ION VIDEO LTD — Annual Report 2019

Sep 29, 2019

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LINIUS TECHNOLOGIES LIMITED ACN 149 796 332

ANNUAL REPORT

2019

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CONTENTS PAGE

CORPORATE DIRECTORY…………………………………………………………………….……………………….……………….………2 CHAIRMAN'S LETTER TO SHAREHOLDERS……………..…………………………….……………………………………….……...3 CHIEF EXECUTIVE OFFICER'S REVIEW OF OPERATIONS………………………………………………………………….……4-7 DIRECTORS' REPORT…………………………………………………………………………………………………………..…….…...8-19 CORPORATE GOVERNANCE STATEMENT..…………………………………………………………………………………………..20 AUDITOR'S INDEPENDENCE DECLARATION……………………………………………………………………………..……….…21 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME…………..…..….22 CONSOLIDATED STATEMENT OF FINANCIAL POSITION………………………….…………………………………………....23 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY………………………………………………………………….…..…24 CONSOLIDATED STATEMENT OF CASH FLOWS………………………………………………………………………….……..…25 NOTES TO THE FINANCIAL REPORT………………………………………………………………………………………..……..26-59 DIRECTORS' DECLARATION………………………………………………………………………………………………………………..60 INDEPENDENT AUDITOR'S REPORT…………………………………………………………………………………………….…61-65 ADDITIONAL INFORMATION FOR LISTED COMPANIES……………………………………………………………….…...66-69

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LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

CORPORATE DIRECTORY

This annual report covers Linius Technologies Limited and its controlled entities (the “Group” or “Group”) during the year ended 30 June 2019. The functional and presentation currency of the Group is Australian dollars.

OFFICERS REGISTERED OFFICE SOLICITORS AUDITORS SHARE REGISTRY PRINCIPAL PLACE OF BUSINESS WEBSITE ASX CODE

Gerard Bongiorno (Executive Chairman) Stephen McGovern (Non-Executive Director) Christopher Richardson (Director and CEO) Stephen Kerr (Company Secretary and CFO) Resigned 3 June 2019 Giuseppe Rinarelli (Company Secretary and CFO) Appointed 3 June 2019 Suite 13, Level 3, 299 Toorak Road, SOUTH YARRA VIC 3141 Milcor Legal Lawyers Level 1, 6 Thelma Street WEST PERTH WA 6872 KPMG Tower 2, Collins Square 727 Collins Street MELBOURNE VIC 3000 Advanced Share Registry Ltd 110 Stirling Highway NEDLANDS WA 6009 Telephone: (08) 9389 8033 Facsimile: (08) 9262 3723 Suite 13, Level 3, 299 Toorak Road, SOUTH YARRA VIC 3141 Telephone: (03) 8680 2317 Facsimile: (03) 8680 2380 Email:info@linius.com www.linius.com LNU

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CHAIRMAN’S LETTER TO SHAREHOLDERS

Dear Shareholders,

On behalf of your board of directors, I am pleased to enclose the Annual Report of Linius Technologies Limited for the financial year ended 30 June 2019.

During the year the Company has continued to invest in the development of its core technology, with solutions productised for deployment to customers, develop strong relationships with channel partners, re-sellers and systems integrators, as well as launched the SaaS market place. We have also continued to invest in our technology base lodging further patents as well as demonstrating our Blockchain prototype. These are the building blocks of our business that we referred to at our 2018 AGM and we are now starting to see this investment deliver for our shareholders.

Off the back of successful proof of concepts, the team continued to convert our strong pipeline of opportunities firmly focused on building strong recurring cash inflows. Subsequent to the end of the 2019 financial year we were very pleased to announce two commercial deals with SportsHero (SHO) and most recently Racing.com. Your directors are excited by the number of broadcasters and sports organisations we are currently in discussions with, and believe the commercial validation from these initial deals will provide the proof points to rapidly scale via our extensive channel partners network and SaaS platform.

While sport — with the deals in soccer and racing — is the focus of the Linius sales team, our channel partners are advancing on other key commercial markets such as corporate communications, security and defence, news, and education.

During the year we were pleased to receive continued investment support from existing and new investors. The Company raised $3.5 million in April 2019 through a private placement at 3.5 cents per share, with directors and their nominees contributing $1m of this amount (received post year end due to the requirement for shareholder approval). Post year end, the Company raised a further $4.5 million at 3.3 cents per share, with directors to contribute $300,000 post approval at the upcoming AGM in November. We were very pleased that the wider investment community has recognised the opportunity and continued to invest in the Company to fund the commercialisation of our core product.

Thank you

On behalf of your directors I would like to thank all shareholders who have supported us through this ongoing commercialisation phase. I look forward to seeing success from our commercialisation efforts and I hope you will continue to support us as we pursue our business plans.

I present to you the report on the Company and its controlled entities for the June 2019 financial year.

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Gerard Bongiorno CHAIRMAN 30 September 2019

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS

Linius’ patented technology affords it the opportunity to transform the global video market. During FY2019, the Company continued to invest in and built the assets which are now leading to commercial success. The Company continues to pursue its vision of making all the world’s video accessible as data.

Linius’ mission is to become the de facto standard for the management and streaming of video.

To deliver Linius’ vision and mission, the Company seeks to take its patented Video Virtualization Engine™ (VVE) to mass markets in three ways:

• Industry specific divisions and solution sets built around VVE

• Mass distribution through partners, such as IBM

• Self-service to global markets through a SaaS model

Focusing on these three paths to market, during FY2019 the Company

• invested in and launched the Linius SaaS platform - Linius Video Services (‘LVS’)

• established strong relationships with channel partners, including Amazon, Microsoft, and IBM

• developed and launched the SaaS marketplace with third parties already investing and launching their own technology on the Linius backbone

• invested in and secured Proofs of Concepts (‘POCs’) and first commercial deals

• continued to protect its IP through patents, trademarks, copyrights

These investments put the Company in good position to scale commercially and achieve our vision.

Poised to Scale

Linius Video Services, the cloud-based software-as-a-service (“SaaS”) platform for our core VVE technology, was built, tested, and launched in FY2019. This development of the SaaS platform is significant for both the Company and our customers. From our customers’ perspective, the LVS SaaS offering is truly disruptive in the video industry and enables them to quickly try the Company’s technology, without the burden of upfront capital expenditure, and then quickly scale their use of Linius’ products as their business needs change (for example, during event-driven spikes in usage, such as sports finals). From an internal perspective, operating as a SaaS platform affords the Company tremendously reduced costs and improved time-to-market for new functionality, when compared with traditional enterprise software development.

In parallel with the development and rollout of LVS, the Company continued to expand our channel partner relationships, both globally and locally, in FY2019. At the global level, the Company has a collaboration agreement with IBM, is a Select Technology Partner with Amazon AWS, and is part of the Microsoft Co-Sell program. Locally, our channel partners include systems integrators, managed service providers, and resellers and referral partners. Through these channels Linius believes that it has developed a high quality distribution network in terms of both geographic and market reach, along with world-class capability for innovation with regard to utilising and developing on top of Linius’ technology. The partners are not only selling the Company’s core technology, they are building their own products which rely on the Company’s technology and result in additional revenue to Linius as clients adopt our partners’ solutions. It is for this reason that we also launched the LVS marketplace in FY2019.

The LVS marketplace — where third parties build and promote their tools, plugins, and add-ons to LVS — is a place where Linius’ clients can go to get a head start on their deployments; integrate with their own, internal systems; or just generate new ideas.

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LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2019

CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED

Outlook

Immediately subsequent to the end of financial year, the Company closed two deals which are informative to our outlook for the next several years. SportsHero (ASX SHO), which is deploying Linius’ hyper-personalization application in their mobile app, is targeting the 80 million soccer fans across Indonesia. Racing.com represents another mainstream sports segment into which Linius’ hyper-personalization application is being deployed. These commercial agreements will both be revenue generating in FY2020, and represent the Company’s first steps towards penetrating the global soccer market, and then additional sports sectors — providing every sports fan with their own personalized TV channel over the next few years.

Our mid-term plan is to target specific segments, win initial clients to commercially validate solutions, and then roll those solutions out with our partners. The Company is well advanced in this plan with the assets and capability which were delivered in FY2019.

Specifically, we are leading with world soccer where we have already completed or are in progress of completing POC’s with large broadcasters, in addition to the SportsHero agreement. In parallel we are actively engaged with the partners for metadata in each of the markets, along with resellers and system integrators — many of whom are in place already — and the Company is in active conversations with the football leagues themselves.

As stated, this strategy is well advanced in the global soccer market ,and the initiative with Racing.com illustrates the Company’s endeavours in another sports market on which we are focussed, namely, racing and gaming. It is envisaged that initially Linius will establish direct agreements with key parties in these sectors after which our partners will replicate the models across each sector at scale. The Company has identified a number of sports sectors where there is a significant requirement for the application of its unique technology solutions.

Sport is a high profile sector which we believe has immediate and compelling requirements; however, the Linius hyper-personalization technology has been developed for broader applications in other global, vertical markets — for example, education, news, security and defence, and corporate communication. The establishment of the Company’s partner network, for both productisation and distribution, enables Linius to capitalise on the opportunities and positive commercial interest already shown by prospective clients.

The Company also has substantial capability and opportunity in several high-value horizontal applications beyond hyper-personalization: particularly, anti-piracy, personalized advertising, and additional security and defence applications. Each of these in their own right represent multi-billion-dollar opportunities. On the anti-piracy front, the Company has been working in conjunction with IBM on a Digital Asset Trust Network, which in September 2019 (subsequent to the close of the fiscal year) we presented on IBM’s stand at the International Broadcasting Convention (the world’s largest international broadcasting conference) in Amsterdam.

Revenue Model

As mentioned, software-as-a-service is the Company’s primary business model. The model reflects usage on a recurring revenue basis across three vectors: virtualization of our clients’ content library (both back catalogue and new content as it becomes available), enrichment of that content with third-party metadata (whether human generated or created by AI), and, significantly, a fee for every minute of virtual video that is played.

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED

Our current list pricing is

1. Virtualization	$0.0092 per min	A low cost way to encourage virtualization of as much content as possible
2. Enrichment	With AI $0.3000 per min without AI$0.1480 per min	Includes third party cost from AI provider
3. Personalized video delivery T1: <= 10,000,000pcm T2: > 10,000,000 & <= 50,000,000pcm T3: > 50 000 000pcm	$0.0022 per min $0.0017 per min $0.0012 per min	The bulk of the fees, in line with clients’ monetization models

Significantly, while the subscription revenue model is appealing to many potential clients, the Linius model is built to scale. Our pricing works for subscription-based services, ad-funded services, and even non-profit organizations (e.g., government or education).

FY2019 Accomplishments

Commercial POCs

During FY2019 Linius’ hyper-personalization application of VVE successfully went through proof-of-concept trials in the education vertical with Oklahoma State University, and in the media-and-entertainment vertical with Warner Bros.; and the first commercial deal was closed in the news vertical with Swedish start-up Newstag.

These initial deals and proofs of concept are important to Linius’ success because of their replicability. Each solution was built by a third-party system integrator, and can be quickly deployed for future clients, reducing friction in adopting Linius’ VVE technology.

Newstag

Newstag launched a hyper-personalized news search service, powered by Linius, on their site. According to Nielsen’s Total Audience Report 2016, news consumption is showing significant growth. In the US alone, adults over 18-years-old watched more than 27 billion minutes of national cable television news programming per week. The hyper-personalization of news content represents a dramatic shift in people’s ability to get the content they want, when they want it, delivered in an easy to consume single environment. Newstag began generating revenue for Linius subsequent to the close of the year.

