FIRSTWAVE CLOUD TECHNOLOGY LIMITED — Annual Report 2017

Aug 30, 2017

Firstwave Cloud Technology Limited Appendix 4E Preliminary final report

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1. Company details

Name of entity: Firstwave Cloud Technology Limited ABN: 35 144 733 595 Reporting period: For the year ended 30 June 2017 Previous period: For the year ended 30 June 2016

2. Results for announcement to the market

			$
Revenues from ordinary activities	up	0.5% to	6,435,660
Loss from ordinary activities after tax attributable to the owners of
Firstwave Cloud Technology Limited	up	8.8% to	(5,066,543)
Loss for the year attributable to the owners of Firstwave Cloud
Technology Limited	up	8.8% to	(5,066,543)

Dividends

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

Comments

The loss for the consolidated entity after providing for income tax amounted to $5,066,543 (30 June 2016: $4,654,811).

Refer to the attached Operating and financial review for further commentary.

3. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents 1.31	Previous period Cents 3.69

4. Audit qualification or review

Details of audit/review dispute or qualification (if any):

The financial statements are in the process of being audited.

5. Attachments

Details of attachments (if any):

The Preliminary Financial Report of Firstwave Cloud Technology Limited for the year ended 30 June 2017 is attached.

Firstwave Cloud Technology Limited Appendix 4E Preliminary final report

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6. Signed

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Signed _________

Date: 30 August 2017

Alexander Kelton Chairman Sydney

Firstwave Cloud Technology Limited Operating and financial review 30 June 2017

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Review of Operations

FirstWave Cloud Technology Limited (‘FirstWave’ or ‘the consolidated entity’) delivers multi-service, multi-vendor, cloud security solutions for institutions, governments and small and medium enterprises through its patented, market leading content security technology.

FirstWave is unique in its ability to deliver a fully-virtualised, fully-orchestrated suite of Mail, Next Generation Managed Firewall (‘NGFW’) and Web security services via an integrated Telecommunications and Service Provider platform.

FirstWave’s service offering was developed to be easily scaled by taking advantage of its unique patented technology and the market’s increasing demand for cloud security services. IHS Technology in its Cloud and CPE Managed Security Services Annual Market Report: Regional (3 April 2017) estimates the global cloud-based managed security services market will grow at 7.5% Compound Annual Growth Rate (‘CAGR’) to $US13.1 billion by 2021. FirstWave’s service offering has the potential to address 75% of this $US13.1 billion market opportunity.

In 2017, FirstWave invested $1.2 million in product development to facilitate further revenue growth in domestic and international markets targeting institutions, governments and small and medium enterprises. This investment enhanced FirstWave’s virtualised cloud content security capabilities, enabling FirstWave to develop a strong pipeline of opportunities with international telecommunications companies. In addition, FirstWave continued to build its strategic relationships with the Global Security Vendor (‘GSV’) network - for example, the relationship with Cisco, which resulted in the successful introduction of a FirstWave delivered Cisco Umbrella service .

FirstWave achieved the following milestones in FY2017;

1. Launched the fully virtualised Cloud Content Security Gateway (with Integrated Next Generation Firewall) ! Reference architecture platform built & operational in Telstra’s latest cloud infrastructure

2. ! Security Portal & Apps components passed stringent security penetration tests

3. ! ISO 27001/9001 & IRAP certifications, providing the highest level of service assurance

4. Generated new cloud security revenue streams

5. ! Licensing and Support Revenue grew 21%

6. ! 44 new product customer acquisitions of Next Generation Firewalls

7. ! Customer Order No’s via Telstra Channel grew to 188

8. Service offering expansion

9. ! EMAIL: Advanced malware protection, Anti-Phishing/Fraud Protection, Office 365 outbound protection

10. ! WEB: Introduced Firstwave-delivered Cisco Umbrella service, with 1 customer operational

11. ! NGFW: Industry-leadership in accrediting Palo Alto Networks’ latest operating system release (‘PAN-OS 8.0’)

12. ! NGFW: Launched Integrated policy management (‘PCCM’) providing enhanced firewall security services

13. ! GSV: Multi-Vendor accreditation–Fortinet + Cisco (‘FTDv’)

In addition, FirstWave established a branch office and appointed an International Business Development Manager based in Singapore.

Financial review

Profit or loss performance

FirstWave’s revenue for the year was $6,435,660, which represents growth of 0.5% over the prior comparative period (‘PCP’). Licensing and support revenue grew by 21% for the year and by 24% in the second half of FY17 compared with PCPs. Professional Services revenue was $806,369, representing a ratio of 14.3% to licensing and support revenue.

