REG - Crossword Cybersec - 2019 Annual Report and Accounts
Crossword Cybersecurity Plc
2019 Annual Report and Accounts
27 April 2020 - London, UK -Crossword Cybersecurity Plc (AIM:CCS, "Crossword", the "Company" or the "Group"), the technology commercialisation company focused solely on cyber security and risk, is pleased to announce its final results for the year ended 31 December 2019. The Notice of its Annual General meeting ("AGM") and a Form of Proxy will be posted to shareholders shortly.
The AGM will be held on Thursday 28th May 2020 at 11.00am at the Company's offices, Midmoor House, 1st Floor, 1-2 Kew Road, Richmond, TW9 2NQ, United Kingdom. The health and safety of our shareholders and colleagues is always our utmost priority. Please note that if the public health guidance remains unchanged shareholders will not be able to attend the AGM in person and those seeking to attend at the venue will not be allowed to enter.
A copy of the Annual Report and Accounts and the notice of AGM are available on the Company's website at www.crosswordcybersecurity.com
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Contacts
Crossword Cybersecurity plc - Tel: +44 (0) 20 3953 8460
Email: info@crosswordcybersecurity.com
Tom Ilube, Chief Executive Officer
Mary Dowd, Finance Director
Grant Thornton (Nominated Adviser) - Tel: +44 (0) 20 7383 5100
Colin Aaronson / Jamie Barklem / Niall McDonald
Hybridan LLP (Broker) - Tel: +44 (0)203 764 2341
Claire Louise Noyce
About Crossword Cybersecurity plc
Crossword Cybersecurity plc focuses on the development and commercialisation of university research-based cyber security and risk management related software and cyber security consulting. The Group's specialist cyber security product development and software engineering teams work with its university partners to develop the research concept into a fully-fledged commercial product that it will then take to market. The Group's aim is to build up a portfolio of revenue generating, intellectual property based, cyber security products. Rizikon Assurance, Crossword's leading product, is a SaaS platform that enables medium to large companies to assess and manage all risks from their suppliers. Nixer CyberML, Crossword's most recently launched product, is a new tool for businesses that want to solve advanced security and cybercrime problems, such as detecting and dealing with compromised accounts, fraud, and in-application denial of service attacks. Crossword's team of expert cyber security consultants leverages years of experience in national security, defence and commercial cyber intelligence and operations to provide bespoke advice tailored to its clients' business needs.
For media enquiries contact:
Lorena Duke, GingerPR
lorena@gingerpr.co.uk, 01932 485 300
Chairman's Statement
The financial year ending 31 December 2019 saw Crossword Cybersecurity plc complete its first successful year on AIM, the London Stock Exchange's growth market. In this report, I am delighted to provide an overview of the year and on finance and governance. Following this overview, the CEO's report provides a detailed review of the business, together with commentary on the company's finances and operations.
A Strategy based on Cyber Security Intellectual Property
Crossword's strategy is to build a significant intellectual property based, AIM quoted cyber security business. Crossword is a technology commercialisation business focusing on cyber security. The Group develops and commercialises university research based cyber security related software and provides cyber security consulting services.
Crossword ended the financial year with a growing set of Rizikon Assurance clients, a very strong Rizikon sales pipeline and a fast-growing specialist cyber security consulting team. The Group was successfully admitted to AIM at the end of 2018 and we are very pleased with the progress that we have made at the end of our first year as an AIM listed company.
The Board is excited by Management's ambitious growth plans and is fully supportive. We are confident that our plans will create sustainable shareholder value.
Strong Financial Management
During the period under review, the Board and Management have continued to adopt a robust set of financial controls.
Finance Director, Mary Dowd, has reviewed and strengthened our procedures and the company has comfortably adapted to life on AIM. We strengthened the Group Balance Sheet at the end of 2019 by receiving £1.4m in convertible loans. I would like to thank shareholders for their continued support for Crossword's strategy and we are pleased to have seen this reflected in our share price over our first year on the market.
Continued Strong Governance
The Directors fully understand the importance of high standards of corporate governance and I refer you to the Chairman's Corporate Governance Statement on page 19 of this report. The Board has adopted the Quoted Companies Alliance ("QCA") Corporate Governance Code (the "QCA Code") in line with the London Stock Exchange's requirement for all AIM listed companies to adopt and comply with a recognised corporate governance code appropriate to the nature, complexity and scale of the Group. In addition, we ensure that we maintain high standards throughout the Group by operating a robust framework of controls, and more details can be found in the Director's Report. The Board believes that, to deliver our corporate strategy, generate shareholder value on a sustainable basis and safeguard all of our stakeholders' long- term interests, effective corporate governance is essential.
Growth is Accelerating
We have made great progress over the last twelve months. The growth in our core businesses of product sales and consulting has been accelerating, as we shift the focus from software development activity to commercialisation. The cyber security sector as a whole continues to flourish and with a first-class team, a new dedicated Group Sales Director in place and a solid and stable AIM listed business, Crossword sees opportunities opening up rapidly in the year ahead.
Our diverse and talented employees are the reason why Crossword continues to be successful and I would like to thank all of them for their hard work and dedication, as well as our university partners, business partners, suppliers and shareholders for their continued support. We are very confident that Crossword will achieve its goals over the coming years.
Sir Richard Dearlove KCMG OBE
24 April 2020
Chief Executive Officer's Statement
As Chief Executive Officer, it is my pleasure to present the annual report and audited accounts for Crossword Cybersecurity plc ("Crossword" or the "Company" or the "Group") for the financial year ended 31 December 2019.
2019 has been a year of solid commercial growth for Crossword, the technology commercialisation company focused on cyber security. This was Crossword's first year as an AIM listed company and we grew into this new status with confidence and certainty. By the end of 2019 we had built a multi-million pound sales pipeline, closed a range of new deals across a variety of sectors, launched Rizikon v2.0, a significant upgrade to Rizikon, Nixer CyberML and an exciting new Consulting service called vCISO (virtual Chief Information Security Officer). We also secured £1.4m convertible loans to strengthen our balance sheet as we go into 2020.