Warner Bros. POC

In FY18, the Company announced Warner Bros. and Linius had agreed to collaborate on a pilot to demonstrate the analytics and KPI capabilities of Linius’ virtual video. In November, 2018, the TVOD (Transactional Video-OnDemand) test platform constructed by Linius’ System Integration partners on IBM Cloud went live. The original agreement with Warner Bros. was extended to include Village Roadshow as the in-country partner for the test, and the test was conducted by Qualtrics, a well-known third-party testing agency in Australia. The test involved the streaming of selected Warner Bros. movies over a VOD OTT (over the top) platform. The video streams were protected by industry standard DRM (Digital Rights Management). The testing criteria included a range of quantitative data (machine collected performance data), such as video load times and buffering, and qualitative data based on perceptions of the quality of the experience. The trial verified that high and standard definition movies will stream virtually on demand and met standard industry quality metrics.

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED

Oklahoma State University (OK State) POC

The OK State POC went live, delivered on LVS. The focus of the POC was to provide search capability across “famous” faces in University videos (famous within the context of the university). The POC was a great success, with OK State TV staff acting as a reference both internally and externally for commercial prospects.

Channel Partners

The Company has established a strong partner network and continues to invest in these relationships. Partners are required to roll out replicable solutions, but additionally partners are actively developing their own products on LVS, and building their sales pipelines.

Linius is partnered with the major cloud providers, and also with local system integrators and software developers. During FY2019, Linius renewed its collaboration agreement with IBM, the Company’s products became available on the Amazon Web Services (AWS) and Microsoft Azure marketplaces, and the Company was admitted to the Microsoft Co-Sell program. The Microsoft Co-Sell program is particularly exciting for the Company because it means that the Microsoft sales teams around the world will be compensated for selling Linius solutions to Microsoft’s vast customer base. Their sales representatives and partners are incentivized and enabled to sell a range of Linius solutions, including hyper-personalization solutions and services via LVS.

In addition to the household names, Linius channel strategy includes local partners that can build on top of the Company’s technology and deliver bespoke solutions to their clients. In FY2019, Certus Solutions — the largest and fastest growing IBM systems integration company in Australia and New Zealand — partnered with Linius, and built the Warner Bros. POC. Additionally, Hemisphere, a leading video-systems integrator based in Auckland, New Zealand, launched several products built on top of LVS, including their Search & Assembly App, which allows their clients to deploy hyper-personalized video solutions on their websites incredibly quickly — in some cases, in under an hour.

Blockchain Proof of Concept

The promise of blockchain is to have a transformative impact on management of digital assets, particularly across borders. However, this promise is yet to be realized in any significant way for traditional digital assets. The Company has long believed the its virtual video technology could be the enabling factor to make a video blockchain possible. To date, the Company has made de minimis investment in blockchain R&D. In March 2019, Linius demonstrated to the world that the combination of blockchain technology and virtual video makes it possible to store digital video assets on the blockchain and control those assets via “smart contracts” — an industry term for a set of rules (a contract) running on a blockchain. The Company is currently working with commercial pilot partners to accelerate the move from prototype to commercially viable product and to further develop the commercial models.

In summary, FY2019 represented significant advancements in the Company’s ability to deliver its technology commercially and scale the business in a number of key verticals. We have a multi-year plan in place to own hyperpersonalized TV across sports, news, education, and other verticals; we continue to see opportunity beyond this in anti-piracy, security and defense, and personalized advertising; and we are optimistic about frontier technologies such as blockchain, and the impact that Linius’ patented virtualization technology can have in these spaces.

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Christopher Richardson CHIEF EXECUTIVE OFFICER 30 September 2019

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LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

DIRECTORS’ REPORT

Your directors present this report on the Linius Technologies Limited (the “Company”) and its controlled entities (the “Group” or “Group”) for the year ended 30 June 2019.

Directors

The Directors in office during the year were: Gerard Bongiorno (Executive Chairman) Stephen McGovern (Non-Executive Director) Christopher Richardson (Executive Director & CEO)

All Directors have been in office since the start of the financial year to the date of this report.

Company Secretary

Giuseppe Rinarelli B.Acc, CA

Mr Rinarelli is the Group’s CFO and company secretary. He is an experienced finance professional having worked within a chartered environment in excess of 10 years. Appointed as company secretary on 3 June 2019.

Stephen Kerr B.Com, CA, FGIA

Mr Kerr provided company secretarial and CFO services to the Company, through his consultancy business. He is an experienced CFO and governance professional, having held senior finance positions in private and publicly listed company environments across Australia and New Zealand for over 20 years. Appointed as company secretary on 1 February 2016 and resigned on 3 June 2019.

Principal Activities

The principal activities of the entity are those of a technology business, including development of technology products, software development and the commercialisation and licencing of its computer software, the Linius Video Virtualization EngineTM, the world’s first video virtualisation engine. The technology transforms large inflexible video files into small highly flexible data structures.

Operating Results and Review of Operations

The loss for the year ended 30 June 2019 after income tax expense amounted to $11,557,874 (2018 loss: $10,714,098). This loss includes non-cash share based payments expense of $587,461 (2018: $1,358,869) and non-cash amortisation charges of $540,000 (2018: $540,000). During the year the Company proceeded with its commercialisation activities, expanded its management and operational teams to tackle global market opportunities and continued to develop and refine its core technology and product offerings. For more information on the years activities please refer to the above Chief Executive’s Review of Operations on pages 4 to 7.

Significant changes in the state of affairs

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

Dividends Paid or Recommended

No dividends were paid or declared for payment.

Financial Position

The net assets of the Group at 30 June 2019 are $5,501,534 ($14,101,948).

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

DIRECTORS’ REPORT CONTINUED

Going Concern

For the year ended 30 June 2019, the Group had an operating net loss of $11,557,874 (30 June 2018: $10,714,098) and net cash outflows from operating activities of $10,813,530 (30 June 2018: $8,544,365).

The ability of the Group to continue as a going concern is dependent upon a number of factors, one being the continuation and availability of funds. The financial statements have been prepared on the basis that the Group is a going concern, which contemplates the continuity of its business, realisation of assets and the settlement of liabilities in the normal course of business. Further details on the going concern basis of preparation used to prepare the annual financial statements are set out in note 1 to the annual financial statements.

After Balance Date Events

Subsequent to year end on 5 July 2019, the Group raised additional capital, via a placement to directors or their nominees, via issue of 28,571,430 fully paid ordinary shares at $0.035 per share, being $1,000,000 and on 27 September 2019, the Group raised additional capital via issue of 136,363,640 fully paid ordinary shares at $0.033 per share, being $4,500,000 excluding transaction costs.

Other than the matter noted above, there has not been any matter or circumstance that has arisen after balance date that has significantly affected, or may significantly affect, the operations of the Group, the results of these operations, or the state of affairs of the Group in future financial periods.

Environmental Issues

There are no environmental regulations or requirements that the Company is subject to.

Information on Directors

Gerard Bongiorno	— Executive Chairman
Experience	— Mr Bongiorno is Principal and Co-CEO of Sapient Capital Partners, a merchant banking
	operation and has over 30 years of professional experience in capital raisings and
	corporate advisory. Prior to forming Sapient (formerly Otway Capital), Gerard was Head
	of Property Funds Management at Challenger Financial Services Group (CFG) and was
	Group Special Projects Manager at Village Roadshow. Earlier in his career he worked
	at KPMG in insolvency and corporate finance. Gerard received his Bachelor’s Degree
	in Economics and Accounting from Monash University and completed the Program for
	Management Development at Harvard Business School PMD75.
	Director since 21 February 2017.
Interest in Shares and	— 28,083,334 Ordinary shares (inclusive of 20,000,000 loan shares)
Options at 30 June	1,041,667 Options
2019
Loan shares accounted
as options	20,000,000 loan shares options
Directorships held in	— In the 3 years immediately before the end of the financial year, Gerard Bongiorno
other listed entities in the last 3 years	served as a director of the following listed companies:
	Dubber Corporation Limited (ASX:DUB)

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LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

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DIRECTORS’ REPORT CONTINUED
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Stephen McGovern	—	Non-Executive Director
Experience	—	Mr McGovern has over 25 years’ experience in the fields of telecommunications,
		media sales, pay TV and regulatory. Steve has been a senior executive of several
		established companies, both domestically and internationally, which have been
		primarily associated with new and emerging markets and have required a strong sales
		and solutions focus. These include pay TV, telecommunications de-regulation, internet
		service providers and media licensing, all of which maintain a strong sales and
		solutions focus, both domestically and internationally.
		Mr McGovern is formerly a Sales Director of Sky Subscriber Services managing
		subscriber acquisition for Sky TV (now BSkyB). Between 1995 and 1998 Steve was an
		executive involved in the launch of the pay TV industry in Australia within the
		Galaxy/Austar/Foxtel network.
		From 1998 Mr McGovern was General Manager of Hotkey Internet Services, an ISP
		which was sold to Primus Telecommunications in 2000. From 2000 Steve was a
		director of the Australian subsidiary of Affinity Internet Holdings, Europe’s second
		largest ISP at the time and listed on the FTSE, having vended in an Australian based
		ISP business.
		For 11 years Mr McGovern was Chief Executive of the my1300 group of companies
		until the sale of the business earlier in 2014. This group comprised businesses which
		involved media licensing, telecommunications service providers and partner networks
		for Australian telecom companies such as Primus, AAPT, Telstra, Optus and Vodafone.
		Mr McGovern is currently the CEO and Managing Director of Dubber Corporation, an
		ASX listed provider of a Cloud recording and data capture Platform as a Service aimed
		at the telecommunications service provider sector. Director since 18 April 2016.
Interest in Shares and	—	40,000,000 Ordinary shares
Options at 30 June
2019
Directorships held in	—	In the 3 years immediately before the end of the financial year, Stephen McGovern
other listed entities in the last 3 years		served as a director of the following listed companies:
		Dubber Corporation Limited (ASX:DUB)
Christopher	—	Director and CEO
Richardson
Experience	—	Mr Richardson is a global executive in the internet space who with global technology
		sector experience. He has over 20 years experience building organisations and
		products that succeed in their markets and provide exceptional shareholder value.
		Currently, Mr Richardson sits on the board of directors of:
		•Mirovoy Sales, a sales software automation company based in Prague, CZ; and
		•The Ibis Network Limited, a content marketing agency based in Hong Kong, CN.

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

DIRECTORS’ REPORT CONTINUED

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Previously, Mr Richardson served as global General Manager of KIT digital’s networkoperator division, and CEO of KIT Germany, where he oversaw growth of video platform sales to network operators from $12 million US annually to over $100 million US, prior to KIT’s acquisition by Piksel, Inc. Before KIT digital, Mr Richardson served in executive roles in marketing and product-management for several Silicon Valley start-ups, including:

•U4EA Wireless (the world’s first SMB focused Wi-Fi manufacturer, and provider of embedded wireless software; acquired by GoS Networks); and

•NextHop Technologies (an embedded routing software company; acquired by Greenhills software), which he co-founded and raised Series A funding from tier-1 Silicon Valley VCs, led by New Enterprise Associates.

Prior to founding NextHop technologies, Mr Richardson was a software engineer at MERIT Networks, where he helped build the early internet, developing routing protocols, and consulting with developing countries around the world on deploying the Internet; lecturing multiple times at ISOC’s Developing Countries workshops in Geneva, Switzerland, and being the first non-native speaker at Russia’s All Russia Telematiks conference. Mr Richardson was Visiting Professor of Internet Routing at St. Petersburg State Technical University in St. Petersburg, Russia. He studied mathematics and philosophy at the University of Michigan, where he won the William S. Branstrom Prize for academic excellence and Evelyn O. Bychinsky Award for excellence in mathematics. Director since 18 April 2016.

Interest in Shares and — 10,000,000 Options options at 30 June 2019

Directorships held in — Nil other listed entities in the last 3 years

The information provided in the audited remuneration report includes remuneration disclosures that are required under the Corporations Act 2001 and other relevant requirements. These disclosures have been audited.

