,723) 105,730
Increase in trade and other payables 67,140 (76,948)
RTO expenses
------------------------------------------------ --------- ------------- -------------
Net cash outflow from operating activities (2,992,811) (424,760)
Cashflow from investing activities
Net amounts paid to former members (3,615,433) -
to acquire control
Licence fee expenditure (500,000) -
Net cashflow from investing activities (4,115,433) -
------------------------------------------------ --------- ------------- -------------
Cashflow from financing activities
Proceeds on the issue of shares 7,650,881 -
Costs related to share issues (1,145,814) -
Loan from former member 702,000 866,891
Loan repayment (20,292) (20,003)
Drawings by former members (75,000) (360,000)
Net interest received/(paid) 180 (766)
----------------------------------------------------------- ------------- -------------
Net cash inflow from financing activities 7,111,955 486,122
----------------------------------------------------------- ------------- -------------
Taxation paid (7,839) (72,090)
----------------------------------------------------------- ------------- -------------
Net decrease in cash and cash equivalents (4,128) (10,728)
Cash and cash equivalents at the beginning
of the period 446,879 457,607
Cash and cash equivalents at the end
of the period 442,751 446,879
----------------------------------------------------------- ------------- -------------
The comparative information is presented for Narf US, the
accounting acquirers (see note 2.2)
The accompanying notes form part of these financial
statements.
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
Year ended Year ended
31 December 31 December
2022 2021 (Restated)
Notes US$ US$*
Cash flow from operating activities
Loss for the period (2,714,845) (1,963,034)
Adjustments for:
Amortisation of intangible assets 296,470 -
(Increase)/decrease in trade and other
receivables (63,147) 87,238
Increase/(decrease) in trade and other
payables 37,330 (182,571)
Share based payments 128,471 -
Net cash outflow from operating activities (2,315,721) (2,058,367)
---------------------------------------------- -------- ------------- -----------------
Cash flow from investing activities
Decrease/(Increase) in prepaid consideration 9 2,000,000 (2,000,000)
Cash invested to acquire license (500,000) -
Cash amounts paid to acquire subsidiary (5,754,046) -
undertaking
---------------------------------------------- -------- ------------- -----------------
Net cash outflow from investing activities (4,254,046) (2,000,000)
---------------------------------------------- -------- ------------- -----------------
Cashflow from financing activities
Proceeds on the issue of shares 7,650,881 2,888,777
Costs related to share issues (1,145,814) (258,758)
---------------------------------------------- -------- ------------- -----------------
Net cash inflow from financing activities 6,505,067 2,630,019
---------------------------------------------- -------- ------------- -----------------
Net decrease in cash and cash equivalents (64,700) (1,428,348)
Cash and cash equivalents at the beginning
of the period 274,982 1,703,330
Cash and cash equivalents at the end
of the period 14 210,282 274,982
---------------------------------------------- -------- ------------- -----------------
* - The 2021 comparative figures have been restated as the
presentational currency has been changed from GBP GBP to USD $.
The accompanying notes form part of these financial
statements.
Share Share FX reserve Share Reverse Retained Members' Total
Capital Premium based payment Acquisition Deficit Equity
reserve reserve
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
US$ US$ US$ US$ US$ US$ US$ US$
------------------ -------- ----------- ------------ -------- ------------- ------------- ---------- -------------
Balance at 1
January 2021 - - - - - 2,024,196 2,024,196
Total
comprehensive
loss
for the period - - - - - (842,669) (842,669)
Drawings by former
members - - - - (360,000) (360,000)
Balance at 31
December 2021 - - - - - 821,527 821,527
------------------- -------- ----------- ------------ -------- ------------- ------------- ---------- -------------
Total
comprehensive
loss
for the period - - - - - (18,425,707) - (18,425,707)
Drawings by former
members - - - - - - (75,000) (75,000)
Reclassification
of members'
at acquisition - - - - - 746,527 (746,527) -
Recognition of plc
equity
at acquisition
date 112,346 15,804,717 (1,840,675) - 3,097,995 765,901 - 17,940,284
Issue of shares
for acquisition 84,330 17,964,360 1,797,264 - (19,845,954) - - -
Share based
payments 7,336 1,419,577 - - - - - 1,426,913
Issue of warrants
and options - (114,593) - 229,185 - - - 114,592
Balance at 31
December 2022 204,012 35,074,061 (43,411) 229,185 (16,747,959) (16,913,279) - 1,802,609
------------------- -------- ----------- ------------ -------- ------------- ------------- ---------- -------------
See notes below parent company statement of changes in equity
for explanation as to the reserves
The accompanying notes form part of these financial
statements.
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
Restated in
US$
Share
based
Share Share payment Retained
Capital Premium reserve FX reserve Deficit Total
US$ US$ US$ US$ US$ US$
----------------- -------------- ------------ --------- ------------ ------------ ------------
Balance at April
2020 41,811 2,371,532 32,578 - (1,920,657) 525,264
Total
comprehensive
loss for the
period - - - - (1,621,453) (1,621,453)
Shares issued
during
the period 28,985 2,786,966 - - - 2,815,951
Costs related to
share
issues - (491,136) - - - (491,136)
Balance at 31
December
2020 70,796 4,667,362 32,578 (3,542,110) 1,228,626
----------------- ------------- ------------ --------- ------------ ------------ --------------
Total
comprehensive
loss for the
year - - - - (1,963,034) (1,963,034)
Shares issued
during
the year 13,497 2,888,777 - - - 2,902,274
Costs related to
share
issues - (258,758) - - - (258,758)
FX reserve
arising
on conversion
to reporting
currency - 150,230 - (17,767) (70,447) 62,016
Balance at 31
December
2021 84,293 7,447,611 32,578 (17,767) (5,575,591) 1,971,124
----------------- ------------- ------------ --------- ------------ ------------ --------------
Total
comprehensive
loss for the
year - - - (2,714,845) (2,714,845)
Warrants expired
during
the year - - (12,215) (12,215)
Shares issued
during
the year 127,828 25,893,481 (20,363) 2,972,867 - 28,973,813
Costs related to
share
issues - (1,147,989) - - - (1,147,989)
Issue of
warrants and
options - (114,593) 229,185 - - 114,592
FX reserve
arising
on conversion
to reporting
currency (8,109) 2,995,551 - (2,998,511) 11,069 -
Balance at 31
December
2022 204,012 35,074,061 229,185 (43,411) (8,279,367) 27,184,480
----------------- ------------- ------------ --------- ------------ ------------ --------------
Share capital - the ordinary issued share capital of the
Company.
Share premium - consideration less nominal value of issued
shares and costs directly attributable to the issue of new
shares.
Warrant reserve - the value of equity settled share-based
payments provided to employees, including key management personnel,
and third parties for services provided.
Foreign exchange reserve - a reserve arising on conversion of
company balances in the functional currency of sterling and the
reporting currency of US$.
Reverse acquisition reserve (see note 8)- the difference between
the cost of acquiring the parent company and the fair value of the
parent company's net assets on the acquisition date together with
the deemed cost of listing.
Retained deficit - Cumulative net gains and losses recognised in
the Statement of Comprehensive Income
Members' equity - the net assets belonging to the former
members.
The accompanying notes form part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER
2022
1 GENERAL INFORMATION
The principal activity of Narf Industries Plc (the "Company")
and its subsidiaries (the "Group") is to develop and market
software aimed at enhancing the cybersecurity measures of its
clients. The subsidiaries consist of Narf Industries LLC, a
California limited liability company and Narf Industries PR, LLC, a
Puerto Rican limited liability company ("Narf US" or the "Operating
Group"). The Company is the parent and sole member of both
subsidiaries.
