REG - Narf Industries PLC - Final Results
31/07/2024 07:00
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RNS Number : 5456Y Narf Industries PLC 31 July 2024
31 July 2024
NARF INDUSTRIES PLC
Audited Financial Results
For the 15-month period ended 31 March 2024
Narf Industries plc ("NARF", the "Company", or the "Group") (LSE: NARF), the
cybersecurity group specializing in high-end threat intelligence and critical
infrastructure security, is pleased to announce that its Audited Financial
Results for the 15-month period ended 31 March 2024 have been approved and
extracts are attached to this announcement. They are available in full on the
Company's website at
https://narfgroup.com/investor-relations/corporate-document
All reference to $ are for USD$ and any reference to 2024 or 2022/FY2022 are
for the 15-month period ended 31 March 2024 and the calendar year ended 31
December 2022 respectively.
OVERVIEW
· Increased total revenue 200% to $7.6 million
· Scaled and expanded US Government business
o Government Research & Development ("GR&D") revenue increased 231%
to $4.5 million
o Government Solutions & Services ("GS&S") revenue increased 159% to
$3.0 million
· Reported positive Adjusted EBITDA* of $165,000 from FY2022 Adjusted
EBITDA* loss of $2.5 million
· Reduced operating loss to $1.4 million from FY2022 operating loss of
$3.3 million
· Formed a skilled Board of Directors to advance the Company to its
next stage
· Strengthened the Group's internal and external financial reporting
· Extended line of credit with the CEO to 31 July 2025 and increased
facility from $2 million to $2.5 million
*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation
and share based payments.
EXECUTIVE CHAIRMAN'S STATEMENT
I am pleased to present the audited financial results for Narf Industries PLC
for the 15-month period to 31 March 2024, which aligns to our new financial
year end.
This has been a transformative period in which the Group achieved record
revenue growth, positive Adjusted EBITDA* performance, increased its
intellectual property portfolio through cutting-edge government funded
research and development, and announced it was accelerating the launch of its
break-through new social cyber-Software as a Service ("SaaS") product,
narf.ai.
As significantly, we have worked to advance our corporate infrastructure by
building our executive team and Board of Directors and enhancing our financial
and planning functions to establish much improved corporate governance. We
will continue to mature our organization and maintain our focus on meeting the
highest standards.
Looking ahead, alongside its government business, the Company is excited about
wider opportunities in the cybersecurity markets in which it is emerging as a
welcome disruptor with leading edge technologies borne from advanced
government programs. One of these capabilities, is SocialCyber, and as part of
the Company maximizing its competitive advantage, it is looking to increase
investment and evaluate strategic alliances with industry partners. The
Company is also undergoing a reallocation of resources and will provide a
fuller update on the impact of this to the Company's financial profile in the
coming months. The Board remains confident to deliver on its plan to achieve
its three-year revenue targets.
In closing, I would like to express my gratitude to our shareholders, clients,
and employees for their support and trust. Together, we will continue to
navigate the dynamic cybersecurity landscape and drive Narf Industries PLC to
new heights.
Thank you for your continued support.
John Herring
Executive Chairman
For further information visit www.narfgroup.com or contact:
Narf Industries plc John Herring jh@narfgroup.com
Joint Broker Simon Bridges Tel: +44 (0) 207 523 8000
Canaccord Genuity Limited Harry Rees
Joint Broker Peter Krens Tel: +44 (0)207 186 9030
Tennyson Securities plc
Financial PR, UK Paul Dulieu narf@stbridespartners.co.uk
St Brides Partners Isabel de Salis
About NARF Industries plc
Narf Industries (LSE: NARF) (OTCQB: NFIN.F) is a US based leading provider of
cybersecurity research, solutions, and services to government entities. With a
steadfast commitment to protecting national security and critical
infrastructure, it offers comprehensive expertise in addressing the evolving
cyber threats faced by its clients.
NARF INDUSTRIES PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE 15 MONTH PERIOD ENDED 31 MARCH 2024
15 months Year
ended Ended
31 March 2024 31 December 2022
(Restated)
Notes US$ US$
Continuing operations
GR &D Revenue 3 4,509,908 1,360,684
GS & S Revenue 3 3,012,545 1,165,203
Commercial Revenue 49,000 -
Total revenue 7,571,453 2,525,887
Direct salaries (3,037,080) (1,504,792)
Sub-contracting (1,092,696) (267,985)
Gross profit 3,441,677 753,110
Operating expenses 4 (3,276,580) (3,250,418)
Profit/(loss) before depreciation and software licence amortisation, share 165,097 (2,497,308)
based payments, interest and taxes
Depreciation and software license amortisation (509,756) (329,999)
Share-based payment expense 16 (1,023,074) (493,549)
Operating loss (1,367,733) (3,320,856)
RTO share based payment expense - (15,355,123)
Interest receivable and other finance income 13 3,376
Finance costs (71,259) (3,197)
Loss before taxation (1,438,979) (18,675,800)
Corporate tax 6 (15,248) (7,839)
Loss for the period (1,454,227) (18,683,639)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on foreign operations 54,756 -
Total comprehensive loss for the period attributable to the owners of the (1,399,471) (18,683,639)
company
Earnings per share
Earnings per share (basic and diluted) attributable to the equity holders 7 (0.1) (1.3)
(cents)
The above results relate entirely to continuing activities.
NARF INDUSTRIES PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2024
As at As at As at 31
31 March 2024 31 December 2022 December 2021 (Restated)
(Restated)
Note US$ US$ US$
NON-CURRENT ASSETS
Intangible assets 8 1,198,096 1,620,663 -
Right of use assets 17 42,981 - -
Tangible assets 9 - 15,990 49,519
1,241,077 1,636,653 49,519
CURRENT ASSETS
Trade and other receivables 11 605,544 735,243 48,074
Cash and cash equivalents 12 654,365 442,751 446,879
1,259,909 1,177,994 494,953
TOTAL ASSETS 2,500,986 2,814,647 544,472
CURRENT LIABILITIES
Trade and other payables 13 2,739,573 2,781,272 1,559,631
NON-CURRENT LIABILITIES
Lease liabilities 14 - 1,727 22,312
TOTAL LIABILITIES 2,739,573 2,782,999 1,581,943
NET (LIABILITIES)/ASSETS (238,587) 31,648 (1,037,471)
EQUITY
Share capital 15 204,012 204,012 -
Share premium 15 35,294,816 35,074,061 -
Reverse acquisition reserve (16,747,959) (16,747,959) -
Foreign exchange reserve 11,345 (43,411) -
Share based payment reserve 16 1,483,635 575,154 -
Members' equity - - (1,037,471)
Retained deficit (20,484,436) (19,030,209) -
TOTAL SHAREHOLDERS (DEFICIT)/EQUITY (238,587) 31,648 (1,037,471)
Note the 2021 numbers are those for Narf US only as they pre-date the reverse
takeover.