Key management personnel

Names and positions held of Group key management personnel (KMP) in office at any time during the year are:

Key Management Person Position

Gerard Bongiorno Executive Chairman Stephen McGovern Non-Executive Director Christopher Richardson Director and CEO Giuseppe Rinarelli CFO and Company Secretary (appointed 3[rd] June 2019) Stephen Kerr CFO and Company Secretary (resigned 3[rd] June 2019)

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LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

DIRECTORS’ REPORT CONTINUED

REMUNERATION REPORT - AUDITED

Principles used to determine the nature and amount of remuneration

The Board determines the appropriate nature and amount of remuneration. The board may receive advice from independent remuneration consultants to ensure remuneration levels are appropriate and in line with the market. No such advice was sought for the year ended 30 June 2019. The Board ensures that the executive reward satisfies the following criteria for good reward governance practice:

• competitiveness and reasonableness;

• acceptability to shareholders;

• alignment of executive remuneration to performance;

• transparency; and

• capital management.

The framework provides for a mix of fixed and variable remuneration. There was no target mix of fixed or variable remuneration set in the current year. The variable remuneration comprises share-based payment compensation and any discretionary performance bonus payment benefits.

Consequences of performance on shareholder wealth

In considering the Group’s performance and benefits for shareholder wealth, the directors have regard to the following indices in respect of the current financial year and prior financial period.

	2019	2018
(Loss) attributable to owners of the company	$(11,557,874)	$(10,714,098)
Change in share price	($0.033)	$0.024
Closing share price	$0.043	$0.076

Profit/(loss) amounts have been calculated in accordance with the Australian Accounting Standards (AASBs).

The operating loss includes significant expenditures incurred on the continued development of the Group’s proprietary software technology.

Non-executive Directors and executive Director

Fees and payments to non-executive Directors and the executive Directors reflect the demands, which are made on, and the responsibilities of, the Directors. Non-executive Directors’ fees and payments are reviewed annually by the Board.

Directors’ fees

Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum pool limit currently stands at $300,000 per annum.

Key Management Personnel Remuneration Policy

The Board’s policy for determining the nature and amount of remuneration of key management for the Group is as follows:

The remuneration structure for key management personnel is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the Group. There is currently no remuneration related to Group performance. The contracts for service between the Group and key management personnel are on a continuing basis, the terms of which are detailed below and are not expected to change in the immediate future.

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ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

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DIRECTORS’ REPORT CONTINUED
Service agreements
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DIRECTORS’ REPORTCONTINUED Service agreements	DIRECTORS’ REPORTCONTINUED Service agreements
Remuneration and other terms of employment for key management personnel are formalised in service
agreements. Details of	these agreements as at 30 June 2019 are as follows:
Name:	Gerard Bongiorno
Title:	Executive Chairman
Agreement commenced: 21 February 2017
Term of agreement:	No fixed term
Details:	An annual director fee of $90,000 plus superannuation. The fee paid to Mr Bongiorno
	is subject to annual review by the Board. Under the terms of his agreement and as
	approved by shareholders at general meeting, the Company issued Mr Bongiorno with
	20,000,000 loan shares in November 2017. The Company will reimburse Mr Bongiorno
	for all reasonable expenses incurred in performing his duties and will pay Mr Bongiorno
	additional fees where he is required to perform additional consulting tasks related to
	the commercialisation of the Linius technology. The agreement includes a non-
	competition clause.
Name:	Stephen McGovern
Title:	Non-Executive Director
Agreement commenced: 18 April 2016
Term of agreement:	No fixed term
Details:	An annual director fee of $90,000 plus superannuation. The fee paid to Mr McGovern
	is subject to annual review by the Board. Under the terms of his agreement, the
	Company issued Mr McGovern’s nominee with 6,000,000 Options in April 2016. The
	Company will reimburse Mr McGovern for all reasonable expenses incurred in
	performing his duties. The agreement includes a non-competition clause.
Name:	Christopher Richardson
Title:	Director and CEO
Agreement commenced: 1 December 2015
Term of agreement:	No fixed term
Details:	An annual consultancy fee of $271,200, payable at the rate of $22,600 per month
	(exclusive of any GST or withholding taxes). The consultancy fee will be reviewed
	annually by the Board. Under the terms of the agreement, the Company issued Mr
	Richardson’s nominee with 10,000,000 Options in April 2016 of which 10,000,000
	lapsed during the year and 10,000,000 options in November 2016. The agreement can
	be terminated by the company on one months’ notice or by Mr Richardson on three
	month’s written notice. The Company will reimburse Mr Richardson for all reasonable
	expenses incurred in performing his duties. The agreement includes a non-competition
	clause.
Name:	Stephen Kerr
Title:	Chief Financial Officer and Company Secretary
Agreement commenced: 21 January 2016 and ended 3 June 2019
Term of agreement:	No fixed term
Details:	An annual consultancy fee of $120,000, payable at the rate of $10,000 per month
	(exclusive of any GST or withholding taxes). The consultancy fee will be reviewed
	annually by the Board. Under the terms of the agreement, the Company issued Mr Kerr’s
	nominee with 1,500,000 Options in April 2016 of which 1,000,000 were exercised and
	500,000 lapsed during the year and 1,500,000 options in November 2016. The
	agreement was finalised 3rdJune 2019 with the appointment of Mr Rinarelli. The
	Company will reimburse Mr Kerr for all reasonable expenses incurred in performing his
	duties. The agreement includes a non-competition clause.

PAGE 13

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

DIRECTORS’ REPORT CONTINUED Service agreements (continued) Name: Giuseppe Rinarelli Title: Chief Financial Officer and Company Secretary Agreement commenced: 29 May 2019 Term of agreement: No fixed term Details: An annual salary fee of $130,000 plus superannuation. Under the terms of the contract, the Company granted Mr Rinarelli 1,500,000 Options in May 2019. The agreement can be terminated by either party on one month’s written notice. The Company will reimburse Mr Rinarelli for all reasonable expenses incurred in performing his duties. The agreement includes a non-competition clause.

Key Management Personnel Remuneration

Details of the nature and amounts of each major element of remuneration of each director of the Company and other key management personnel of the Group are:

2019
	Directors’ fees &	Superannuation	Share-based	Total7	Share-
	consultancy fees6	payments	payments5		based
	$	$	$	$	%
Non-executive directors:
Stephen McGovern	90,0002	8,325	-	98,325	-
Executive directors:
Christopher Richardson	271,2003	-	-	271,200	-
Gerard Bongiorno	150,0001	8,544	128,624	287,168	44.8
Executives:
Stephen Kerr	110,0004	-	-	110,000	-
Giuseppe Rinarelli	13,513	1,173	1,625	16,311	9.9
	634,713	18,042	130,249	783,004	16.6
2018
Non-executive directors:
Stephen McGovern	90,0002	8,325	-	98,325	-
Executive directors:
Christopher Richardson	230,8003	-	97,089	327,889	29.6
Gerard Bongiorno	90,0001	8,544	349,583	448,127	78.0
Executives:
Stephen Kerr	114,0004	-	14,563	128,563	11.3
	524,800	16,869	461,235	1,002,904	46.0

PAGE 14

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

DIRECTORS’ REPORT CONTINUED

1. Director and consultancy fees were paid to Otway Capital Consulting, a related party of Gerard Bongiorno.

2. Director fees were paid to SMG Nominees Pty Ltd, a related party of Stephen McGovern.

3. Director fees were paid to Mirovoy Sales, s.r.o. , a related party of Christopher Richardson.

4. Consultancy fees were paid to SC Kerr & Co, a related party of Stephen Kerr. Payments to Mr Kerr are to 3[rd] June 2019, any additional services provided by Mr Kerr post 3[rd] June 2019 are not included in this table.

5. The fair value of the share based payments is calculated at the date of grant of the option or loan share using the binomial pricing model and allocated to each reporting period based on forecast estimated vesting dates. The value disclosed is the portion of the fair value recognised as an expense in each reporting period.

6. Includes leave accruals calculated in accordance with AASB 112 Employee benefits.

7. No performance related benefits have been provided during the period.

Performance income as a proportion of total remuneration

Executive directors and executives were not paid performance based bonuses.

Equity instruments granted as compensation

Details on equity instruments that were granted as compensation to each key management person during the year and details on equity instruments vested during the year are as follows:

The loan shares granted are the amounts approved by way of shareholder resolution at the Company’s Annual General Meeting on 28 November 2017, no further loan shares were approved or issued.

2019	Number of		Fair value per loan		Value of loan granted		Total number
	loan shares		share at	Exercise	under the	Loan	of options
	granted		grant date	price	loan share	expiry	vested at 30
Options	2018	Grant date	$	$	terms	date	June 2019
Gerard	20,000,000	28 Nov 2017	0.026	0.05	$1,000,000	30 Nov	15,000,000
Bongiorno						2022

PAGE 15

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

DIRECTORS’ REPORT CONTINUED

Details of equity incentives affecting current and future remuneration

Details of the vesting profiles of the options held by each key management person of the Group are detailed below.

below.
	Instrument	Number of	Grant date	% vested	% forfeited	Financial
		shares or		during the	in year	years in
		options		year		which grant
						vests
Gerard	Loan shares	20,000,000	28 Nov 2017	25%	-	2018-20
Bongiorno
Christopher	Options	10,000,000	30 Nov 2016	40%	50%	2017-20
Richardson
Stephen Kerr	Options	1,500,000	30 Nov 2016	40%	17%	2017-20
Giuseppe	Options	1,500,000	29 May 2019	-	-	2020-2022
Rinarelli

The loan shares are accounted for as options. The value of loan shares granted is the fair value of the loan shares calculated at grant date. The total value of the loan shares is included in the table above. There are three tranches and amounts are allocated to remuneration over the vesting period for each tranche (i.e. November 2017 to November 2019).

Analysis of movements in equity instruments

The value of options and loan shares in the Company granted to and exercised by each key management person during the year is detailed below:

during the year is detailed below:
	Granted in year $	Value exercised in year $
Stephen Kerr	-	50,000
Giuseppe Rinarelli	33,000	-

Options over equity instruments

The movement during the reporting period, by number of options over ordinary shares in Linius Technologies Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

is as follows:
Balance 1.7.2018 Granted during the year Lapsed or exercised during the year Held at 30.6.2019 Gerard Bongiorno1 3,541,667 - (2,500,000) 1,041,776 Stephen McGovern 6,000,000 - (6,000,000) - Christopher Richardson 20,000,000 - (10,000,000) 10,000,000 Stephen Kerr2 3,000,000 - (1,500,000) 1,500,000 Giuseppe Rinarelli - 1,500,000 - 1,500,000	Vested during the year Total Vested and Exercisable 30.6.2019 - 1,041,776 - - 4,000,000 8,000,000 600,000 1,200,000 - -
Total 32,541,667 1,500,000 (20,000,000) 14,041,776	4,600,000 10,241,776

All options expire on the earlier of their expiry date or termination of the individual’s employment.

1. Options held by Mr Bongiorno are not in respect of his employment.

2. For former Executives, the balance is as at the date they cease being KMP.

PAGE 16

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

DIRECTORS’ REPORT CONTINUED

Exercise of options granted as compensation

During the period, 1,000,000 options were exercised at $0.05 per share .

