Final Results

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:

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

The above results relate entirely to continuing activities.

NARF INDUSTRIES PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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

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

NARF INDUSTRIES PLC

PARENT COMPANY STATEMENT OF CASH FLOWS

NARF INDUSTRIES PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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

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

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

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:

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.

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.

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.

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:

Customers comprising 10% or more of Contract Revenue were as follows:

The average number of persons employed by the Group, including Directors, was:

 Remuneration, other benefits supplied and social security costs to the directors and staff during the period was as follows:

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.

No dilution has been applied in respect of the options outstanding at the period end because the Group is loss making.

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.

 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".