AUDEARA LIMITED — Annual Report 2021

May 13, 2021

Audeara Pty Ltd ACN 604 368 443

Annual Financial Report

30 June 2019

Audeara Pty Ltd

Contents

For the year ended 30 June 2019

Financial statements Directors’ report Statement of financial position Statement of profit or loss and other comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Auditor's report	Page
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Audeara Pty Ltd

Directors’ report

For the year ended 30 June 2019

The directors present their report together with the financial statements of Audeara Pty Ltd (the Company) for the financial year ended 30 June 2019 and the auditor's report thereon.

1. Directors

The directors of the Company at any time during or since the end of the financial year are:

Name

Date of appointment/resignation

J Fielding Appointed 23/02/2015 Director D Trimboli Appointed 27/08/2015 Director C Jeffery Appointed 23/02/2015 Director Resigned 30/04/2019

2. Principal activities

The principal activities of the Company during the course of the financial year were the development of hearing health technology.

There were no significant changes in the nature of the activities of the Company during the year.

3. Operating and financial review

The Company posted a loss during the financial year ended 30 June 2019 of $1,500,095 (2018: $510,735).

4. Significant changes in state of affairs

In the opinion of the directors there were no significant changes in the state of affairs of the Company that occurred during the financial year under review.

5. Environmental regulations

The Company is not subject to any significant environmental regulation under a law of the Commonwealth or of a state or territory of Australia.

6. Dividends

No dividends were paid or declared since the start of the financial year. No recommendation for payment of dividends has been proposed.

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Audeara Pty Ltd

Directors’ report

For the year ended 30 June 2019

7. Events subsequent to reporting date

The spread of novel coronavirus (COVID-19) was declared a public health emergency by the World Health Organisation on 31 January 2020 and upgraded to a global pandemic on 11 March 2020. The rapid rise of the virus has seen an unprecedented global response by governments, regulators and numerous industry sectors. The Australian Federal Government enacted its emergency plan on 29 February 2020 which has seen the closure of Australian borders from 20 March 2020, an increasing level of restrictions on corporate Australia’s ability to operate, significant volatility and instability in financial markets and the release of a number of government stimulus packages to support individuals and businesses as the Australian and global economies face significant slowdown and uncertainties.

Due to the nature of the Company’s products being sales of electronic goods, the Company’s operations have not been materially impacted at this time. The Company continues to monitor developments in the COVID-19 pandemic and the measures being implemented on the economy to control and slow the outbreak. Given the dynamic nature of these circumstances and the significant increase in economic uncertainty, the related impact on the Company's go forward results of operations, cash flows and financial condition cannot be reasonably estimated at this stage and will be reflected in the Company's 2020 annual financial statements.

The convertible notes on issue at 30 June 2019 were varied during FY2020 with the following key changes:

• Convertible note maturity was extended to be two years from the issue date; and

• Interest rate of 10% is to be paid on Increased Application Money (being the original Application Money

• plus the 10% interest up to the original maturity date).

Post year-end, the Company issued Convertible Notes (Notes) at the below dates which have a Maturity Date of one year after the issue date.

• $25,000 on 31 July 2020;

• $25,000 on 28 August 2020;

• $183,961 on 9 September 2020;

• $10,000 on 11 September 2020; and

• $500,000 on 17 September 2020.

The Notes are convertible into ordinary shares at Market Value less a 20% discount as a result of the following Liquidity Events where they occur prior to the Maturity Date:

• Initial public offering;

• Reverse takeover;

• Completion of an offer by any person or persons to acquire all of the Shares in the Issuer; or

• The completion of the sale of all, or substantially all, of the business and assets of the Issuer.

If none of the above events occur before the Maturity Date, the Holder may elect to convert the Note into ordinary shares at Market Value less a 20% discount on the Maturity Date. If at the Maturity Date there has been no prior Liquidity Event and no Conversion Notice has been given in respect of a Note by the Holder, the Notes become payable within 30 business days.

In October 2020, the above Notes were varied with the following key changes:

• Convertible note maturity was extended to be two years from the issue date; and

• Interest rate of 10% is to be paid on Increased Application Money (being the original Application Money

• plus the 10% interest up to the original maturity date).

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Audeara Pty Ltd

Directors’ report

For the year ended 30 June 2019

7. Events subsequent to reporting date (continued)

On 29 October 2020, the Company changed its status from a proprietary limited company to a public company, limited by shares.

No other matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect, the operations of the Company, the results of those operations or the state of affairs of the Company or economic entity in subsequent financial years.

8. Likely developments

The Company will grow into the hearing health sector by focussing on audiology clinics and reduce focus on direct to consumer sales.

Further information about likely developments in the operations of the Company and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Company.

9. Indemnification and insurance of officers and auditors

Indemnification

During the financial year, the Company has not indemnified or made a relevant agreement for indemnifying against a liability any person who is or has been an officer or auditor of the Company.

Insurance premiums

During the financial year, the Company has not paid premiums in respect of auditor’s, directors’ and officers’ liability and legal expenses insurance contracts for the year ended 30 June 2019. Since the end of the financial year the Company has paid an insurance premium to insure certain officers of the Company, including the Directors named in this report. The insurance premiums relate to management liability. The insurance policy does not contain details of the premiums paid in respect of individual officers of the Company.