The Company is domiciled in the United Kingdom and incorporated
and registered in England and Wales as a public limited company.
The Company's registered office is 5 Fleet Place, London EC4M 7RD.
The Company's registered number is 11701224.
2 ACCOUNTING POLICIES
2.1 Basis of preparation
The Consolidated Financial Statements of the Group have been
prepared in accordance with UK-adopted international accounting
standards.
The Financial Statements have been prepared under the historical
cost convention unless otherwise stated. The principal accounting
policies are set out below and have, unless otherwise stated, been
applied consistently.
They have been prepared to reflect the acquisition of Narf
Industries LLC and Narf Industries PR LLC via a reverse takeover on
15 March 2022, which resulted in the Company becoming the ultimate
holding company of the Group. They have been prepared showing the
consolidated financial statements as a continuation of the Narf US
subsidiaries. As such, the comparatives of the consolidated primary
statements represent the combined results and assets, liabilities
and equity of the Narf US subsidiaries.
The Financial Statements are prepared in US Dollar ("US$", "USD"
or "$") and presented to the nearest dollar.
2.2 Consolidation and Acquisitions
The Financial Statements consolidate the financial information
of the Company and companies controlled by the Group (its
subsidiaries) at each reporting date following the acquisition last
year. The comparative information (for year ended 31 December 2021)
shows only the unaudited financial information of Narf US.
The comparatives within the consolidated statement of
comprehensive income, the consolidated statement of financial
position, the consolidated cashflow statement and the consolidated
statement of changes in equity represent the combined numbers of
the legal subsidiaries and accounting acquirers, Narf Industries
LLC and Narf Industries PR LLC. In the consolidated statement of
financial position, the share capital and premium as at 31 December
2022 is that of Narf Industries Plc with the reverse acquisition
reserve representing the difference between the deemed cost of the
acquisition and the net assets of Narf Industries plc at 15 March
2022. The consolidated statement of comprehensive income for 2021
represents the results of Narf US only and for 2022 represents the
results of Narf US only up to the acquisition date (15 March 2022)
at which point the results reflect the combined group, including
both Narf US and the Company up to the year-end.
Control is achieved where the Company has the power to govern
the financial and operating policies of an investee entity, has the
rights to variable returns from its involvement with the investee
and has the ability to use its power to affect its returns. The
results of subsidiaries acquired or sold are included in the
financial information from the effective date of acquisition or up
to the effective date of disposal, as appropriate. Where necessary,
adjustments are made to the results of acquired subsidiaries to
bring their accounting policies into line with those used by the
Group. All intra-Group transactions, balances, income and expenses
are eliminated on consolidation. The financial statements of all
Group companies are adjusted, where necessary, to ensure the use of
consistent accounting policies.
2.2 Consolidation and Acquisitions (continued)
They are deconsolidated from the date that control ceases.
Please refer to note 8 for information on the consolidation of Narf
Industries plc and the application of the reverse acquisition
accounting principles.
The Group applies the acquisition method to account for business
combinations that fall within the scope of IFRS 3. For commentary
on how the acquisitions of Narf Industries US LLC and Narf
Industries PR LLC, which falls outside the scope of IFRS 3, was
accounted for, see note 8 below.
Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is
deemed to be an asset or liability is recognised either in profit
or loss or as a charge to other comprehensive income. Contingent
consideration that is classified as equity is not re-measured, and
its subsequent settlement is accounted for within equity.
On 15 March 2022, the Company acquired Narf Industries US LLC
and Narf Industries PR LLC via a reverse takeover which resulted in
the Company becoming the ultimate holding company of the Group. The
transactions were accounted for as reverse acquisitions since they
did not meet the definition of a business combination under IFRS 3.
In accordance with IFRS 2, a share based payment expense equal to
the deemed cost of the acquisition less the fair value of the net
assets of the Company at acquisition was recognised. The
comparatives within the consolidated statement of comprehensive
income, the consolidated statement of financial position, the
consolidated cashflow statement and the consolidated statement of
changes in equity represent the combined numbers of the legal
subsidiaries and accounting acquirers, Narf Industries US LLC and
Narf Industries PR LLC. In the consolidated statement of financial
position, the share capital and premium as at 31 December 2022 is
that of Narf Industries Plc with the reverse acquisition reserve
representing the difference between the deemed cost of the
acquisition and the net assets of Narf Industries plc at 15 March
2022. The consolidated statement of comprehensive income for 2021
represents the results of Narf US and the results of the Narf US
subsidiaries and the results of the Company for the period from
acquisition date (15 March 2022) to the year-end. For more details
of the key terms of the reverse takeover and a breakdown of what
the reverse acquisition reserve as at 31 December 2022 comprises
of, see note 8.
2.3 Going concern
The financial statements have been prepared on a going concern
basis, which assumes that the Group will continue in operational
existence for the foreseeable future. In making this determination,
the Group considered (in part):
-- the Group's $10.4 million backlog at 31 December, 2022
(representing contracts in progress at 31 December, 2022, see Note
3),
-- the timing of near-term and future backlog receipts based on contract payment terms,
-- the timing of receipt of the Group's Accounts Receivable at
31 December, 2022 of $690,000, see Notes 3 and 13,
-- $680,000 available on a $2 million credit facility with an
officer and shareholder, see Notes 16 and 23,
-- future Group expense projections, including anticipated
growth of the Group's operations along with anticipated reductions
in Company operating expenses,
-- the sales pipeline, and
-- the availability of a cumulative net operating loss
carryforward of $5.9 million at 31 December, 2022, see Note 6.
The Group is confident then that based on current cash position
and the cash surplus to be generated from the operations over the
foreseeable future, along with the $680,000 available under the
credit facility, they will have sufficient liquid resources to meet
its current and future liabilities as they fall due and that the
Group is a going concern.
2.4 Foreign currency translation
The financial information is presented in US Dollars which is
the Group's presentational currency as substantially all of the
Group's operational activities are undertaken in US Dollars. The
Company's functional currency is Sterling and the prior year Parent
Company numbers have been restated from Sterling to US Dollars.
Sterling amounts recorded in the accounting records of the Company
are converted using the year end foreign exchange rate for the year
end balances and the average foreign exchange rate for movements
during the year.
Transactions in currencies other than the functional currency
are recognised at the rates of exchange on the dates of the
transactions. At each balance sheet date, monetary assets and
liabilities are retranslated at the rates prevailing at the balance
sheet date with differences recognised in the Statement of
comprehensive income in the period in which they arise.
2.5 Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and current and
deposit balances at banks.
2.6 Intangible assets
Intangible assets comprise non-physical assets comprising
amounts spent on developing software which facilitates the Group
generating future sales along with the cost of acquiring the
licensing rights in relation to the commercialisation of TIRG that
can be determined with reasonable certainty. Royalty payments due
to the licensor upon future sales cannot be determined with any
certainty and accordingly has not been included in cost.
Regarding software development costs, this intangible represent
amounts capitalized related to SaaS products available for
subscription. In accordance with IAS 38, the Company expenses
research and development costs up until the SaaS product enters
into the application development stage at which time costs are
capitalized through the point the SaaS product is ready for release
at which point amortization begins. The application development
stage includes:
(a) the design of the development path, including the
configuration and interfaces of the software,
(b) coding,
(c) installation to hardware, and
(d) testing, including parallel processing.