NARF INDUSTRIES PLC
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2024
As at As at
31 March 2024 31 December 2022 (restated)
Note US$ US$
NON-CURRENT ASSETS
Intangible assets 8 1,198,096 1,620,663
Investment in subsidiary undertakings 10 18,002,000 25,600,000
19,200,096 27,220,663
CURRENT ASSETS
Trade and other receivables 11 60,705 67,364
Cash and cash equivalents 12 5,126 210,282
65,831 277,646
TOTAL ASSETS 19,265,927 27,498,309
CURRENT LIABILITIES
Trade and other payables 13 210,317 335,526
TOTAL LIABILITIES 210,317 335,526
NET ASSETS 19,055,610 27,162,783
EQUITY
Share capital 15 204,012 204,012
Share premium 15 35,294,816 35,074,061
Share based payment reserve 16 1,483,635 575,154
Foreign exchange reserve 11,345 (43,411)
Retained deficit (17,938,198) (8,647,033)
TOTAL EQUITY 19,055,610 27,162,783
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 fifteen-month period was $9,291,165 (year to
31 December 2022: Loss $3,082,511).
NARF INDUSTRIES PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024
15 months Year
ended Ended
31 March 2024 31 December 2022 (restated)
Note US$ US$
OPERATING ACTIVITIES
Loss for the period before interest and taxation (1,367,733) (18,675,979)
Adjusted for:
Depreciation 9 15,990 33,529
Amortisation of intangibles 8 493,766 296,470
Amortisation of right of use asset 17 48,173 -
Unrealised foreign exchange adjustment (16,408) 176
RTO and other share-based payment expenses 1,023,074 15,848,672
Operating cash flow before movements in working capital: 196,862 (2,497,132)
Increase/(decrease) in trade and other receivables 129,699 (680,485)
(Decrease)/increase in trade and other payables (153,502) 184,806
Net cash generated from/(used in) operating activities 173,059 (2,992,811)
INVESTING ACTIVITIES
Net amounts paid to former members to acquire control - (3,615,433)
Licence fee expenditure - (500,000)
Net cash outflow from investing activities - (4,115,433)
FINANCING ACTIVITIES
Proceeds on the issue of shares - 7,650,881
Costs recovered/(paid) related to share issues 106,162 (1,145,814)
Loan amount (repaid to)/received from Director (22,500) 702,000
Decrease in vehicle financing loan (22,312) (20,292)
Drawings by former members - (75,000)
Net interest (paid)/received (7,547) 180
Net cash inflow from financing activities 53,803 7,111,955
Taxation paid 6 (15,248) (7,839)
Net increase/(decrease) in cash and cash equivalents 211,614 (4,128)
Cash and cash equivalents at beginning of the period 442,751 446,879
Cash and cash equivalents at end of the period 654,365 442,751
Supplemental information non-cash transactions
Shares issued to former members upon acquisition in lieu of cash consideration - 18,048,690
NARF INDUSTRIES PLC
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024
15 months Year
ended Ended
31 March 2024 31 December 2022 (Restated)
Note US$ US$
OPERATING ACTIVITIES
Loss for the period before interest and taxation (9,287,928) (3,082,511)
Adjusted for:
Amortisation of intangibles 8 493,766 296,470
Impairment of investment in subsidiary 10 7,600,000 -
Share based payments 1,023,074 474,440
Unrealised foreign exchange adjustment (16,408) -
Operating cash flow before movements in working capital: (187,496) (2,311,601)
Increase/(decrease) in trade and other receivables 6,660 (63,147)
(Decrease)/increase in trade and other payables (125,209) 59,027
Net cash used in operating activities (306,045) (2,315,721)
INVESTING ACTIVITIES
Decrease/(Increase) in prepaid consideration - 2,000,000
Cash invested to acquire license - (500,000)
Cash amounts paid to acquire subsidiary undertaking 10 (2,000) (5,754,046)
Net cash outflow from investing activities (2,000) (4,254,046)
FINANCING ACTIVITIES
Proceeds on the issue of shares - 7,650,881
Costs recovered/(paid) related to share issues 106,162 (1,145,814)
Interest received 11 -
Net cash inflow from financing activities 106,173 6,505,067
Taxation paid (3,284) -
Net decrease in cash and cash equivalents (205,156) (64,700)
Cash and cash equivalents at beginning of the period 210,282 274,982
Cash and cash equivalents at end of the period 5,126 210,282
NARF INDUSTRIES PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024
Share Share FX Share-based Reverse Retained Members' Total
Capital Premium Reserve Payment Acquisition Deficit equity
Reserve Reserve
US$ US$ US$ US$ US$ US$ US$ US$
AS AT 1 JANUARY 2022 (As originally stated) - - - - - - 821,527 821,527
Prior year adjustments (Note 24) (1,858,998) (1,858,998)
AS AT 1 JANUARY 2022 (Restated) (1,037,471) (1,037,471)
Loss for the year (restated) - - - - - (18,683,639) - (18,683,639)
Total comprehensive loss for the year (restated) - - - - - (18,683,639) -
Drawings by former members - - - - - - (75,000) (75,000)
Reclassification of members' equity at acquisition - - - - - (1,112,471) (1,112,471) -
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 (Note 16) 7,336 1,419,577 - - - - - 1,426,913
Issue of warrants and options (restated) - (114,593) - 575,154 - - - 460,561
AS AT 31 DECEMBER 2022 204,012 35,074,061 (43,411) 575,154 (16,747,959) (19,030,209) - 31,648
(Restated)
Loss for the period - - - - - (1,454,227) - (1,454,227)
Foreign exchange gain on conversion of parent - - 54,756 - - - - 54,756
Total comprehensive loss for the period - - 54,756 - - (1,454,227) - (1,399,471)
Shares issue costs recovered - 106,162 - - - - - 106,162
Cancellation of warrants - 114,593 - (114,593) - - - -
Share based payments (Note 16) - - - 1,023,074 - - - 1,023,074
AS AT 31 MARCH 2024 204,012 35,294,816 11,345 1,483,635 (16,747,959) (20,484,436) - (238,587)
See notes below parent company statement of changes in equity for explanation
as to the reserves.
NARF INDUSTRIES PLC
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024
Share Share Share-based FX Retained Total
Capital Premium Payment Reserve Deficit
Reserve
US$ US$ US$ US$ US$ US$
AS AT 1 JANUARY 2022 84,293 7,447,611 32,578 (17,767) (5,575,591) 1,971,124
Loss for the year (restated) - - - - (3,082,511) (3,082,511)
Total comprehensive loss for the year - - - - (3,082,511) (3,082,511)
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 (restated) - Note 16 - (114,593) 575,154 - - 460,561
FX reserve arising on conversion to reporting currency (8,109) 2,995,551 - (2,998,511) 11,069 -
AS AT 31 DECEMBER 2022 204,012 35,074,061 575,154 (43,411) (8,647,033) 27,162,783
Loss for the year - - - - (9,291,165) (9,291,165)
Foreign exchange gain on conversion of parent - - - 54,756 - 54,756
Total comprehensive loss for the year - - - 54,756 (9,291,165) (9,236,409)
Shares issue costs recovered - 106,162 - - - 106,162
Cancellation of warrants- Note 16 - 114,593 (114,593) - - -
Share based payments - Note 16 - - 1,023,074 - - 1,023,074
AS AT 31 MARCH 2024 204,012 35,294,816 1,483,635 11,345 (17,938,198) 19,055,610
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 - 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.