Crossword's ambition is to build a large scale listed cyber security business. To assist in this journey, in early 2019 we announced the creation of a world class Advisory Board, chaired by Dr Robert Coles, former Chief Information Security Officer of GlaxoSmithKline. Professor Nick Jennings, Vice- Provost of Imperial College and former Chief Scientific Adviser on national security to the UK Government, Dr Una-May O'Reilly a leading AI expert from MIT and General the Lord Nick Houghton (Baron Houghton of Richmond), former Chief of Defence Staff, UK Armed Forces also joined the Advisory Board. Dr Robert Coles also recently took over the role of Chairman of Crossword Consulting Ltd, our consulting subsidiary, where we will be able to draw directly on his experience as KPMG lead partner on cyber security.
Crossword continues to work and build relationships with a wide range of universities. We conducted further detailed analysis of a variety of university-based cyber security research projects. In addition, the Company was engaged to support a programme run by KTN (the UK Government backed Knowledge Transfer Network) to assist university spin outs. This involved working with cyber security spin out teams from the Universities of Southampton, Kent, Glasgow, Bournemouth, Coventry, De Montfort, Wolverhampton, Gloucestershire, Royal Holloway University of London and Oxford.
We achieved a major step forward with our core product, Rizikon Assurance with the launch of RA v2 at a high profile event hosted at the Magic Circle in London, attended by clients, prospects, investors, partners and the media. RA v2 includes a new dashboard and scorecard, giving clients a 360° view of all supplier risks. RA v2 also incorporates CreditSafe integration, for the first time bringing supplier credit referencing directly into the product. We believe with the launch of RA v2 we now have the most comprehensive supplier assurance platform on the market. At the same time, we also announced Crossword's Rizikon Supplier Assurance Framework (RSAF), providing a structured framework for clients to work through their approach to managing and assuring large numbers of suppliers.
In addition to the major advances of Rizikon, at the end of 2019 we also released our second product, Nixer CyberML, the family of machine learning libraries tackling growing cyber security problems faced by large online companies such as credential stuffing. We intend to start promoting Nixer CyberML actively in the first half of 2020. We are making very good progress on our third product, drawing upon university research in the areas of applying AI to complex and very large scale cyber security challenges. We look forward to making some exciting announcements about this activity in the coming months.
One area of focus for Crossword in 2019 was to develop major commercial partnerships, and I am delighted to report that we were very successful on this front. We have now established go to market relationships for Rizikon with two major industry partners, NCC Group plc and Leonardo MW Ltd and we expect to reap the reward of these partnerships during 2020.
NCC Group plc is the global expert in cyber security and risk mitigation. Trusted by over 15,000 clients worldwide, NCC operates in 12 countries. Crossword is collaborating with NCC on third party cyber security assurance. Crossword also signed an MoU with Leonardo MW Ltd, the global high-tech
Aerospace, Defence and Security company. With revenues of over €12 billion, Leonardo is a top ten player in aerospace and defence worldwide. It targets its cyber security offerings at Government, Defence and Critical National Infrastructure both in the UK and internationally.
In addition to the 2 partnerships formed in 2019, Crossword was also pleased to announce in April 2020 that we will be collaborating with leading security reseller and managed security services provider Satisnet Limited on the provision of third party assurance technology to its clients, as part of the expansion of Crossword's partner programme.
With continued focus on sales and marketing activity, Crossword has seen a huge leap forward on the strength of our sales pipeline and an increasing number of deals being closed as the pipeline comes through to maturity. We recruited a dedicated Group Sales Director, Sean Arrowsmith, at the end of 2019 and he is set to drive sales forward in 2020. Sean has around 20 years of IT sales experience, mostly in the cyber security arena and joins with a wealth of relationships. We entered 2019 with a Rizikon sales pipeline of qualified opportunities worth £1.4m across over 30 companies and over the course of the year we more than doubled this pipeline to almost £4m across over 200 organisations. In addition to this pipeline there are several large, long term bids that we are currently working on in conjunction with our partners. The Rizikon sales pipeline is converting nicely into contracts proving that Rizikon clearly has traction in the market now. Clients ranging from a FTSE 250 chemicals company, to the Nursing Midwifery Council, a large IT supplier and multiple Borough Councils including Peterborough, East Hants and Stevenage all signed up to Rizikon during the year. NCC Group, our partner, has already announced its first Rizikon client, a major government department, and has a healthy pipeline of their own Rizikon prospects that they expect to start closing in early 2020.
Meanwhile, Crossword's consulting business, with its mix of blue-chip cyber risk consultants and technical cyber security experts, doubled in size once again. We worked with 35 consulting clients in 2019, building a reputation in areas such as insurance consulting where we now have several clients and winning our first FTSE250 client. In 2019 we launched a new consulting service called vCISO (Virtual Chief Information Security Officer). This service provides a flexible, monthly packages of cyber security support and reporting services to a client on an ongoing basis. We signed our first major vCISO deal with a global financial services institution, our single biggest, multi- year recurring revenue deal to date and we enter 2020 with a strong pipeline of potential vCISO deals ahead of us.
2020 is set to be a big year for Crossword. There is no let up in the deluge of major cyber security incidents that organisations are facing, ranging from the second biggest data loss in history, 900 million records stolen from First American, the real estate title insurer, to Travelex £4.6m ransomware attack and Biostar2 data breach involving 1 million fingerprints used by the UK Metropolitan Police and other agencies. The Company has just completed a placing of 363,617 Ordinary Shares to raise £836,319. In addition, I intend to subscribe on the same terms for 73,914 Ordinary Shares to complete the total fundraise of £1 million following the end of the current close period, following the publication of these 2019 results. I am delighted with the continued support we have received from our shareholders in this latest fundraising. Our pipeline is standing at approximately £6m split between both products and consulting and these funds will enable us to continue to drive business growth over the next 12 months. With the market turbulence caused by COVID-19, our first priority is the welfare of our staff and all stakeholders. Our flexible approach enabled us to quickly and effectively implement remote working before it was mandated, with minimal impact on clients and sales activity.
Crossword's clients and opportunities exist in multiple sectors, some of which have clearly been affected by the pandemic, and some of which are seeing increased activity as cyber security becomes even more important. Our Rizikon Assurance product pipeline continues to grow and represents nearly £4m out of the £6m total pipeline, and we are engaged in several large-scale bid situations. However, we have also seen some clients delaying the start of new projects, and we remain in close contact with them. We will also monitor any potential impact on our own business and are in a position to take advantage of Government support and take other actions if and when they are required. With Sean Arrowsmith, our new Group Sales Director, in place the Company will continue to focus on sales and marketing activity across product and consulting, to drive up revenue rapidly.