Subsequent costs for data conversion, training, enhancements and
bug fixes are expensed as incurred.
Intangible fixed assets are being amortised on the following
basis:
Software development costs 17.5% using the reducing balance basis (indefinite life)
License Over 5 years straight-line (finite life)
The useful life of the license is based on the term of that
license agreement, whilst the amortisation method for computer
software is intended to reflect the diminishing value of that
software over time as alternative solutions are developed by the
Group or third parties.
All intangible assets have been assessed by management for
impairment. Management consider the assets for impairment by
considering if any impairment indicators, such as those per IAS 38,
are met and that if any are met, they assess the recoverable value
of the asset, being the higher of the Fair value less costs to sell
and Value in use, and then compare this to the carrying value of
the asset. No impairment provision has been considered
necessary.
2.7 Tangible fixed assets
Tangible assets comprise physical assets such as cars, office
furniture and leasehold improvements which will benefit the Group
over their useful life. Tangible fixed assets are being depreciated
on a straight-line basis over their estimate useful lives as
follows:
Cars 4 years
Office furniture 4 years
Leasehold improvements Life of the lease
2.8 Trade and other receivables
Trade receivables are amounts due from customers for goods or
services rendered in the ordinary course of business. Trade
receivables are initially recognised at the amount of consideration
that is unconditional, i.e. fair value and subsequently measured at
amortised cost using the effective interest method, less loss
allowance. Prepayments and other receivables are stated at their
nominal values.
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
2.9 Trade and other payables
Trade payables are recognised initially at their fair value and
subsequently measured at amortised cost.
2.10 Financial instruments
Initial recognition
A financial asset or financial liability is recognised in the
statement of financial position of the Company when it arises or
when the Company becomes part of the contractual terms of the
financial instrument.
Classification
Financial assets at amortised cost
The Company measures financial assets at amortised cost if both
of the following conditions are met
-- the asset is held within a business model whose objective is
to collect contractual cash flows; and
-- the contractual terms of the financial asset generating cash
flows at specified dates only pertain to capital and interest
payments on the balance of the initial capital.
Financial assets which are measured at amortised cost, are
measured using the Effective Interest Rate Method (EIR) and are
subject to impairment. Gains and losses are recognised in profit or
loss when the asset is derecognised, modified or impaired.
Financial liabilities at amortised cost
Financial liabilities measured at amortised cost using the
effective interest rate method include current borrowings and trade
and other payables that are short term in nature. Financial
liabilities are derecognised if the Company's obligations specified
in the contract expire or are discharged or cancelled.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the effective interest rate ("EIR"). The EIR amortisation
is included as finance costs in profit or loss. Trade payables
other payables are non-interest bearing and are stated at amortised
cost using the effective interest method.
Derecognition
A financial asset is derecognised when:
-- the rights to receive cash flows from the asset have expired, or
-- the Company has transferred its rights to receive cash flows
from the asset or has undertaken the commitment to fully pay the
cash flows received without significant delay to a third party
under an arrangement and has either (a) transferred substantially
all the risks and the assets of the asset or (b) has neither
transferred nor held substantially all the risks and estimates of
the asset but has transferred the control of the asset.
Impairment
The Company recognises a provision for impairment for expected
credit losses regarding all financial assets. Expected credit
losses are based on the balance between all the payable contractual
cash flows and all discounted cash flows that the Company expects
to receive. Regarding trade receivables, the Company applies the
IFRS 9 simplified approach in order to calculate expected credit
losses. Therefore, at every reporting date, provision for losses
regarding a financial instrument is measured at an amount equal to
the expected credit losses over its lifetime without monitoring
changes in credit risk. To measure expected credit losses, trade
receivables and contract assets have been grouped based on shared
risk characteristics.
2.11 Equity
Share capital is determined using the nominal value of shares
that have been issued.
The Share premium account includes any premiums received on the
initial issuing of the share capital. Any transaction costs
associated with the issuing of shares are deducted from the Share
premium account, net of any related income tax benefits.
Equity-settled share-based payments are credited to a warrant
reserve, which is referred to as "Share based payments reserve"
within the Consolidated statement of financial position and the
Parent statement of financial position as a component of equity
until related options or warrants are exercised or lapse.
The Warrant reserve includes share warrants issued to
shareholders in connection with share capital issues that are
measured at fair value at the date of issue and treated as a
separate component of equity.
The Foreign exchange reserve includes all exchange differences
arising from translating other currencies into the functional
currency. Foreign exchange gains and losses resulting from the
settlement of such transactions, and from the translation of
monetary assets and liabilities denominated in foreign currencies
at year-end exchange rates are generally recognised in profit or
loss. All foreign exchange gains and losses are presented in the
statement of profit or loss on a net basis, within 'other
gains/(losses)'.
Members equity represents the combined interests of each member
of Narf US and Narf PR prior to the RTO acquisition.
The Reverse acquisition reserve relates to the costs associated
with the acquisition of Narf Industries Plc. A reverse acquisition
occurs if the entity that issues securities (the legal acquirer) is
identified as the acquiree for accounting purposes and the entity
whose equity interests are acquired (legal acquiree) is the
acquirer for accounting purposes.
The reverse acquisition in the year did not constitute a
business combination and was accounted for in accordance with IFRS
2 "Share-based Payments" and associated IFRIC guidance. Although
the reverse acquisition is not a business combination, the Company
has become a legal parent and is required to apply IFRS 10 and
prepare consolidated financial statements. The Directors have
prepared these financial statements using the reverse acquisition
methodology, but with the result that rather than recognising
goodwill, the difference between the equity value given up by Narf
US's former owners and the share of the fair value of the net
assets gained by these former owners, is charged to the
consolidated statement of comprehensive income as a share-based
payment on reverse acquisition.
Retained earnings includes all current and prior period results
as disclosed in the income statement.
2.11 Foreign currency
For the purposes of the of the consolidated financial
statements, the results and financial position of each Group
company are expressed in US Dollars ("$"), which is the functional
currency of all of the operating entities in the Group, excluding
the Company, and the presentation currency for the consolidated
financial statements.
Exchange differences are recognised in profit or loss in the
period in which they arise.
2.12 Earnings per share
Basic earnings per share is calculated by dividing:
The loss attributable to owners of the Company, excluding any
costs of servicing equity other than ordinary shares.
By weighting the average number of ordinary shares outstanding
during the financial period.
2.13 Share-based payments
The Company has issued options to one of the Directors, a former
director and warrants to one of the initial investors and to a
major shareholder.
Equity-settled share-based payments are measured at fair value
(excluding the effect of non-market based vesting conditions) at
date of grant. The fair value so determined is expensed on a
straight-line basis over the vesting period, based on the Company's
estimate of the number of shares that will eventually vest and
adjusted for the effect of non-market based vesting conditions.
Fair value is measured using the Black Scholes pricing model.
The key assumptions used in the model have been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
As detailed in note 8 the difference between the fair value of
the net assets of the Company acquired on the reverse take over and
the market value of the shares in issue on that date has been
treated as a share based payment representing the cost of Narf US
obtaining a listing.
2.14 Taxation
The Company is subject to taxes in the United Kingdom tax
jurisdiction. Substantially all revenue related operations are
conducted by Narf USA and Narf PR. Narf USA is a limited liability
company taxed as a partnership for the US federal tax jurisdiction.