NARF INDUSTRIES PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIFTEEN MONTH PERIOD ENDED 31 MARCH 2024
1 GENERAL INFORMATION
The principal activity of Narf Industries Plc (the "Company") and its
subsidiaries (the "Group'') is the provision of research and software
development services aimed at enhancing the cybersecurity measures of its US
government agency clients. The subsidiaries consist of Narf Industries LLC, a
California limited liability company, Narf Industries PR, LLC, a Puerto Rican
limited liability company ("Narf US" or the "Operating Group") and Narf
Holdings US, Inc. a Delaware corporation which was dormant throughout the
period. The Company is the parent and sole member/shareholder of all three
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.
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 reverse takeover on 15 March 2022.
In the consolidated statement of financial position, the share capital and
share premium as at 31 December 2022 and 31 March 2024 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 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. The
consolidated statement of comprehensive income for the fifteen-month period
ended 31 March 2024 include the results of both the parent and the Operating
Group throughout the period.
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 entity 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.
The Group applies the acquisition method to account for business combinations
that fall within the scope of IFRS 3.
Acquisition-related costs are expensed as incurred.
2.3 Comparative information
The Parent Company extended its period end from 31 December 2023 to 31 March
2024. Accordingly, current period information covers the fifteen-month period
to 31 March 2024 and therefore is not directly comparable to the previous
12-month period, part of which pre-dated the reverse acquisition and therefore
does not include the costs of the Parent Company.
2.4 Going concern
The Directors believe the Company and the Group have sufficient resources to
continue in operational existence for the foreseeable future and at least
until 31 July 2025, being 12 months after the date these financial statements
were issued.
Over the 15 months to 31 March 2024, the Group demonstrated its ability to
generate increasing revenue and manage expenses whilst accessing its existing
line of credit ("LOC") to advance operations and achieving positive Adjusted
EBITDA. This was a marked improvement from the previous reporting period and
a demonstration of the new Board and Executive team's ability to plan and
execute its business strategy.
The Group recently increased its existing LOC provided by the Group's CEO from
$2 million to $2.5 million to provide additional resources to support its
growth objectives. It also closely manages its operational expenses and has
significant flexibility to adjust its resources and expenses in line with its
contracted revenues. Management can rapidly make decisions to redeploy
resources on the exciting new projects discussed elsewhere in these report and
accounts.
The Board also notes its announced intentions during this period to pursue
joint venture funding of the Group, specifically to capitalise on its
disclosed social cyber business opportunity. The Board believes these
initiatives, along with new expected social cyber contract awards. ensure its
continued operation.
The Board further notes the Company's potential to pursue an LSE market
fundraise in the event this is deemed appropriate and market conditions
allow.
Since the Group's plans, to a certain extent, are reliant on market conditions
and/or third parties there remains a material uncertainty as to the Group's
ability to remain a going concern as highlighted in the audit report. The
Group has current liabilities (primarily due to the LOC from the CEO) which
are greater than current assets at the reporting date and there is a deficit
on shareholders' equity.
The Directors believe the Group's plan is based on sound analysis, with a high
degree of confidence in both outcomes from either the joint venture funding or
LSE market fundraise. The primary risk determined by the Directors is timing
of new contract awards for which management presented viable short-term
remedies, through expense reductions and further LOC increases, to ensure the
Group remains a going concern up to 31 July 2025.
2.5 Revenue Recognition
Substantially all of the Group's revenues derive from long-term contracts with
service providers. The contracts have monthly or quarterly milestones with
contractual payments due on completion of deliverables identified with those
milestones. The contractual arrangements fall into three types:
Research where the principal asset transferred to the client are ideas about
potential cybersecurity threats and source code to test those threats;
Infrastructure where the principal asset transferred is a test environment
along with the ongoing maintenance of the ability to test various scenarios
and meetings where the principal asset transferred is the intellectual input
to those meetings.
Meetings-based where there the contract specifies a requirement for Group
employees to prepare for and attend meetings where they will share their
expertise and provide insights to the meeting.
The nature of the research and infrastructure contracts is such that the
deliverables themselves are of little value to the customer. The main value of
the contract to the customer is the inherent promise that the Group will
continue to provide the ideas and support to allow the customer to enhance its
understanding of cybersecurity threats and how to counter them. Given that the
deliverables themselves have no inherent value, the Group takes the view that
revenue from research and infrastructure contracts should be recognized over
time based on progress towards a milestone. For meetings-based contracts
revenue is recognized when the meeting(s) occur as this is the point at which
an asset is transferred to the client.
2.6 Segmental Reporting
The Group operates as two separate business segments, GR & D and GS &S
(see page 8 for details), each headed by a team leader whose remuneration is
linked to the success of their business segment. The revenues attributable to
each business segment are detailed in the Statement of Comprehensive Income
whilst an analysis of those costs attributable to each business segment is
provided in Note 3.
2.7 Foreign currency translation
The financial information is presented in US Dollars which is the Group's
presentational and functional currency as substantially all of the Group's
operational activities are undertaken in US Dollars. The Company's
functional currency is Sterling. 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.
2.8 Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and current and instant access
deposit balances at banks.
2.9 Intangible assets
Intangible assets comprise non-physical assets comprising the cost of
acquiring the licensing rights in relation to the commercialisation of TIGR
that can be determined with reasonable certainty. Royalty payments due to the
licensor upon future sales cannot be determined with any certainty and
accordingly have not been included in cost.
The license is amortised over the useful life of the license, which is based
on the term of that license agreement.
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 listed in 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. Although the Group has made the decision not to
seek to commercialise the TIGR license at this point, the license has been
used in meeting other service obligations and is a key-component of a number
of other projects that the Group has submitted proposals for. Accordingly, no
impairment provision has been considered necessary.
In the prior year financial statements the Group recognised software
development costs which represented amounts capitalized related to SaaS
products available for subscription. During the current period the new Board
carried out an assessment of the treatment of this asset and came to the
conclusion that the asset had not met the criteria to be recognized as an
intangible under IAS 38. Accordingly, the software development costs have been
derecognized resulting in a reduction in Members Equity at 31 December 2021 of
$1,303,351 and the reversal of $226,938 amortisation in the comparative
numbers (see note 24).
2.10 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
2.11 Leased assets
Identification of leased assets
For any new contracts entered into, the Group considers whether a contract is,
or contains a lease. A lease is defined as 'a contract, or part of a contract,
that conveys the right to use an asset (the underlying asset) for over a year
in exchange for consideration'. To apply this definition the Group assesses
whether the contract meets two key evaluations which are whether:
i) the contract contains an identified asset, which
is either explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the Group
ii) the Group has the right to obtain substantially
all of the economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of the contract
the Group has the right to direct the use of the identified asset throughout
the period of use.
The Group assess whether it has the right to direct 'how and for what purpose'
the asset is used throughout the period of use.