FY17 revenue was below FirstWave expectations following a 2 to 3 quarter lag in converting identified market opportunities for Platform as a Service, Next Generation Firewall and Email security services in both domestic and International markets. FirstWave’s opportunity pipeline remains strong and anticipates the growing momentum in licensing and support revenue to continue in FY18 and beyond.

FirstWave’s loss after income tax amounted to $5,066,543 (2016: Loss $4,654,811). This result includes the full impact of the recognition of non-cash share-based payment expenses of $1,223,902, due to stock options granted to employees and officers. These are reported in general administration expenses in the statement of profit or loss and other comprehensive income.

Cash and cash equivalents decreased by $4,010,526, driven by FirstWave’s investment in its cloud based managed security services. This represents a $2,309,182 cash consumption from operations. Cash used in operating activities improved

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Firstwave Cloud Technology Limited Operating and financial review 30 June 2017

$1,456,437 (39%) on the PCP driven by FirstWave focus in optimising working capital. FirstWave anticipates that optimising working capital will be an important component of managing its cash position as the business transitions to profitability.

Effective 1 July 2017, FirstWave will commence segment based reporting, reflecting the reporting framework of the company’s chief operating decision maker. Reporting in FY18 will set out three segments: Australia, International and Corporate Services.

Statement of financial position

First Wave holds minimal debt of $287,376, and with a large component of the company’s asset base in cash of $1,761,889 and intangible assets of $2,523,321, the consolidated entity has the resources and capacity to continue current operations and execute against its planned program of investment to support its domestic and international business development strategy.

Trade receivable of $2,198,049 outstanding at 30 June 2017 has been substantially realised after the year end.

FY18 Priorities

FirstWave’s priorities for FY18 are to invest in product development to enhance its customer experience and to secure new annualised recurring revenue contracts in domestic and international markets.

In product development, FirstWave will invest $1.6 million in technology to enable vendors to enhance their virtualised offering to ‘telco one touch readiness’. This will deliver a far greater level of automation and efficiency to a significantly broader market of small and medium businesses who were previously unable to access this offering.

In business development, FirstWave will invest $1million in international business development to convert its existing strong pipeline of opportunities into annualised recurring revenue contracts. In addition, FirstWave will continue to scale its existing capabilities for current and new clients.

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Firstwave Cloud Technology Limited ABN 35 144 733 595

Preliminary Financial Report - 30 June 2017

Firstwave Cloud Technology Limited Contents 30 June 2017

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Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements

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Firstwave Cloud Technology Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2017

Note Revenue Sales revenue 1 Cost of sales Gross profit Other income 2 Expenses Sales and marketing Engineering and development General and administration Listing expenses 3 Finance costs 3 Total expenses Loss before income tax benefit Income tax benefit Loss after income tax benefit for the year attributable to the owners of Firstwave Cloud Technology Limited Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Firstwave Cloud Technology Limited Basic earnings per share 15 Diluted earnings per share 15	Consolidated 2017 (unaudited) 2016 $ $ 6,435,660 6,401,718 (2,422,997) (1,702,334)	Consolidated 2017 (unaudited) 2016 $ $ 6,435,660 6,401,718 (2,422,997) (1,702,334)
	4,012,663	4,699,384
	596,620 (2,115,760) (3,438,515) (4,601,532) - (32,573)	232,949 (2,152,390) (1,352,675) (3,545,275) (2,932,498) (106,568)
	(10,188,380)	(10,089,406)
	(5,579,097) 512,554	(5,157,073) 502,262
	(5,066,543) -	(4,654,811) -
	(5,066,543)	(4,654,811)
	Cents (2.82) (2.82)	Cents (3.81) (3.81)

The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

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Firstwave Cloud Technology Limited Statement of financial position As at 30 June 2017