Movements in shares

The movement during the reporting period in the number of ordinary shares in Linius Technology Limited, held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

	Balance	Received as	Acquired during	Balance2
	1.7.2018	Compensation	the year	30.6.2019
Gerard Bongiorno	8,083,334	-	-	8,083,334
Stephen McGovern	40,000,000	-	-	40,000,000
Stephen Kerr2	-	-	1,000,0001	1,000,000
Giuseppe Rinarelli	-	-	750,000	750,000
Total	48,083,334	-	1,750,000	49,833,334

1. Represents options exercised during the period.

1. For former Executives, the balance is as at the date they cease being KMP.

Number of Loan Shares held by Key Management Personnel

	Balance	Received as	Balance at	Vested at	Not vested at
	1.7.2018	Compensation	30.6.2019	30.6.2019	30.6.2019
Gerard Bongiorno	20,000,000	-	20,000,000	15,000,000	5,000,000
Total	20,000,000	-	20,000,000	15,000,000	5,000,000

Key management personnel transactions	Group
	2019	2018
	$	$
Transactions with related parties:
Advisory fees paid to Otway Capital Consulting a consulting firm in which
Gerard Bongiorno has an interest.	60,000	62,000
Amounts owing to related parties (included in trade and other payables)
Entity related to Gerard Bongiorno	11,000	11,000
Entity related to Stephen McGovern	9,013	9,013
Entity related to Christopher Richardson	26,800	30,379
Entity related to Stephen Kerr	-	11,000

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

END OF REMUNERATION REPORT

PAGE 17

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

DIRECTORS’ REPORT CONTINUED

Meetings of Directors

During the financial year, eight meetings of Directors were held. Attendance by each director was as follows:

	Directors’ Meetings
	Number eligible to attend	Number attended
Gerard Bongiorno	8	8
Stephen McGovern	8	8
Christopher Richardson	8	7

Indemnification and insurance of Directors and Officers

The Company has agreed to indemnify all the directors of the Company for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as directors of the Company, and its controlled entities, except where the liability arises out of conduct involving a lack of good faith.

The Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the Company, other than conduct involving a wilful breach of duty in relation to the Group. The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of directors’ and officers’ liability and legal expenses’ insurance contracts, as such disclosure is prohibited under the terms of the contract.

Options

At the date of this report, the unissued ordinary shares of Linius Technologies Limited under option are as follows:

Date of Expiry Exercise Price

Number Under Option

30/11/2019 unlisted 4.5 cents 31/12/2019 unlisted 7 cents 31/12/2019 unlisted 7.5 cents 31/12/2019 unlisted 8 cents 31/12/2019 unlisted 8.5 cents 30/09/2019 listed 16 cents 30/09/2019 unlisted 22 cents 30/06/2021 unlisted 4.5 cents 30/06/2021 unlisted 5 cents 08/02/2020 unlisted 17 cents 30/06/2020 unlisted 6 cents 15/02/2022 unlisted 6 cents 31/12/2022 unlisted 6 cents 29/11/2019 unlisted 7.5 cents 15/04/2022 unlisted 5.3 cents 29/05/2023 unlisted 3.53 cents 03/06/2023 unlisted 3.59 cents

11,500,000 3,375,000 3,375,000 3,375,000 3,375,000 62,083,350 10,000,000 1,875,000 2,000,000 1,000,000 2,200,000 2,000,000 5,687,500 44,720,000 2,000,000 1,500,000 300,000 160,365,850

During the year ended 30 June 2019, 1,000,000 ordinary shares of Linius Technologies Limited were issued on the exercise of options granted under any Employee Option Plan.

No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate.

PAGE 18

LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2019

DIRECTORS’ REPORT CONTINUED

Auditor’s Independence Declaration

The Lead auditor’s independence declaration is set out on page 21 and forms part of the directors’ report for the financial year ended 30 June 2019.

Non-Audit Services

During the year, KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements.

The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporation Act 2001 for the following reasons:

• all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and

• the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants , as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.

Details of the amounts paid to the auditors of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set out below

In dollars	2019
	$
Audit and review of financial statements	82,000
Other services
Taxation compliance services	27,232
Total paid to KPMG	109,232

Proceedings on Behalf of the Company

No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the period.

Future Developments

Other than as referred to in this report, further information as to likely developments in the operations of the Group and expected results of those operations would, in the opinion of the Directors, be speculative and prejudicial to the interests of the Group and its shareholders.

PAGE 19

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

Corporate Governance statement

The Company’s Corporate Governance Statement has been lodged with ASX and is available from Company’s website at www.linius.com/corporate-governance/.

Signed in accordance with a resolution of the Board of Directors.

==> picture [105 x 56] intentionally omitted <==

Gerard Bongiorno Director

30 September 2019 Melbourne

PAGE 20

==> picture [90 x 67] intentionally omitted <==

Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Linius Technologies Limited

I declare that, to the best of my knowledge and belief, in relation to the audit of Linius Technologies Limited for the financial year ended 30 June 2019 there here have been:

• i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

• ii. no contraventions of any applicable code of professional conduct in relation to the audit.

==> picture [63 x 30] intentionally omitted <==

KPMG

==> picture [70 x 46] intentionally omitted <==

Tony Batsakis Partner

Melbourne

30 September 2019

21

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR YEAR ENDED 30 JUNE 2019

	Note		Group
		2019		2018
		$		$
Revenue	2	164,254		91,142
Administrative expenses		(674,801)		(557,157)
Employee benefit expenses		(684,328)		(342,936)
Amortisation expense		(540,000)		(540,000)
Consultant expenses		(3,092,616)		(3,239,727)
Depreciation expense		(9,081)		(7,021)
Share-based payments expense	19	(587,461)		(1,358,869)
Financial and compliance expenses		(282,560)		(310,154)
Software development expenses		(4,336,239)		(2,991,301)
Marketing and promotional expenses		(731,310)		(713,903)
Patent costs		(42,160)		(60,535)
Legal expenses		(161,856)		(108,701)
Travel and accommodation expenses		(579,716)		(574,936)
Loss before income tax		(11,557,874)		(10,714,098)
Income tax expense	4	-		-
Loss for the year		(11,557,874)		(10,714,098)
Other comprehensive loss		-		-
Total comprehensive loss for the year		(11,557,874)		(10,714,098)
Basic loss per share (cents per share)	7	(1.2)		(1.3)
Diluted loss per share (cents per share)	7	(1.2)		(1.3)

The accompanying notes form part of the financial report.

PAGE 22

LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019

	Note	Group	Group
		2019	2018
		$	$
CURRENT ASSETS
Cash and cash equivalents	8	2,298,200	10,766,028
Other receivables	9	286,389	265,192
TOTAL CURRENT ASSETS		2,584,589	11,031,220
NON-CURRENT ASSETS
Intellectual property	10	3,465,000	4,005,000
Property, plant and equipment		34,929	19,713
TOTAL NON-CURRENT ASSETS		3,499,929	4,024,713
TOTAL ASSETS		6,084,518	15,055,933
CURRENT LIABILITIES
Trade and other payables	11	529,856	928,944
Employee provisions		53,128	25,041
TOTAL CURRENT LIABILITIES		582,984	953,985
TOTAL LIABILITIES		582,984	953,985
NET ASSETS		5,501,534	14,101,948
EQUITY
Issued capital	12	32,381,556	30,047,557
Share based payments reserve	19	4,986,621	4,363,160
Accumulated losses		(31,866,643)	(20,308,769)
TOTAL EQUITY		5,501,534	14,101,948

The accompanying notes form part of the financial report

PAGE 23

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019

Group	Issued	Share Based	Accumulated	Total
	Capital	Payments Reserve	Losses
	$	$	$	$
Balance 1 July 2017	12,575,410	2,062,705	(9,594,671)	5,043,444
Total comprehensive loss:
Loss for the year	-	-	(10,714,098)	(10,714,098)
Other comprehensive loss	-	-	-	-
Total comprehensive loss	-	-	(10,714,098)	(10,714,098)
Transactions with owners of the
Company:
Shares and options issued during	17,472,147	-	-	17,472,147
the year (net of capital raising costs)
Share-based payments	-	2,300,455	-	2,300,455
Total transactions with owners of the
Company	17,472,147	2,300,455	-	19,772,602
Balance at 30 June 2018	30,047,557	4,363,160	(20,308,769)	14,101,948
Balance 1 July 2018	30,047,557	4,363,160	(20,308,769)	14,101,948
Total comprehensive loss:
Loss for the year	-	-	(11,557,874)	(11,557,874)
Other comprehensive loss	-	-	-	-
Total comprehensive loss	-	-	(11,557,874)	(11,557,874)
Transactions with owners of the
Company:
Shares and options issued during	2,333,999	-	-	2,333,999
the year (net of capital raising costs)
Share-based payments	-	623,461	-	623,461
Total transactions with owners of the
Company	2,333,999	623,461	-	2,957,460
Balance at 30 June 2019	32,381,556	4,986,621	(31,866,643)	5,501,534

The accompanying notes form part of the financial report

PAGE 24

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019

	Note	Group
		2019	2018
		$	$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers		(10,956,994)	(8,620,815)
Other income received		36,091	56,789
Interest received		107,373	19,661
Net cash used in operating activities	13	(10,813,530)	(8,544,365)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant & equipment		(24,297)	(12,610)
Net cash provided by /(used in) investing activities		(24,297)	(12,610)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares		2,549,999	19,343,000
Capital raising costs paid		(180,000)	(979,267)
Net cash inflows from financing activities		2,369,999	18,363,733
Net increase/(decrease) in cash held		(8,467,828)	9,806,758
Cash at beginning of financial year		10,766,028	959,270
Cash at end of financial year	8	2,298,200	10,766,028

The accompanying notes form part of the financial report

PAGE 25

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

These general purpose financial statements comprise the financial report and notes of Linius Technologies Limited (the “Company”) and its controlled entities (the “Group”), a listed Australian company incorporated in Australia.

Basis of Preparation

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board and the Corporations Act 2001.

The financial statements comprise the consolidated financial statements for the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity, involved in the development of technology products, software development and the commercialisation and licencing of computer software.

Australian Accounting Standards set out accounting policies that the Australian Accounting Standards Board has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. The financial report and notes also comply with International Financial Reporting Standards adopted by the International Accounting Standards Board. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated.

The financial report was authorised for issue by the Board of Directors on 30 September 2019.

Reverse Acquisition Accounting

The acquisition of Linius (Aust) Pty Ltd by the Company, in the period ended 30 June 2016, is considered to be a reverse acquisition under Australian Accounting Standards, notwithstanding Linius Technologies Limited (“the Company”) being the legal parent of the Group. Consequently, the financial information presented in this Report is the financial information of Linius (Aust) Pty Ltd.

The legal structure of the Group subsequent to the acquisition of Linius (Aust) Pty Ltd is that the Company will remain as the legal parent entity. However, the principles of reverse acquisition accounting are applicable where the owners of the acquired entity (in this case, Linius (Aust) Pty Ltd) obtain control of the acquiring entity (in this case, the Company) as a result of the businesses’ combination.

Under reverse acquisition accounting, the consolidated financial statements are issued under the name of the legal parent (the Company) but are a continuation of the financial statements of the legal subsidiary (Linius (Aust) Pty Ltd), with the assets and liabilities of the legal subsidiary being recognised and measured at their pre-combination carrying amounts rather than their fair values.

Historical cost convention

The financial statements have been prepared under the historical cost convention.

PAGE 26

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Going Concern

For the year ended 30 June 2019, the Group incurred an operating net loss of $11,557,874 (2018: $10,714,098) and net cash outflows from operating activities of $10,813,530 (2018: $8,544,365).

The ability of the Group to continue as a going concern is dependent upon a number of factors, one being the continuation and availability of funds. The financial statements have been prepared on the basis that the Group is a going concern, which contemplates the continuity of its business, realisation of assets and the settlement of liabilities in the normal course of business for a period of at least twelve months from the date of approval of these annual financial statements.

In determining that the going concern assumption is appropriate, the directors have had regard to:

• projected cash outflows, which are expected to continue for a period of at least twelve months from the date of approval of these financial statements;

• confidence in achieving expected sales through its commercialisation activities;

• prudent management of costs as required including the ability to control expenditures in line with cash resources available;

• being able to raise additional capital funds through conducting a capital raising to enable the continuation of the development and commercialisation activities as planned; and

• the Directors have prepared cash flow projections for the period from 1 July 2019 until 30 September 2020 that support the Group’s ability to continue as a going concern. These cashflow projections assume the Group’s ability to control expenditures to the level of funding available in addition to raising additional capital (some of which was raised subsequent to year end).

The Directors note that subsequent to balance date, the Group raised $5,500,000 excluding transaction costs, which provides the Group with sufficient funding to meet its planned development and commercialisation activities.

