BUSINESS REVIEW
I am delighted to report excellent progress in the first half of 2017. Crossword generated more revenue in the first half of 2017 than we did in the whole of 2016, as we continue to develop Crossword’s technology commercialisation business focused exclusively on cyber security.
There is no let up in global cyber security incidents. The first half of 2017 saw one of the biggest and most alarming cyber security challenges to date – the worldwide Wannacry attack. This global cyber event impacted hundreds of thousands of computers worldwide, including crippling NHS hospitals on a large scale, once again thrusting cyber security into the national headlines. It was quickly followed by the Petya ransomeware virus that leveraged some of the same techniques. Politics was not immune from cyber incident with the Macron election campaign in France being targeted. The rising concern of cyber attacks on critical infrastructure was evidenced by the attack on Germany’s main railways in Frankfurt.
Crossword works with universities to commercialise technology based on their extensive cyber research. In the first half of 2017 we extended the group of universities that we are working with to include Imperial College, Edinburgh University and MIT in the USA. This brings to a total of nine the number of universities that we are involved with: Bristol, Warwick, Coventry, Surrey, South Wales, City, Imperial, Edinburgh and MIT.
Following the end of the period, Crossword announced a major initiative, CyberAI, applying leading edge Artifical Intelligence and Machine Learning techniques to real world cyber security challenges. CyberAI brings together world leading academic researchers from MIT, Imperial College and Edinburgh University with four major companies: a global investment bank, a FTSE 100 retail bank, a multinational insurance company and a big four professional services firm. We are excited about the rich seam of intellectual property that should emerge from our CyberAI initiative for Crossword to commercialise globally.
CyberOwl, the spin out from Coventry University funded by Mercia Fund Management, continues to make strong progress, having been selected for and participated successfully in GCHQ’s new Cyber Accelerator. In partnership with the University of Warwick, Crossword completed a Ministry of Defence funded proof of concept for blockchain-enabled smart documents and has developed a plan for further exploitation of the intellectual property emerging from that project.
With the impending introduction of GDPR (General Data Protection Regulation) early next year, our cyber risk product Rizikon, based on City, University of London research, is attracting increased interest both with distribution partners and end user companies. We have developed a version of Rizikon that is designed to enable corporates to assess and monitor the cyber security risks of their large supplier base, as this is a key weakness for many companies. Our specialist cyber security consulting business, Crossword Consulting, goes from strength to strength.
On the corporate front, we raised £145k in a placing and subscription at a 20% premium to the then prevailing share price, primarily to support the new CyberAI initiative. Following the end of the period General Sir Nick Houghton, former Chief of Defence Staff of the British Armed Forces joined Crossword as a senior adviser bringing his considerable knowledge of global security issues to the company as we start to consider international expansion. On 1st September Crossword appointed Rob Johnson as Chief Operating Officer. Rob joined from Mercia Technologies plc, the leading AIM listed commercialisation business, where he managed the company’s software and internet investments, as well as assessing new investment opportunities; with a particular focus on AI, Cyber Security and Software as a Service. Prior to his role with Mercia, Rob was a successful entrepreneur and has led five technology companies through to successful exits.
PRINCIPAL RISKS AND UNCERTAINTIES
The key risks to the Group are as follows:
failure to develop appropriate commercial opportunities for its emerging products;
failure to establish commercialisation partnerships with leading research universities;
competition from existing IP transfer businesses seeking to engage in cyber security commercialisation activity; and
inability to attract and retain experienced cyber security experts in a highly competitive market.
At present the directors are pleased with progress in these areas and consider these risks are sufficiently mitigated.