This report is made with a resolution of the directors:

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James Fielding

Director

Dated at Perth this 15th day of March 2021

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Audeara Pty Ltd

Statement of financial position

As at 30 June 2019

Statement of financial position As at 30 June 2019
		2019 2018
	Note	$ $
Assets
Current assets
Cash and cash equivalents	9	177,799 305,006
Trade and other receivables	10	404,615 334,756
Other assets		35,750 -
Inventories	11	297,315 205,641
Total current assets		915,479 845,403
Non-current assets
Intangibles	12	25,717 14,497
Total non-current assets		25,717 14,497
Total assets		941,196 859,900
Liabilities
Current liabilities
Bank overdraft	9	312,231 -
Trade and other payables	13	144,336 44,749
Convertible note liability	14	736,895 -
Loans and borrowings	15	161,615 -
Employee benefits	16	41,604 33,122
Provisions		3,292 7,766
Other payables	17	130,896 53,064
Unearned revenue		- 7,339
**Total current liabilities **		1,530,869 146,040
Non-current liabilities
Convertible note derivative	14	43,465 -
Employee benefits	16	5,838 2,741
**Total non-current liabilities **		49,303 2,741
**Total liabilities **		1,580,172 148,781
Net (liabilities)/assets		(638,976) 711,119
Equity
Share capital	19	1,976,203 1,826,203
Accumulated losses		(2,615,179) (1,115,084)
Total equity		(638,976) 711,119

4

The accompanying notes form part of these financial statements

Audeara Pty Ltd

Statement of profit or loss and other comprehensive income For the year ended 30 June 2019

For the year ended 30 June 2019
	2019 2018
Note	$ $
Revenue 5	581,660 680,632
Cost of sales	(344,626) (314,164)
Gross profit	237,034 366,468
Other income 6	374,231 354,806
Administration and selling costs	(297,867) (122,887)
Depreciation and amortisation	(4,406) (8,187)
Contractors	(1,003,818) (455,802)
Personnel expenses	(571,983) (192,821)
Research and development	(24,891) (262,352)
Foreign exchange (loss)/gain	(5,640) (12,546)
Other expenses	(159,682) (175,464)
**Results from operating activities **	(1,457,022) (508,785)
Finance income 7	11 325
Finance costs 7	(43,084) (2,275)
Net finance loss	(43,073) (1,950)
Loss before income tax	(1,500,095) (510,735)
Income tax expense 8	- -
Loss for the year	(1,500,095) (510,735)
Other comprehensive income	- -
Total comprehensive loss for the year	(1,500,095) (510,735)

5

The accompanying notes form part of these financial statements

Audeara Pty Ltd

Statement of changes in equity

For the year ended 30 June 2019

Statement of changes in equity For the year ended 30 June 2019
Note	Share capital Accumulated losses Total
	$ $ $
Balance at 1 July 2018	1,826,203 (1,115,084) 711,119
Total comprehensive loss for the year
Loss for theyear	- (1,500,095) (1,500,095)
Total comprehensive loss	- (1,500,095) (1,500,095)
Contributions by and distributions to owners of the Company
Issue of share capital 19	150,000 - 150,000
Total contributions by and distributions to owners of the Company	150,000 - 150,000
Balance at 30 June 2019	1,976,203 (2,615,179) (638,976)
	Share capital Accumulated losses Total
	$ $ $
Balance at 1 July 2017	326,201 (604,349) (278,148)
Total comprehensive loss for the year
Loss for theyear	- (510,735) (510,735)
Total comprehensive loss	- (510,735) (510,735)
Contributions by and distributions to owners of the Company
Issue of share capital 19	1,500,002 - 1,500,002
Total contributions by and distributions to owners of the Company	1,500,002 - 1,500,002
Balance at 30 June 2018	1,826,203 (1,115,084) 711,119

6

The accompanying notes form part of these financial statements

Audeara Pty Ltd

Statement of cash flows

For the year ended 30 June 2019

Statement of cash flows For the year ended 30 June 2019
	2019 2018
Note	$ $
Cash flows from operating activities
Cash receipts from customers	700,715 379,699
Cashpaid to suppliers and employees	(2,415,856) (1,762,077)
Cash used in operatingactivities	(1,715,141) (1,382,378)
Interest received 7	11 325
Interest paid	(17,175) (2,275)
Research and development tax incentive	250,873 81,525
Net cash used in operating activities 20	(1,481,432) (1,302,803)
Cash flows from investing activities
Acquisition of property, plant and equipment	(3,210) (7,806)
Acquisition of intangible assets 12	(12,416) (10,368)
**Net cash used in investing activities **	(15,626) (18,174)
Cash flows from financing activities
Proceeds from issue of share capital 19	150,000 1,500,002
Issue of convertible notes 14	754,451 -
Loan to related parties 10	(8,446) -
Loan from related parties 15	160,910 -
Proceeds from borrowings	705 -
**Net cashprovided by financing activities **	1,057,620 1,500,002
Net (decrease)/increase in cash held	(439,438) 179,025
Cash and cashequivalents at the beginning of the year	305,006 125,981
Cash and cash equivalents at the end of the year 9	(134,432) 305,006

7

The accompanying notes form part of these financial statements

Audeara Pty Ltd

Notes to the financial statements

1 Reporting entity

Audeara Pty Ltd (“the Company”) is a Company domiciled in Australia. The address of the Company’s registered office is 13/76 Doggett St, Newstead, QLD, 4006.

The Company is a for-profit entity.

2 Basis of preparation

(a) Statement of compliance

These financial statements are Tier 2 general purpose financial statements that have been prepared in accordance with Australian Accounting Standards – Reduced Disclosure Requirements adopted by the Australian Accounting Standards Board (AASB). These financial statements comply with Australian Accounting Standards – Reduced Disclosure Requirements.