Measurement and recognition of leases
At lease commencement date, the Group recognises a right-of-use asset and a
lease liability on the balance sheet. The right-of-use asset is measured at
cost, which is made up of the initial measurement of the lease liability, any
initial direct costs incurred by the Group, , and any lease payments made in
advance of the lease commencement date (net of any incentives received). The
Group depreciates the right-of-use assets on a straight-line basis from the
lease commencement date to the earlier of the end of the useful life of the
right-of-use asset or the end of the lease term. The Group also assesses the
right-of-use asset for impairment when such indicators exist. At the
commencement date, the Group measures the lease liability at the present value
of the lease payments unpaid at that date, discounted using the interest rate
implicit in the lease if that rate is readily available or the Group's
incremental borrowing rate. Subsequent to initial measurement, the liability
will be reduced for payments made and increased for interest accrued.
2.12 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.
2.13 Trade and other payables
Trade payables are recognised initially at their fair value and subsequently
measured at amortised cost, less repayments.
2.14 Financial instruments
Initial recognition
A financial asset or financial liability is recognised in the Statement of
Financial Position when it arises or when the Group becomes part of the
contractual terms of the financial instrument.
Classification
Financial assets at amortised cost
The Group 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.
2.15 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 "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 share-based payment reserve comprises share warrants issued to service
providers and options issued to employees under long-term incentive schemes.
Both share options and warrants 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 the net assets of the parent from sterling into US Dollars, being
the presentational currency.
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 prior 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 was
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.
2.16 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 the Statement of Comprehensive Income
in the period in which they arise other than those arising on conversion of
the Company's Statement of Financial Position on consolidation which are
recognised as a foreign exchange reserve.
2.17 Earnings per share
Basic earnings per share is calculated by dividing:
The Group loss attributable to owners of the Company, excluding any costs of
servicing equity other than ordinary shares by the weighted the average number
of ordinary shares outstanding during the financial period.
As the Group is currently loss making none of the options or warrants in issue
are dilutive to the basic earnings per share figure.
2.18 Share-based payments
The Parent Company has issued options to Directors and Group employees under
long-term incentive arrangements.
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 Parent 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.
At the time of the RTO, Narf US had entered into agreements with a number of
key employees whereby they were entitled to an interest in Narf Industries
LLC. Ahead of the RTO those employees entered into redemption agreements so as
to release Narf US from the obligation to provide such an interest. The
amounts payable under these redemption agreements had previously only been
recognised as paid but at 1 January 2021 $555,647 was still outstanding.
Accordingly, the Members Equity at 1 January 2021 has been reduced by $555,647
to reflect the full amounts due under these agreements at that time and the
operating costs reported in the Statement of Comprehensive Income for the year
ended 31 December 2022 have been reduced by $148,384 to reflect amounts
payable now recognised in earlier periods.
The difference between the fair value of the net assets of the Parent Company
acquired on the reverse takeover and the market value of the shares in issue
on that date has been treated as a share-based payment in the comparative
numbers representing the cost of Narf US obtaining a listing.
2.19 Taxation
The Parent Company is subject to taxes in the United Kingdom tax jurisdiction
and, to the extent there are look through profits in the Operating Group, is
also subject to taxes in the United States. Substantially all revenue
related operations are conducted by Narf Industries LLC. Both operating
subsidiaries are limited liability companies taxed as partnerships for US
federal taxes. As partnerships, neither operating subsidiary is subject to
US federal income tax and the federal tax effect of those activities accrue to
the Parent Company, the sole member. Narf Industries LLC is also subject to
a nominal California franchise tax, whilst Narf Industries PR LLC is subject
to the Government of the Commonwealth of Puerto income tax rate of 4%. The
Operating Group currently has substantial tax losses attributable to the
Parent Company, for which no deferred tax has been recognised and accordingly,
differences between Narf US's taxable income per IFRS and the basis used for
tax reporting have not given rise to any deferred tax assets or liabilities.
Taxable losses of the Parent Company from its activities in the United Kingdom
and that inure to the Parent Company from the two members of the Operating
Group as their sole partner differ from losses for the Parent 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 Parent
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 Parent 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 Parent Company intends to settle its current tax assets and
liabilities on a net basis.
2.20 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 Parent Company was granted certain licenses during the prior year relating
to the commercialisation of cybersecurity software which potentially could be
key to the future 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 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 8.
Impairment of Narf US
The Parent Company Statement of Financial Position includes the investment in
Narf US at cost less impairment. The Directors undertook an impairment review
ahead of the issue of the interim financial statements for the year to 31
December 2023. At that time, the Directors took the view investment should be
written down and applied an impairment provision of $7.6 million due to the
Group having decided to delay commercialisation efforts until these can be
funded from growth in revenues from government contracts and due to the
significant reduction in the share price. A further impairment review was
conducted ahead of the issue of these financial statements and no further
impairment was deemed appropriate. This review involves judgements about
potential future cash flows which are highly subjective and subject to matters
outside the control of the Directors.
Segmental Reporting
Note 3 seeks to analyse the contribution of each business segment to the
profitability of the Group. The allocation of costs includes the costs of some
employees who work on both business segments which requires judgements as to
the allocation of resources. Management have not sought to allocate costs
related to the time of the CEO because he has agreed to waive any remuneration
until his loan is repaid.
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. The fair value also makes certain assumptions about whether
non-market vesting conditions will be met and such assumptions are highly
subjective.
Revenue recognition
The Group's revenues arise from contracts which generally have monthly or
quarterly payment milestones. Some of these contracts span more than one
accounting period, whilst others have an overriding omnibus agreement to
provide ongoing services, with specific tasks detailed in contract amendments.
The Group generally recognises revenue based on milestones that have been met
or the amount of time that has progressed towards a milestone which has been
met post period-end.
Nonetheless there is some uncertainty at each milestone date as to the extent
to which additional work may have been completed and the extent to which the
contracted amount attributable to each milestone represents a fair proportion
of the overall contract. Management rely on the output method to allocate
revenue between accounting periods.
2.21 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 2023. 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
IAS 8 Amendments - Definition of Accounting Estimates
IAS 1 Amendments - Disclosure of Accounting Policies
IFRS 3 Amendments - Business Combinations
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.
Standard Impact on initial application Effective date
IAS 1 Amendments - Classification of Liabilities as Current or Non-current 1 January 2024
Amendments - Supplier Finance Arrangements
IAS 7 Lease Liability in a Sale and Leaseback 1 January 2024
IFRS 16 1 January 2024
The Group intends to adopt these new and amended standards and
interpretations, if applicable, when they become effective.
2.22 Financial Risk Management Objectives and Policies
The Group does not enter into any forward exchange rate contracts nor does it
have any other market risks apart from the Sterling assets held by the Parent
Company which are matched by Sterling liabilities.
The main financial risks arising from the Group's activities are interest rate
risk, credit risk, liquidity risk and capital risk management. Further details
on the risk disclosures can be found in Notes 19 and 20.
3. REVENUE AND SEGMENTAL REPORTING
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 contracts are performed/delivered.
