Sale of European business and asking shareholders to issue milestone shares despite 10% miss.

Cipherpoint as part of seeking to achieve efficiencies following the acquisition of Brace168, CPT has entered into an agreement to sell select assets of its software division to ArchTIS Limited (ASX:AR9) (archTIS or AR9).
The assets comprise the IP to cp.Protect (an advanced SharePoint protection solution) as well as cp.Discover, (a data discovery and classification platform) the benefit of certain customer contracts, technology and European operations. Both cp. products complement the AR9’s NC Protect solutions. Cipherpoint sales and development staff in Europe (Heilbronn, Germany) will join AR9.
CPT will have the right to resell both sets of cp. Products as part of its ongoing business operations however will no longer incur any future development, software marketing and/or support costs.
The purchase price consists of an initial $1,400,000 in cash payable at completion with $200,000 to be escrowed until the novation of certain contracts and potential deferred consideration of up to an additional $1,000,000 in AR9 shares based on total contract values of assigned contracts to AR9 as at 31 March 2022.
Cipherpoint Chairman Ted Pretty said: “This transaction is compelling. Following the sale, CPT’s annual operating costs will reduce by approximately $1,060,000 with a very modest impact on revenue. This significantly strengthens our cashflow position. Cipherpoint will now focus on its managed security services business including Brace168. Cash from the sale will be deployed to drive further growth in our managed services business both organically and by potential acquisitions.”

 Company reports the revenue for the 12-month period for Brace was $2,688,385, representing 90% of the targeted earn out of $3,000,000.
The revenue position of Brace has been materially impacted by the government imposed lockdown in NSW as a result of the COVID-19 outbreak .Company has agreed to seek shareholder approval to vary the terms of the milestones to provide a mechanism to allow for pro- rata issue of milestone shares and conversion of performance rights based on the proportion of the sales targets achieved.

Disc: I have sold out in SM

I have been watching CPT and SEN and hold WHK (no longer in SM but in RL) and for a period all three had a good lift in share price. Each holds a particular niche in the cybersecurity space but I think it is coming to the crunch for CPT.  

They recently completed another CR with the funding for

”Further enhancements to the Security Operations Centre in North Sydney.

• Acceleration of recruitment activities for new technical staff necessary to deliver on recently awarded contracts and near-term pipeline opportunities.

• Further investment into business development and customer acquisition to seek to enable the Brace168 business to achieve its Milestone 2 revenue target comprising of annual revenues of $5 million in the 12 months to 31 March 2022.

• Pursuit of additional acquisition opportunities to complement the Company’s core business.”

It raised under 3M which considering operating costs for the last quarter were 1.64M does not leave much for growth activity.

Financial highlights for the quarter were:

• Customer receipts of $739K for the quarter compared to $105K for the March 2021 quarter.

• Operating costs were $1.64M, compared to $737K in the March 2021 quarter.

• $1.98M was paid in settlement of the acquisition of Brace168

• Plant and equipment was acquired for $32K along with $16K invested in enhancements to the Sydney-based Security Operations Centre (SOC).

• $90K was paid in settlement of brokerage and underwriting fees in connection with the previous quarter’s capital raise.

• A facility of $300K was accessed during the period to meet short term capex requirements to  support growth

• The Group held $1.24M in cash as of 30 June 2021.

30M options at 8c expire Feb 23

So revenue increased 7x and costs 2.5x but the annual report stated that lockdowns had affected the ability to install 1 of their 3 products. This will affect AUS revenue but they also have significant overseas business which hopefully is reopening.

If they can continue the growth with apositive return from the brace168 acquisition things should improve but the Sydney lockdown can’t be helping.