This is the first set of the Company’s financial statements in which AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments have been applied. Changes to significant accounting policies are described in Note 4.

The financial statements were approved by the Board of Directors on 15 March 2021.

(b) Functional and presentation currency

These financial statements are presented in Australian dollars, which is the Company’s functional currency.

(c) Use of estimates and judgements

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the accounting policies and the reportable amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

In particular, information about significant areas of estimation uncertainty an critical judgements in applying accounting policies that have the most significant effect of the amount recognised in the financial statements are described in the following notes:

• Note 3(c) – Convertible Notes

(d) Going concern

For the year ended 30 June 2019, the Company has incurred a loss before income tax of $1,500,095 (2018: $510,735) and had negative cashflow from operating activities of $1,481,432 (2018: $1,302,803) for the period. As at 30 June 2019, the Company has a net current asset deficiency of $615,390 and a deficiency of net assets of $638,976.

The Company has significantly invested over time in development of its A-O1 headphones and has created a range of sales channels to market. Management anticipates continuing increases in revenue from further consolidation in the Australia market and establishment of overseas markets. Management has also re-structured the cost base of the entity throughout the year to better meet the needs of the organisation.

Despite the improvement in financial performance, the Company requires additional capital for its continued sales growth, re-structure of its current funding arrangements and on-going investment in products and sales channels.

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Audeara Pty Ltd

Notes to the financial statements

2 Basis of preparation (continued)

(d) Going concern (continued)

As such the board and management are actively pursuing an initial public offering (IPO) which is planned to be completed before 30 June 2021 and which Directors consider sufficient to meet working capital requirements for at least 12 months from the date this report is issued. A corporate advisor has been engaged, a due diligence committee has been formed and discussions with both ASIC and the ASX are advanced. The proceeds from an ASX listing will provide the Company with significant working capital to fund its expansion and trigger a mandatory conversion event for the convertible notes.

Directors have prepared a cash flow forecast for 12 months from the date this report is issued which indicates that the Company will have sufficient funds available to it to continue as a going concern. The cash flow forecast is underpinned by a successful IPO and settlement of convertible notes and accrued interest through their conversion to shares rather than settlement in cash. Whilst Directors are confident that the IPO can be completed in the timeframe set out above, the IPO is not yet completed and remains subject to regulatory approvals and successful fundraising arrangements.

In the event that the Company is unable to complete its IPO as planned, the Company does not currently have sufficient funds available to settle the convertible notes detailed in note 14 and meet anticipated working capital requirements. In such a circumstance, Directors will need to seek to renew and/or extend the maturity date of its existing convertible notes or raise additional capital through private debt or equity raisings, or do both. Whilst no arrangements exist, Directors expect that, if required, arrangements could be put in place with respect to these measures.

However, at this time the achievement of a successful IPO remains uncertain which in addition to the matters detailed above, indicates a material uncertainty exists that may cast doubt on the Company’s ability to continue as a going concern and therefore whether it will realise its assets and discharge its liabilities in the normal course of business and at the amount stated in the financial report.

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Financial instruments

(i) Recognition and initial measurement

Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii) Classification and subsequent measurement

Financial assets: Policy applicable from 1 July 2018

On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(a) Financial instruments (continued)

(ii) Classification and subsequent measurement (continued)

Financial assets: Policy applicable from 1 July 2018 (continued)

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

All financial assets not classified as measured at amortised cost or FVOCI are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets – Subsequent measurement and gains and losses: Policy applicable from 1 July 2018

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

Financial assets – Policy applicable before 1 July 2018

The Company classified its financial assets into one of the following categories:

• loans and receivables;

• held to maturity; and

• available for sale;

Financial assets – Subsequent measurement and gains and losses: Policy applicable before 1 July 2018

Before 1 July 2018, subsequent to initial recognition financial assets were measured at amortised cost using the effective interest method, less any impairment losses

Financial liabilities – Classification, subsequent measurement and gains and losses

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Liabilities for trade and other payables are carried at amortised cost and represent liabilities for goods or services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of these goods and services.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(a) Financial instruments (continued)

(iii) Derecognition

Financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Company enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.

Financial liabilities

The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

(iv) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

(b) Share capital

(i) Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

(c) Convertible notes

The Company has issued convertible notes denominated in Australian dollars that can be converted to ordinary shares at the option of the holder or upon a conversion event (refer to Note 14).

Convertible Note Liability

The liability component of a convertible note is recognised initially at the fair value of a similar liability that does not have an equity conversion option.

Subsequent to initial recognition, the convertible note is measured at amortised cost using the effective interest method.

Interest related to the financial liability is recognised in profit or loss. On conversion, the financial liability is reclassified to equity and no gain or loss is recognised.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(c) Convertible notes (continued)

Convertible Note Derivative

Derivative financial instruments are stated at fair value. The fair value of the derivative has been valued using a valuation technique including inputs that include reference to similar instruments and option pricing models which is updated each period. Gains and losses arising out of changes in fair value of these instruments together with settlements in the period are accounted for through the Statement of Profit or Loss and Other Comprehensive Income through finance costs.

The convertible note liability and derivative are removed from the Statement of Financial Position when the obligations specified in the contract are discharged, this can occur upon the option holder exercising their option or the option period lapses requiring the company to discharge the obligation. The convertible note liability and the derivative are classified as current liabilities when they are due and payable within twelve months of this financial report.