As partnership, Narf USA is not subject to US federal income tax
and the federal tax effect of Narf USA's activities accrue to the
Company, the sole member. Narf USA is also subject to a nominal
California franchise tax. Narf PR is subject to the Government of
the Commonwealth of Puerto income tax rate of 4%. Differences
between Narf PR's taxable income per IFRS and the basis used for
the Government of the Commonwealth of Puerto Rico are not material
and, accordingly, no deferred tax assets or liabilities related to
Puerto Rico are reflected in the accompanying consolidated
financial statements.
Taxable losses of the Company from its activities in the United
Kingdom and that inure to the Company from Narf USA as its sole
partner differ from losses for the Company as reported in the
accompanying consolidated income statement because it excludes
items of income and expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Company's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the accompanying parent
company financial statements and the corresponding tax bases used
in the computation of taxable profit and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Company is able
to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset
realised. Deferred tax is charged or credited to profit or loss,
except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in
equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Company intends to settle
its current tax assets and liabilities on a net basis.
2.16 Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the entity's accounting policies,
management makes estimates and assumptions that have an effect on
the amounts recognised in the financial information. Although these
estimates are based on management's best knowledge of current
events and actions, actual results may ultimately differ from those
estimates. The Directors consider that the following judgements are
critical to an understanding of these accounts:
Licenses
The Company was granted certain licenses during the year
relating to the commercialisation of cybersecurity software which
is key to the business strategy. The license was granted by SRI
International for a combination of cash, shares and a royalty equal
to 7.5% of future revenues deriving from the license. The Directors
have recognised the fair value of the license on acquisition as
being the cash paid plus the market value of shares issued to SRI
International. No value has been assigned to the future royalty
payments as they are uncertain. Accordingly future royalty payments
will be expensed as incurred.
The value of the license has been assessed by management for
impairment. Management consider the asset value for impairment by
considering if any impairment indicators, such as those per IAS 38,
are met and that if any are met, they assess the recoverable value
of the license, being the higher of the Fair value less costs to
sell and Value in use, and then compare this to the carrying value
of the license. No impairment provision has been considered
necessary. Further details are provided in Note 9.
Acquisition Accounting
The Directors have made a judgement that the acquisition of Narf
US constituted a reverse takeover, and that it falls outside the
scope of IFRS 3 (see Note 8). Accordingly, no goodwill or other
intangible assets have been recognised on acquisition. The
Directors have recognised a share-based payment equal to the fair
value of the shares in issue immediately prior to the acquisition
less the net assets of the parent Company on the date of
acquisition. Further details are provided in Note 8.
Impairment of Narf US
The parent Company Statement of Financial Position includes the
investment in Narf US at cost. The Directors have undertaken an
impairment review to assess whether the investment should be
written down. This review involves judgements about potential
future cash flows which are highly subjective and subject to
matters outside the control of the Directors.
Cost of Sales
Cost of sales primarily includes expenses associated with the
amortisation of capitalised software development costs, personnel
and contractors. The amount of personnel costs to allocate is
determined by the respective project manager of each contract in
progress during a given year. The project managers allocate a
percentage of gross wage costs of each professional working on a
project upon which a factor for payroll taxes and benefits is
added. In addition, administrative costs are reviewed and costs
directly related to servicing contracts are added.
Software Development Intangibles
Judgement is required when determining when a SaaS product under
development enters into the application development stage, see 2.6.
The Directors have undertaken an impairment review to assess
whether the amount capitalised for development costs should be
written down. This review involves judgements about potential
future cash flows, which are highly subjective and subject to
matters outside the control of the Directors. Further details are
provided in Note 9.
Share Based Payments
Equity-settled share-based payments are measured at fair value.
Fair value is measured using the Black Scholes pricing model. The
key assumptions used in the model have been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. As detailed
in note 8 the difference between the fair value of the net assets
of the Company acquired on the reverse take over (RTO") and the
market value of the shares in issue on that date has been treated
as a share-based payment representing the cost of Narf US obtaining
a listing.
2.17 Standards, amendments and interpretations to existing standards that are not yet effective
New standards, amendments to standards and interpretations:
The Company has adopted all of the new and revised Standards and
Interpretations that are relevant to their operations and effective
for accounting periods beginning 1 January 2022. The Company has
not adopted any standards or interpretations in advance of the
required implementation dates.
The following Standards and Interpretations have become
effective and have been adopted in these financial statements. No
other Standards or Interpretations have been adopted early in these
financial statements.
Standard/Interpretation Subject
IFRS 9/ IAS 39/ IFRS 7/ IFRS Interest rate benchmark reform
4/ IFRS 16
IAS 16 Amendments - Property Plant & Equipment
IAS37 Provisions, Contingent Liabilities
and Contingent Assets
The new standards have not had a material impact on these
consolidated financial statements.
Standards not yet applied
At the date of authorisation of these financial statements, the
following relevant Standards and Interpretations, which have not
been applied in these financial statements, were in issue but not
yet effective (and in some cases have not yet been adopted by the
UK Endorsements Board):
Effective
Standard Impact on initial application date
IAS 1 Amendments - Presentation and Classification TBC
of Liabilities as Current or Non-current
IAS 8 Amendments - Definition of Accounting Estimates 1 January 2023
IAS 1 Amendments - Disclosure of Accounting Policies 1 January 2023
IFRS 3 Amendments - Business Combinations - Conceptual 1 January 2022
Framework
IFRS 17 Insurance contracts 31 December
2023
The directors are evaluating the impact that these standards
will have on the consolidated financial statements of the Group and
Company but it is not anticipated that they will have a material
impact on the Group and Company.
2.18 Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating
decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board as a whole.
The Group has no employees in the United Kingdom (bar one
Non-Executive Director) and all of the current operations of the
Group are in North America and thus no separate segments have been
identified.
2.19 Financial Risk Management Objectives and Policies
The Company does not enter into any forward exchange rate
contracts.
The main financial risks arising from the Company's activities
are market risk, interest rate risk, foreign exchange risk, credit
risk, liquidity risk and capital risk management. Further details
on the risk disclosures can be found in Note 21.
3. REVENUE
The Group records contract revenue in accordance with IFRS 15
Revenue from Contracts with Customers, which requires that revenue
be recorded over time as/when performance obligations within a
contracts are performed/delivered. Significant performance
obligations are defined within the Group's contracts. The Group
invoices customers based on billing schedules contained within the
related contracts. The Group considers trade and other receivables
to be fully collectible; accordingly, no allowance for doubtful
accounts has been recorded. Costs incurred to obtain contracts are
expensed as incurred and losses on contracts are recognized in the
period when determined. The Group warrants that its deliverables
will perform within parameters contained in the statements of work
referenced in the contracts, and can measure such performance
independent of the customer. Trade and other receivables are
considered impaired (typically resulting from contract
cancellations) and are decreased upon the determination of such
impairment. No contract impairments were recorded in the years
ended 31 December, 2022 and 2021.
Revenue for performance obligations is recognized as
follows:
- Professional Services: As each performance obligation is
completed and delivered, an output measurement.
- Installation Services: Upon delivery and installation of the contract product(s).
- SaaS Subscriptions: On a straight-line basis over the term of the SaaS contract period.
As performance obligations are completed and delivered, revenue
is accrued in the caption Trade Accounts Receivable, which
represents a conditional right to consideration. Should amounts
invoiced and collected exceed completed and delivered performance,
a liability would be recorded. There were no amounts invoiced and
collected in excess of completed performance obligations at 31
December 2022 and 2021.
