Cipherpoint : Annual Report to shareholders

onlyCipherpoint Limited

ABN 61 120 658 497

useAnnual Report - 31 March 2022 personalFor

Cipherpoint Limited

Contents

31 March 2022

Corporate directory

Directors' report

Auditor's independence declaration

Consolidated statement of profit or loss and other comprehensive income onlyConsolidated statement of financial position

Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration

Independent auditor's report to the members of Cipherpoint Limited Shareholder information

For usepersonal

2

3

19

20

22

23

24

25

65

66

70

1

Cipherpoint Limited Corporate directory 31 March 2022

Directors

onlyJoint Company secretaries

Registered office

Share register

useAuditor

Stock exchange listing

Website

personalCorporate Governance Statement For

Edward (Ted) Pretty - Chairman

Graham Mirabito

Steven Bliim

Patrick Gowans

Thomas Carolan

Suite 2.01, 157 Walker Street

North Sydney, NSW 2060

Telephone: [phone]

Automic Pty Ltd

Level 5, 126 Phillip Street

Sydney, NSW 2000

Telephone: [phone]

Nexia Sydney Audit Pty Limited

Level 16, 1 Market Street

Sydney, NSW 2000

Cipherpoint Limited shares are listed on the Australian Securities Exchange (ASX code: CPT)

www.cipherpoint.com

Cipherpoint Limited and the Board of Directors are committed to achieving and demonstrating the highest standards of corporate governance. Cipherpoint Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (4th Edition) published by the ASX Corporate Governance Council.

Details of the corporate governance report is available on the Group website at https://cipherpoint.com/ir/#governance

2

Achieve cash flow break-evenand profit

Scale, reduce costs

Acquire and grow

Cipherpoint Limited Directors' report 31 March 2022

The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Cipherpoint Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 31 March 2022.

onlyDirectors

The following persons were directors of the Company during the whole of the financial period and up to the date of this report, unless otherwise stated:

Edward (Ted) Pretty - Managing Director and Chairman

Steven Bliim - Non-Executive Director (appointed on 21 September 2021) (formerly Executive Director and COO) Graham Mirabito - Non-Executive Director

Principal activities

The principal activity of the Group is the provision of cyber security services and data security technology to the enterprise useand government sectors.

Dividends

There were no dividends paid, recommended or declared during the current or previous financial year.

Review of operations

The loss for the Group after providing for income tax amounted to $9,001,810 (31 March 2021: $2,946,327).

During the year the Group executed on a strategy of acquiring and integrating cyber security services businesses into the personalGroup along-side its commercialising cyber security software operations. This program has significantly increased

operating revenues and delivered a diverse mix of Marquee customers into the business, particularly in Australia.

Investments in sales, pre-sales and technical resources together with enhancements to the Groups's North Sydney Security Operations Centre (SOC) while contributing to higher, short-term operating costs, have resulted in improvements in the Group's pipeline and revenue growth.

Divestment of the Group's software division to archTIS Limited in September 2021, has seen a reduction in operating costs of approximately $1 million on an annualised basis. Additionally, this divestment has generated $1.4 million in disposal proceeds, which have been applied to investment in the Group's cyber security services businesses. Following the balance date of 31 March 2022, a further $107,000 cash was received from archTIS Limited in settlement of the milestone component of the software division divestment.

The Board continues to monitor developments in the pandemic and conditions in the global economic environment. As updated to the market on 1 February 2022, the Board announced the future strategy of the Group will encompass the following three pillars:

●

●

●

As part of the above strategy, the Board has implemented a program to reduce overheads, including director costs as Forwell as taking a more active role in the sales operations of the Brace168 business to ensure that all sales opportunities are aggressively pursued. Action has been taken to reduce investment in business development and marketing resources which did not convert to sales and increased revenues. The Board continues to evaluate opportunities to further grow

through strategic partnerships and potential acquisitions.

Significant changes in the state of affairs

On 1 April 2021, the Company completed the acquisition of 100% of the shares in Brace168 Pty Limited ('Brace168'). Brace168 is a managed security service provider, who monitor customer networks, applications and data to identify threats and respond to security incidents. They have a high mix of annuity revenue across large enterprise and small business customers, operating in the financial, property, social and consumer sectors in Australia. Since acquisition Brace168 has continued to grow its large sales pipeline and deliver strong service revenues.

In August 2021, the Company raised $2.9m (before costs) to be applied to completion of the upgrade to its security operations centre, acceleration of recruitment activities, further investment into business development and the pursuit of potential acquisition opportunities.

3

Cipherpoint Limited Directors' report 31 March 2022

In September 2021, the Company entered into an agreement to sell select assets and products from its software division to archTIS Limited for a purchase price of $1.5m in cash. The Company retained a right to resell the products.

In October 2021, the Company announced the acquisition of Tasmanian based managed security services provider Virtual onlyInformation Technology Pty Limited ('VIT Cyber Security' or 'VITCS') for an initial consideration of $700,000 in cash and 10.2 million shares with additional share-based consideration as part of an FY22 and FY23 earn out arrangement. The

10.2 million shares were issued on 25 November 2021 at $0.039 per share, subject to a 6 month escrow period.

In November 2021, the Company announced it had secured new contracts with Vocus, Ingenia, Guide Dogs of NSW and Sandstone Technology.

There were no other significant changes in the state of affairs of the Group during the financial year.

Matters subsequent to the end of the financial year

useOn 1 July 2022 the Group successfully raised $950,000 of additional funding with a share placement of $150,000 and issuing convertible notes for $800,000. These funds will support the working capital of the business.

In addition, the Company intends to seek further funding to provide additional working capital and/or fund potential complementary acquisitions by way of a proposed rights issue to shareholders. It is anticipated that the proposed rights issue will involve an offer of 2 new shares for every 3 shares held at the relevant record date with accompanying options (on the same terms as the Placement) to raise up to a further $1,226,000. This approach is to ensure all shareholders have the right to participate in the capital raising on the same terms as the Placement and Note issue.

No other matter or circumstance has arisen since 31 March 2022 that has significantly affected, or may significantly affect personalthe Group's operations, the results of those operations, or the Group's state of affairs in future financial years.

Likely developments and expected results of operations

The Group will continue to pursue opportunities to deliver its cyber security services to enterprises and the government sector. Operating costs will continue to outpace revenue until sales from current and future contracts commence to generate significant revenue streams and margin improvements can be obtained. The Group has embarked upon a restructuring to reduce its cost base to achieve cash flow breakeven as soon as possible.

Coronavirus (COVID-19) pandemic

The consequences of the Coronavirus (COVID-19) pandemic are continuing to be felt around the world, and its impact on the Group, if any, has been reflected in the results to date. Whilst it would appear that control measures and related government policies, including the roll out of the vaccine and boosters, have started to mitigate the risks caused by COVID-19, it is not possible at this time to state that the pandemic will not subsequently impact the Group's operations going forward. The directors and management continue to monitor the situation both locally and internationally.

Environmental regulation

The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. For

4