(d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Any gain and loss on disposal of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

(ii) Subsequent costs

Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the component will flow to the Company. Ongoing repairs and maintenance is expensed as incurred.

Items of property, plant and equipment are depreciated on a straight-line and/or diminishing basis in profit or loss over the estimated useful lives of each component.

Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use.

(iii) Depreciation

The Company expenses all costs attributable to the acquisition of assets immediately where the total costs are below AUD $5,000.

Depreciation methods, useful lives and residual values are reviewed at each financial reporting date and adjusted if appropriate.

(e) Intangible assets

(i) Research and development

Expenditure on research activities is recognised in profit or loss as incurred.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(e) Intangible assets (continued)

(i) Research and development (continued)

Development expenditure is capitalised only if expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise it is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses.

(ii) Patents

Intangible assets that are acquired by the Company and have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(f) Leased assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. On initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments

Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and are not recognised on the Company’s statement of financial position.

(g) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

(h) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on weighted average cost using the first in first out method. Deposits paid for manufactured inventory are recorded as Other Assets until the units are shipped.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(i) Impairment

(i) Non-derivative financial assets

Financial instruments and contract assets: Policy applicable from 1 July 2018

The Company recognises loss allowances for ECLs (expected credit losses) on:

• financial assets measured at amortised cost; and

• contract assets.

The Company measures loss allowances at an amount equal to lifetime ECLs.

Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs.

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive).

ECLs are discounted at the effective interest rate of the financial asset.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Write-off

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Company makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery.

Policy applicable before 1 July 2018

Financial assets not classified as at FVTPL were assessed at each reporting date to determine whether there was objective evidence of impairment.

Financial assets measured at amortised cost

The Company considered evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets were individually assessed for impairment. Those found not to be impaired were then collectively assessed for any impairment that had been incurred but not yet individually identified. Assets that were not individually significant were collectively assessed for impairment. Collective assessment was carried out by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Company used historical information on the timing of recoveries and the amount of loss incurred, and made an adjustment if current economic and credit conditions were such that the actual losses were likely to be greater or lesser than suggested by historical trends.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(i) Impairment (continued)

(i) Non-derivative financial assets (continued)

Policy applicable before 1 July 2018 (continued)

Financial assets measured at amortised cost (continued)

An impairment loss was calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses were recognised in profit or loss and reflected in an allowance account. When the Company considered that there were no realistic prospects of recovery of the asset, the relevant amounts were written off. If the amount of impairment loss subsequently decreased and the decrease was related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss was reversed through profit or loss.

(ii) Non- financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite useful life intangible assets are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or its related cash generating unit (CGU) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(j) Employee benefits

(i) Long-term employee benefits

The Company’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Remeasurements are recognised in profit or loss in the period in which they arise.

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Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(j) Employee benefits (continued)

(ii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(k) Revenue

The Company has initially AASB 15 from 1 July 2018. The effect of initially applying AASB 15 is described in Note 4.

(i) Goods sold

Revenue recognition under AASB 118: Policy applicable before 1 July 2018

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.

Revenue recognition under AASB 15: Policy applicable from 1 July 2018

Revenue is measured based on the consideration specified in a contract with a customer and excludes any amounts collected on behalf of third parties. The Company recognises revenue when it satisfies a performance obligation by transferring control over a product to a customer. Invoices are generated at the point of sale and payment terms vary from customer to customer.

Revenue from the sale of hearing health technology products is recognised at a point in time when control of the asset is transferred which is on shipment of the goods. For contracts that permit the customer to return an item, revenue is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Therefore, the amount of revenue recognised is adjusted for expected returns, which are estimated based on the historical data for specific product types. In these circumstances, a refund liability and a right to recover returned goods asset are recognised.

(ii) Other income

Other income includes research and development tax incentive and government grants. Research and development tax incentive is recognised in the period in which the related expenses were incurred. Government grants are recognised when there is reasonable assurance that the Company will comply with the conditions attached to it and that the grant will be received.

(iii) Accrued revenue

Accrued revenue includes sale of goods where the control has been transferred but the invoice has not been issued to the customer.

16

Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(l) Finance income and finance costs

Finance income comprises interest income on funds invested, in addition to realised and unrealised gains on foreign currency. Interest income is recognised as it accrues in profit or loss.

Finance costs comprise interest expense on borrowings and bank charges.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

(m) Income tax

Tax expense comprises current tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss

• taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

In determining the amount of current and deferred tax the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

17

Audeara Pty Ltd

Notes to the financial statements

3 Significant accounting policies (continued)

(n) Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Where GST is charged receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the Australian Taxation Office (ATO) is included as a current asset or liability in the statement of financial position.

Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

(o) Provisions

Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

• (i) Warranties

A provision for warranties is recognised when the underlying products or services are sold, based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(p) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2018, and have not been applied in preparing these financial statements. Those that may impact the Company are:

• AASB 16 Leases ; and

• AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments and IFRIC 23 Uncertainty over Income Tax Treatments

• AASB 2018-3 Amendments to Australian Accounting Standards – Reduced disclosures

The Company does not plan to early adopt these standards, amendments to standards and interpretations and the extent of the impact of AASB 16 Leases has been determined.

(q) New standards currently effective

The Company has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 July 2018.

• AASB 9 Financial Instruments ; and

• AASB 15 Revenue from Contracts with Customers .

Refer to Note 4 (change in significant accounting policies) for a summary of the nature and effects of the changes on the financial statements of the Company.