The Group’s ability to continue to operate as a going concern is dependent upon the items listed above, the achievement of which is uncertain at the date of approval of these financial statements. These conditions give rise to a material uncertainty as to whether the Group will be able to continue as a going concern and, should the Group be unable to continue as a going concern it may be required to realise assets at an amount different to that recorded in the statement of financial position, settle liabilities other than in the ordinary course of business and make provisions for other costs which may arise.

(a) Income Tax

The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/(benefit).

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities/(assets) are therefore measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority.

PAGE 27

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(a) Income Tax (continued)

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the period as well as unused tax losses.

Current and deferred income tax expense/(benefit) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial report. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

(b) Financial Instruments

(i) Recognition and Initial Measurement

Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group 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 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.

PAGE 28

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Financial Instruments (continued)

• (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; FVOCI – debt investment; FVOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group 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.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Group 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 FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. There were no financial assets at FVTPL during or at year end.

PAGE 29

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Financial Instruments (continued)

Financial assets – Subsequent measurement and gains and losses: Policy applicable from 1 July 2018 (continued) Financial assets at amortised cost

These assets 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 are recognized in profit or loss any gain or loss on derecognition is recognised in profit or loss.

Debt investments at FVOCI

These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. There were no debt investment at FVOCI during or at year end.

Equity investments at FVOCI

These asset are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss. There were no equity investment at FVOCI during or at year end.

(iii) Decognition

Financial assets

The Group 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 Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Group 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 Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group 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 Group 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.

PAGE 30

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Financial Instruments (continued)

Prior year

Recognition and Initial Measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

Classification and Subsequent Measurement

i. Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise.

ii. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method.

iii. Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost using the effective interest rate method.

iv. Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments and are subsequently measured at fair value and changes there in, other than impairment losses, are recognised in other comprehensive income and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

PAGE 31

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Financial Instruments (continued)

v. Financial Liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method.

(c) Impairment testing of tangible and intangible assets

At each reporting date, the Directors review the carrying values of the Group’s tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives and for any assets when impairment triggers exist.

(d) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

(e) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 12 months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities in the statement of financial position.

(f) Revenue and Other Income

The Group has applied AASB 15 from 1 July 2018. Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer.

The below provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies.

Services rendered

Nature and timing of satisfaction of performance obligations, including significant payment terms

The Group derives its revenue primarily from ‘software-as-a-service’ subscriptions, where customers subscribe to access the platform and associated support services. Invoices for providing software-as-a-service and related support revenue are issued on a monthly basis and are usually payable within 30 days.

Revenue recognition under AASB 15 (applicable from 1 July 2018)

Services are both distinct and capable of being distinct in the context of the contract, representing a series of recurring services that the Group stands ready to perform over the contract term. Revenue is typically recognised on services over time as a series of services performed over the contract term.

PAGE 32

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(f) Revenue and Other income (continued)

Prior year

Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Any consideration deferred is treated as the provision of finance and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue.

Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument. Dividend revenue is recognised when the right to receive a dividend has been established.

Government grant revenue is recognised on receipt.

All revenue is stated net of the amount of goods and services tax (GST).

(g) Trade and Other Payables

Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the Group during the reporting period, which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition of the liability.

(h) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(i) Comparative Figures

Where required by Accounting standards, comparative figures have been adjusted to conform to changes in the presentation for the current financial year.

(j) Critical Accounting Estimates and Judgments

The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

Impairment

The Directors assess impairment at each reporting date by evaluating conditions specific to the Group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

PAGE 33

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(j) Critical Accounting Estimates and Judgements (continued)

Share based payment transactions

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is typically determined using a binomial option pricing model.

(k) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Linius Technologies Limited.

(l) Trade and other receivables

Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 30 days.

Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms.

Factors considered by the Group in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Group. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance.

The amount of the impairment loss is recognised in the statement of profit or loss and other comprehensive income. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of profit or loss and other comprehensive income.

PAGE 34

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(m) Intangible assets

Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

(n) Employee leave benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the balance date are recognised in other payables in respect of employees’ services up to the balance date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departures, and period of service. Expected future payments are discounted using market yields at the balance date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

(o) Issued capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a new business are not included in the cost of acquisition as part of the purchase consideration.

(p) Earnings per share

Basic earnings per share is calculated as net profit/loss attributable to members of the Company, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit/loss attributable to members of the Company, adjusted for:

• costs of servicing equity (other than dividends) and preference share dividends;

• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses;

• and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;

• divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

PAGE 35

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(q) Foreign currency translation

Both the functional and presentation currency of Linius Technologies Limited is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date.

All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss.

Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

As at the balance date the assets and liabilities of any foreign subsidiary is translated into the presentation currency of Linius Technologies Limited at the rate of exchange ruling at the balance date and income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used.

The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss.

In addition, in relation to the partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

(r) Share-based payments

The Company has issued options and shares to directors and employees as part of their remuneration arrangements and has issued options and shares to third parties in consideration for acquisitions, settlement of loans, acquisition fees and for consultancy services received. The cost of these equity-settled transactions has been measured by reference to the fair value of the equity instruments granted, namely the market value of the Company’s shares on the dates when agreements were reached to issue those shares. The grant-date fair value of equity settled sharebased payments arrangements granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

PAGE 36

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(s) Parent entity financial information

The financial information for the parent entity, Linius Technologies Limited, disclosed in Note 22 has been prepared on the same basis as the consolidated financial statements, except as set out below.

(i) Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the parent entity’s financial statements. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments.

(ii) Share-based payments

The grant by the company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution to that subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

(t) Plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost, which includes capitalised borrowing costs, less accumulated depreciation and any accumulated impairment losses.

If significant parts of property, plant and equipment have different useful lives, then they are accounted for as separate items of property, plant and equipment.

Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.

(ii) Depreciation

Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lovers unless it is reasonably certain that the group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful loves of the property, plant and equipment for current and comparative periods are as follows:

- IT equipment 3 years

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

(u) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(ii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

PAGE 37

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(v) Impairment Non-derivative financial assets

Policy applicable from 1 July 2018

Financial instruments and contract assets

The Group recognises loss allowances for ECLs on:

• financial assets measured at amortised cost;

• debt investments measured at FVOCI. The Group did not have any debt investment of FVOCI during and as at 31 June 2019; and

• contract assets.

The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:

• debt securities that are determined to have low credit risk at the reporting date; and

• other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

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

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 90 days past due.

The Group considers a financial asset to be in default when:

• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or

• the financial asset is more than 180 days past due.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

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 Group expects to receive).

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

PAGE 38

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(v) Impairment (continued)

Non-derivative financial assets (continued)

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

• significant financial difficulty of the borrower or issuer;

• a breach of contract such as a default or being more than 90 days past due;

• the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;

• it is probable that the borrower will enter bankruptcy or other financial reorganisation; or

• the disappearance of an active market for a security because of financial difficulties.

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.

For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in OCI.

Write-off

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 180 days past due based on historical experience of recoveries of similar assets. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

Prior year

Impairment of financial assets

The Group assesses at each balance date whether a financial asset or Group of financial assets is impaired.

i. Financial assets measured at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss.

PAGE 39

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(v) Impairment (continued)

i. Financial assets measured at amortised cost (continued)

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a Group of financial assets with similar credit risk characteristics and that Group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

ii. Available-for-sale financial assets

If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the statement of comprehensive income. Reversals of impairment losses for equity instruments classified as available-for-sale are not recognised in profit. Reversals of impairment losses for debt instruments are reversed through profit or loss if the increase in an instrument's fair value can be objectively related to an event occurring after the impairment loss was recognised in profit or loss.

(w) Adoption of new and revised standards

Standards issued but not yet effective

In the year ended 30 June 2019, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Group and effective for the current annual reporting period. The Group has not early adopted any standards during the current period in preparing these consolidated financial statements.

As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group’s financial statements.

PAGE 40

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 2: REVENUE

NOTE 2: REVENUE
	Group
	2019	2018
	$	$
Revenue for services rendered	14,534	-
Other revenue:
Government grants	40,090	56,789
Interest received	109,630	34,353
Total revenue	164,254	91,142

NOTE 3: LOSS FOR THE YEAR

NOTE 3: LOSS FOR THE YEAR
	Group
	2019	2018
	$	$
Other expenses:
Occupancy costs	133,830	98,570

PAGE 41

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 4: INCOME TAX EXPENSE
	Group
	2019	2018
	$	$
(a) Income tax expense
Current tax benefit	(3,007,849)	(2,556,599)
Deferred tax – origination and reversal of temporary differences	(7,724)	(6,307)
Deferred tax assets not recognised	3,015,573	2,562,906
	-		-
(b) Reconciliation of income tax expense to prima facie tax
payable
The prima facie tax payable on profit/loss from ordinary activities
before income tax is reconciled to the income tax expense as
follows:
Prima facie tax on operating loss at 27.5%	(3,178,415)	(2,946,377)
Add / (Less)
Tax effect of:
Share based payments	161,552	373,689
Other non-allowable items	1,290	9,782
Unused tax losses not recognised as deferred assets	3,015,573	2,562,906
Income tax attributable to operating loss	-	-
(c) Unrecognised deferred tax assets
Unused Australian tax losses for which no deferred tax asset has	6,802,152	3,786,579
been recognised
Temporary differences not recognised	14,610	6,886
Total	6,816,762	3,793,465

Potential deferred tax assets attributable to tax losses carried forward have not been brought to account at 30 June 2019 because the Directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this current point in time. These benefits will only be obtained if:

i. The Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss to be realised;

ii. The Group continues to comply with conditions for deductibility imposed by law; and

iii. No changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the losses.

PAGE 42

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 5 : KEY MANAGEMENT PERSONNEL

The total of remuneration paid to KMP of the Group during the period are as follows:

	Group
	2019	2018
	$	$
Short-term employee benefits	652,755	541,669
Share-based payments	130,249	461,235
	783,004	1,002,904

NOTE 6: AUDITOR’S REMUNERATION

NOTE 6: AUDITOR’S REMUNERATION
	Group
	2019	2018
	$	$
Remuneration of the auditor for services provide to the Group and the Parent
during the year:
— auditing and reviewing of financial statements:	82,000	82,000
KPMG
— taxation advisory
KPMG	27,232	4,410
	109,232	86,410

NOTE 7: EARNINGS/LOSS PER SHARE

		Group
		2019	2018
		$	$
a.	Reconciliation of earnings to profit or loss
	Loss used to calculate basic and diluted EPS	(11,557,874)	(10,714,098)
		No.	No.
b.	Weighted average number of ordinary shares outstanding during the	953,465,552	811,545,392
	period used in calculating basic and diluted EPS

Potential ordinary shares comprising 115,645,850 options (2018: 229,093,350) were excluded in the calculation of diluted EPS given they are antidilutive.

PAGE 43

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 8: CASH AND CASH EQUIVALENTS

NOTE 8: CASH AND CASH EQUIVALENTS
	Group
	2019	2018
	$	$
Cash at bank and in hand	2,298,200	10,766,028

The effective interest rate on short-term bank deposits was varying between 1.25% to 2.55%.

Reconciliation of cash

Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:

Cash and cash equivalents 2,298,200 10,766,028

NOTE 9: OTHER RECEIVABLES

NOTE 9: OTHER RECEIVABLES
	Group
	2019	2018
	$	$
CURRENT
Accounts receivable	14,534	-
GST receivable	70,323	84,861
Prepaid expenses and other receivables	201,532	180,331
	286,389	265,192

NOTE 10: INTELLECTUAL PROPERTY

The Group acquired the intellectual property associated with the Linius technology from an unrelated party in the financial period ended 30 June 2016. The intellectual property includes patents, copyright, confidential information and trademarks. In accordance with accounting standards and the Group accounting policies this asset is treated as having a finite life and is being amortised over 10 years.