Crossword's team has nearly doubled to 40 across our Richmond, London and Krakow, Poland staff. We are also delighted to be engaging as a whole team with charitable activities. The Richmond team has adopted SPEAR, a local homelessness charity to support with a variety of fundraising activities. We take real pride in our culture as a responsible, open, flexible and learning company. I would like to take this opportunity to thank everyone who has enabled us to make such outstanding progress in 2019 and look forward to the next stage of our exciting journey.
Tom Ilube CBE
Chief Executive Officer
Crossword Cybersecurity PLC
24 April 2020
Consolidated Financial Statements
for Crossword Cybersecurity Plc company number 082917013
Consolidated Statement of Comprehensive Income
Notes
12 Months
ended 31st December
2019
£12 Months
ended 31st December
2018£
Revenue
2
1,305,055
1,067,609
Cost of Sales
3
(1,431,648)
(1,013,521)
Gross (loss) / profit
(126,593)
54,088
Other operating income-research & development tax credits
171,623
192,149
Administrative expenses
3
(2,185,170)
(2,335,228)
Share based payments
4
(32,200)
(45,751)
Finance income-bank interest receivable and foreign exchange
8,357
3,727
Finance costs-other interest payable
(24,351)
(1,237)
Gain on remeasurement of financial liabilities
17
92,764
Loss for the year before taxation
(2,095,570)
(2,132,252)
Tax expense
7
(5,878)
(8,052)
Loss for the Year
(2,101,448)
(2,140,304)
Other Comprehensive Income
Items that may be reclassified to profit or loss:
Foreign Exchange Translation Loss
(5,354)
(13,542)
Total comprehensive (loss) / profit
(2,106,802)
(2,153,846)
Earnings Per Share
(0.47)
(0.55)
Diluted Earnings Per Share
(0.42)
(0.44)
All results are derived from continuing operations
Statement of Financial Position as at 31 December
Group
Company
Group
Company
2019
2019
2018
2018
Notes
£
£
£
£
Non-Current Assets
Tangible assets
8
15,438
10,918
12,066
4,583
Right of Use assets
12
203,062
133,726
-
-
Investments in other unlisted investment & subsidiary
9
31
11,048
31
11,048
Total non-current assets
218,531
155,692
12,097
15,631
Current Assets
Trade and other receivables
10
606,953
1,170,458
483,055
783,211
Tax receivable
19,345
9,222
76,332
64,993
Cash and cash equivalents
1,514,166
1,452,085
2,222,706
2,213,071
Total current assets
2,140,463
2,631,764
2,782,093
3,061,276
TOTAL ASSETS
2,358,994
2,787,456
2,794,190
3,076,907
EQUITY
Attributable to the owners of the Company
Share Capital
13
234,061
234,061
234,020
234,020
Share premium account
13
7,515,744
7,515,744
7,513,908
7,513,908
Other reserves
16
128,826
128,826
96,626
77,101
Retained earnings
(7,428,818)
(6,914,714)
(5,327,370)
(4,999,370)
Translation of foreign operations
(11,367)
-
(6,013)
-
Total equity
438,447
963,918
2,511,172
2,825,659
LIABILITIES
Current Liabilities
Trade and other payables
11
522,286
516,302
235,802
251,248
Tax payable
91,024
-
47,216
-
Total current liabilities
613,311
516,302
283,018
251,248
Long Term Liabilities
Loan
20
1,307,236
1,307,236
Total long term liabilities
1,307,236
1,307,236
Total Liabilities
1,920,547
1,823,538
283,018
251,248
Total Equity & Liabilities
2,358,994
2,787,456
2,794,190
3,076,907
The financial statements were approved by the Board and authorised for issue on 24 April 2020. They were signed on its behalf by Tom Ilube Chief Executive Officer
Statement of Changes in Equity
As At
Group
Company
Group
Company
2019
2019
2018
2018
£
£
£
£
Share Capital
At 1st January
234,022
234,022
159,173
159,173
Issue of shares
39
39
74,849
74,849
At 31st December
234,061
234,061
234,022
234,022
Share Premium
At 1st January
7,513,906
7,513,906
3,555,522
3,555,522
Issue of shares
1,838
1,838
3,958,384
3,958,384
At 31st December
7,515,744
7,515,744
7,513,906
7,513,906
Equity Reserve
At 1st January
96,626
77,101
50,875
50,875
Employee share schemes - value of employee services
32,200
51,725
45,751
26,226
At 31st December
128,826
128,826
96,626
77,101
Retained Earnings
At 1st January
(5,327,370)
(4,999,370)
(3,187,066)
(2,947,789)
Total Comprehensive loss for the period
(2,101,448)
(1,915,344)
(2,140,304)
(2,051,581)
At 31st December
(7,428,818)
(6,914,714)
(5,327,370)
(4,999,370)
Translation of Foreign Operations
At 1st January
(6,013)
-
7,529
-
Translation of Foreign Operations
(5,354)
-
(13,542)
-
At 31st December
(11,367)
-
(6,013)
-
Total
At 1st January
2,511,172
2,825,659
586,033
817,781
Total Comprehensive loss for the Period
(2,106,802)
(1,915,344)
(2,153,846)
(2,051,581)
Issue of shares
1,877
1,877
4,033,233
4,033,233
Share based Payments
32,200
51,725
45,751
26,226
At 31st December
438,447
963,917
2,511,172
2,825,659
Consolidated Statement of Cashflows
Years
Notes
12 Months
ended 31st December
2019
£
12 Months
ended 31st December
2018
£
Cashflows From Operating Activities
Loss for the year/period
(2,101,448)
(2,140,304)
Movement in trade and other receivables
(66,911)
(383,807)
Movement in trade and other payables
330,292
190,942
Depreciation and amortisation
147,281
5,592
Non cash Financial Instrument stated at amortised cost
(92,764)
Non cash employee benefits
32,200
45,751
Net Cashflow from Operating Activities
(1,751,350)
(2,281,826)
Cashflow From Investing Activities
Purchase of tangible assets
8
(9,657)
(5,250)
Purchase of right to use assets
(344,058)
Purchase of shares in other unlisted investment
9
-
-
Net Cashflow from Investing Activities
(353,715)
(5,250)
Cashflows From Financing Activities
Proceeds from issue of ordinary shares
1,877
4,033,233
Proceeds from issue of debt
1,400,000
Net Cash Inflow from Financing Activities
1,401,877
4,033,233
Net Increase in Cash & Cash Equivalents
Foreign Currency Translation Difference
(703,186)
(5,354)
1,746,158
Cash and Cash Equivalent at the beginning of the period
2,222,706
490,090
Cash and Cash Equivalent at the end of the period
1,514,165
2,222,706
Consolidated Financial Statements
Notes to the Financial Information
1 Accounting Policies
1.1 The Group and its operations
Crossword Cybersecurity plc (the "Company") is a Company incorporated on 6 March 2014 in the United Kingdom under the Companies Act 2006. The Company is the parent company of the Crossword Group of Companies focusing on the cybersecurity sector. The principal activities are the development and commercialisation of university research-based cyber security related software and cybersecurity consulting.