Whilst some performance obligations are defined within the Group's contracts,
management consider that the main asset transferred to the customers over the
term of the contract is the implied promise that the customer will have access
to Group employees throughout the duration of the contract. The customer is
expecting that those employees will be able to come up with ideas, explaining
outputs from the software developed and generally push the boundaries to
understand how to develop what may start as a concept into something that has
commercial value. The Group invoices customers based on a billing schedule
contained within each contract. The Group considers trade and other
receivables to be fully collectible as it has no history of non-payment;
accordingly, no allowance for doubtful accounts has been recorded at either
period end. Costs incurred to obtain contracts are expensed as incurred and
losses on contracts are recognised in the period when determined. The Group
sometimes warrants that its deliverables will perform within parameters
contained in the statements of work referenced in the contracts.
Revenue for performance obligations is generally recognised as each
performance obligation is completed and, to the extent applicable, delivered -
an output measurement. Where a performance obligation crosses a period end,
revenue for that performance allocation is pro-rated on a time expired basis
and allocated proportionately to the relevant period.
As performance obligations are completed and delivered, invoices are issued to
customers and the debtor recorded in the Trade Accounts Receivables, which
represents a conditional right to consideration, which generally becomes an
unconditional right on payment. There were no amounts invoiced that were
subsequently challenged as being in excess of completed performance
obligations as at 31 March, 2024 or 31 December, 2022 (although the Group has
issued a small credit for amounts overbilled). To the extent that the
measurement of outputs suggests that a future milestone has been met in part,
a debtor is recorded in the caption Prepayments and Accrued Income.
During the period under review the Group established the two separate business
segments of GR & D and GS & S, with each segment having a business
head. The prior year numbers have been restated to reflect the different
business segments.
Based on the above categories, disaggregated contract revenues and their
related costs as follows:
15 months ended Year ended
31 March 31 December 2022
US$
2024
US$
GR & D GS& S Comm Total GR & D GS & S Total
Revenue 4,509,908 3,012,545 49,000 7,571,453 1,360,684 1,165,203 2,525,887
Sub-contractors (1,092,696) - - (1,092,696) (267,985) - (267,985)
Direct salaries (1,964,774) (1,072,306) - (3,037,080) (1,170,292) (334,500) (1,504,792)
Gross profit/(loss) 1,452,438 1,940,239 49,000 3,441,677 (77,593) 830,703 753,110
Customers comprising 10% or more of Contract Revenue were as follows:
15 months ended 31 March 2024 US$ Percent Year ended 31 December 2022 US$ Percent
US government procurement agency 3,012,545 39.8% 1,165,203 46.1%
DARPA 3,068,234 40.5% 1,154,939 45.8%
Others - less than 10% 1,490,674 19.7% 205,745 8.1%
7,571,453 100.0% 2,525,887 100.0%
For contractual reasons, the Company may not disclose the name of the US
government procurement agency or the agencies for which this entity is
pass-through. DARPA stands for Defense Advanced Research Projects Agency, a US
government research and development organisation.
4. OPERATING LOSS
This is stated after charging:
15 months to Year to
31 March 31 December 2022 (restated)
US$
2024
US$
Auditor's remuneration
- audit of the Parent Company 137,464 174,000
- non-audit services
Reporting accountant services - 12,000
Review of interim financial statements - 1,800
Amortisation of intangible assets 493,766 285,999
Depreciation of tangible fixed assets 15,990 33,529
Amortisation of right of use asset 48,173 -
Directors' remuneration 476,614 1,173,701
Other staff costs 4,989,973 1,761,070
Legal, professional and consultancy fees 548,113 451,628
5. DIRECTORS AND STAFF COSTS
The average number of persons employed by the Group, including Directors, was:
15 months to 31 March 2024 Year to 31
Dec 2022
Management and technical 18 17
Remuneration, other benefits supplied and social security costs to the
directors and staff during the period was as follows:
15 months to Year to
31 March 2024 31 December 2022
US$
US$
Directors and Employees:
Director fees and salaries 263,908 393,788
Other salaries 3,396,771 1,446,546
Social security costs 286,216 92,245
Pension costs and other benefits 496,518 222,369
Director share- based payments 212,706 404,928
Other share-based payments 810,368 -
Director bonuses - 374,986
5,466,587 2,934,772
6. TAXATION
15 months ended 31 March 2024 Year ended
US$ 31 December 2022
US$
The charge for the period is made up as follows:
Penalties, Federal and State filing fees 15,248 7,839
Deferred tax - -
Taxation charge 15,248 7,839
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:
15 months ended 31 Mar 2024 Year ended 31 December 2022 (restated)
US$ US$
Loss before taxation (1,438,979) (18,675,800)
Tax credit at the small company rate of corporation tax in the UK (19%) (273,406) (3,548,402)
Impact of expenses disallowed for tax purposes 291,038 3,066,878
Penalties, Federal and State filing fees 15,248 7,839
Impact of (tax losses utilised)/unrelieved tax losses carried forward (17,632) 481,524
15,248 7,839
Estimated tax losses of $6.1 million (2022 restated: $5.9 million) are
available for relief against future UK profits and estimated tax losses of
$1.2 million (2022: $1.1 million) are available for relief against future US
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. The amount of the deferred tax asset not recognised in
relation to losses for the Group is $1.4 million (2022: $1.3 million) and for
the Company $1.1 million (2022: $1.1 million).
7. EARNINGS AND DILUTED EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the loss attributable to
equity holders of the Company by the weighted average number of ordinary
shares in issue during the period.
Year ended
15 months ended 31 March 2024 31 December
US$ 2022
US$
Loss from continuing operations attributable to equity holders of the company (1,399,471) (18,683,639)
Weighted average number of ordinary shares in issue 1,697,381,100 1,475,948,904
Basic and fully diluted loss per share from continuing operations (cents) (0.04) (1.27)
No dilution has been applied in respect of the options outstanding at the
period end because the Group is loss making.
8. INTANGIBLE ASSETS - GROUP AND PARENT COMPANY
Licenses
US$
Cost
At 1 January 2023 1,906,662
Foreign exchange movement 90,161
At 31 March 2024 1,996,823
Amortisation
At 1 January 2023 285,999
Charge for the period 493,766
Foreign exchange movement 18,962
At 31 March 2024 798,727
Net book amount
At 31 March 2024 1,198,096
At 31 December 2022 (restated) 1,620,663
Amortisation of licenses is charged to the Income statement in the period to
which it relates and disclosed within "Depreciation and software license
amortisation". Note 24 details software development costs that were
previously capitalised but now written off as a prior-year adjustment.
9. TANGIBLE ASSETS - GROUP
Cars Leasehold Improvements US$ Furniture & Total
Equipment
US$ US$ US$
Cost
At 1 January 2023 147,098 25,425 222,723 395,246
Additions - - - -
At 31 March 2024 147,098 25,425 222,723 395,246
Depreciation/Impairment
At 1 January 2023 147,098 9,435 222,723 379,256
Charge for the period - 15,990 - 15,990
At 31 March 2024 147,098 25,425 222,723 395,246
Net book amount
At 31 March 2024 - - - -
At 31 December 2022 - 15,990 - 15,990
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".
10. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS - PARENT COMPANY
US$
Acquisition of member interests in subsidiary undertakings: 25,600,000
Opening balance at 1 January 2023
Acquisition of Narf Holdings US, Inc 2,000
Impairment (7,600,000)
Closing balance at 31 March 2024 18,002,000
Investments in subsidiary undertakings are valued at cost less the Directors'
impairment assessment which reflects changes in the business plan of the
subsidiaries since the reverse takeover.
Principal subsidiaries
The group's subsidiaries at 31 March 2024 are set out below. Two 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
Name Country of Incorporation Registered office 2024 2022
Principal Activity
Narf Industries LLC USA 548 Market St. #37005 Provision of security goods and services to USG and affiliated entities 100% 100%
San Francisco, CA 94104
Narf Industries PR LLC USA 1413 Avenue Ponce de León, San Juan, Puerto Rico 00907 Provision of security goods and services to Non-USG entities 100% 100%
Narf Holdings US, Inc USA 251 Little Falls Drive, Wilmington, DE 19808 Dormant 100% 0%
11. TRADE AND OTHER RECEIVABLES - GROUP AND PARENT COMPANY
Group Company
As at As at As at As at 31 Dec 2022
US$
31 Mar 31 Dec 31 Mar 2024
2024 2022 US$
US$ US$
Accounts receivable 314,429 640,622 252 -
Prepayments and accrued income 250,150 33,851 19,488 7,094
Other receivables 40,965 60,770 40,965 60,270
605,544 735,243 60,705 67,364
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:
As at 31 March 2024 As at 31 December 2022
US$ US$
Current 157,006 -
0-30 days 157,423 640,622
314,429 640,622
The Group considers trade and other receivables to be fully collectible;
accordingly, no bad debt provision or expenses have been recorded in either
financial period ending 31 March 2024 and 31 December 2022 respectively and
all amounts listed in Accounts Receivable were received post period-end.
12. CASH AND CASH EQUIVALENTS - GROUP AND PARENT COMPANY
Group Company
31 Mar 31 Dec 31 Mar 2024 31 Dec 2022
US$
2024 2022 US$
US$ US$
Cash at bank and in hand 654,365 442,751 5,126 210,282
654,365 442,751 5,126 210,282
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.
13. TRADE AND OTHER PAYABLES - GROUP AND PARENT COMPANY
Group Company
31 Mar 31 Dec 31 Mar 2024 31 Dec 2022
US$ (restated)
2024 2022 US$
US$ US$ (restated)
Accounts payable 291,499 100,291 90,155 73,593
Loan from Director and CEO 1,550,595 1,513,727 - -
Lease liabilities (Note 17) 93,793 - - -
Other payables due within one year 168,862 128,649 - -
Accrued expenses 634,824 1,038,605 120,162 261,933
2,739,573 2,781,272 210,317 335,526
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 to
Note 19.
The Loan from Director and Chief Executive Officer represents advances to the
Group (plus accrued interest of $61,095) for working capital purposes from
Steve Bassi, CEO (see Note 21). The loan was, until 28 June 2024, part of a
$2 million credit facility accruing simple interest daily at the US Federal
short term 1 year interest rate (4.86% at 11 April, 2023). On 28 June 2024
the credit facility was increased to $2.5 million and the term extended to 31
July 2025, with the same rate of interest. 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 $500,000 at the end of any given month.
This credit facility is being presented without any discount to account for
time as the facility may be partially or fully repaid prior to the due date of
31 July, 2025. As the lender can demand repayment within one year under
certain circumstances the presentation has been corrected and included in
creditors falling due within one year which is a change to the prior year
presentation.
14. CREDITORS AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR - GROUP
31 March 2024 31 December 2022
US$
US$
Instalment note on a vehicle - 1,727
- 1,727
15. 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 March 2024 and 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.
At 31 March 2024 the Company had 183.4 million options outstanding and no
warrants outstanding (see note 16)
Number of shares on issue Share capital Share premium Total
US$
US$
US$
Balance as at 1 January 2023 1,697,381,100 204,012 35,074,061 35,278, 073
Cancellation of warrants - - 114,593 114,593
VAT recovery on issue costs - - 106,162 106,162
Balance at 31 March 2024 1,697,381,100 204,012 35,294,816 35,498,828
16. SHARE BASED PAYMENT RESERVE- GROUP AND PARENT COMPANY
Details of the options that were outstanding at 31 March 2024 are as follows:
Options
Granted Exercisable from Expiry date Number outstanding Exercise price
24.05.22 24.05.22 24.05.25 50,000,000 £0.02
08.09.23 08.09.23 08.09.33 92,325,000 £0.01
08.09.23 31.12.23 08.01.25 12,000,000 £0.01
08.09.23 31.12.23 08.09.33 13,283,333 £0.01
08.09.23 03.01.24 08.09.33 1,250,000 £0.01
08.09.23 01.02.24 08.09.33 750,000 £0.01
08.09.23 31.03.24 08.09.33 13,783,333 £0.01
An additional 236.6 million £0.01 options had been granted at the period end
which are subject to vesting conditions which hadn't been met at 31 March 2024
but are expected to be met in the future.
2024 2022
US$
USS$ (restated)
At beginning of period 575,154 32,578
Fair value of warrants exercised during the period - (20,363)
Fair value of warrants waived during the period (114,593) (12,215)
Fair value of warrants and options issued during the period 1,023,074 575,154(1)
At end of period 1,483,635 575,154
24.05.22 24.05.22 24.05.25 50,000,000 £0.02
08.09.23 08.09.23 08.09.33 92,325,000 £0.01
08.09.23 31.12.23 08.01.25 12,000,000 £0.01
08.09.23 31.12.23 08.09.33 13,283,333 £0.01
08.09.23 03.01.24 08.09.33 1,250,000 £0.01
08.09.23 01.02.24 08.09.33 750,000 £0.01
08.09.23 31.03.24 08.09.33 13,783,333 £0.01
An additional 236.6 million £0.01 options had been granted at the period end
which are subject to vesting conditions which hadn't been met at 31 March 2024
but are expected to be met in the future.
2024
US$
2022
USS$ (restated)
At beginning of period
575,154
32,578
Fair value of warrants exercised during the period
-
(20,363)
Fair value of warrants waived during the period
(114,593)
(12,215)
Fair value of warrants and options issued during the period
1,023,074
575,154(1)
At end of period
1,483,635
575,154
(1) The fair value of the options issued in 2022 has been increased by
$345,969 from that previously stated to reflect the fact that the options
vested on grant rather than over three years as previously disclosed. The
inputs to the pricing model are detailed in the table below.
Of the amount credited to share based payment reserve $1,023,074 (year to 31
December, 2022: $460,561) related to options issued for services provided and
therefore resulted in a charge to the Statement of Comprehensive Income and
$nil (year to 31 December, 2022 $114,593) related to brokerage services and
therefore resulted in a reduction to the share premium account.