	Group
	2019	2018
	$	$
Intellectual property at cost	5,400,000	5,400,000
Accumulated amortisation	(1,935,000)	(1,395,000)
	3,465,000	4,005,000

PAGE 44

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 10: INTELLECTUAL PROPERTY (CONTINUED)

The directors have assessed the value and useful life of the intellectual property at balance date.

The cost of the intellectual property was established upon the purchase of the intellectual property through a third party transaction during the financial period ended 30 June 2016. The value of the intellectual property was further validated through the reverse takeover process and capital raising undertaken by Linius Technologies Limited (Linius) in April/May 2016. During this process an independent report was commissioned, which gave the directors comfort that the intellectual property purchased was covered by valid patents, trademarks and copyright.

The directors note that the intellectual property is at an early stage in its commercial life, with the associated technology recently commencing commercialisation. The value and lifespan of the owned intellectual property continues to be enhanced by further patent registrations in new jurisdictions across the world and through continued development of the technology associated with the intellectual property.

The directors have currently assessed the useful life of the intellectual property as being 10 years. The directors consider that a 10 year useful life is reasonable and appropriate and have amortised the value of intellectual property at balance date on that basis.

Impairment testing

As a result of the operating loss incurred, impairment analysis of the intellectual property has been performed using the following alternative methods:

(i) Market capitalisation approach

Since listing on ASX, the shares of Linius have traded in a ready market, supporting the value of the intellectual property asset. The assets of the Group at 30 June 2019 consist principally of cash of $2,298,200 and intellectual property, after amortisation, of $3,465,000. Net assets are $5,501,534.

Linius shares closed at a price of 4.3 cents per share on 30 June 2019. Total fully paid ordinary shares on issue at 30 June 2019 are 1,013,026,120. This gives a market capitalisation of Linius of $43,560,123. Given the development nature of the Group’s operations, the directors believe that the recoverable amount of the intellectual property on the balance sheet at 30 June 2019 is supported by the market value of Linius.

(ii) Discounted cashflow approach

The recoverable amount of the CGU (being the Group as a whole at this stage of the Group’s lifecycle) was estimated based on the value in use of the Group, determined by discounting the future cash flows to be generated from the continuing use of the Group’s intellectual property. The following were key assumptions in the value in use analysis:

• Cash flows were forecast for a five year period. The terminal value of the Group was based on the fifth year cash flow and a long-term growth rate of 2.5%, which is consistent with market assumptions of the long term growth target for Australia.

• Revenue was based on a staged pipeline of licence income being earned, which is anticipated to grow in FY20 and FY21 based on the number of customer take-on of the Linius technology. From 2022 to 2024 it is based on a compounded growth. Expenses are set based on the 2019 budget, increasing by anticipated growth required to the support the increase in revenue forecast.

• An after tax discount rate of 15% (pre-tax 18.88%) was applied in determining the recoverable amount of the Group. The discount rate was estimated based on an industry average weighted-average cost of capital and applying a premium to the industry average due to the Group being in its growth phase and the risks inherent in the cash flow forecast.

PAGE 45

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

The recoverable amount of the CGU was determined to be higher than its carrying amount, indicating that no impairment was necessary. In addition, reasonably possible changes in key assumptions were considered, such as changes in revenue and expenses; sufficient headroom exists.

NOTE 11: TRADE AND OTHER PAYABLES

NOTE 11: TRADE AND OTHER PAYABLES
	Group
	2019	2018
	$	$
Trade payables*	431,948	702,224
Sundry payables and accrued expenses	97,908	226,720
	529,856	928,944

*Terms of trade are in line with normal commercial terms (usually 30 to 60 days).

NOTE 12: ISSUED CAPITAL AND RESERVES

	Note	$	Number
		Group	(Legal parent)
Issued Capital
2019
Opening balance 1 July 2018		30,047,557	935,597,548
Issue of shares through private placement (net of costs)*		2,283,999	71,428,572
Issue of shares as share based payment to consultants**		-	5,000,000
Issue of shares on conversion of unlisted options		50,000	1,000,000
At reporting date		32,381,556	1,013,026,120
The Company has issued share capital amounting to 1,013,026,120	ordinary	shares of no par value.
2018
Opening balance 1 July 2017		12,575,410	679,190,880
Issue of shares through private placement (net of costs)*		16,579,147	224,166,668
Issue of shares as share based payment to corporate advisor		50,000	1,000,000
Conversion of performance shares		-	20,000,000
Issue of shares on conversion of listed options		843,000	11,240,000
At 30 June 2018		30,047,557	935,597,548

*Net of $36,000 (2018: $941,586) of share based payment transaction costs and $180,000 of other transaction costs.

**Net of $272,500 of share based payments.

PAGE 46

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 12: ISSUED CAPITAL AND RESERVES (CONTINUED)

	Legal parent	entity
Ordinary shares	2019	2018
	No.	No.
Opening balance	935,597,548	679,190,880
Fully paid shares issued during the year
— July 2017 (issue of shares by private placement)	-	30,000,000
— October 2017 (issue of shares by private placement)	-	85,000,000
— December 2017 (issue of shares by private placement)	-	5,000,000
— December 2017 (share based payment to director)	-	20,000,000
— December 2017 (issue of shares on exercise of unlisted options)	-	3,500,000
— January 2018 (issue of shares on exercise of unlisted options)	-	6,340,000
— February 2018 (issue of shares on exercise of unlisted options)	-	500,000
— February 2018 (issue of shares by private placement)	-	81,250,000
— March 2018 (issue of shares on exercise of unlisted options)	-	900,000
— March 2018 (share based payment of consulting fees)	-	1,000,000
— May 2018 (issue of shares by private placement)	-	2,083,334
— June 2018 issue of shares by private placement)	-	20,833,334
— August 2018 (share based payment of consulting fees)	2,500,000	-
— February 2019 (share based payment of consulting fees)	1,250,000	-
— March 2019 (issue of shares on exercise of unlisted options)	1,000,000	-
— April 2019 (issue of shares by private placement)	71,428,572	-
— June 2019 (share based payment of consulting fees)	1,250,000	-
At reporting date	1,013,026,120	935,597,548

At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. All ordinary shares rank equally with regard to the Company’s residual assets.

PAGE 47

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 12: ISSUED CAPITAL AND RESERVES (CONTINUED)

NATURE AND PURPOSE OF RESERVES

Share-Based Payments Reserve

This reserve is used to record the equity value of share based payment expenses incurred as consideration for employee and consultant services.

Capital risk management

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders.

Due to the nature of the Group’s activities, being an early stage technology company, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. Therefore, the focus of the Group’s capital risk management is the current working capital position against the requirements of the Group to meet research and development of software, early stage business commercialisation initiatives and corporate overheads. The Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The working capital position of the Group at 30 June 2019 is as follows:

follows:
	Group
	2019	2018
	$	$
Cash and cash equivalents	2,298,200	10,766,028
Trade and other receivables	286,389	265,192
Trade and other payables and other liabilities	(582,984)	(953,985)
Working capital position	2,001,605	10,077,235

PAGE 48

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 13: CASH FLOW INFORMATION
	Group
	2019	2018
	$	$
Cash flows excluded from loss attributable to operating activities:
Loss after income tax	(11,557,874)	(10,714,098)
Non cash items
- Depreciation	9,081	7,021
- Amortisation	540,000	540,000
- Share-based payments expense	587,461	1,358,869
- Shares issued for payment of trade payable	-	50,000
Changes in assets and liabilities
- Increase/(decrease) in provisions	28,087	22,936
- Increase/(decrease) in trade payables and accruals	(399,088)	378,624
- (Increase)/decrease in trade receivables and prepayments	(21,197)	(187,717)
Cash flows used in operating activities	(10,813,530)	(8,544,365)

Reconciliation of movements of liabilities to cashflows from financing activities There were no changes in liabilities arising from financing activities (2018: nil).

PAGE 49

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 14: RELATED PARTY TRANSACTIONS

	Group
	2019	2018
	$	$
(i) Transactions with key management personnel:
Advisory fees paid to Otway Capital Consulting, a consulting firm in which
Gerard Bongiorno has an interest	60,000	62,000
(ii) Amounts owing to key management personnel (included in trade and
other payables):
Entity related to Gerard Bongiorno	11,000	11,000
Entity related to Stephen McGovern	9,013	9,013
Entity related to Christopher Richardson	26,800	30,379
Entity related to Stephen Kerr	-	11,000

Transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

NOTE 15: INTERESTS IN CONTROLLED ENTITIES

The parent company had the following controlled entities:	The parent company had the following controlled entities:		% Held
Name of the subsidiary	Place of incorporation	Class of shares	2019	2018
Linius (Aust) Pty Ltd	Australia	Ordinary	100%	100%
Linius Solutions Pty Ltd	Australia	Ordinary	100%	100%
Linius UK Ltd	UK	Ordinary	100%	-
Linius Inc.	USA	Ordinary	100%	-

PAGE 50

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 16: OPERATING SEGMENTS

Segment Information

AASB 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

The Group’s operating segments have been determined with reference to the monthly management accounts used by the Chief Operating Decision Maker to make decisions regarding the Group’s operations and allocation of working capital. Due to the size and nature of the Group, the Board as a whole has been determined as the Chief Operating Decision Maker.

Based on the quantitative thresholds included in AASB 8, there is only one reportable segment, being the development of computer software in the Australasian region.

The revenues and results of this segment are those of the Group as a whole and are set out in the consolidated statement of profit or loss and other comprehensive income. The segment assets and liabilities of this segment are those of the Group and are set out in the consolidated statement of financial position.

NOTE 17: COMMITMENTS

There are no material lease or other commitments as at balance date. The entity operates from premises which are leased on a short-term tenancy.

NOTE 18: CONTINGENCIES

There are no contingent assets or liabilities as at balance date.

NOTE 19: SHARE-BASED PAYMENTS

Share option and loan share schemes

Employee share option plan

An employee share option plan (ESOP) has been established by the Group, whereby the Group may, at the discretion of the Board, grant options over ordinary shares in the company to personnel of the Group. The options are issued for nil consideration and are granted in accordance with time based and/or performance targets established by the Board.

Loan funded share plan

A loan funded share plan (LFSP) has been established by the Group, pursuant to which, at the discretion of the Board, fully paid ordinary shares in the Company may be acquired by certain key personnel and Directors using financial assistance given by the Company. Participants will acquire or be issued loan funded shares at market value as at the grant date using a loan provided by the Company. The loan is interest-free and limited recourse in accordance with the loan terms and the LFSP rules. The LFSP rules require the loan to be repaid before a participant can sell their shares. The shares are granted in accordance with time based and/or performance targets established by the Board.

PAGE 51

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) Share options and loan shares (equity settled)

Share options and loan shares (equity	settled)
The key terms and conditions of share by the physical delivery of shares. Grant date	options and loan shares on issue are as follows; all options are to be settled Number of instruments Exercise price Vesting conditions Contractual life of options
Options granted to key management personnel and employees: Employees On 15 January 2018 On 13-21 December 2018 On 3 June 2019 Key Management Personnel On 30 November 2016* On 29 May 2019 Loan shares granted to key management personnel On 28 November 2017 Options granted to consultants: On 15 February 2018 On 15 February 2018 On 15 February 2018 On 15 February 2018 On 22 February 2018 On 28 February 2018 On 28 February 2018 On 28 May 2018 On 27 April 2018 On 30 October 2018 On 1 September 2019 On 11 September 2019 On 25 January 2019 On 15 February 2019 On 26 March 2019	1,875,000 4.5 cents 33% vesting on each of 1st, 2nd and 3rdanniversary of employment date 3.3 years 5,687,500 6 cents 33% vesting in 6 months, 33% vesting in 18 months and 33% vesting in 30 months 4 years 300,000 3.59 cents 33% vesting on each of 1st, 2nd and 3rdanniversary of employment date 4 years 7,862,500 11,500,000 4.5 cents Refer to Note A below 3 years 1,500,000 3.53 cents 33% vesting on each of 1st, 2nd and 3rdanniversary of employment date 4 years 13,000,000 20,000,000 5.0 cents 50% vesting on issue, 25% vesting in 12 months, 25% vesting in 24 months 5 years 3,375,000 7 cents Vested on issue 22 months 3,375,000 7.5 cents Vested on issue 22 months 3,375,000 8 cents Vested on issue 22 months 3,375,000 8.5 cents Vested on issue 22 months 2,000,000 5.0 cents 33% vesting on each of 1st, 2nd and 3rdanniversary of engagement date 3.3 years 10,000,000 22 cents Vested on issue 19 months 10,000,000 16 cents Vested on issue 19 months 1,000,000 17 cents Vested on issue 21 months 300,000 6 cents Vested on issue 27 months 300,000 6 cents Vested on issue 20 months 300,000 6 cents Vested on issue 22 months 300,000 6 cents Vested on issue 22 months 1,000,000 6 cents Vested on issue 17 months 2,000,000 6 cents Vested on issue 3 years 2,000,000 5.3 cents Vested on issue 3 years 62,700,000

*Include options issued to former Key Management Personnel.