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Note Assets Current assets Cash and cash equivalents 4 Trade and other receivables 5 Other Total current assets Non-current assets Property, plant and equipment 6 Intangibles 7 Deferred tax Prepayments Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 8 Borrowings Employee benefits Other 9 Total current liabilities Non-current liabilities Borrowings Employee benefits Provisions Other 10 Total non-current liabilities Total liabilities Net assets Equity Issued capital 11 Reserves Retained earnings Total equity	Consolidated 2017 (unaudited) 2016 $ $ 1,761,889 5,772,415 3,207,903 2,658,799 1,254,979 760,024	Consolidated 2017 (unaudited) 2016 $ $ 1,761,889 5,772,415 3,207,903 2,658,799 1,254,979 760,024
	6,224,771	9,191,238
	713,891 2,523,321 1,124,130 1,323,551	709,997 2,088,012 611,576 430,492
	5,684,893	3,840,077
	11,909,664	13,031,315
	2,844,001 200,237 530,578 1,250,690	1,900,750 293,398 370,577 563,884
	4,825,506	3,128,609
	87,139 49,399 152,649 1,908,398	286,701 60,060 152,649 674,082
	2,197,585	1,173,492
	7,023,091	4,302,101
	4,886,573	8,729,214
	15,773,846 1,621,813 (12,509,086)	15,773,846 397,911 (7,442,543)
	4,886,573	8,729,214

The above statement of financial position should be read in conjunction with the accompanying notes

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Firstwave Cloud Technology Limited Statement of changes in equity For the year ended 30 June 2017

Consolidated Balance at 1 July 2015 Loss after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Shares to affect the deemed acquisition of Crestal Petroleum Limited (note 11) Share-based payment expense Balance at 30 June 2016 Consolidated Balance at 1 July 2016 Loss after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments Balance at 30 June 2017	Issued capital $ 4,436,261 - -	Reserves $ 237,966 - -	Retained earnings $ (2,787,732) (4,654,811) -	Total equity $ 1,886,495 (4,654,811) -
	- 9,838,450 1,499,135 -	- - - 159,945	(4,654,811) - - -	(4,654,811) 9,838,450 1,499,135 159,945
	15,773,846	397,911	(7,442,543)	8,729,214
	Issued capital $ 15,773,846 - -	Reserves $ 397,911 - -	Retained earnings $ (7,442,543) (5,066,543) -	Total equity $ 8,729,214 (5,066,543) -
	- -	- 1,223,902	(5,066,543) -	(5,066,543) 1,223,902
	15,773,846	1,621,813	(12,509,086)	4,886,573

The above statement of changes in equity should be read in conjunction with the accompanying notes

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Firstwave Cloud Technology Limited Statement of cash flows For the year ended 30 June 2017

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Note Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Other revenue Interest and other finance costs paid Income taxes refunded Net cash used in operating activities 13 Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for security deposits Net of cash acquired on reverse acquisition Proceeds from release of security deposits Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from borrowings Repayment of borrowings Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 4	Consolidated 2017 (unaudited) 2016 $ $ 8,670,530 5,494,331 (11,543,759) (9,375,418) 104,271 17,066 492,349 15,883 (32,573) (126,481) - 209,000	Consolidated 2017 (unaudited) 2016 $ $ 8,670,530 5,494,331 (11,543,759) (9,375,418) 104,271 17,066 492,349 15,883 (32,573) (126,481) - 209,000
	(2,309,182)	(3,765,619)
	(240,858) (1,214,073) - - 46,310	(545,168) (866,897) (133,776) 34,312 -
	(1,408,621)	(1,511,529)
	- - - (292,723)	11,048,804 (579,000) 248,215 (57,711)
	(292,723)	10,660,308
	(4,010,526) 5,772,415	5,383,160 389,255
	1,761,889	5,772,415

The above statement of cash flows should be read in conjunction with the accompanying notes

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 1. Revenue

Licensing and support revenue Professional services revenue Total revenue Note 2. Other income Research and development grant income Interest income Other income	Consolidated 2017 (unaudited) 2016 $ $ 5,629,291 4,652,183 806,369 1,749,535	Consolidated 2017 (unaudited) 2016 $ $ 5,629,291 4,652,183 806,369 1,749,535
	6,435,660	6,401,718
	Consolidated 2017 (unaudited) 2016 $ $ 492,349 215,883 104,271 17,066
	596,620	232,949

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 3. Expenses

Loss before income tax includes the following specific expenses: Cost of sales Cost of licenses Depreciation Leasehold improvements Furniture and fittings Computer equipment Computer platform Total depreciation Amortisation Capitalised development costs Patents Total amortisation Total depreciation and amortisation Listing expenses include the following: Share-based payment listing expense Legal and professional expenses Total listing expenses Finance costs Interest and finance charges paid/payable Net foreign exchange variance Net foreign exchange variance (included in cost of sales above) Rental expense relating to operating leases Minimum lease payments Employee benefit expenses Employee salaries and other benefits Defined contribution superannuation expense Share-based payments expenses Total Employee benefit expenses	Consolidated 2017 (unaudited) 2016 $ $ 2,422,997 1,702,334	Consolidated 2017 (unaudited) 2016 $ $ 2,422,997 1,702,334
	108,423 2,059 76,644 7,521	7,828 1,070 77,425 7,479
	194,647	93,802
	762,710 16,054	573,502 12,535
	778,764	586,037
	973,411	679,839
	- -	1,582,198 1,350,300
	-	2,932,498
	32,573	106,568
	(91,568)	(116,278)
	306,121	170,055
	7,970,052 426,281 1,223,902	5,094,541 332,027 159,945
	9,620,235	5,586,513