A share-based payment credit of $114,593 (year to 31 December 2022 $12,215)
was recognised during the period on waiver of the warrant by the warrant
holder.
The estimated fair value of the options granted in September 2023 was
calculated by applying the Black-Scholes option pricing model. The assumptions
used in the calculation were as set out below:
2023/4 2022
Model input/output 10 year options 5 year options 16 mth options 3 yr options 10 mth warrants
Share price at grant date 0.75p 0.75p 0.75p 2p 2p
Exercise price 1p 1p 1p 2p 2p
Expected volatility* 76% 76% 76% 86% 86%
Expected dividends Nil Nil Nil Nil Nil
Vesting criteria Mainly time Governance Handover None None
Risk-free rate 4.1% 4.2% 4.9% 1.6% 1.6%
Fair value per option 0.73 cents 0.56 cents 0.25 cents 0.96 cents 0.43 cents
*The expected volatility was calculated using historical 360-day volatility of
the share price of Narf Industries plc for the year to 31 March 2023 (since
the shares were suspended for a significant part of the period from 1 April
2023 to the date of grant).
The movements in share options and share warrants are as follows:
Number of options Weighted average exercise price Number of warrants Weighted average exercise price
Outstanding as at beginning of period 50,000,000 2p 63,000,000 2p
Granted 370,036,175 1p - -
Waived - - (63,000,000) 2p
Outstanding as at end of period 420,036,175 1p - -
Exercisable as at end of period 183,391,667 1p - -
Unvested as at end of period 236,644,508 1p - -
17. LEASES - GROUP
As further discussed in Note 21, the Group had a lease agreement in relation
to their office in California which expired on 1 June, 2023, including minimum
rental payments of $4,800 per month. As this lease had a term of one year it
was considered a short term lease under the requirements of IFRS 16 - Leases
and the monthly rent was accounted for the in the Statement of Comprehensive
Income as it became due.
Commitments payable in respect of short-term leases comprise:
31 March 2024 At 31 December 2022
US$
USS$
Less than 1yr - 24,000
Effective 1 June 2023, the Group entered into a lease agreement in relation to
their office in California which expires on 31 December 2024, including
minimum rental payments of $5,000 per month. As this lease had a term of over
one year it has been accounted for in accordance with the provisions of IFRS
16
- Leases with a right of use asset recognised in the Statement of Financial
Position and an offsetting lease liability.
Additional information on the right of use asset is as follows:
Carrying Depreciation Carrying
Amount Recognised Amount C/Fwd
$91,154 $(48,173) $42,981
Office
The net present value of lease liabilities accounted for under IFRS 16 are all
due within 1 year and comprise
As at 31
As at 31 December
March 2024 2022
$ $
Lease payments 91,154 -
Finance charges 2,639 -
93,793 -
18. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 March 2024 (31 December 2022:
£nil).
19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group'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 Group's operations. The Group does not utilise complex financial
instruments or hedging mechanisms.
Financial assets by category
The categories of financial assets are as follows:
Group Company
31 Mar 31 Dec 31 Mar 2024 31 Dec 2022
US$
2024 2022 US$
US$ US$
Current assets at amortised cost:
Accounts receivable 314,429 640,622 252 -
Other receivables 40,965 60,770 40,965 60,270
Cash and cash equivalents 654,365 442,751 5,126 210,282
1,009,759 1,144,143 46,343 270,552
Financial liabilities by category
The categories of financial liabilities are as follows:
Group Company
31 Mar 31 Dec 31 Mar 2024 31 Dec 2022
2024 2022 US$ US$
US$ US$
Current Liabilities measured at amortised cost:
Accounts payable 291,499 100,291 90,155 73,593
Other payables 262,655 130,376 - -
Short term loans 1,550,595 1,513,727 - -
2,104,749 1,744,394 90,155 73,593
All amounts owed by the Parent Company and the Group are short term and
payable in 0 to 3 months, apart from the short-term loan which is disclosed in
Notes 13 and 21 and the lease liabilities disclosed in Note 17. Other payables
includes an amount of $nil (2022: $20,585) which was repayable in equal
monthly instalments over the 14 months to 28 February 2024. The short-term
loan facility has been extended to 30 June 2025 but is repayable on demand
under certain circumstances.
Credit risk
Credit risk is the risk that an amount owed to the Parent Company or the Group
will not be settled as a result of the failure of the counterparty. Credit
risk is considered to be minimal as accounts receivable are due from US
government agencies with no history of non-payment, other receivables
represent VAT due from the UK government and cash is held in high street banks
with most of the deposits protected.
The maximum exposure to credit risk at the reporting date by class of
financial asset was:
Group Company
31 Mar 31 Dec 31 Mar 2024 31 Dec 2022
US$
2024 2022
US$
US$ US$
Accounts receivable 314,429 640,622 252 -
Other receivables 40,965 60,770 40,965 60,270
Cash and cash equivalents 654,365 442,751 5,126 210,282
1,009,759 1,144,143 46,343 270,552
Foreign exchange risk
The Group operates principally in the USA with income and operating costs
possibly arising in US Dollars. The majority of the operating revenues and
costs are incurred in US Dollars although there are a number of Sterling costs
incurred by the Parent Company in relation to the costs of maintaining 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. The Company's and therefore the Group's exposure to non- US Dollar
assets and liabilities is detailed below.
Company and Group
31 Mar 2024 31 Dec 2022
US$
Sterling assets US$
Accounts receivable 252 -
Other debtors 40,965 60,270
Cash and cash equivalents 4,736 210,282
45,953 270,552
31 Mar 2024 31 Dec 2022
US$
Sterling liabilities US$
Accounts payable 90,155 73,593
Other current liabilities - 240,236
90,155 313,829
Net sterling exposure (44,202) (43,277)
Given the insignificant foreign exchange exposure management do not believe
that sensitivity analysis would provide any meaningful information to readers
of these accounts.
Interest rate risk
The only Parent Company or Group's asset or liability that is subject to any
material interest rate risk is the loan from the CEO which has a variable
interest rate. All deposits are placed with main clearing banks with minimal
amounts attracting interest.
Liquidity risk
The Parent Company and the Group seeks to maintains adequate bank balances to
meet those financial liabilities that are payable in the short term (between 0
to 3 months) but has access to the CEO's credit facility in the event of a
shortfall.
20. CAPITAL MANAGEMENT
The Group manages its capital with a view to ensuring 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 Group
utilizes options on its shares to seek to incentivize the Directors and Group
employees to remain loyal and meet strategic goals which will add shareholder
value.
The capital structure of the Group as at 31 March, 2024 consisted of negative
equity attributable to the equity holders of the Group, totalling $238,587
(2022: positive$31,648) bolstered by working capital advances from an officer
and shareholder of $1,550,595 (2022: $1,512,000) (see Notes 13 and 21).
The Group 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 Group will balance its overall capital
structure through new share issues or potentially through the issue of
convertible debt instruments. There are no plans to pay dividends for the
foreseeable future.