Based on the above categories, disaggregated contract revenue
was as follows:
(unaudited)
Year ended Year ended
31 December 31 December
2022 2021
US$ US$
-------------- -------------
Professional services 1,373,875 939,513
Installations 218,400 170,000
SaaS subscriptions 954,850 830,003
Total revenue 2,547,125 1,939,516
----------------------- -------------- -------------
Backlog represents performance obligations remaining on
contracts in progress. The following table presents the Group's
backlog at 31 December, 2022:
31 December
2022
US$
------------
Professional services 9,375,031
SaaS subscriptions 1,061,042
Total revenue backlog 10,436,073
----------------------- ------------
Customers comprising 10% or more of Contract Revenue were as
follows:
Year ended Year ended
31 December 31 December
2022 US$ Percent 2021 US$ (Unaudited) Percent
-------------- --------- ----------------------- ---------
US government procurement
agency 1,246,563 48.9% 1,000,003 51.6%
DARPA 1,154,939 45.4% 333,966 17.2%
Dartmouth College - 0.0% 153,059 7.9%
SRI International 145,623 5.7% 452,241 23.3%
2,547,125 100.0% 1,939,516 100.0%
-------------- --------- ----------------------- ---------
For contractual reasons, the Company may not disclose the name
of the US government procurement agency or the agencies for
which this entity is a pass-through. DARPA stands for Defense
Advanced Research Projects Agency, a US government research
and development organisation. Dartmouth College is a pass-through
entity for the US Office of Naval Research. SRI International
is a US nonprofit research organisation and is a pass-through
agency for DARPA.
4. OPERATING PROFITS
This is stated after charging:
(unaudited)
31 December 31 December
2021
2022 US$
US$
------------------------------------------------ -------------- -------------
Auditor's remuneration
49,000 -
* audit of the Parent Company
50,000 -
* audit of subsidiary undertakings
* non-audit services
Reporting accountant services 12,000 -
Informal review of interim financial 1,800 -
statements
Amortisation of intangible assets 512,937 269,658
Depreciation of tangible fixed
assets 33,529 47,379
Directors' remuneration 827,732 -
Other staff remuneration 1,909,454 1,394,472
Legal, professional and consultancy
fees 451,628 337,135
5. DIRECTORS AND STAFF COSTS
The average number of persons employed by the Group, including
Directors, was:
(unaudited)
2022 2021
Management and technical 17 11
-------------------------------- ------- ------------
Remuneration, other benefits supplied and social security costs
to the directors and staff during the period was as follows:
(unaudited)
31 December 31 December
2022 2021
US$ US$
-------------- -------------
Directors and Employees:
Wages and salaries 1,594,840 1,171,663
Social security costs 92,245 88,115
Pension costs and other benefits 222,369 134,694
Director fees 393,788 -
Director share based payments 58,958 -
Director bonuses 374,986 -
---------------------------------- ---- -------------- -------------
2,737,186 1,394,472
--------------------------------------- -------------- -------------
The average number of staff employed by the Group during the
year, including Directors was 17 (2021: 11).
The remuneration and associated social security costs per
Director for the year ended 31 December 2022 was all short term in
nature and are as stated in the remuneration report on pages 19 to
21. A matter of note is that the chief executive officer of Narf
Plc was a member of each of the Narf US entities until 15 March
2022 and received no remuneration or distribution from either
entity during the years ended 31 December, 2022 and 2021.
6. TAXATION
31 December (unaudited)
2022
US$ 31 December
2021
US$
The charge for the period is made
up as follows:
Taxation on the results of Narf PR
for the year 7,839 72,090
Deferred tax - -
Taxation charge / credit for the
period 7,839 72,090
------------------------------------------ ------------- -------------
A reconciliation of the tax charge / credit appearing in the
income statement to the tax that would result from applying
the standard rate of tax to the results for the period is:
(unaudited)
31 December 31 December
2022 2021
US$ US$
Loss before taxation per accounts (18,417,868) (770,579)
---------------------------------------------- -------------- -------------
Tax credit at the standard rate of
corporation tax in the UK (19%),
and Puerto Rico (4%)
Weighted average Tax Rate - 18.96% (3,499,395) (146,410)
Overseas taxable profits 7,839 72,090
Impact of costs disallowed for tax
purposes 3,022,849 146,410
Impact of unrelieved tax losses carried 476,546 -
forward
----------------------------------------- --- -------------- -------------
7,839 72,090
--------------------------------------------- -------------- -------------
Estimated tax losses of $5,850,000 (FY2021: $3,500,000) are
available for relief against future profits. No related deferred
tax asset has been provided for in the accounts based on the
uncertainty as to when profits will be generated against which to
relieve said asset.
7. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the loss
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the period.
(Unaudited)
31 December 31 December
2022
US$ 2021
US$
Loss from continuing operations attributable
to equity holders of the company (18,425,707) (842,669)
---------------------------------------------------- -------------- --------------
Weighted average number of ordinary
shares in issue 1,475,948,904 588,088,644
---------------------------------------------------- -------------- --------------
Basic and fully diluted loss per
share from continuing operations
(cents) (1.2) (0.1)
---------------------------------------------------- -------------- --------------
As the acquired entities are LLCs treated as a partnership with
no issued shares, we have assessed the EPS for 2021 by comparing
the earnings of Narf US to the weighted average number of shares of
the Company.
8. REVERSE ACQUISITION
On 15 March 2022, Narf Industries plc ("Company") formerly known
as Cyba plc, acquired through a combination of a share for
partnership interests exchange and a set of cash payments to the
acquiree companies and former partners, 100% ownership of Narf
Industries US LLC and Narf Industries PR LLC ("Narf US"), whose
principal activities are the development and marketing of software
aimed at providing cybersecurity solutions to corporates.
Although the transaction resulted in each Narf US entity
becoming wholly owned subsidiaries of the Company, the transaction
constituted a reverse acquisition, as the previous owners of Narf
US own a substantial majority of the Ordinary Shares of the Company
and the executive management of Narf US became the executive
management of Narf Industries plc.
In substance, the former owners of Narf US acquired a
controlling interest in the Company and the transaction has
therefore been accounted for as a reverse acquisition. As the
Company's activities prior to the acquisition were purely the
maintenance of the LSE listing, acquiring Narf US, seeking to
acquire other cybersecurity firms and raising equity finance to
provide the required funding for the operations ahead of the
acquisition, it did not meet the definition of a business in
accordance with IFRS 3.
Accordingly, this reverse acquisition does not constitute a
business combination and was accounted for in accordance with IFRS
2 "Share-based Payments" and associated IFRIC guidance. Although
the reverse acquisition is not a business combination, the Company
has become a legal parent and is required to apply IFRS 10 and
prepare consolidated financial statements. The Directors have
prepared these financial statements using the reverse acquisition
methodology, but with the result that rather than recognising
goodwill, the difference between the equity value given up by Narf
US's former owners and the share of the fair value of the net
assets gained by these former owners, is charged to the
consolidated statement of comprehensive income as a share based
payment on reverse acquisition and represents, in substance, the
cost of acquiring an LSE listing.
The comparatives within the consolidated statement of
comprehensive income, the consolidated statement of financial
position, the consolidated cashflow statement and the consolidated
statement of changes in equity represent the combined numbers of
the legal subsidiaries and accounting acquirers, Narf Industries US
LLC and Narf Industries PR LLC. In the consolidated statement of
financial position, the share capital and premium as at 31 December
2022 is that of Narf Industries Plc with the reverse acquisition
reserve representing the difference between the deemed cost of the
acquisition and the net assets of Narf Industries plc at 15 March
2022. The consolidated statement of comprehensive income for 2021
represents the combined results of Narf US and Narf PR alone, and
the 2022 consolidated statement of comprehensive income represents
the result of the Group for the period.