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 4. Current assets - cash and cash equivalents

Cash on hand Cash at bank Cash on deposit Note 5. Current assets - trade and other receivables Trade receivables Less: Provision for impairment of receivables Accrued revenue Other receivables Receivable from key management personnel	Consolidated 2017 (unaudited) 2016 $ $ - 1,000 761,889 5,771,415 1,000,000 -	Consolidated 2017 (unaudited) 2016 $ $ - 1,000 761,889 5,771,415 1,000,000 -
	1,761,889	5,772,415
	Consolidated 2017 (unaudited) 2016 $ $ 2,198,049 1,545,268 (22,206) -
	2,175,843	1,545,268
	564,683	855,881
	245,857 221,520	36,130 221,520
	3,207,903	2,658,799

Note 5. Current assets - trade and other receivables

Note 6. Non-current assets - property, plant and equipment

Leasehold improvements - at cost Less: Accumulated depreciation Furniture and fittings - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Computer platform - at cost Less: Accumulated depreciation	Consolidated 2017 (unaudited) 2016 $ $ 696,857 491,839 (116,251) (7,828)	Consolidated 2017 (unaudited) 2016 $ $ 696,857 491,839 (116,251) (7,828)
	580,606	484,011
	16,592 (12,217)	15,488 (10,157)
	4,375	5,331
	747,033 (627,355)	755,988 (550,710)
	119,678	205,278
	236,306 (227,074)	234,930 (219,553)
	9,232	15,377
	713,891	709,997

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 6. Non-current assets - property, plant and equipment (continued)

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Consolidated Balance at 1 July 2015 Additions Write off of assets Depreciation expense Balance at 30 June 2016 Additions Write off of assets Depreciation expense Balance at 30 June 2017	Leasehold improvements $ 13,104 491,839 (13,104) (7,828)	Furniture and fittings $ 5,828 573 - (1,070)	Computer equipment $ 97,607 185,096 - (77,425)	Computer platform $ 2,547 20,309 - (7,479)	Total $ 119,086 697,817 (13,104) (93,802)
	484,011 205,018 - (108,423)	5,331 1,103 - (2,059)	205,278 33,361 (42,317) (76,644)	15,377 1,376 - (7,521)	709,997 240,858 (42,317) (194,647)
	580,606	4,375	119,678	9,232	713,891

Note 7. Non-current assets - intangibles

Capitalised development costs - at cost Less: Accumulated amortisation Patents - at cost Less: Accumulated amortisation	Consolidated 2017 (unaudited) 2016 $ $ 8,634,461 7,447,525 (6,167,441) (5,404,731)	Consolidated 2017 (unaudited) 2016 $ $ 8,634,461 7,447,525 (6,167,441) (5,404,731)
	2,467,020	2,042,794
	97,425 (41,124)	70,288 (25,070)
	56,301	45,218
	2,523,321	2,088,012

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Consolidated Balance at 1 July 2015 Additions Amortisation expense Balance at 30 June 2016 Additions Amortisation expense Balance at 30 June 2017	Capitalised development costs $ 1,757,021 859,275 (573,502)	Patents $ 50,131 7,622 (12,535)	Total $ 1,807,152 866,897 (586,037)
	2,042,794 1,186,936 (762,710)	45,218 27,137 (16,054)	2,088,012 1,214,073 (778,764)
	2,467,020	56,301	2,523,321

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 8. Current liabilities - trade and other payables