The financial information includes the results of the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities").
The principal accounting policies applied in the preparation of the financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
1.2 Basis of preparation of financial information
The financial information has been prepared in accordance with the requirements of the London Stock Exchange plc AIM Rules for Companies and in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRS IC") interpretations as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial information has been prepared on the historical cost basis. The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Changes in assumptions may have a significant impact on the financial information in the year the assumptions changed. Management believes that the underlying assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial information are disclosed in note 1.16.
Changes in accounting policy and disclosures
The Group has adopted the following new and amended IFRS from 1 January 2019 prospectively in the consolidated financial information. There has not been a material impact to the Group when adopting these new and amended IFRSs:
IFRS16 - Leases, applicable for financial years beginning on/after 1 January 2019
IFRS 16 replaces IAS 17 Leases and will primarily change lease accounting, with lessor accounting under IFRS 16 expected to be similar to lessor accounting under IAS 17. Lessee accounting under IFRS 16 will be similar in many respects to IAS 17 accounting for finance leases, but is expected to be substantively different to existing accounting for operating leases.
Where a contract meets IFRS 16's definition of a lease and the Group acts as a lessee, lease agreements will give rise to the recognition of a non-current asset representing the right to use the leased item, and a loan obligation for future lease payables on the Group's balance sheet.
The change in accounting policy is made in accordance with the transitional provisions.
Lease costs will be recognised in the form of depreciation of the right-of-use asset and interest on the lease liability, which may impact the phasing of operating profit and profit before tax, compared to existing cost profiles and presentation in the income statement, and will also impact the classification of associated cash flows.
The impact of IFRS 16 - Leases will require the Group to record its current property leases and qualifying technology contracts on the balance sheet giving rise to a right to use asset and a corresponding lease obligation. The leases impacted are currently treated as operating expenses. The change in recognition is expected to increase depreciation charges and lead to a reduction in lease costs in the income statement.
Other standards and interpretations yet to be adopted include: IFRS 17 'Insurance Contracts'
Amendments to IFRS 2 'Share Based Payments'
Amendments to IFRS 11 'Accounting for Acquisition of Interests in Joint Operation'
Amendments to IFRS 9 'Prepayment Features with Negative Compensation' Amendment to IAS 40 'Transfer of Investment Property'
And are not expected to have a material impact of the future results of the Group.
1.3 Going Concern
The financial information are prepared on a going concern basis The Group's business model is being developed and its operations have incurred a net loss in each period reported within this Financial Information whilst the Group's products and services are bought to market. It is forecast to continue to be loss making with net cash outflow as the business continues to develop its products and converts its pipeline into sales. Operations have been supported by cash flow from customers and issue of equity and debt and business forecasts highlight the need for the Group to continue to have further successful fundraising placements.
The directors have considered the Group's future and forecast business and cash requirements. Following the completion of a successful fundraise in April 2020, the directors have determined that the group has sufficient cash resources for the period through to early 2021, when a further fundraising placement is forecast to be required. As part of their forecasting, the directors have considered various scenarios driven by the uncertain impact of the COVID-19 pandemic, particularly on revenue, and have identified actions, including costs controls and taking advantage of the Government schemes, which the company is in a position to action quickly if necessary. The full impact of COVID-19, the continued level of government support and the underlying trading assumptions used in forecasting are judgemental and difficult to predict and could be subject to significant variation and affect the timing of future fundraising.
The Directors have concluded that these circumstances and specifically the ongoing need for successful future fundraising give rise to a material uncertainty. However, in light of the recent successful fund raise the directors are of the position that they can continue to adopt the going concern basis in preparing the financial statements.
The financial statements do not include any adjustment that may arise in the event that the entity is unable to realise its assets and discharge its liabilities in the normal course of business.
1.4 Basis of consolidation
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control exists when then the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
All intra-Group transactions balances income and expenses are eliminated on consolidation. Uniform accounting policies are applied by the Group entities to ensure consistency.
1.5 Revenue
Revenue comprises the fair value of consideration received or receivable for licence income and the rendering of services in the ordinary course of the Group's activities. Revenue is shown net of value added tax and trade discounts. Income is reported as follows:
(a) Licence income
Technology and product licensing revenue represents amounts earned for licenses granted under licensing agreements, including up- front payments. Revenues relating to up-front payments are recognised when the obligations related to the revenues have been completed.
Revenues for maintenance and support services are recognised in the accounting periods in which the services are rendered.
(b) Rendering of Services
Services relate to implementation and deployment fees for the technology and products licensed to customers. Revenue is recognised in the accounting periods in which the services are rendered.
1.6 Functional and presentation currency
The presentation currency of the Group is pounds sterling (GBP). The functional currency of the Company is pounds sterling. The functional currency of the Company's polish subsidiary is Polish Zloty (PLN).
1.7 Foreign currency transactions
Transactions in foreign currencies are translated to GBP at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to GBP at the exchange rate at that date.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to GBP at the exchange rate at the date that the fair value was determined.
Foreign exchange differences arising on translation are recognised in the statement of comprehensive income.
On consolidation, the assets and liabilities of foreign operations are translated into GBP at the rate of exchange at the reporting date. Their statements of profit or loss are transacted at exchange rates at the dates of transaction.
The exchange differences arising upon consolidation on retranslation from a functional currency other than GBP are recognised as a separate component of equity.
1.8 Property, plant and equipment
Property, plant and equipment is stated at purchase price less accumulated depreciation and impairment losses. The cost includes all expenses directly related to the purchase of a relevant asset.
All other repair and maintenance costs are charged to the income statement for the period during the reporting period in which they are incurred.