18

Audeara Pty Ltd

Notes to the financial statements

4 Changes in significant accounting policies

AASB 15 Revenue from Contracts with Customers

AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces AASB 118 Revenue , AASB 111 Construction Contracts and related interpretations. Under AASB 15, revenue is recognised when a customer obtains control of the goods or services at the amount to which the Company expects to be entitled. If the consideration promised includes a variable amount, the Company estimates the amount of consideration to which it will be entitled. Determining the timing of the transfer of control, either at a point in time or over time, requires judgement.

The Company has adopted AASB 15 using the cumulative effect method with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 July 2018). Accordingly the information presented for 2018 has not been restated. Additionally, the disclosure requirements in AASB 15 have not been applied to comparative information.

AASB 15 did not have a significant impact on the Company’s accounting policies and has no effect on the amount or timing of the Company’s existing revenue recognition. The adoption of AASB 15 has no impact on the Company’s statement of financial position as at 30 June 2019 and its statement of profit or loss and OCI for the year then ended.

AASB 9 Financial Instruments

AASB 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces AASB 139 Financial Instruments: Recognition and Measurement.

As a result of the adoption of AASB 9, the Company has adopted consequential amendments to AASB 101 Presentation of Financial Statements , which requires impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI.

Additionally, the Company has adopted consequential amendments to AASB 7 Financial Instruments: Disclosures that are applied to disclosures about 2019 but have not been generally applied to comparative information.

The transition to AASB 9 has no impact on the opening balance of retained earnings.

Classification and measurement of financial assets and liabilities

AASB 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL. The classification of financial assets under AASB 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

AASB 9 eliminates the previous AASB 139 categories of held to maturity, loans and receivables and available for sale. AASB 9 largely retains the existing requirements in AASB 139 for the classification and measurement of financial liabilities.

The adoption of AASB 9 has had no material effect on the carrying amounts of financial assets and financial liabilities at 1 July 2018. The following table and the accompanying notes below explain the original measurement categories under AASB 139 and the new measurement categories under AASB 9 for each class of the Company’s financial assets and financial liabilities as at 1 July 2018.

19

Audeara Pty Ltd

Notes to the financial statements

4 Changes in significant accounting policies (continued)

AASB 9 Financial Instruments (continued)

Classification and measurement of financial assets and liabilities (continued)

Note Original classification under AASB 139 New classification under AASB 9 Financial assets Cash and cash equivalents (a) Loans and receivables Amortised cost Trade and other receivables (a) Loans and receivables Amortised cost Total financial assets Financial liabilities Trade and other payables Other financial liabilities Other financial liabilities Total financial liabilities	Carrying amount under AASB 139 Carrying amount under AASB 9 305,006 305,006 327,443 327,443
	632,449 632,449
	97,813 97,813
	97,813 97,813

(a) Cash and cash equivalents and trade and other receivables that were classified under AASB 139 are now classified at amortised cost. There is no allowance for impairment over the receivables recognised in opening retained earnings at 1 July 2018 on transition to AASB 9.

Impairment of financial assets

AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under AASB 9, credit losses are recognised earlier than under AASB 139.

For assets in the scope of the AASB 9 impairment model, impairment losses are generally expected to increase and become more volatile. The Company has determined that the application of AASB 9’s impairment requirements at 1 July 2018 results in no material allowance for impairment.

Transition

Changes in accounting policies resulting from the adoption of AASB 9 have been applied cumulatively, except as described below.

Although the Company is allowed to use an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements, the adoption of AASB 9 has had no effect on the carrying amounts of financial assets and financial liabilities at 1 July 2018.

The assessment of the determination of the business model within which a financial asset is held have been made on the basis of the facts and circumstances that existed at the date of initial application.

20

Audeara Pty Ltd

Notes to the financial statements

5 Revenue

The effect of initially applying AASB 15 on the Company’s revenue from contracts with customers is described in Note 4.

The Company generates revenue from the sale of hearing health technology products to its customers. There are no other sources of revenue.

There are no other sources of revenue.
	2019 2018
	$ $
Sale ofgoods	581,660 680,632
	581,660 680,632

Revenue from the sale of goods is recognised when control of the products is transferred to the customer. Control of the good is considered transferred to the customer depending on the individual trade terms of the contract of sale.

6 Other income

6 Other income
	2019 2018
	$ $
Government grants	56,870 100,000
Research and development tax incentive	242,250 250,805
Other income	75,111 4,001
	374,231 354,806
7 Finance income and finance costs
	2019 2018
	$ $
Interest income	11 325
Finance income	11 325
Interest expense on financial liabilities measured at amortised cost	(43,084) (2,275)
Finance costs	(43,084) (2,275)
Net finance loss recognised in profit or loss	(43,073) (1,950)

7 Finance income and finance costs

21

Audeara Pty Ltd

Notes to the financial statements

8 Income tax expense A. Amounts recognised in profit or loss Current tax Current year Adjustment for prior periods Deferred tax Origination and reversal of temporary differences Total income tax expense B. Amounts recognised in Other Comprehensive Income Effective portion of changes in fair value Reconciliation of tax Loss for the year Loss excluding income tax Income tax using the Company's domestic tax rate of 27.5% Non-deductible expenses Non-deductible R&D expenses Non-assessable income Deferred tax assets not brought to account Total income tax expense/(benefit)
	2019 2018
	$ $
	- - - -
	- -
	- -
	- -
	- -
	- -
	- -
	(1,500,095) (510,735) (1,500,095) (510,735) (412,526) (140,452) 4,573 737 153,146 158,554 (66,619) (68,971) 321,426 50,132
	- -

Unrecognised deferred tax assets and liabilities

Deferred tax assets (comprising temporary allowanced and unused tax losses) of $321,426 (2018: $50,132) have not been recognised because at the reporting date, the Company is unable to demonstrate the applicable recognition criteria.