On 15 March 2022, the Company issued 699.6 million Ordinary
Shares and paid a further $4,166,667 to acquire all of the
partnership interests in Narf US. Based on a share price of 2p per
share (the price at which those shares issued as part of the
placing that day were issued at) the Company's investment in
Narf US was valued at US$25.6 million, inclusive of the US$2
million prepaid consideration and prior to the share based payment
charges for the year recognised in the subsidiaries - see note 12
for further commentary regarding the carrying value of the
investment in the subsidiary as at 31 December 2022.
As the legal subsidiaries, Narf US, were treated on
consolidation as the accounting acquirer and the legal Parent
Company, Narf Industries plc, was treated as the accounting
subsidiary, the fair value of the shares acquired was US$21.9
million based on a share price of 1.8p and 932.0 million Ordinary
Shares in issue immediately prior to the reverse acquisition.
According to IFRS 2 the value of the share-based payment is
calculated as the difference between the deemed cost and the fair
value of the net assets as at the acquisition date which are as
follows:
US$
------------
Deemed cost 21,858,204
Trade and other receivables 7,818,621
Cash and cash equivalents 138,613
Trade and other payables (1,454,153)
------------
Net assets acquired 6,503,082
------------
RTO share based payment expense 15,355,123
------------
The difference between the deemed cost (US$21.9m) and the fair
value of the net assets assumed per above of US$6.5m resulted in
US$15,355,123 being expensed within "reverse acquisition expenses"
in accordance with IFRS 2, Share Based Payments, reflecting the
economic cost to Narf US's owners of acquiring a quoted entity.
The reverse acquisition reserve which arose from the reverse
takeover is made up as follows:
US$
-------------
Pre-acquisition entity (a) (6,503,082)
Narf US capital at acquisition (b) 0
Investment in Narf US (c) (25,600,000)
Reverse acquisition expense (d) 15,355,123
-------------
Reverse acquisition reserve (16,747,959)
-------------
(a) Recognition of preacquisition equity of Narf Industries plc at 15 March 2022
(b) Narf US entities had not issued any equity
(c) The value of the shares issued, cash paid and advances made
in exchange for 100% ownership of Narf US. The above entry is
required to eliminate the balance sheet impact of the
transaction.
(d) The share based payment expense under IFRS 2 as per calculation above.
9. INTANGIBLE ASSETS - GROUP
Software
Licenses Development
US$ Costs US$ Total US$
Cost
At 1 January 2022 - 2,094,027 2,094,027
Additions 1,906,662 - 1,906,662
----------- ------------- ------------
At 31 December 2022 1,906,662 2,094,027 4,000,689
----------- ------------- ------------
Amortisation/Impairment
At 1 January 2022 - 790,676 790,676
Charge for the period 285,999 226,938 512,937
----------- ------------- ------------
At 31 December 2022 285,999 1,017,614 1,303,613
----------- ------------- ------------
Net book amount
At 31 December 2022 1,620,663 1,076,413 2,697,076
=========== ============= ============
At 31 December 2021 (unaudited) - 1,303,351 1,303,351
=========== ============= ============
Amortisation of licenses is charged to the Income statement in
the period to which it relates and disclosed within "Depreciation
and software license amortisation". Amortisation of software
development costs are included within "Cost of sales".
10. INTANGIBLE ASSETS - PARENT COMPANY
Licenses
US$ Total US$
Cost
At 1 January 2022 - -
Additions 1,906,662 1,906,662
---------- ------------
At 31 December 2022 1,906,662 1,906,662
---------- ------------
Amortisation/Impairment
At 1 January 2022 - -
Charge for the period 285,999 285,999
---------- ------------
At 31 December 2022 285,999 285,999
---------- ------------
Net book amount
At 31 December 2022 1,620,663 1,620,663
========== ============
A 31 December 2021 - -
========== ============
11. TANGIBLE ASSETS - GROUP
Cars Leasehold Furniture Total
Improvements &
US$ US$ Equipment US$
US$
Cost
At 1 January 2022 147,098 25,425 222,723 395,246
Additions - - - -
-------- -------------- ----------- --------
At 31 December 2022 147,098 25,425 222,723 395,246
-------- -------------- ----------- --------
Amortisation/Impairment
At 1 January 2022 116,714 6,290 222,723 345,727
Charge for the period 30,384 3,145 - 33,529
-------- -------------- ----------- --------
At 31 December 2022 147,098 9,435 222,723 379,256
-------- -------------- ----------- --------
Net book amount
At 31 December 2022 - 15,990 - 15,990
======== ============== =========== ========
At 31 December 2021 (unaudited) 30,384 19,135 - 49,519
======== ============== =========== ========
Depreciation of tangible assets is charged to the Income
statement in the period to which it relates and disclosed within
"Depreciation and software license amortisation".
12. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS - PARENT COMPANY
Company
US$
-----------
Acquisition of member interests in
subsidiary undertakings:
Opening balance -
Prepaid consideration (Note 13) 2,000,000
Additional cash consideration 4,166,667
Shares issued to former members 19,433,333
Closing balance 25,600,000
=============
Investments in subsidiary undertakings are valued at cost which
is the fair valuation of consideration paid in cash and the
Company's shares.
Principal subsidiaries
The group's subsidiaries at 31 December 2022 are set out below.
Both of the subsidiaries are LLCs, which have no issued share
capital and accordingly the proportion of ownership interests held
equals the voting rights held by the group. The country of
incorporation or registration is also their principal place of
business
Ownership
Country Registered
Name of Incorporation office Principal Activity 2022 2021
----------------- ------------------- ---------------------- ------------------------ ----- -----
Provision of
548 Market security goods
St. #37005 and services
Narf Industries San Francisco, to USG and affiliated
LLC USA CA 94104 entities 100% 0%
1413 Avenue Provision of
Ponce de León, security goods
Narf Industries San Juan, Puerto and services
PR LLC Puerto Rico Rico 00907 to Non-USG entities 100% 0%
13. TRADE AND OTHER RECEIVABLES - GROUP AND PARENT COMPANY
Group Company
(Unaudited) As at 31
As at As at As at Dec 2021
31 Dec 31 Dec 31 Dec (Restated)
2022 2021 2022 US$
US$ US$ US$
--------- ------------ --------- ------------
Prepaid consideration - - - 2,000,000
Accounts receivable 688,617 14,201 - -
Prepayments and accrued income 7,094 33,373 7,094 7,220
Other receivables 60,770 500 60,270 -
756,481 48,074 67,364 2,007,220
-------------------------------- --------- ------------ --------- ------------
The prepaid consideration as at 31 December 2021 represented two
non-refundable advances of US$1 million to each of Narf Industries
LLC and Narf Industries PR LLC in accordance with heads of terms
agreed between the Company and Narf whereby it was agreed, subject
to legal diligence, that the Company would agree to acquire the
entire equity capital of Narf. As detailed in Note 8 the
acquisition of Narf was completed during the year and accordingly
the prepaid consideration is part of the acquisition cost.
The Directors consider that the carrying value amount of trade
and other receivables approximates to their fair value.