1.9 Depreciation
Each item of property, plant and equipment is depreciated using the straight line method over the estimated useful life and depreciation charge is included in the income statement for the period.
The depreciation is charged to the income statement for the period and determined using the straight line method over the estimated useful life of the item of property, plant and equipment.
The expected useful lives of property, plant and equipment in the reporting and comparative periods are as follows:
Useful lives in years
Computers
3.33
Furniture & fittings
3.33
1.10 Impairment of non-financial assets
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its physical life.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Items costing less than £2,000 per individual asset are written off in the period of acquisition.
At the end of each reporting period management assesses whether the indicators of impairment of property, plant and equipment exists.
The carrying amounts of property, plant and equipment and all other non-financial assets are reviewed for impairment if there is any indication that the carrying amount may not be recoverable.
For the purpose of impairment testing the recoverable amount is measured by reference to the higher of value in use (being the net present value of expected future cashflows of a relevant cash generating unit) and fair value less costs to sell (the amount obtainable from the sale of an asset or cash generating unit in an arm's length transaction between knowledgeable, willing parties who are independent from each other less the costs of disposal).
Where there is no binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect the amount the Group would receive for the cash generating unit.
A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the income statement so as to reduce the carrying amount in the statement of financial position to its recoverable amount.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment.
This reversal is recognised in profit or loss for the period and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in prior years.
1.11 Financial Instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the statement of comprehensive income.
All financial instruments are classified in accordance with the principles of IFRS 9 Financial Instruments.
1.11a Financial assets
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost:
· the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
· the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at FVTOCI:
· the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and
· the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
By default, all other financial assets are subsequently measured at FVTPL.
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.
For financial instruments other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including expected credit losses, to the amortised cost of the debt instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.
Impairment of financial assets
The Company recognises a loss allowance for expected credit losses on financial assets that are measured at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
Expected credit loss measurement
IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since initial recognition as summarised below:
.
A financial instrument that is not credit-impaired on initial recognition is classified in "Stage 1" and has its credit risk continuously monitored by the Company.
.
If a significant increase in credit risk ("SICR") since initial recognition is identified, the financial instrument is moved to "Stage 2" but is not yet deemed to be credit-impaired.
.
If the financial instrument is credit-impaired, the financial instrument is then moved to "Stage 3".
.
Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. Instruments in Stages 2 or 3 have their ECL measured based on expected credit losses on a lifetime basis
.
A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-looking information
.
Purchased or originated credit-impaired financial assets are those financial assets that are credit-impaired on initial recognition. Their ECL is always measured on a lifetime basis (Stage 3).
11.11b Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company entity are recognised at the proceeds received, net of direct issue costs.
Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at "Fair Value Through Profit or Loss" ("FVTPL").
Financial liabilities at FVPL
Financial liabilities are classified as at FVTPL when the financial liability is 1) contingent consideration of an acquirer in a business combination to which IFRS 3 applies, 2) held for trading, or 3) it is designated as at FVTPL.
Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not 1) contingent consideration of an acquirer in a business combination, 2) held-for-trading, or 3) designated as at FVTPL, are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in the statement of comprehensive income.
1.12 Financial Instruments - Risk
The Group could be exposed to risks that arise from its use of financial instruments. Risks in relation to financial assets include:
1.12.1 Market risk
Market risk covers foreign exchange risk, price risk and interest rate risk.
As the majority of the Group's transactions are either in Sterling or in Polish Zloty the Group considers its exposure to foreign exchange risk to be minimal.
There are no derivatives and hedging instruments.
The Group is not exposed to price risk given that no securities are held under financial assets.
The Group is not exposed to interest rate or cash flow risk due to the fact that the Group has no borrowing or complex financial instruments.
1.12.2 Credit risk
Credit risk is considered to be the risk of financial loss incurred by the Group in the event that a customer or counterparty to an asset fails to meet contractual obligations.
The Group does not consider credit risk to be significant given the type of services it provides.
1.12.3 Liquidity risk
Management monitor rolling forecasts of the Group's liquidity reserves, cash and cash equivalents on the basis of expected cash flows and therefore monitors liquidity risk sufficiently.
1.13 Research and development
Research and development expenditure is written off as incurred.
1.14 Taxes
Income Taxes include all taxes based upon the taxable profits of all Group companies. Other taxes not based on income such as property and capital taxes are included within operating expenses or financial expenses according to their nature.
Deferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial information.
Deferred income tax assets relating to the carry-forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.
Current and deferred income tax assets are offset when the income taxes are levied by the same taxation authority and when there is a legally enforceable right to offset them.
Deferred income tax assets relating to the carry-forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.
Current and deferred income tax assets are offset when the income taxes are levied by the same taxation authority and when there is a legally enforceable right to offset them.
1.15 Share Based Payments
On occasion, the Company has made share-based payments to certain Directors and employees by way of issue of share options. The fair value of these payments is calculated by the Company using the binomial option valuation model.
The expense, where material, is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of the number of shares that will eventually vest.
1.16 Capital management
The Group considers its capital to comprise of its equity share capital, share premium, foreign exchange reserve, share options reserve and capital redemption reserve, less its accumulated losses. Quantitative detail is shown in the consolidated statement of changes in equity.
The directors' objective when managing capital is to safeguard the Group's ability to continue as a going concern in order to provide returns for the shareholder and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The directors monitor a number of KPIs at both the Group and individual subsidiary level on a monthly basis. As part of the budgetary process, targets are set with respect to operating expenses in order to effectively manage the activities of the Group. Performance is reviewed on a regular basis and appropriate actions are taken as required. These internal measures indicate the performance of the business against budget/forecast and to confirm that the Group has adequate resources to meet its working capital requirements.
1.17 Critical accounting estimates and judgements and key sources of estimation uncertainty
Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The following are the key estimates that the directors have made in the process of applying the Group's accounting policies and have the most significant effect on the amounts recognised in the financial information. There are no further critical accounting judgements.
Fair value of options granted to employees
The Group uses a combination of the Black-Scholes model and Binomial model in determining the fair value of options granted to employees under the Group's various share schemes. The determination of the fair value of options requires a number of assumptions. The alteration of these assumptions may impact charges to the income statement over the vesting period of the award. Details of the assumptions used are shown in note 4.
Convertible Loans
The Group has given consideration to the measurement and presentation of the convertible loans.