PAGE 52

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 19: SHARE-BASED PAYMENTS (CONTINUED)

Note A

11,500,000 options were granted to Directors and Executives pursuant to a shareholder resolution passed at the Company’s Annual General Meeting on 30 November 2016:

==> picture [428 x 166] intentionally omitted <==

----- Start of picture text -----

Name Position Vesting Condition Options
Managing Director Vesting Condition 1 2,000,000
and Chief Executive Vesting Condition 2 2,000,000
Christopher Richardson
Officer Vesting Condition 3 2,000,000
Vesting Condition 4 2,000,000
Vesting Condition 5 2,000,000
Chief Financial Vesting Condition 1 300,000
Officer and Company Vesting Condition 2 300,000
Stephen Kerr Secretary Vesting Condition 3 300,000
Vesting Condition 4 300,000
Vesting Condition 5 300,000
Total 11,500,000
----- End of picture text -----

• These Options shall vest in four equal instalments at the end of each calendar quarter

The options are subject to the following vesting conditions:

The Options will not vest and become exercisable into Shares until such time as the conditions to their vesting (Vesting Conditions) set out below have been satisfied:

• Vesting Condition 1 means the date on which all existing and outstanding Performance Shares have been converted by the Company into Shares;

• Vesting Condition 2 means, subject to Vesting Condition 1 having been satisfied, the date at which the VWAP over 20 consecutive trading days exceeds $0.15;

• Vesting Condition 3 means, subject to Vesting Condition 2 having been satisfied, the date on which the Company announces that a first release of the Linius technology in the form of software (Linius Software) is available for commercial distribution to the market (which succeeds alpha and beta versions of the software);

• Vesting Condition 4 means the date on which the Company (or a subsidiary) first enters into an arm’s length agreement with a third party for the commercial use of the Linius Software, whether by way of indirect means (e.g. via a reseller arrangement) or direct means (e.g. via a licence to use); and

• Vesting Condition 5 means the date on which the Company’s and its subsidiaries’ forecast gross operational revenue from third party agreements for the following 12-month period is at least $1,000,000.

If the relevant Vesting Condition is not satisfied within the respective time for satisfaction, the relevant number of Options attached to such Vesting Condition will lapse.

PAGE 53

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 19: SHARE-BASED PAYMENTS (CONTINUED)

Share based payments (equity settled) expense recognised in profit or loss

	2019	2018
	$	$
Options
Options issued to KMPs:
- Christopher Richardson	-	97,089
- Stephen Kerr	-	14,563
- Giuseppe Rinarelli	1,625	-
Options issued under the ESOP	114,589	360,361
Options issued to consultants	378,623	1,478,546
Cost of options issued to consultants for capital
raising services, applied against equity	(36,000)	(941,273)
	458,837	1,009,286
Shares
Shares issued to KMPs:
- Gerard Bongiorno – Loan funded shares	128,624	349,583
	587,461	1,358,869

Reconciliation of outstanding share options and loan shares – equity settled The number and weighted-average exercise prices of share options under the share option programmes were as follows:

follows:
Options on issue	Number of	Weighted	Number of	Weighted
	options	average	options	average
	2019	exercise	2018	exercise price
		price		2018
		2019
Outstanding at 1 July	229,093,350	9.6 cents	73,000,000	4.9 cents
Listed options issued during the year			62,083,350	16.0 cents
Options expired during the year	(126,635,000)	6.3 cents
Options exercised during the year	(1,000,000)	5 cents	(11,240,000)	7.5 cents
ESOP options granted during the year	7,987,500	5.45 cents	5,750,000	4.7 cents
Options issued during the year	4,200,000	6 cents	75,000,000	7.5 cents
Options issued during the year	2,000,000	5.3 cents	13,500,000	7.75 cents
Options issued during the year			10,000,000	22.0 cents
Options issued duringtheyear			1,000,000	17.0 cents
Outstandingat 30 June	115,645,850	12.8 cents	229,093,350	9.6 cents
Exercisable at 30 June	98,266,683	14.2 cents	218,360,017	9.8 cents

PAGE 54

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 19: SHARE-BASED PAYMENTS (CONTINUED)

Loan shares on issue*	Number of loan	Weighted	Number of	Weighted
	shares	average price	loan shares	average price
	2019	2019	2018	2018
Outstanding at 1 July	20,000,000	5.0 cents	-	-
Loan shares granted during the year	-	-	20,000,000	5.0 cents
Outstandingat 30 June	20,000,000	5.0 cents	20,000,000	5.0 cents
Vested at 30 June	15,000,000	5.0 cents	10,000,000	5.0 cents

• Loan shares are accounted for as options in the financial accounts.

The fair value of the equity-settled share options and loan shares granted in the current year is estimated as at the date of grant using an independent valuation, which is based on the binomial model and Black-Scholes model, which considers the terms and conditions upon which the options were granted:

30 June 2019 Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Exercise price (cents) Grant date share price Grant date fair value Grant date Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Exercise price (cents) Grant date share price Grant date fair value Grant date	5,687,500 Unlisted ESOP options 1,500,000 Unlisted ESOP options 300,000 Unlisted ESOP options 300,000 Unlisted 300,000 Unlisted
	Nil Nil Nil Nil Nil 90% 80% 80% 95% 90% 2.045% 1.29% 1.20% 2.08% 1.95% 4 4 4 2.2 1.7 $0.06 $0.0353 $0.0359 $0.060 $0.060 $0.054 $0.040 $0.0350 $0.092 $0.058 $0.028 $0.22 $0.18 $0.058 $0.025 13 Dec 2018 29 May 2019 3 Jun 2019 27 Apr 2018 30 Oct 2018 300,000 Unlisted 300,000 Unlisted 1,000,000 Unlisted 2,000,000 Unlisted 2,000,000 Unlisted
	Nil Nil Nil Nil Nil 95% 95% 90% 90% 80% 1.955% 1.985% 1.87% 1.665% 1.43% 1.8 1.8 1.5 3 3 $0.060 $0.060 $0.060 $0.060 $0.053 $0.066 $0.069 $0.05 $0.039 $0.040 $0.034 $0.36 $0.018 $0.019 $0.018 1 Sep 2018 11 Sep 2018 25 Jan 2019 15 Feb 2019 26 Mar 2019

Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behaviour.

PAGE 55

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 20: FINANCIAL RISK MANAGEMENT

a. Financial Risk Management Policies

The Group’s financial instruments consist mainly of deposits with banks. The main purpose of non-derivative financial instruments is to raise finance for Group operations. The Group does not speculate in the trading of derivative instruments.

• i. Treasury Risk Management

The Board meets on a regular basis to analyse financial risk exposure and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts.

The Board’s overall risk management strategy seeks to assist the Group in meeting its financial targets, whilst minimising potential adverse effects on financial performance.

Risk management policies are approved and reviewed by the Board on a regular basis.

• ii. Financial Risk Exposures and Management

Interest rate risk

The Group’s exposure to financial risk is limited to interest rate risk arising from assets and liabilities bearing variable interest rates. The weighted average interest rate on cash holdings is 1.63% at 30 June 2019. All other assets and liabilities are non-interest bearing.

Interest rate sensitivity

Had the interest rate moved by 10 basis points with all other variables held constant, the post tax loss and equity would have decreased / increased by $6,532 (2018: $5,863)

Liquidity risk

Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the Group’s activities, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. The Board of Directors constantly monitors the state of equity markets in conjunction with the Group’s current and future funding requirements, with a view to initiating appropriate capital raisings as required. The financial liabilities of the Group are confined to trade and other payables which have a contractual due date of less than two months. The Board manages liquidity risk by monitoring forecast cash flows against actual liquidity level on a regular basis.

There are no unused borrowing facilities from any financial institution.

PAGE 56

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 20: FINANCIAL RISK MANAGEMENT (CONTINUED)

Credit risk

There are no material amounts of collateral held as security at balance date. Credit risk is reviewed regularly by the Board. It arises through deposits with financial institutions. The Board monitors credit risk by actively assessing the rating quality and liquidity of counter parties. Only banks and financial institutions with an ‘A’ rating are utilised.

The Group only invests in listed available-for-sale financial assets that have a minimum ‘A’ credit rating. Unlisted available-for-sale financial assets are not rated by external credit agencies. These are reviewed regularly by the Group to ensure that credit exposure is minimised.

The credit risk for counterparties included in trade and other receivables at balance date is nil.

The Group holds cash deposits with Australian banking financial institutions, namely the National Australia Bank (NAB). The NAB has an AA rating with Standard & Poors.

Price risk

The Group is not exposed to commodity price risk.

• b. Financial Instruments

• i. Derivative Financial Instruments:

Derivative financial instruments are not used by the Group.

ii. Financial instrument composition and maturity analysis:

The table below reflects the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity. The financial instruments are all classified as current (within 12 months).

	Weighted Average	Weighted Average
	Effective Interest Rate
Financial Assets at amortised cost:	2019	2018	2019	2018
	%	%	$	$
Cash and cash equivalents1.	1.63	1.96	2,298,200	10,766,028
Accounts receivable			14,534	-
Total Financial Assets			2,312,734	10,766,028
Financial Liabilities at amortised cost:
Trade and other payables			529,856	928,944
Total Financial Liabilities			529,856	928,944

1. Variable rate instruments

iii. Net Fair Values

Financial assets (cash and other receivables) and financial liabilities (trade and other receivables) are carried at amortised cost which approximates their fair values.

PAGE 57

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 21: EVENTS AFTER THE REPORTING PERIOD

Subsequent to year end on 5 July 2019, the Group raised additional capital, via a placement to directors or their nominees, via issue of 28,571,430 fully paid ordinary shares at $0.035 per share, being $1,000,000 and on 27 September 2019, the Group raised additional capital via issue of 136,363,640 fully paid ordinary shares at $0.033 per share, being $4,500,000 excluding transaction costs.

Other than the matter noted above, there has not been any matter or circumstance that has arisen after balance date that has significantly affected, or may significantly affect, the operations of the Group, the results of these operations, or the state of affairs of the Group in future financial periods.

NOTE 22: PARENT ENTITY DISCLOSURES

The following information is related to the legal parent entity Linius Technologies Limited as at 30 June 2019:

Financial position	2019	2018
	$	$
Assets
Current assets	2,175,132	10,522,465
Non-current assets	37,139,948	28,081,250
Total assets	39,315,080	38,603,715
Liabilities
Current liabilities	111,167	144,223
Total liabilities	111,167	144,223
Equity
Issued capital	48,022,511	45,688,511
Option premium reserve	36,462	36,462
Share based payments reserve	4,986,621	4,363,160
Accumulated losses	(13,841,681)	(11,628,641)
Total equity	39,203,913	38,459,492
Financial performance	2019	2018
	$	$
Loss for the year	2,213,040	2,798,327
Total comprehensive loss	2,213,040	2,798,327

For details on commitments, see Note 17.