Ageing analysis
The following presents an ageing analysis of Accounts
Receivable:
(Unaudited)
As at As at 31
31 December December
2022 2021
US$ US$
0-30 days 640,630 14,201
31-60 days 47,987 -
-------------- ------------
688,617 14,201
-------------- ------------
The Group considers trade and other receivables to be fully
collectible; accordingly, no bad debt provision or expenses have
been recorded in either financial periods ending 31 December 2022
and 2021 respectively.
14. CASH AND CASH EQUIVALENTS - GROUP AND PARENT COMPANY
Group Company
31 Dec (unaudited) 31 Dec 31 Dec
2022 2021 (Restated)
2022 31 Dec US$
2021 US$
US$ US$
--------------------------
Cash at bank and in hand 442,751 446,879 210,282 274,982
-------- ------------ -------- -----------------
442,751 446,879 210,282 274,982
----------------------------- -------- ------------ -------- -----------------
Cash at bank comprises balances held by the Company in current
bank accounts, instant access deposit account and electronic
wallets. The carrying value of these approximates to their fair
value. The majority of cash is held in a bank with a BBB credit
rating.
15. TRADE AND OTHER PAYABLES - GROUP AND PARENT COMPANY
Group Company
(Unaudited) 31 Dec
2021 (Restated)
31 Dec 31 Dec 31 Dec US$
2022
2022 2021 US$
US$ US$
--------- ------------ --------- -----------------
Accounts payable 100,291 22,810 73,593 110,123
Other payables due within
one year 255,439 171,174 - -
Accrued expenses 240,232 - 240,236 200,955
595,962 193,984 313,829 311,078
------------------------------ --------- ------------ --------- -----------------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and continuing costs. The Directors
consider that the carrying value amount of trade and other payables
approximates to their fair value. Refer Note 21.
16. CREDITORS AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR - GROUP
(Unaudited)
31 December 31 December
2022 2021
US$ US$
-------------- --------------
Loan from Director and Chief Executive Officer 1,512,000 810,000
Installment note on a vehicle (see Note
18) 1,727 22,312
1,513,727 832,312
------------------------------------------------ -------------- --------------
The Loan from Director and Chief Executive Officer represents
non-interest bearing advances to the Group for working capital
purposes from Steve Bassi, CEO (see Note 23). On 11 April, 2023,
such advances, which then totalled $1,322,000, were converted into
a $2 million credit facility due 30 June 2024 accruing simple
interest daily at the US Federal short term 1 year interest rate
(4.86% at 11 April, 2023) and leaving $678,000 available for
further draw. A portion or all of the note may be repaid early
without penalty and the Director may request the Group to pay
amounts when working capital exceeds $750,000 at the end of any
given month. No interest was accrued against amounts owed prior to
11 April 2023. As of the reporting date the balance under this
credit facility was $1,170,144. This credit facility is being
presented without any discount to account for time as the facility
may be partially or fully repaid prior to the due date of 30 June,
2024. Should the Group and this individual decide any future excess
working capital to repay this facility would be better invested in
growing Group operations, the due date of 30 June, 2024 could be
extended.
17. SHARE CAPITAL / SHARE PREMIUM - GROUP AND PARENT COMPANY
The Company has only one class of share. All ordinary shares of
0.1p each ("Shares") have equal voting rights and rank pari passu
for the distribution of dividends and repayment of capital. As at
31 December 2022 the Company's issued and outstanding capital
structure comprised 1,697,381,100 shares and there were no other
securities in issue and outstanding.
From 1 January 2021 to 31 December 2021 the Company issued
100,000,000 Shares at a price of GBP0.02 per placing share.
On 7 March 2022 the Company issued 7,500,000 Shares at a price
of GBP0.01 per warrant share following the exercise of
warrants.
On 15 March 2022 the Company issued 300,000,000 Shares at a
price of GBP0.02 per placing share
On 16 March 2022 the Company issue 699,999,600 Shares to the
former members of Narf US in exchange for 100% of the voting rights
of Narf US at an equivalent price of GBP0.02 per share.
On 17 March 2022 the Company issued 59,856,100 Shares to SRI
International in exchange for certain licensing rights at an
equivalent price of GBP0.02 per share.
On 18 May 2022 the Company issued 1,000,000 shares to a supplier
in settlement of outstanding professional fees at an equivalent
price of GBP0.0168 per share.
At 31 December 2022 the Company had 50 million options
outstanding and 63 million warrants (see note 18)
Share Share
Number capital premium Total
of shares (Restated) (Restated) (Restated)
on issue US$ US$ US$
------------------------------
Balance as at 1 January 2021 524,525,000 70,796 4,667,362 4,738,158
Shares issued during the
year to 31 December 2021
(net of issue costs) 100,000,000 13,497 2,780,255 2,793,752
Balance as at 31 December
2021 624,525,000 84,293 7,447,617 7,531,910
Shares issued during the
year to 31 December 2021
(net of issue costs) 119,719 27,626,444 27,746,163
Balance as at 31 December
2022 1,697,381,100 204,012 35,074,061 35,278,073
18. SHARE BASED PAYMENT RESERVE- GROUP AND PARENT COMPANY
Details of the warrants and options that were outstanding at 31
December 2022 are as follows:
Warrants
Issued Exercisable Expiry date Number outstanding Exercise
from price
16.2.2022 14.03.22 14.03.23 13,000,000 GBP0.02
24.05.22 24.05.22 31.03.23 50,000,000 GBP0.02
Options Issued Exercisable Expiry date Number outstanding Exercise
from price
24.05.22 24.05.22 24.05.25 50,000,000 GBP0.02
31 December 31 December
2022 2021 (Restated)
US$ USS$
------------------- ------------------------
At beginning of year 32,578 32,578
Fair value of warrants exercised during the (20,363) -
year
Fair value of warrants expired during the year (12,215) -
Fair value of warrants and options vesting 229,185 -
during the year
------------------- ------------------------
At end of year 229,185 32,578
------------------- ------------------------
The estimated fair value of the warrants and options granted in
May 2022 was calculated by applying the Black-Scholes option
pricing model. The assumptions used in the calculation were as
follows:
Options Warrants
Share price at date of grant 1.55 pence 1.55 pence
Exercise price 2.00 pence 2.00 pence
Expected volatility 97% 97%
Expected dividend Nil Nil
Vesting criteria Vest over three years Vested
Contractual life 3 years 0.83 years
Risk free rate 1.58% 1.58%
Estimate fair value of each 0.96 cents (recognisable over 3
years) 0.43 cents
Of the amount credited to share based payment reserve US$114,592
related to options issued for services provided and therefore
resulted in a charge to the Statement of comprehensive Income and
US$114,593 related to brokerage services and therefore resulted in
a reduction to the share premium account.
A share-based payment credit of $12,215 was recognised during
the year on expiry of 4.5 million of the 12 million warrants in
issue at the start of the year. The 13 million warrants issued in
February 2022 were issued to investors in relation to a placing and
therefore were not issued in lieu of services and accordingly have
not been valued and accounted for.
19. CAPITAL COMMITMENTS
As further discussed in Note 23, the Group have a lease
agreement in relation to their office in California which expired
on 1 June, 2023, including minimum rental payments of $4,800 per
month. The Group also has an installment note on a vehicle that
expires in January 2024 (see Note 16).
Amounts payable in respect of leases:
31 December At 31 December
2022 2021 (Restated)
US$ USS$
------------------ -----------------------
Less than 1yr 49,385 78,370
1 to 5 years 1,727 51,112
More than 5 years - -
------------------ -----------------------
20. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2022 (2021;
GBPnil).