On legal execution of the loans the financial liability is initially measured at its fair value which is the face value of the loans. Immediately after recognition, at fair value, the financial liability is measured at amortised cost, using a reasonable estimate of the Group's cost of capital. The difference between the fair value and the amortised cost is taken to the P&L account.
1.18 Investments
Shares in subsidiary undertakings are stated at cost less provision for impairment. Provision is made against investments where diminution in value is considered to be permanent.
Investments which are not subsidiaries are stated at fair value unless this cannot be reliably measured in which case, they can be measured at cost less impairment.
2 Revenue and segmental information
An analysis of the Group's revenue for each period for its continuing operations, is as follows:
Group 2019
£
Company 2019
£
Group 2018
£
Company 2018
£
Revenue from the sale of goods/licences
69,884
69,884
66,373
66,373
Revenue from the rendering of services
16,000
16,000
30,336
30,336
Revenue from Cyberowl Limited for software development
91,574
91,574
165,806
165,806
Revenue from Byzgen Limited for software development
208,555
208,555
236,421
236,421
Revenue from Consulting
919,042
568,673
Total Revenue
1,305,055
386,013
1,067,609
498,936
The IFRS 8 Operating segments requires the Group to determine its operating segments based on information which is provided internally. Based on the internal reporting information and management structures within the Group, it has been determined that there are two geographic operating segments (UK and Poland) supported by one centralised cost segment (UK and Poland) and one revenue segment (UK). Reporting on this basis is reviewed by the Board of directors which is the chief operating decision-maker and is responsible for the strategic decision-making of the Group.
No analysis of net assets by geographic segment is provided as the net assets are principally all within the UK.
3 Expenses By Nature
Group 2019
£
Company 2019
£
Group 2018
£
Company 2018
£
Staff and related costs
2,311,737
1,171,736
1,860,259
1,030,932
Consultancy and related costs
225,172
732,941
171,468
794,185
Professional fees
354,369
319,549
694,179
669,240
Property related costs
82,593
71,905
178,945
154,529
Depreciation
147,281
101,528
5,592
917
Other expenses
495,666
289,114
438,306
217,499
Total cost of sales and administrative expenses
3,616,818
2,686,772
3,348,749
2,867,302
Expenses by geographic segment
Group 2019
£
Company 2019
£
Group 2018
£
Company 2018
£
UK
3,085,727
2,095,814
2,858,419
2,316,104
Poland
531,091
590,958
490,331
551,198
Total cost of sales and administrative expenses
3,616,818
2,686,772
3,348,749
2,867,302
4 Staff Costs
Staff costs, including directors' remuneration, were as follows:
Group 2019
£
Company 2019
£
Group 2018
£
Company 2018
£
Wages and salaries
2,073,682
1,027,652
1,644,363
915,601
Social security costs
207,878
119,260
196,073
98,968
Share based payments
32,200
51,725
45,751
26,226
Other pension costs
33,208
24,824
19,823
16,364
2,346,968
1,223,461
1,906,010
1,057,159
The average monthly number of employees, including the directors, during the period was as follows:
Group 2019
Company 2019
Group 2018
Company 2018
Staff
31
13
26
13
Directors
9
7
9
7
Share based payments
The amount recognised in respect of share based payments was £32,200 for December 2019, £45,751 for December 2018, £15,784 for 2017, £18,636 for 2016 and £16,455 for 2015.
The Group has established share option programmes that entitle certain employees to purchase shares in the Group.
These were issued in July 2014, November 2014, July 2015, December 2015, January 2016, June 2016, September 2016, June 2017, Jan 2018,
May 2018, July 2018, October 2018, June 2019 and November 2019.
There are no performance conditions attaching to these options. 6,666 options were exercised in April 2018, 666 options in December 2018, 332 options in April 2019, and 499 options in December 2019. Since 31 December 2019, 13,333 options have been exercised.
Total options issued amount to 183,181 as at 31 December 2019, 149,010 as at 31 December 2018, 115,658 as at 31 December 2017 by Crossword Cybersecurity plc. See details in Note 14 Earnings & Diluted Earnings per share.
27,500 share options were issued by Crossword Consulting Ltd in January 2018. In July 2019, the Crossword Consulting Share Scheme was cancelled and share option in Crossword Cybersecurity plc were awarded to recipients of options in the cancelled scheme.
The share options have been valued using a binomial model applying the following inputs:
· Exercise price - equal to the share price at grant date;
· Vesting date - all options vest in three tranches, on the first, second and third anniversary from the grant date;
· Expiry/Exercise date - 10 years from the grant date;
· Volatility (sigma) - 35%. Given the thinly traded shares of the Company on AIM, we have estimated Crossword's share price volatility by reference to the calculated volatility of quoted comparator companies Sophos Group Plc and Osirium Technologies Plc.;
· Risk free rate - yield on a zero coupon government security at each grant date with a life congruent with the expected option life;
· Dividend yield - 0%;
· Staff turnover - 0%. We have however adjusted the P+L charge for the current year (and future years) to account for lapsed options due to Leavers; and
Performance conditions - none. Reconciliation of share options - Company
Weighted average exercise price
2019 2019
£ £
Weighted average exercise price
2018 2018
£ £
1st January
149,010 1.80
115,658 1.29
Granted during the period
50,312 5.07
50,186 3.02
Lapsed/exercised during the period
(10,433) 2.86
(16,834) 1.95
End of the period
188,889 2.61
149,010 1.80
Reconciliation of share options-Crossword Consulting Limited
Weighted average exercise price
2019 2019
£ £
Weighted average exercise price
2018 2018
£ £
1st January
24,500 0.01
Granted during the period
27,500 0
Lapsed/exercised during the period
(24,500) 0.01
(3,000) 0
End of the period
0 0.00
24,500 0
5 Directors' Remuneration
Remuneration
2019
£
2018
£
Sir Richard Dearlove
75,000
25,000
Tom Ilube
145,989
115,000
Dr David Secher
11,833
6,000
Prof David Stupples
12,000
12,000
Andy Gueritz
11,833
6,000
Ruth Anderson
9,500
6,000
Gordon Matthew
12,000
12,000
Mary Dowd
138,415
62,949
John Bottomley
3,000
Total
416,570
247,949
Share Options issued (2017 nil)
Year
Share Options
Exercise Price
Total Value
Sir Richard Dearlove
2018
6,757
£3.70
£9,902
Mary Dowd
2018
7,936
£3.15
£9,993
Sir Richard Dearlove
2019
4,587
£5.45
£10,587
Sir Richard Dearlove
2019
5,208
£4.80
£10,576
Mary Dowd
2019
10,000
£5.45
£23,080
6 Auditor's Remuneration
The expenses for services rendered by the Group auditor present themselves as follows
Group 2019
£
Group 2018
£
Fees for legal audit of consolidated financial information
Fees for tax advisory services
31,250
5,577
31,000
5,004
36,827
36,004
7 Tax
Income tax
Group 2019
£
Group 2018
£
Current income tax expense
Deferred income tax
5,878
-
8,052
-
Total tax expense
5,878
8,052
Group 2019
£
Group 2018
£
Current income tax expense
5,878
8,052
Deferred income tax
-
-
Total tax expense
5,878
8,052
There is no tax charge in respect of other comprehensive income.