Movement in deferred tax balances

Movement in deferred tax balances Employee benefits Tax losses Tax (assets)/liabilities not recognised Net deferred tax balance	Net balance at 1 July Recognised in profit or loss $ $ 9,862 3,185 139,154 318,241	Balance at 30 June 2019
		Net Deferred tax assets Deferred tax liabilities $ $ $ 13,047 13,047 - 457,395 457,395 -
	(149,016) (321,426)	(470,442) (470,442) -
	- -	- - -

22

Audeara Pty Ltd

Notes to the financial statements

8 Income tax expense (continued)

Movement in deferred tax balances Employee benefits Tax losses Tax (assets)/liabilities not recognised Net deferred tax balance	Net balance at 1 July Recognised in profit or loss $ $ 794 9,068 98,090 41,064	Balance at 30 June 2018
		Net Deferred tax assets Deferred tax liabilities $ $ $ 9,862 9,862 - 139,154 139,154 -
	(98,884) (50,132)	(149,016) (149,016) -
	- -	- - -

9 Cash and cash equivalents

	2019 2018
	$ $
Cash on hand	1,602 1,201
Bank balances	176,197 303,805
	177,799 305,006
Bank overdraft*	(312,231) -
Cash and cash equivalents in the statement of cash flows	(134,432) 305,006

*As at 30 June 2019, the Company had drawn $312,231 (2018: Nil) of a $350,000 facility. The overdraft is guaranteed in full by a director of the Company.

10 Trade and other receivables

10 Trade and other receivables
	2019 2018
	$ $
Accrued income	- 14,678
Trade receivables	126,856 40,659
Research and development tax incentive	242,250 250,873
Prepayments	12,110 121
Goods and services tax receivable	- 7,192
Other receivables	1,203 21,233
Loan - Audeara HK Limited	8,446 -
Rent bond	13,750 -
	404,615 334,756

There is no allowance for impairment of trade and other receivables (2018: nil).

11 Inventories

	2019 2018
	$ $
Inventoryon hand	297,315 205,641
	297,315 205,641

23

Audeara Pty Ltd

Notes to the financial statements

12 Intangibles

12 Intangibles
	Patents Total
	$ $
Cost
Balance at 1 July 2017	4,510 4,510
Additions	10,368 10,368
Balance at 30 June 2018	14,878 14,878
Balance at 1 July 2018	14,878 14,878
Additions	12,416 12,416
Balance at 30 June 2019	27,294 27,294
Accumulated amortisation
Balance at 1 July 2017	- -
Amortisation for theyear	(381) (381)
Balance at 30 June 2018	(381) (381)
Balance at 1 July 2018	(381) (381)
Amortisation for theyear	(1,196) (1,196)
Balance at 30 June 2019	(1,577) (1,577)
Carrying amounts
At 1 July2017	4,510 4,510
At 30 June 2018	14,497 14,497
At 1 July2018	14,497 14,497
At 30 June 2019	25,717 25,717
13 Trade and other payables
	2019 2018
	$ $
Tradepayables	144,336 44,749
	144,336 44,749

13 Trade and other payables

24

Audeara Pty Ltd

Notes to the financial statements

14 Convertible notes

	2019 2018
	$ $
Current
Convertible note liability	736,895 -
	736,895 -
Non-current
Convertible note derivative	43,465 -
	43,465 -

The Convertible Notes (Notes) were issued on the below dates with a Maturity Date of one year after the issue date.

• $300,000 on 7 March 2019;

• $311,307 on 2 May 2019; and

• $143,144 on 3 May 2019;

The Notes are convertible into ordinary shares at Market Value less a 20% discount as a result of the following Liquidity Events where they occur prior to the Maturity Date:

• Initial public offering;

• Reverse takeover;

• Completion of an offer by any person or persons to acquire all of the Shares in the Issuer; or

• The completion of the sale of all, or substantially all, of the business and assets of the Issuer.

If none of the above events occur before the Maturity Date, the Holder may elect to convert the Note into ordinary shares at Market Value less a 20% discount on the Maturity Date. If at the Maturity Date there has been no prior Liquidity Event and no Conversion Notice has been given in respect of a Note by the Holder, the Notes become payable within 30 business days.

Following conversion (excluding conversion as a result of a liquidity event), there is a two year period under which is shares are issued to a third party at a value that is lower than the market value used in the conversion of the notes, additional shares shall be issued to the Holder equal to the difference between the number of shares issued at conversion and the number of shares that would have been issued at the lower market price.

15 Loans and borrowings

15 Loans and borrowings
	2019 2018
	$ $
Loan - James Fielding	160,910 -
Insurance funding	718 -
Less unexpired interest	(13) -
	161,615 -

As at 30 June 2019 Audeara held a loan with related party James Fielding for $160,910 (2018: nil). The loan is interest free and repayable on demand.