21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments comprise primarily cash and
various items such as trade debtors and trade payables which arise
directly from operations. The main purpose of these financial
instruments is to provide working capital for the Company's
operations. The Company does not utilise complex financial
instruments or hedging mechanisms.
Financial assets by category
The categories of financial assets are as follows:
Group Company
31 Dec 31 Dec 31 Dec 31 Dec
2022 2021 2022 2021 (Restated)
US$
US$ US$ US$
---------- -------- -------- -----------------
Current assets at amortised
cost:
Accounts receivable 688,617 14,201 - -
Other receivables 60,770 500 60,270 -
Cash and cash equivalents 442,751 446,879 210,282 274,982
1,192,138 461,580 270,552 274,982
----------------------------- ---------- -------- -------- -----------------
Financial liabilities by category
The categories of financial liabilities are as follows:
Group Company
31 Dec 31 Dec 31 Dec 31 Dec
2022 2021 2022 2021 (Restated)
US$
US$ US$ US$
---------- ---------- -------- -----------------
Current Liabilities measured
at amortised cost:
Accounts payable 100,291 22,810 73,593 110,123
Other payables due within one
year 495,671 171,174 240,236 200.955
Long term loans 1,513,727 832,312 - -
2,109,689 1,026,926 313,829 311,078
------------------------------- ---------- ---------- -------- -----------------
All amounts owed by the Company are short term and payable in 0
to 3 months, apart from the Long term loan which is disclosed in
Notes 16 and 23. Other payables includes an amount of $20,585
(2021: $20,292) which is repayable in equal monthly instalments
over the upcoming year. The long term loans have a repayment date
of 30 June 2024.
Credit risk
The maximum exposure to credit risk at the reporting date by
class of financial asset was:
Group Company
31 Dec 31 Dec 31 Dec 31 Dec
2022 2021 2022 2021 (Restated)
US$
US$ US$ US$
Accounts receivable 688,617 14,201 - -
Other receivables 60,770 500 60,270 -
Cash and cash equivalents 442,751 446,879 210,282 274,982
1,192,138 659,917 270,552 274,982
--------------------------- ---------- -------- -------- -----------------
Interest rate risk
None of the Group's assets or liabilities are subject to any
material interest rate risk since the only asset or liability which
bears interest is a $22,312 lease liability (2021: $42,604) at a
fixed interest rate and none of the assets earn any material
interest. All deposits are placed with main clearing banks or held
in cash wallets to facilitate non-sterling payments or expense
payments. The deposits are placed in current accounts or
The nature of the Group's activities and the basis of funding
are such that the Group seeks to maintain liquid resources to meet
its expenses for at least twelve months although it did not raise
the expected amount of capital during the year and is considering
its options to provide meet its expenditure requirements over the
upcoming twelve months.
Credit and liquidity risk
Credit risk is the risk of an unexpected loss if a counter party
to a financial instrument fails to meet its commercial obligations.
The Group's maximum credit risk exposure is limited to the carrying
amount of cash and receivables. Credit risk is managed by
contracting with US government customers clients who have proven
ability to pay and by the Group depositing surplus funds with
financial institutions with a credit rating equivalent to, or
above, the main UK clearing banks whilst keeping amounts in
electronic wallets to the minimum required for day-to-day
operations. The company and the Group maintains adequate bank
balances to meet those financial liabilities that are payable in
the short term (between 0 to 3 months).
Foreign exchange risk
The Company operates in a global market with income and costs
possibly arising in a number of currencies. The majority of the
operating revenues and costs are incurred in US Dollars although
there are a number of Sterling costs incurred by the Company in
relation to the Non-Executive directors and costs of maintain a
listing. The Company does not hedge potential future income or
costs, since the existence, quantum and timing of such transactions
cannot be accurately predicted. All of the Company's assets and
liabilities are denominated in US dollars.
22. CAPITAL MANAGEMENT
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
shareholders through the optimisation of the balance between debt
and equity.
The capital structure of the Group as at 31 December 2022
consisted of equity attributable to the equity holders of the
Group, totalling $1,802,609 bolstered by working capital advances
from an officer and shareholder (see Notes 16 and 23).
The Company reviews the capital structure on an on-going basis.
As part of this review, the directors consider the cost of capital
and the risks associated with each class of capital. The Company
will balance its overall capital structure through the payment of
dividends and new share issues. The Company has no plans to take on
debt capital.
23. RELATED PARTY TRANSACTIONS
The compensation payable to Key Management personnel, who
comprise the Directors, comprised $827,732 payable by the Company
in respect of services to the Group. Full details of the
compensation for each Director are provided in the Directors'
Remuneration Report. At year-end, an amount of $180,810 was due to
a director and officer in respect of Directors remuneration.
During the year the Company made an overpayment for services of
$60,270 (2021: $nil) to a company of which Robert Mitchell is a
director. Since the year end this has amount has been recovered in
full.
During the year payments were made to former members of Narf US
totaling US$75,000 relating to profit distributions to members,
prior to the acquisition in March 2022. Such distributions were
USS360,000 for the year ended 31 December 2021 (unaudited).
Included in the caption Trade and Other Payables on the
accompanying Consolidated Statement of Financial Position are
$61,700 and $13,100 at 31 December, 2022 and 2021 respectively,
related to an office operating lease agreement between the Group
and an entity in which an officer and shareholder is an owner.
Included in Administrative Expenses on the accompanying
consolidated statement of comprehensive income is US$57,600 and
US$57,100 in operating lease expense for the years ended 31
December 2022 and 2021 (unaudited), respectfully. This operating
lease agreement expired on 1 June, 2023 and minimum rental payments
of $4,800 per month are $28,800 for the year ending 31 December,
2023. The Group is currently reviewing this arrangement to
determine the economics of renewal.
As further discussed in Note 16, a Director and CEO made loans
to the Company which at year end totalled $1,512,000 (2021:
$810,000 unaudited). The amounts represented non-interest bearing
advances to the Group for working capital purposes.
At 31 December, 2020, Narf US owed a net $61,891 to certain
companies owned by a director and officer. This amount was forgiven
in the year ended 31 December 2021 and is recorded as income in the
caption Interest Receivable and Other Finance Income in the
accompanying Consolidated Statement of Comprehensive Income.
24. EVENTS SUBESQUENT TO YEAR END
There have been no events since the year end that have any
material impact on an understanding of these financial statements,
with the exception of the conversion of advances from the Chief
Executive Officer to a credit facility, see Notes 16 and 23.
25. PRIOR PERIOD RESTATEMENT - PARENT COMPANY
As both the operating companies that were acquired under the
reverse takeover have a functional and reporting currency of US
Dollars, these financial statements have also been prepared in US
Dollars. This has meant that the hat the Comparatives in the
Company Statement of Financial Position, Statement of Changes in
Equity and Cashflow Statement for that restated in US Dollars.
Sterling amounts reported in the statement of financial position in
the Company's financial statements at 31 December 2021 have been
restated to US Dollars using the closing foreign exchange rate at
31 December 2021. Sterling amounts reported in the statement of
comprehensive income and statement of cashflows in the Company's
financial statements at 31 December 2021 have been restated to US
Dollars using the average foreign exchange rate for the year ended
31 December 2021.
26. CONTROL
In the opinion of the Directors there is no single ultimate
controlling party.
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END
FR NKDBNNBKDDOD
(END) Dow Jones Newswires
July 11, 2023 09:46 ET (13:46 GMT)
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