The deferred income taxes for all years/periods and deferred tax assets as at the end of each year/period were considered nil as the Directors consider
there is no sufficient certainty over the recoverability of the corporation tax losses available.
Corporation tax losses carried forward for offset against future year's trading profits amount to approximately £4,500,000 (2018: £3,500,000, 2017:
£2,500,000, 2016 : £1,600,000, 2015 : £700,000).
Group 2019
£
Group 2018
£
Loss before taxation
2,095,570
2,132,252
Average rate of corporation tax
19.00%
19.00%
Tax on loss
(398,158)
(405,128)
Effects of:
Expenses not deductible for tax purposes
18,895
11,608
Depreciation for the period in excess of capital allowances
147,281
5,592
Deferred tax not recognised
226,105
379,876
Total tax charge
5,878
8,052
Factors that may affect future tax changes
A reduction in the UK corporation tax rate from 20% to 19% was enacted in October 2015 and took effect from 1 April 2017. A further reduction from 19% to 17% was substantively enacted on the same date and is now to be reversed.
Polish Corporation Tax has been 19% until 1 January 2017, when Crossword started to benefit from the new small companies reduced rate of 15% adopted by the Parliament Act amendment to Polish CIT Law.
8 Tangible Assets
Computers
Group 2019
£
Company 2019 £
Group 2018
£
Company 2018 £
Cost b/f
22,674
22,924
Additions/(Disposals)
(250)
22,674
-
22,674
-
Accumulated Depreciation
B/F
15,191
10,516
Charge for the period
2,966
4,675
C/d
18,157
-
15,191
-
Net Book Value
4,517
-
7,483
-
9 Other Unlisted Investment
Group 2019 £
Company 2019 £
Group 2018 £
Company 2018 £
Cost b/f
31
11,048
31
1,048
Additions
-
-
-
10,000
C/D
31
11,018
31
11,048
Carrying Amount
31
11,048
31
11,048
The above investment represents Crossword Cybersecurity Plc's 2019 - 7.1% (2018 - 9.88%, 2017 - 11.069%, 2016 - 14.58%) holding in CyberOwl Limited which was purchased on 18 April 2016
10 Trade and Other Receivables
Group 2019
£
Company 2019
£
Group 2018
£
Company 2018
£
Trade receivables
263,679
260,947
210,930
227,962
Other receivables
252,263
237,114
142,664
127,468
Prepayments & accrued income
92,349
73,148
129,461
127,781
Intercompany receivables within one year
1,269
Intercompany receivables greater than one year
598,000
300,000
606,953
1,170,459
483,055
783,211
Overdue
67,874
19,260
All overdue amounts were paid following the period.
All of the above amounts are considered to be due within one year. The maximum exposure to credit risk at the reporting date is the carrying value as above and none are either past or impaired.
Of the above amounts held within the Group, 2019: £29,180; 2018: £15,195; 2017: £32,566; is denominated in Polish Zloty with the remainder in GBP.
Foreign exchange risk is currently minimal as balances in Polish Zloty are between the parent and its wholly owned subsidiary
11 Trade and Other Payables
Group 2019 £
Company 2019 £
Group 2018 £
Company 2018
£
Trade payables
82,165
276,814
86,641
160,352
Tax payables
91,024
47,216
Accruals and deferred income
150,750
117,579
101,946
90,882
Other payables
289,371
121,909
47,216
14
613,310
516,302
283,018
251,248
All of the above amounts are considered to be due within one year.
Of the above amounts held within the Group, £24,420 (2018: £19,569; 2017: £31,149) is denominated in Polish Zloty with the remainder in GBP.
Suppliers denominated in Euros had a zero balance outstanding at 31st December 2019 (2018: £7,452; zero in previous periods).
12 Operating Leases
All Right of Use assets are operating leases.
Included within trade and other payables are lease liabilities of the group of £185,267 (2018: £nil) and of the company £113,334 (2018: £nil). Interest expense on lease liabilities in 2019 was £23,621. Total cash outflow in 2019 for leases was £149,384.
As at the end of the comparative year ended 31 December 2018 future minimum rentals payable under non-cancellable operating leases were in the amount of £501,855 of which £173,865 was due within one year and £327,986 between one and five years.
Minimum lease payments recognised as an operating lease expense for the comparative period 31 December 2018 were £132,932.
The amount of operating lease commitments as at 31 December 2019 is nil, following the first-time adoption of the new standard IFRS 16 Leases and the recognition of a right-of-use asset and corresponding lease liability. For further information see Note 1.2 Basis of preparation of financial information.
13 Share Capital
Allotted called up and fully paid
2015: 2,383,460, 2016: 3,120,250, 2017:3,183,408, 2018: 4,680,440, 2019: 4,681,227 ordinary shares of £0.05 each
2019
2018
£
£
Share Capital
Cost b/f
234,020
159,171
Shares Issued in period
42
74,849
234,061
234,020
Share Premium
B/F
7,513,908
3,555,524
Shares Issued in period
1,836
3,958,384
C/d
7,515,744
7,513,908
The shares issued during the period represent share options exercised, and were ordinary shares of £0.05 issued at a premium of £1,835.
14 Earnings & Diluted Earnings per share
Earnings per share is calculated by dividing the loss for the period attributable to ordinary equity shareholders of the parent by the weighted average number of ordinary shares outstanding during the year.