25

Audeara Pty Ltd

Notes to the financial statements

16 Employee benefits

	2019 2018
	$ $
Current
Liabilityfor annual leave	41,604 33,122
	41,604 33,122
Non-current
Liabilityfor long-service leave	5,838 2,741
	5,838 2,741
17 Other payables
	2019 2018
	$ $
Accrued expenses	57,489 22,000
Wages payable	18,772 352
Goods and services tax payable	12,306 -
PAYG withholdings payable	34,412 30,712
Rent bond	7,917 -
	130,896 53,064

17 Other payables

18 Financial instruments – fair value

The effect of initially applying AASB 9 is described in Note 4. Due to the transition method chosen, comparative information has not been restated to reflect the new requirements.

The following table shows the carrying amounts per category of financial assets and liabilities.

2019	Note		26 Total 392,505 177,799 570,304 736,895 736,895 736,895 736,895 312,231 144,336 161,615 130,896 749,078 Total 327,443 305,006 632,449 44,749 53,064 97,813
Financial assets not measured at fair value
Trade and other receivables	10
Cash and cash equivalents	9
Financial liabilities measured at amortised cost
Convertible notes liability	14
Financial liabilities measured at fair value
Convertible notes derivative	14
Financial liabilities not measured at fair value
Bank overdraft	9
Trade payables	13
Loans and borrowings	15
Otherpayables	17
2018	Note
Financial assets not measured at fair value
Trade and other receivables	10
Cash and cash equivalents	9
Financial liabilities not measured at fair value
Trade payables	13
Otherpayables	17

Audeara Pty Ltd

Notes to the financial statements

19 Share capital

19 Share capital
	Ordinary shares Number of shares
	2019 2018 2019 2018
	$ $
On issue at 1 July	1,826,203 326,201 3,765 3,200
Issued	150,000 1,500,002 286 565
On issue at 30 June	1,976,203 1,826,203 4,051 3,765

(i) Ordinary Shares

The Company does not have authorised capital or par value in respect of its issued shares. All shares are fully paid.

The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. In the event of the winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation.

(ii) Issue of ordinary shares

During the reporting period, the general meeting of shareholders decided on the issue of 286 ordinary shares at an issue price of $524 per share.

20 Cash flow reconciliation

20 Cash flow reconciliation
	2019 2018
Note	$ $
Loss for the period	(1,500,095) (510,735)
Adjustments for:
Loan forgiveness	- (3,265)
Depreciation and amortisation	4,406 8,187
Warranty provision	(4,474) 7,766
Unrealised foreign exchange gain/(loss)	785 750
Net finance loss 7	43,073 1,950
	(1,456,305) (495,347)
Change in trade and other receivables Change in inventories Change in trade payables and other payables	(97,948) (241,963)
	(91,674) (205,641)
	170,080 (392,857)
Change inprovisions and employee entitlements	11,579 34,955
**Cash used in operating activities **	(1,464,268) (1,300,853)
Interest received	11 325
Interestpaid	(17,175) (2,275)
Net cash used in operating activities	(1,481,432) (1,302,803)

21 Related party

(a) Transactions with key management personnel

• (i) Key management personnel compensation

The key management personnel compensation was $242,669 for the year ended 30 June 2019 (2018: $73,846).

(b) Other related party transactions

As at 30 June 2019 Audeara had a loan receivable from related party Audeara HK Limited of $8,446 (2018: nil). Audeara HK Limited is 100% controlled by a mutual director. The loan is interest free and repayable on demand.

The Company issued convertible notes on 7 March 2019 to a related party James Fielding. Refer to Note 14 for further details.

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Audeara Pty Ltd

Notes to the financial statements

22 Capital commitments

	2019 2018
	$ $
Less than one year	12,500 -
Between one and fiveyears	100,000 37,500
	112,500 37,500

Commitments consist of operating leases for office premises.

23 Financial instruments – risk management

The Company has exposure to a variety of risks arising from its use of financial instruments. This note presents information about the Company’s exposure to the specific risks, and the policies and processes for measuring and managing those risks and the management of capital. Further quantitative disclosures are included throughout this financial report.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Company has exposure to the following risks from their use of financial instruments:

• Credit risk

• Liquidity risk

• Market risk

(a) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from transactions with customers and investments.

The carrying amounts of financial assets represent the maximum credit exposure.

Cash and cash equivalents

The Company has cash and cash equivalents of $177,799 at 30 June 2019 (2018: $305,006) that are held with financial institution counter-parties that are rated AA- based on S&P Global rating.

Trade and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate. The receivables that the Company does experience through its normal course of business are short term and the risk of recovery of no recovery of receivables is considered to be negligible. The Company limits its exposure to credit risk from trade receivables by establishing a maximum payment period of 14 days for the majority of customers.

The Company uses an allowance matrix to measure the ECLs of trade receivables, which comprises of a large number of small balances. Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different segments based on age of the customer relationship and type of revenue/customer. Based on this matrix, management have determined as at 30 June 2019 that no allowance is required.

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Audeara Pty Ltd

Notes to the financial statements

23 Financial instruments – risk management (continued)

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities.

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising any return.

24 Contingencies

In the opinion of the management, the Company did not have any contingencies at 30 June 2019 (2018: none).

25 Subsequent events

The spread of novel coronavirus (COVID-19) was declared a public health emergency by the World Health Organisation on 31 January 2020 and upgraded to a global pandemic on 11 March 2020. The rapid rise of the virus has seen an unprecedented global response by governments, regulators and numerous industry sectors. The Australian Federal Government enacted its emergency plan on 29 February 2020 which has seen the closure of Australian borders from 20 March 2020, an increasing level of restrictions on corporate Australia’s ability to operate, significant volatility and instability in financial markets and the release of a number of government stimulus packages to support individuals and businesses as the Australian and global economies face significant slowdown and uncertainties.