T Ilube
Director
Further information, please contact:
Tom Ilube CEO, Crossword Cybersecurity Tel: +44 (0) 20 8973 2350 Email: info@crosswordcybersecurity.com
NEX Corporate Advisor Nick Michaels and Jon Isaacs, Alfred Henry Corporate Finance Limited www.alfredhenry.com Tel: +44 (0)207 251 3762
NEX Corporate Broker Claire Louise Noyce – CEO, Hybridan LLP Tel: +44 (0)203 764 2341 Email: claire.noyce@hybridan.com
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED 30 JUNE 2017NoteUnaudited 6 months to 30 June 2017 GBPAudited Year ended 31 December 2016 GBPUnaudited 6 months to 30 June 2016 GBPTURNOVER396,652344,736163,999Cost of sales(452,382)(788,666)(191,176)GROSS LOSS(55,730)(443,930)(27,177)Other operating income – research and development tax credits–78,354–Administrative expenses(485,247)(585,329)(376,742)Share-based payments(44,536)––Finance income – bank interest receivable 2,8821,3541,351Finance costs – other interest payable(1,203)(73)–NET LOSS BEFORE TAXATION(583,834)(949,624)(402,568)Tax expense(2,133)(3,267)(1,523)LOSS FOR THE PERIOD/YEAR(585,967)(952,891)(404,091)OTHER COMPREHENSIVE INCOME Items that will not be classified to profit or loss, Foreign Exchange Translation Gain/(Loss)2,7266,2055,812TOTAL COMPREHENSIVE LOSS(583,241)(946,686)(398,279)EARNINGS PER SHARE 3(GBP0.19)(GBP0.39)(GBP0.17)
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 Note Unaudited Group GBP 30 June 2017 Audited Group GBP 31 Dec 2016 Unaudited Group GBP 30 June 2016 ASSETS NON-CURRENT ASSETS Property, plant and equipment 7,703 2,280 2,815 Intangible assets 624 583 325 Investment in other unlisted investment and subsidiary
31
31
– Total non-current assets 8,358 2,894 3,140 CURRENT ASSETS Trade and other receivables 264,745 178,154 192,500 Cash and cash equivalents 1,067,869 1,548,906 668,445 Total current assets 1,332,614 1,727,060 860,945 TOTAL ASSETS 1,340,972 1,729,954 864,085 EQUITY Attributable to the owners of the company Share capital 159,173 156,015 119,173 Share premium account 3,555,522 3,413,416 2,080,827 Retained earnings (2,532,788) (1,946,821) (1,398,021) Translation of foreign operations 5,990 3,264 2,871 Equity Reserve 44,536 – – TOTAL EQUITY 1,232,433 1,625,874 804,850 LIABILITIES CURRENT LIABILITIES Trade and other payables 108,539 104,080 59,235 Total current liabilities 108,539 104,080 59,235 TOTAL LIABILITIES 108,539 104,080 59,235 TOTAL NET ASSETS 1,340,972 1,729,954 864,085
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 30 JUNE 2017Unaudited 30 June 2017 GBP Audited 31 Dec 2016 GBP Unaudited 30 June 2016 GBP CASH FLOWS FROM OPERATING ACTIVITIES Cash generated by operations (621,805) (1,053,300) (564,344) NET CASH OUTFLOW FROM OPERATING ACTIVITIES (621,805) (1,053,300) (564,344) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (7,222) (880) (504) Purchase of shares in other unlisted investment – (31) – NET CASH OUTFLOW FROM INVESTING ACTIVITIES (7,222) (911) (504) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 145,264 1,369,431 – NET CASH INFLOW FROM INVESTING ACTIVITIES 145,264 1,369,431 – NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (483,763) 315,220 (564,848) FOREIGN CURRENCY TRANSLATION DIFFERENCE2,726 6,205 5,812 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,548,906 1,227,481 1,227,481 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 1,067,869 1,548,906 668,445
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2017
1. ACCOUNTING POLICIES
1. The Group and its operations
Crossword Cybersecurity plc’s condensed consolidated interim financial statements (the interim financial statements) are presented in pounds sterling (£), which is also the functional currency of the parent company. These interim financial statements were approved for issue by the Board of Directors on 6 September 2017.
The financial information set out in these interim financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group’s statutory financial statements for the year ended 31 December 2016 have been filed with the Registrar of Companies. The auditor’s report on those financial statements was unqualified and did not contain a statement under Section 498(2) of the Companies Act 2006.
The interim results have not been reviewed by the auditors of the Company.
2. Basis of preparation of financial statements
These interim financial statements are for the six month period ended 30 June 2017. They have been prepared following the recognition and measurement principles of IFRS. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2016.
These interim financial statements have been prepared on a going concern basis, under the historical cost convention.
These interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2016.
3. Earnings per share
The calculation of earnings per share is based on the loss attributable to ordinary shareholders divided by the average number of shares in issue during the period.