During the year the calculation was based on the loss for the year of £2,191,280 (2018: £2,132,252; 2017: £1,200,424) divided by the weighted average number of ordinary shares of 4,679,965 (2018: 3,853,254; 2017: 3,158,318)
Diluted earnings per share is calculated by dividing the loss of the year by the weighted average number of ordinary shares outstanding during the year plus unexercised share based payments, Convertible Loan Notes and associated warrants shares. The weighted average number of ordinary shares used in the calculation of diluted earnings per share was 5,190,283 (2018: 4,725,481; 2017: 3,277,481).
15 Reconciliation of Cash Flows from Financing Activities (IAS 7)
2019
2018
£
£
Net Debt Reconciliation
Cash in hand
74
72
Cash at bank
1,514,092
2,267,750
Cash and liquid investmenst
1,514,166
Borrowing repayable within one year (including overdrafts)
-
(45,116)
Borrowing repayable within three years
(1,400,000)
Net debt £
114,166
2,222,705
Cash and cash equivalents
Gross borrowings with a fixed
interest rate
Total cash and cash equivalents
£
£
£
Net debt as at 1 January 2018
490,090
490,090
Cash flows
1,732,616
1,732,616
Net debt as at 31 December 2018
2,222,706
2,222,706
Cash flows
(708,540)
(708,540)
Net debt as at 31 December 2019
1,514,166
1,514,166
16 Reserves
The following describes the nature and purpose of each reserve within owners' equity
Reserve Description and purpose
Share capital This represents the nominal value of shares issued
Share premium Amount subscribed for share capital in excess of nominal value
Equity reserve Represents amounts charged on share options that have been granted to employees
Retained earnings Cumulative net gains and losses recognised in the consolidated statement of comprehensive income Translation of foreign operations is the difference that arises due to consolidation of foreign subsidiaries using an average rate during the
period and a closing rate for the period end statement of financial position
17 Financial Instruments Note
Group 2019 Company 2019
£ £
Group 2018 Company 2018
£ £
Current Financial Assets
Financial assets measured at amortised cost
Trade and other receivables Cash and cash equivalents
349,186 931,893
1,514,166 1,452,085
312,262 617,955
2,222,706 2,213,071
1,863,352 2,383,978
2,534,968 2,831,026
Current Financial Liabilities
Financial liabilities measured at amortised cost
Trade and other payables
Non-Current Financial Liabilities
Financial liabilities measured at amortised cost
Loan
474,802 468,817
1,307,236 1,307,236
227,548 242,993
- -
1,782,038 1,776,053
227,548 242,993
Included within trade and other payables are lease liabilities of the group of £185,267 (2018: £nil) and of the company £113,334 (2018: £nil).
In relation to the loan there was a fair value gain of £92,764 (2018: £nil) arising from the loans notes being initially measured at fair value and subsequently measured at amortised cost.
18 Pension obligations
The Group operates a defined contribution pension scheme for employees in the United Kingdom. A defined contribution scheme is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior years.
Contributions payable to the Group's pension scheme are charged to the income statement in the year to which they relate. The Group has no further payment obligations once the contributions have been paid.
In Poland, the Group pays the statutory employer's contribution into the public pension scheme for each employee, but does not operate any pension schemes.
19 Related Party Transactions
2019
2018
CyberOwl Limited - Crossword Cybersecurity plc has an investment in CyberOwl Limited
Percentage Holding
7.07%
9.88%
Revenue from development services £
91,574
165,806
Balance Outstanding £
5,070
15,960
Byzgen Limited - Crossword Cybersecurity has a licencing agreement with Byzgen Limited
Revenue from development services and licence agreement £
208,555
236,421
Balance Outstanding £
36,330
18,656
2019
2018
Subsidiary Transactions
Crossword Cybersecurity Limited
Services received from £
47,802
47,802
Balance Payable to £
4,780
5,380
Services supplied to £
182,871
147,153
Balance Due from £
213,199
68,351
Crossword Cybersecurity SP Z.o.o
Services received from £
588,696
551,198
Balance Payable to £
143,030
45,149
Services supplied to £
-
-
Balance Due from £
-
-
Tom Ilube, CEO, has agreed to make a loan of £250,000 to the Company on the same terms as the other Lenders as described in Note 20.
20 Convertible Loan Notes
In 2019, the company received funds for £1.4m of Convertible Loan Notes. The term of the loans is 3 years and the interest is 12% payable quarterly in arrears. Early repayment is at the Company's sole option, subject to a minimum repayment amount of £10,000. Repayment is at the end of the term, in cash, save that each lender may opt to convert part or all of their loan into Ordinary Shares at £4.80. On repayment of the Loans in cash, each lender will be issued warrants valid for three months to subscribe for Ordinary Shares representing 10 per cent. of the value of the Loan at £4.80. Included among the commitments is one from Tom Ilube, CEO, for an amount of £250,000. Tom Ilube has agreed to make a loan to the Company on the same terms as the other Lenders as described above
21 Subsequent Events
On 20th April the Company announced that it has undertaken a fundraising of approximately £1million through a placing and proposed subscription of Crossword ordinary shares of 5p each ("Ordinary Shares") at a price of 230 pence per share and the following announcement was made to the market on 20 April 2020.
20 April 2020 - London, UK -Crossword Cybersecurity Plc (AIM:CCS, "Crossword", the "Company" or the "Group"), the technology commercialisation company focused solely on cyber security and risk, is pleased to announce that it has undertaken a fundraising of approximately £1million through a placing and proposed subscription of Crossword ordinary shares of 5p each ("Ordinary Shares") at a price of 230 pence per share.
The Company has completed a placing of 363,617 Ordinary Shares ("Placing Shares") to raise £836,319. In addition Tom Ilube, CEO and founder of Crossword, intends to subscribe on the same terms for 73,914 Ordinary Shares ("Subscription Shares") to complete the total fundraise of £1 million following the end of the current close period, when 2019 Annual Report and Accounts are issued later this month. The Placing Shares and the Subscription Shares will be issued under the Company's existing share allotment authorities.
Settlement and dealings
Application will be made for the admission of the 363,317 Placing Shares, which rank pari passu with the Company's existing issued Ordinary Shares, to be admitted to trading on AIM. Dealings on AIM are expected to commence at 8:00am on or around 4 May 2020 ("Admission").
Total Voting Rights
For the purposes of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules ("DTRs"), following Admission, Crossword will have 5,058,177 Ordinary Shares in issue with voting rights attached. Crossword holds no shares in treasury. This figure of 5,058,177 may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company, under the DTRs.
22 Controlling Party
The company does not have a controlling party.
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