Annual Report and Consolidated Financial Statements

Dear Shareholder,

As the recently appointed Executive Chairman, this statement offers me the opportunity to share your Company's accomplishments while acknowledging the challenges transitioning from a private and entrepreneurial led venture to the main operating business of an LSE listed company.

Accomplishment and Goals

It has been a year of significant growth and development within the Group. Our committed team of 15 research and software developers led by our CEO, Steve Bassi, delivered record breaking year-end contracted backlog of $10.4 million. It speaks to the trust and confidence government entities place in our highly specialized team and underscores its strong reputation as an innovative and reliable partner.

The backlog is 4x our 2022 revenue of $2.5 million. The increase in government contract backlog translates into a sustainable revenue stream for our Group. These contracts provide a stable and predictable source of income, enabling us to plan and execute business strategies with confidence.

From this backlog alone, the Group forecast $5.8m revenue in 2023, delivering 130% year on year ("YOY") growth (up from 30% growth in 2022). A significant decrease in expenses is also targeted this year. As we transition from an acquisition vehicle to focus on our core operations, we are expecting operating expenses to drop by over 40% ($1.4 million) in 2023.

This combination of growing revenues and operational efficiencies help position the Company to achieve break-even EBITDA for 2023. This compares to a $2.6m operating loss in 2022. The plan looks to accomplish this performance financed by internal cash generation and current credit line facilities.

In summary, our team in 2023 looks to execute an invaluable, high growth, fiscally responsible Company that protects and builds shareholder value and confidence. From this foundation, we plan to aggressively grow our government revenue, a market we are well positioned to scale and expand. The attractive net margins, along with our innovative government funded R&D work, can fuel our intellectual property (IP) commercialisation targeted to multi-billion dollar cybersecurity market segments.

I'd like to express my appreciation to the team for their work ethic that delivered this outstanding business performance to date. I'd like to thank our customers that acknowledge our worth through repetitive contract awards.

Fiscal Year 2022 Audit

This is the first financial reporting period for which consolidated financial statements, incorporating the businesses acquired in March 2022 (see Note 8 to the Financial Statements), are subject to International Finance Reporting Standards (IFRS).

This administrative burden introduced by IFRS presented a significant hurdle for a small team of 15 research and software developers busy meeting contract deadlines, generating revenue and cash flow. Previously, the private businesses produced records and internal documents only needed for servicing its contracts and primarily for tax purposes. This lack of infrastructure and resources caused the Company to miss its 30 April 2023 deadline and led to suspension of trading in its shares.

Today we've announced the completion of the audit expect the trading suspension will be lifted within a matter of days. However, not without accepting and acknowledging significant auditor disclaimers.

I've taken this decision to accept the auditor's disclaimers now. It's become evident that resolution will require more time and extending the trading suspension of our shares would unfairly impact our shareholders, limiting their ability to engage with the market and potentially eroding investor confidence.

I want to assure you that this disclaimer of opinion does not diminish the value of the team's achievement or the underlying strength of our business. We are committed to resolving these issues and bringing the Company's consolidated financial reporting practices up to standards.

There are several matters linked to the disclaimer that need resolution, but it's our inability to date to provide auditors access to a sensitive contract (and all materials associated with that contract), and our estimated timeline for resolution, that's most influenced my decision.

Overview

Corporate Governance Financial Statements

Overview

Executive Chairman's Statement continued

This contract accounts for about 50% of our reported 2022 revenue with terms that state disclosing the name of the customer, their address, or the nature of the work to restricted parties,

is a basis for termination. We are navigating this situation carefully and executing a plan to resolve this matter over the course of the next quarter in the interest of all parties.

As you read this annual report and the Company's accounts, please be aware any financial figures presented are subject to adjustment for overstatement or understatement as we work with auditors to confirm the appropriate accounting treatment. The Company believes it has taken

a conservative approach in its presentation of the accounts, for example applying a revenue recognition that errs on the side of understatement.

Period of Transition

This year's audit circumstance speaks to the challenges we face managing record revenue growth while building the infrastructure required of a publicly reporting entity. While growth is a positive indicator, it requires us to remain agile and adapt our administrative systems to meet the evolving needs of our expanding organisation.

While establishing the necessary administrative and financial infrastructure during this transitional phase is important, it's equally vital to instill

a shared understanding among our team that effective governance and responsible management extend beyond mere structures and processes. For these reasons, your CEO strengthened the Board and executive team in late April 2023, with my appointment as Executive Chairman and appointment of our CFO.