Trade payables Accrued expenses Note 9. Current liabilities - other Deferred research and development income Income received in advance Note 10. Non-current liabilities - other Deferred research and development income Income received in advance Note 11. Equity - issued capital Ordinary shares - fully paid	2017 (unaudited) Shares 179,786,485	Consolidated 2017 (unaudited) 2016 $ $ 1,556,934 593,984 1,287,067 1,306,766 2,844,001 1,900,750 Consolidated 2017 (unaudited) 2016 $ $ 211,047 183,214 1,039,643 380,670 1,250,690 563,884 Consolidated 2017 (unaudited) 2016 $ $ 453,804 372,636 1,454,594 301,446 1,908,398 674,082 Consolidated 2016 2017 (unaudited) 2016 Shares $ $ 179,786,485 15,773,846 15,773,846	Consolidated 2017 (unaudited) 2016 $ $ 1,556,934 593,984 1,287,067 1,306,766	Consolidated 2017 (unaudited) 2016 $ $ 1,556,934 593,984 1,287,067 1,306,766
			2,844,001	1,900,750
			Consolidated 2017 (unaudited) 2016 $ $ 211,047 183,214 1,039,643 380,670
			1,250,690	563,884
			Consolidated 2017 (unaudited) 2016 $ $ 453,804 372,636 1,454,594 301,446
			1,908,398	674,082
				2016 $ 15,773,846

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 11. Equity - issued capital (continued)

Movements in ordinary share capital

Details Date Balance 1 July 2015 Issue of shares 31 August 2015 Issue of shares 1 October 2015 Issue of shares 25 October 2015 Issue of shares 3 December 2015 Issue of shares 20 December 2015 Issue of shares on conversion of convertible notes 5 May 2016 Issue of shares on exercise of options 5 May 2016 Issue of shares on capital raising 5 May 2016 Issue of shares on exercise of options 5 May 2016 Share split 1.25 shares issued for 1 share held 5 May 2016 Share issue transaction costs, net of tax Shares to affect the deemed acquisition of Crestal Petroleum Limited 5 May 2016 Balance 30 June 2016 Balance 30 June 2017	Shares 83,030,252 3,125,000 1,243,750 2,565,625 1,725,000 715,625 8,996,989 3,692,000 40,000,000 738,400 26,458,169 - 7,495,675	$ 4,436,261 500,000 199,000 410,500 276,000 114,500 647,126 221,520 8,000,000 48,804 - (579,000) 1,499,135
	179,786,485	15,773,846
	179,786,485	15,773,846

Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital.

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

Share buy-back

There is no current on-market share buy-back.

Note 12. Equity - dividends

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

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 13. Reconciliation of loss after income tax to net cash used in operating activities

Loss after income tax benefit for the year Adjustments for: Depreciation and amortisation Write off of property, plant and equipment Share-based payments - employees Share-based payments - non-cash listing expenses Change in operating assets and liabilities: Increase in trade and other receivables Decrease in income tax refund due Increase in deferred tax assets Decrease/(increase) in accrued revenue Increase in prepayments Increase in trade and other payables Decrease in deferred tax liabilities Increase in employee benefits Increase/(decrease) in other operating liabilities Net cash used in operating activities	Consolidated 2017 (unaudited) 2016 $ $ (5,066,543) (4,654,811) 973,411 679,839 42,317 13,104 1,223,902 159,945 - 1,499,135 (840,302) (779,433) - 145,990 (512,554) - 291,198 (611,576) (1,434,324) (186,517) 943,251 579,191 - (27,676) 149,340 101,082 1,921,122 (683,892)	Consolidated 2017 (unaudited) 2016 $ $ (5,066,543) (4,654,811) 973,411 679,839 42,317 13,104 1,223,902 159,945 - 1,499,135 (840,302) (779,433) - 145,990 (512,554) - 291,198 (611,576) (1,434,324) (186,517) 943,251 579,191 - (27,676) 149,340 101,082 1,921,122 (683,892)
	(2,309,182)	(3,765,619)

Note 14. Non-cash investing and financing activities

Leasehold improvements - lease make good Shares issued on conversion of convertible notes Shares issued on non-recourse loan to key management personnel Shares issued to effect deemed acquisition of Crestal Petroleum Limited Note 15. Earnings per share Loss after income tax attributable to the owners of Firstwave Cloud Technology Limited Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share	Consolidated 2017 (unaudited) 2016 $ $ - 152,649 - 647,126 - 221,520 - 1,499,135	Consolidated 2017 (unaudited) 2016 $ $ - 152,649 - 647,126 - 221,520 - 1,499,135
	-	2,520,430
	Consolidated 2017 (unaudited) 2016 $ $ (5,066,543) (4,654,811)
	Number 179,786,485	Number 122,125,559
	179,786,485	122,125,559

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Firstwave Cloud Technology Limited Notes to the financial statements 30 June 2017

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Note 15. Earnings per share (continued)

	Cents	Cents
Basic earnings per share	(2.82)	(3.81)
Diluted earnings per share	(2.82)	(3.81)

Options have been excluded in the weighted average number of shares used to calculate diluted earnings per share as they were anti-dilutive.

Note 16. Events after the reporting period

No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.

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