PAGE 58

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019

NOTE 23: CHANGES IN ACCOUNTING POLICY

Except for the change below, the Group has consistently applied the accounting policies set out in Note 1 to all periods presented in these consolidated financial statements.

The Group has initially applied AASB 9 from 1 July 2018. A number of other new standards, including AASB 15 are also effective from 1 July 2018 but they do not have a material effect on the Group’s financial statements.

Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards.

(b) 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 AABS 139 Financial Instruments: Recognition and Measurement.

As a result of the adoption of AASB 9, the Group has adopted consequential amendments to AASB 101 Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Group’s approach was to include the impairment of trade receivables in other expenses. There has been no material impact as a result of adoption AASB 9.

Additionally, the Group 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.

(i) Classification and measurement of financial assets and financial 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. Under AASB 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

AASB 9 largely retains the existing requirements in AASB 139 for the classification and measurement of financial liabilities.

The adoption of AASB 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments).

For an explanation of how the Group classifies and measures financial instruments and accounts for related gains and losses under AASB 9, see Note 1 (b).

(ii) Impairment of financial assets

AASB 9 replaced the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ELC) 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 Group has determined that the application of AASB 9’s impairment requirements at 1 July 2018 has had no impact

PAGE 59

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

DIRECTORS’ DECLARATION

1. In the opinion of the directors of Linius Technologies Limited (“the Company”):

2. (a) the consolidated financial statements and notes that are set out on pages 22 to 59 and the Remuneration report on pages 12 to 17 in the Directors’ report, are in accordance with the Corporations Act 2001, including:

   • (i) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance, for the financial year ended on that date; and

   • (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

3. (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

4. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2019.

5. The directors draw attention to Note 1 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards.

Signed in accordance with a resolution of directors.

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Gerard Bongiorno Director 30 September 2019

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Independent Auditor’s Report

To the shareholders of Linius Technologies Limited

Report on the audit of the Financial Report

Opinion

We have audited the Financial Report of Linius Technologies Limited (the Company).

In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001 , including:

• giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and

• complying with Australian Accounting Standards and the Corporations Regulations 2001 .

The Financial Report comprises:

• Consolidated statement of financial position as at 30 June 2019.

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

• Notes including a summary of significant accounting policies.

• Directors' Declaration.

The Group consists of the Company and the entities it controlled at the year end or from time to time during the financial year.

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 Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (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.

61

Liability limited by a scheme approved under Professional Standards Legislation.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

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Material uncertainty related to going concern

We draw attention to Note 1, “Going Concern” in the financial report. The conditions disclosed in Note 1, indicate a material uncertainty exists that may cast significant doubt on the Group’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.

In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty regarding events or conditions casting significant doubt in the Group’s assessment of going concern. This included:

• Analysing the cash flow projections by:

• Evaluating the underlying data used to generate the projections for consistency with other information tested by us, our understanding of the Group’s intentions, and past results and practices;

• Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s historical results, results since year end, and our understanding of the business, industry and economic conditions of the Group;

• Assessing significant forecast cash inflows and outflows for feasibility, quantum and timing. We used our knowledge of the client, its industry and financial position to assess the level of associated uncertainty; and

• Evaluating the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. We specifically focused on the principal matters giving rise to the material uncertainty.

• Reading Directors minutes and assessing other relevant information to understand the Group’s ability to raise additional shareholder funds, including assessing the level of associated uncertainty.

Key Audit Matters

Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period.

These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the Key Audit Matter.

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Recoverable amount of intellectual property ($3,465,000)

Recoverable amount of intellectual property ($3,465,000)	Recoverable amount of intellectual property ($3,465,000)
Refer to Note 10 to the Financial Report
The key audit matter	How the matter was addressed in our audit
Recoverable amount of intellectual property is a Key Audit Matter due to:  the size of the balance (being 56.9% of total assets);  the Group has a history of operating losses. This increases the possibility of the intellectual property being impaired; and  the level of judgement required by us in evaluating the Group’s assessment of recoverability as contained in their value in use model. The judgements included forecast cash flows, discount rates applied, forecast growth rates and long term growth rates applied as incorporated in the value in use model. The model uses forward looking estimations which can be inherently difficult to determine with precision and to audit. This is particularly challenging given the early product commercialisation stage of the Group and further steps, such as organisational support structure, required to be undertaken to prepare the Group for sales readiness and growth. In assessing this Key Audit Matter, we involved senior audit team members, including valuation specialists, who collectively understand the Group’s business and the market it operates in.	Our procedures included:  We compared forecast cash flows, forecast growth rates and long term growth rates used in the value in use model, for consistency with the Group’s board approved plans. We challenged these, including the feasibility of their commercialisation activities, plans for the form of sales model to be implemented, the organisational support structure and the nature of costs to facilitate the forecast growth. We used our knowledge of the Group’s past performance, business and our industry experience.  We assessed the Group’s estimate of the remaining useful life of the intellectual property by reference to the external report on intellectual property ownership previously obtained by the Group considering changes to the Group since the date of the report.  Working with our valuation specialists we used our knowledge of the Group and market to assess the key assumptions used in the Group’s value in use model. To do this we: - assessed the appropriateness of the value in use model used against the requirements of the accounting standards. We assessed the accuracy of the underlying calculation formulas; - considered the sensitivity of the model by varying key assumptions, such as forecast growth rates, long term growth rates and discount rates, within reasonably possible range, to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures; and - analysed the Group’s discount rate against publicly available data of a group of comparable entities. We independently developed a discount rate range considered comparable using publicly available data for comparable entities, adjusted by risk factors specific to the Group and the industry it operates in.  We compared the Group’s alternative recoverability testing analysis, which included the market capitalisation approach based on the recent quoted share price on the ASX and the share price for capital raised during the year and subsequent to year end, to the value in use model prepared.

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• Assessed the adequacy of financial report disclosures in respect of the carrying value of intellectual property against the requirements of the accounting standards.

Other Information

Other Information is financial and non-financial information in Linius Technologies Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.

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 the Directors for the Financial Report

The Directors are responsible for:

• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001;

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

• assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern assumption 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 Group and Company or to cease operations, or have no realistic alternative but to do so.

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.

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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/ar1.pdf. This description forms part of our Auditor’s Report.

Report on the Remuneration Report

Opinion

In our opinion, the Remuneration Report of Linius Technologies Limited for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001 .

Directors’ responsibilities

The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001 .

Our responsibilities

We have audited the Remuneration Report included on pages 12 to 17 of the Directors’ report for the year ended 30 June 2019.

Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards .

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KPMG

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Tony Batsakis Partner

Melbourne

30 September 2019

65

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

ADDITIONAL INFORMATION FOR LISTED COMPANIES

ADDITIONAL INFORMATION FOR LISTED COMPANIES
1. Shareholdings as at 9 September 2019 a. Distribution of Shareholders Category (size of holding) 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 Above 100,001	Number Number Holders Ordinary 40 6,054 125 477,258 230 1,902,859 1122 47,807,739 843 991,403,640
	2360 1,041,597,550

• b. The number of shareholdings held in less than marketable parcels is 611.

• c. The names of the substantial shareholders listed in the holding Group’s register as at 9 September 2019 is:

9 September 2019 is:
	Number
Shareholder	Ordinary	%
Earthrise Holdings Pty Ltd /	110,258,926	10.58
Archaea Pty Ltd

• d. Voting Rights

• The voting rights attached to each class of equity security are as follows:

• Ordinary shares

• Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands.

PAGE 66

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

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ADDITIONAL INFORMATION FOR LISTED COMPANIES (CONTINUED)
e. 20 Largest Shareholders — Ordinary Shares
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e.	20 Largest Shareholders — Ordinary Shares
		Number of	% Held of
		Ordinary Fully	Issued
		Paid Shares	Ordinary
	Name	Held	Capital
1	Earthrise Holdings Pty Ltd	90,000,000	8.64%
2	Steve McGovern Nominees Pty Ltd	40,000,000	3.84%
3	Anbaume Pty Ltd	35,654,764	3.42%
4	Parlin Investments Pty Ltd	30,000,000	2.88%
5	Naley Pty Ltd	28,850,000	2.77%
6	One Managed Investment Funds Ltd	27,833,334	2.67%
7	HSBC Custody Nominees (Australia) Ltd	22,257,285	2.14%
8	VR Corporate Services Pty Ltd	20,000,000	1.92%
9	Mr Anthony Finbar O’Hanlon	17,454,746	1.68%
10	Stephen Wayne Velik	15,865,005	1.52%
11	Bogan River Investments Pty Ltd	15,000,000	1.44%
12	Archaea Pty Ltd	14,285,716	1.37%
13	Phoenix Myrrh Technology Pty Ltd	13,147,330	1.26%
14	One Managed Investment Funds Ltd <Technical Investing	10,640,000	1.02%
	Absolute Return A/C>
15	Clarkirb Nominees Pty Ltd	10,000,000	0.96%
16	Sunshore Holdings Pty Ltd	9,242,689	0.89%
17	Riversdale Capital Funding Pty Ltd	9,000,000	0.86%
18	Unrandom Pty Ltd	8,783,674	0.84%
19	Mr Gregory Paul Yeatman	8,714,284	0.84%
20	One Managed Investment Funds Ltd	8,379,500	0.80%
		435,108,327	41.76%
	Total numberofordinaryfully paid sharesheld	1,041,597,550

PAGE 67

ANNUAL REPORT 2019

LINIUS TECHNOLOGIES LIMITED

ADDITIONAL INFORMATION FOR LISTED COMPANIES (CONTINUED)

f.	20 Largest holders – Listed Options (ASX:LNUOA)
		Number of	%
	Name	OptionsHeld	Held
1	One Managed Investment Funds Ltd	10,416,667	16.78%
2	Celtic Capital Pty Ltd	3,500,000	5.64%
3	CPS Capital Investments Pty Ltd	3,000,000	4.83%
4	Bogan River Investments Pty Ltd	2,995,834	4.83%
5	HSBC Custody Nominees (Australia) Ltd	2,500,000	4.03%
6	Unrandom Pty Ltd	2,208,333	3.56%
7	Wilberforce Pty Ltd	1,879,401	3.03%
8	Morgan Stanley Australia Securities (Nominee) Pty Ltd <No 1	1,666,666	2.68%
	Account>
9	Sunshore Holdings Pty Ltd	1,250,000	2.01%
10	MR David Peter Valentino	1,194,163	1.92%
11	Anbaume Pty Ltd	1,041,667	1.68%
12	Riversdale Capital Funding Pty Ltd	1,041,667	1.68%
13	Mr PHILIP JOHN ROY	1,000,000	1.61%
14	Wilberforce Pty Ltd	900,000	1.45%
15	Ninkirb Nominees Pty Ltd	833,333	1.34%
16	Beck Corporation Pty Ltd	833,333	1.34%
17	Mrs Bernadette Justine Jackson	754,312	1.21%
18	One Managed Investment Funds Ltd	720,484	1.16%
19	Celtic Capital Pty Ltd	700,000	1.13%
20	CPS Capital Investments PtyLtd	690,000	1.11%
		39,125,860	63.02%
	Total number of options held	62,083,350

PAGE 68

LINIUS TECHNOLOGIES LIMITED

ANNUAL REPORT 2019

1. The name of the Company Secretary is Mr Giuseppe Rinarelli appointed 3 June 2019, previously Mr Stephen Kerr resigned 3 June 2019.

2. The address of the principal registered office in Australia is:

Suite 13, Level 3, 299 Toorak Road, SOUTH YARRA VIC 3141

1. Registers of securities are held at the following addresses:

2. Advance Share Registry

110 Stirling Hwy NEDLANDS WA 6009

1. Securities Exchange Listing

2. Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Securities Exchange Limited.

3. In accordance with ASX Listing Rule 4.10.19, the Group advises that, since re-listing on 9 May 2016, it has used its cash in a way consistent with its business objectives.

PAGE 69