Although posing short-term challenges, we recognise the long-term benefit of investing now to improve the quality of our executive leadership, financial reporting, and business execution to instill confidence in our stakeholders and facilitating better analysis and decision-making.

In respect to our most pressing challenge, our team, now resourced with a new CFO, will continue to work diligently, and resolve all matters.

Looking Forward

I am privileged to lead the Board, and as Executive Chairman, join the CEO and his team to actively develop, lead, and execute strategies to grow the business. I would like to express my gratitude to our shareholders for their understanding during this initial, difficult past few months.

Here's what to expect in the next 6 months:

• Scale and expand our government business.
  We have the potential to turbo-charge our growth, in a market we already know, with a proven competitive position. Our team is already fast at work in driving success and identifying 18, 36, and 54 month strategic growth goals.
• Unlock the value of our IP with innovative and efficient go to market strategies.
• Build an experienced and capable Board. We look to align strategic objectives with specific areas of expertise, source qualified candidates, and appoint new members over the course of the year.
• Strengthen our internal and external financial reporting. A solid foundation to support our decision-making processes, protect the interests of our shareholders, and maintain the trust of our stakeholders is paramount. Included is a resolution of our auditor's disclaimers and opinion.
• Maximize shareholder value. We are committed to engaging with the investment community to ensure our accomplishments and strategies are reflected in the valuation of our Company.

Thank you, all.

John Herring

Executive Chairman

11 July 2023

Narf Industries plc (the "Parent" or the "Company") is the UK parent company of two US subsidiaries Narf Industries LLC and Narf Industries PR LLC (the "subsidiaries", "Operating Group" or "Narf US" - together with the UK Company, the "Group") principally involved in developing and marketing software aimed at enhancing the cybersecurity measures of its clients. The directors of the Company are pleased to present their report on the Group for the year ended 31 December 2022.

This section contains the Strategic report, which includes the information that the Group is required to produce to meet the need for a strategic report in accordance with the Companies Act 2006. Biographies of each director are on the Group's website at narfgroup.com. The Directors' report is set out below. This Strategic report is a consolidated report relating to the Group as a whole. It includes matters relating to the Company and its subsidiary undertakings.

Note any reference to $ will be for USD$ and any reference to 2022 or 2021 will be for the Financial Years (aligned with calendar years) ending

31 December 2022 ("FY2022") and 31 December 2021 ("FY2021") respectively.

Cautionary Statement

The Strategic report has been prepared for the shareholders of the Company, as a body, and for no other persons. Its purpose is to inform shareholders of the Company and to help them assess how the Directors have performed their duty to promote the success of the Company. This Strategic report contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic, regulatory, policy and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in this Strategic report will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation.

Review of the business

The Company was formed as an investment vehicle to undertake acquisitions in the cybersecurity sector. In March 2021, the Company listed on the Official List of the UK Listing Authority on the London Stock Exchange ("LSE"). During the year the Company raised $7.6 million (gross) in placings and issued shares at an equivalent value of $19.4 million as consideration for the acquisition of the Operating Group. The acquisitions completed on 15 March 2022 have been treated as a reverse takeover as explained in Note 8.

Since the acquisition, the Company integrated the US Operating Group, and it now constitutes the Company's sole business operations.

The Group is a leading provider of cybersecurity research, solutions, and services to government entities. With a steadfast commitment to protecting national security and critical infrastructure, we offer comprehensive expertise in addressing the evolving cyber threats faced by our clients. We work with US government agencies including the Department of Defense ("DoD"), the Defense Advanced Research Projects Agency ("DARPA"), Department of Homeland Security ("DHS"). The Group often collaborates with world renowned private research companies in the performance of contracts.

Our strong track record of successful contract performance underscores our ability to deliver results. We understand the critical nature of the work performed by these agencies and the importance of maintaining the confidentiality and integrity of their missions. With our industry- leading expertise, advanced technologies, and unwavering commitment to excellence, we provide the government with the confidence and peace of mind they need to navigate the complex and ever- changing cybersecurity landscape.

The Group's strategy leverages government funded research and business to create and fund innovative and disruptive products for billion-dollar commercial cybersecurity markets. Government Research

and Development (GR&D) work produces valuable Company-owned IP and Government Solutions and Services (GS&S) work generates favourable net margins to fund commercialization. Our 2022 revenues were split evenly between the two.

Overview

Corporate Governance Financial Statements