21. RELATED PARTY TRANSACTIONS
The compensation payable to Key Management personnel, who comprise the
Directors, comprised $263,908 in amounts payable by the Group together with
the fair value of options issued 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 $16,014 was due to a director
and officer in respect of Directors remuneration.
Included in the caption Trade and Other Payables on the accompanying
Consolidated Statement of Financial Position are $16,000 and $61,700 at 31
March, 2024 and 31 December, 2022 respectively, related to an office operating
lease agreement with a term of one year between the Group and an entity in
which an officer and shareholder is an owner. Included in the caption Trade
and Other Payables on the accompanying Consolidated Statement of Financial
Position are $93,793 and $nil at 31 March, 2024 and 31 December, 2022
respectively, related to an office operating lease agreement with a term of
over one year between the Group and an entity in which an officer and
shareholder is an owner. The amount reported in the caption Right of Use Asset
in the Consolidated Statement of Financial Position of $42,981 (2022: $nil) is
a right over an asset owned by that same entity.
Included in Administrative Expenses on the accompanying Consolidated Statement
of Comprehensive income is US$24,000 (2022: US$57,600) in operating lease
expense, $48,173 (2022: $nil) in amortisation of right of use asset and $2,639
(2022: $nil) of lease interest relating to leases entered into with that
related entity This operating lease agreement was renewed effective 1 June,
2023 through to 31
December 2024 and minimum rental payments commitments of $5,000 per month are
$45,000 for the year ending 31 March, 2025.
As further discussed in Note 13, a Director and CEO made loans to the Company
which at period end totalled $1,550,595 including accrued interest (2022:
$1,512,000). The amounts represent a drawdown on a $2 million credit facility
with a variable rate of interest.
22. EVENTS SUBSEQUENT TO YEAR END
Effective 28 June 2024 the loan facility from the Director and CEO was
increased to $2.5 million and the term extended to 31 July 2025.
Effective 1 April 2024 the Company transferred its 100% interests in Narf
Industries LLC and Narf Industries PR LLC to Narf Holdings Inc so that Narf US
became indirect subsidiaries rather than direct subsidiaries of the Company.
23. CONTROL
In the opinion of the Directors there is no single ultimate controlling party.
24. PRIOR YEAR ADJUSTMENTS
The prior year financial statements were subject to a disclaimer of opinion by
the auditors. Although the new auditors have not been asked to express an
audit opinion on the prior year comparatives, the audit work in the current
year and further analysis by management have identified a number of material
misstatements in the prior year, the most significant of which are summarized
below:
The prior year financial statements included an intangible asset relating to
software development costs with a net book amount of $1,076,413. Further
analysis by the Directors indicated that this asset did not meet the criteria
to be recognised under IAS 38 - Intangible assets. Accordingly, the asset was
derecognised effective 1 January 2021 resulting in a reduction in consolidated
net assets at 31 December 2022 of $1,076,413 and a decrease in losses of
$226,938 for the year ended 31 December 2022.
Prior to the RTO the Operating Group had granted certain key employees rights
to acquire interests in Narf Industries LLC. Ahead of the RTO each of those
employees entered into redemption agreements whereby those rights were
converted into a cash payment entitlement. These liabilities were previously
only recognised when paid but the Directors are of the view that they should
have been recognised ahead of the RTO on execution of the redemption
agreement. Accordingly, a liability of $555,647 has been recognised effective
1 January 2021 resulting in a reduction in consolidated net assets at 31
December 2022 of $407,263 and a reduction in net losses of $148,384 for the
year ended 31 December 2022.
Share options issued to the Directors in 2022 were previously treated as
vesting over three years but further investigation revealed they invested
immediately but had a three-year term. A prior year adjustment has therefore
been posted to increase the loss for the Group and Parent Company by $345,969
with a commensurate increase in the share-based payment reserve.
The Group had a sub-contract agreement whereby it was due to pay a proportion
of fees earned on a DARPA contract to a sub-contractor.
Whilst the revenue under this contract for Q4 2022 was recognised in the
Consolidated Statement of Comprehensive Income for the year ending 31 December
2022, the corresponding sub-contract cost was not. This correction has
resulted in an increased loss of $141,786 for the year to 31 December 2022 and
a reduction of $141,786 in the consolidated net assets at 31 December 2022.
The prior year financial statements reported the loan from the directors as
being due after more than one year but the Director had the right to repayment
in less than one year in certain circumstances and therefore the comparatives
have been restated to include the amount in creditors falling due within one
year to correct this error.
The Group significantly underestimated the audit fee accrual in 2022. A prior
year adjustment has been made to increase the charge in 2022 in line with the
actual cost. This resulted in an increased loss of $124,261 for the year to 31
December 2022 and a reduction of $124,461 in the consolidated net assets at 31
December 2022. The impact on the Parent Company net assets was a reduction of
$21,697.
In addition the Directors have chosen to restate the prior year statement of
comprehensive income to provide greater clarity on the comparative numbers and
align the presentation with how the Group has operated in the current period.
The amounts as originally presented and restated are detailed below:
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Year
ended Ended
31 December 2022 31 December 2022
(As originally stated) (Restated)
US$ US$
Continuing operations
Contract revenue 2,547,125 -
Cost of sales (1,828,887) -
GR &D Revenue - 1,360,684
GS & S Revenue - 1,165,203
Gross profit 718,238 -
Total revenue - 2,525,887
Sub-contractors - (267,985)
Administrative expenses (3,303,583) -
Operating expenses - (4,755,210)
Loss before depreciation and software licence amortisation, share based (2,585,345) (2,497,308)
payments, interest and taxes
Depreciation and software license amortisation (329,999) (329,999)
Cost of sales (147,580) (493,549)
Operating loss (3,062,924) (3,320,856)
RTO Share based payment expense (15,355,123) (15,355,123)
Interest receivable and other finance income 3,376 3,376
Finance costs (3,197) (3,197)
Loss before taxation (18,417,868) (18,675,800)
Corporate tax (7,839) (7,839)
Loss for the year (18,425,707) (18,683,639)
Earnings per share (cents) (1.3) (1.3)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 December 2022 31 December 2022
(As originally stated) (Restated)
US$ US$
NON-CURRENT ASSETS
Intangible assets 2,697,076 1,620,663
Tangible assets 15,990 15,990
2,713,066 1,636,653
CURRENT ASSETS
Trade and other receivables 756,481 735,243
Cash and cash equivalents 442,751 442,751
1,199,232 1,177,994
TOTAL ASSETS 3,912,298 2,814,647
CURRENT LIABILITIES
Trade and other payables 595,962 2,781,272
NON-CURRENT LIABILITIES
Loans 1,513,727 1,727
TOTAL LIABILITIES 2,109,689 2,782,999
NET ASSETS 1,802,609 31,648
EQUITY
Share capital 204,012 204,012
Share premium 35,074,061 35,074,061
Reverse acquisition reserve (16,747,959) (16,747,959)
Foreign exchange reserve (43,411) (43,411)
Share based payment reserve 229,185 575,154
Retained deficit (16,913,279) (19,030,209)
TOTAL SHAREHOLDERS EQUITY 1,802,609 31,648
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