Due to the nature of the Company’s products being sales of electronic goods, the Company’s operations have not been materially impacted at this time. The Company continues to monitor developments in the COVID-19 pandemic and the measures being implemented on the economy to control and slow the outbreak. Given the dynamic nature of these circumstances and the significant increase in economic uncertainty, the related impact on the Company's go forward results of operations, cash flows and financial condition cannot be reasonably estimated at this stage and will be reflected in the Company's 2020 annual financial statements.

The convertible notes on issue at 30 June 2019 were varied during FY2020 with the following key changes:

• Convertible note maturity was extended to be two years from the issue date; and

• Interest rate of 10% is to be paid on Increased Application Money (being the original Application Money plus the 10% interest up to the original maturity date).

Post year-end, the Company issued Convertible Notes (Notes) at the below dates which have a Maturity Date of one year after the issue date.

• $25,000 on 31 July 2020;

• $25,000 on 28 August 2020;

• $183,961 on 9 September 2020;

• $10,000 on 11 September 2020; and

• $500,000 on 17 September 2020.

29

Audeara Pty Ltd

Notes to the financial statements

25 Subsequent events (continued)

The Notes are convertible into ordinary shares at Market Value less a 20% discount as a result of the following Liquidity Events where they occur prior to the Maturity Date:

• Initial public offering;

• Reverse takeover;

• Completion of an offer by any person or persons to acquire all of the Shares in the Issuer; or

• The completion of the sale of all, or substantially all, of the business and assets of the Issuer.

If none of the above events occur before the Maturity Date, the Holder may elect to convert the Note into ordinary shares at Market Value less a 20% discount on the Maturity Date. If at the Maturity Date there has been no prior Liquidity Event and no Conversion Notice has been given in respect of a Note by the Holder, the Notes become payable within 30 business days.

In October 2020, the above Notes were varied with the following key changes:

• Convertible note maturity was extended to be two years from the issue date; and

• Interest rate of 10% is to be paid on Increased Application Money (being the original Application Money plus the 10% interest up to the original maturity date).

On 29 October 2020, the Company changed its status from a proprietary limited company to a public company, limited by shares.

No other matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect, the operations of the Company, the results of those operations or the state of affairs of the Company or economic entity in subsequent financial years.

30

Audeara Pty Ltd

Directors’ declaration

In the opinion of the directors of Audeara Pty Ltd, (the “Company”):

• (a) the Company is a small proprietary company and is not a reporting entity;

• (b) the financial statements and notes, set out on pages 4 to 30, are drawn up in accordance with the basis of accounting described in Notes 1 to 3 so as to present fairly the financial position of the Company as at 30 June 2019 and its performance as represented by the results of its operations, for the financial year ended on that date; and

• (c) as set out in Note 2(d) there are reasonable grounds to believe that the Company will be able to pay its debt as and when they become due and payable.

Signed in accordance with a resolution of the directors.

==> picture [126 x 47] intentionally omitted <==

James Fielding

Director

Dated at Perth this 15th day of March 2021

31

==> picture [95 x 71] intentionally omitted <==

Independent Auditor’s Report

To the Directors of Audeara Pty Ltd

Opinion

We have audited the Financial Report of Audeara Pty Ltd (the Company) .

In our opinion, the accompanying Financial Report presents fairly, in all material respects, the financial position of Audeara Pty Ltd as at 30 June 2019, and of its financial performance and its cash flows for the year then ended, in accordance with Australian Accounting Standards – Reduced Disclosure Requirements .

The Financial Report comprises:

• Statement of financial position as at 30 June 2019

• Statement of profit or loss and other comprehensive income, Statement of changes in equity, and Statement of cash flows for the year then ended

• Notes including a summary of significant accounting policies

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report.

We are independent of the Company in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

Restriction on use and distribution

The Financial Report has been prepared to assist the Directors of Audeara Pty Ltd for the purpose of fulfilling the Directors’ reporting responsibilities in relation to an Initial Public Offering.

As a result, the Financial Report and this Auditor’s Report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

Our report is intended solely for the Directors of Audeara Pty Ltd and should not be used by or distributed to parties other than the Directors of Audeara Pty Ltd. We disclaim any assumption of responsibility for any reliance on this report, or on the Financial Report to which it relates, to any person other than the Directors of Audeara Pty Ltd or for any other purpose than that for which it was prepared.

KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation.

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Material uncertainty relating to going concern

We draw attention to Note 2(d), “Going Concern” in the Financial Report. The events or conditions disclosed in Note 2(d), indicate a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the Financial Report. Our opinion is not modified in respect of this matter.

Other matter

The financial report of Audeara Pty Ltd for the year ended 30 June 2018 was not audited.

Other Information

Other Information is financial and non-financial information in Audeara Pty Ltd’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. Management are responsible for the Other Information.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, the auditor does not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report

Responsibilities of Management for the Financial Report

Management are responsible for:

• the preparation and fair presentation of the Financial Report for the purpose of fulfilling the Directors’ reporting responsibilities in relation to an ASX initial public offering

• implementing necessary internal control to enable the preparation of a Financial Report that is free from material misstatement, whether due to fraud or error

• assessing the Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

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Auditor’s responsibilities for the audit of the Financial Report

Our objective is:

• to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and

• to issue an Auditor’s Report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.

A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at:

http://www.auasb.gov.au/auditors_responsibilities/ar4.pdf. This description forms part of our Auditor’s Report.

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KPMG

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Matthew Hingeley

Partner

Perth

15 March 2021