ION VIDEO LTD — Interim / Quarterly Report 2017

Apr 27, 2017

ASX Announcement 28 April 2017

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ASX: LNU

QUARTERLY REPORT – 31 MARCH 2017

HIGHLIGHTS

• Commercialisation plan finalised and released

• Formal launch of Linius’ Video Virtualization Engine™ (Linius VVE at Southby-South West (SXSW)

• Appointment of new director & key advisors

• Expansion of patent portfolio

Capital Structure

Shares quoted on ASX – 224.0m Total shares on Issue – 679.2m Market Cap @ 4.0c – 27.2m Unlisted Options – 73.0m

• Cash balance of $1.95 million

Corporate Directory

Linius Technologies Limited (ASX: LNU) (“ Linius ” or “ Company ”) is pleased to present its March 2017 Quarterly Report and business update.

Christopher Richardson Executive Director, CEO

Stephen McGovern Non-Executive Director

CORPORATE

Change in Board of directors

During the quarter the Company was pleased to announce the appointment of Gerard Bongiorno to the Linius Board of Directors, as a Non-Executive Director. This appointment had the dual benefits of broadening the mix of business and commercial skills on the Board and also improving the balance of the Board from a governance perspective. Concurrent with the appointment, Stephen Kerr resigned from the Board as an Executive Director. In addition, Stephen McGovern will hand over the role of Chairman of the Board to Gerard Bongiorno as from 1 May 2017.

This change in composition of the board will enable Stephen McGovern to continue his valued role as a non-executive director and allow him to apply himself further to his external executive duties. The change also enables Stephen Kerr to extend his operational influence as CFO and Company Secretary as the Company progresses the commercialisation of its technology.

OPERATIONS

Commercialisation Plans

During the March 2017 quarter the Company provided its investors and the market with a summary of its near term Commercialisation Plan.

Linius is targeting four key market sectors:

• Personalised Advertising

• Piracy / Media Security

• Video Search

Gerard Bongiorno Non-Executive Director

Stephen Kerr Company Secretary, CFO

Key Definitions

Video Virtualization Engine™ is Linius’ patented software that turns existing Internet videos into virtual video files, enabling next generation TV.

Showcase Partners are Linius channel to market partners, and assist with product development and market validation.

Digital Video Value Chain is the suite of technologies that enable getting a “video” from the camera to the screen.

Transcoding is the process by which video files are converted to different formats. The process helps to support low bandwidth connections and lets video conform to the unique constraints of various mobile devices.

• Security and Defence

Contact Details

Level 40, 140 William Street Melbourne VIC 3000 Tel +61 3 9607 8234 www.linius.com

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By targeting these four Key Sectors, the four markets Linius aims to transform are as follows:

1. Personalised advertising on Cable TV & Internet streaming video

Linius developed this capability with commercialisation partner Digisoft in 2016.

The TV advertising market was worth over US$70 billion in 2016, in the US alone.[1]

Linius could transform this market by allowing every cable TV ad to be personalised to the individual viewer.

Linius demonstrated the capability to shareholders on 23 November 2016, and a recording of the demonstration can be seen at: http://www.linius.com/webcast/

2. Piracy and Media Security

The Piracy and Media Security division is focussed on reducing global piracy and securing revenues for content owners.

The global box office market was worth over US$38 billion per annum in 2016.[2]

Box office sales alone are reduced by 15% from piracy[3] — a US$6.7 billion loss, just on ticket sales, but the video industry loses much more beyond the box office revenues.

Linius VVE provides multiple ways of reducing piracy and offers content owners revolutionary control of their content, measurement methods, plus new revenue generating methodologies.

3. Search

The Search division utilises Linius VVE to enhance search returns, stitching video together on the fly to provide much better search results and therefore much greater monetisation opportunities for search engine providers.

There are approximately 30 search engine providers across hundreds of thousands of video websites, ranging from Google to specific search engines designed for niche interest websites.

Additionally, the search division has opportunity beyond pure search businesses. All major social networks now support video, and provide search functionality. As such they are potential targets for this division.

Similarly, there are large enterprises with extensive catalogues of video content which are under-monetised, and have the potential to benefit from Linius’ technology.

4 . Security Service Applications

The Security and Defence division provides capability that dramatically increases response times for Government agencies and corporations tasked with surveillance and threat management.

The video surveillance market is projected to grow at a compound annual rate of 15.4% between 2017 to 2022 and is expected to reach US$75.6 billion by 2022.[4]

1 http://www.marketingcharts.com/traditional/us-online-and-traditional-media-advertisingoutlook-2016-2020-68214/advertising-outlook-2016-2020-68214/

2 http://variety.com/2017/film/box-office/2016-global-box-office-1201968877/

3 https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2736946

4 http://www.marketsandmarkets.com/Market-Reports/video-surveillance-market-645.html

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Linius VVE facilitates the immediate distribution of relevant video surveillance content into designated workflows, for example, to security and government agencies.

Linius has identified multiple lines of revenue from each of the 4 business divisions including software licenses, usage fees and revenue share, all of which are in line with existing revenue generation methods in each market segment.

During the March 2017 quarter the Company has advanced a number of commercial opportunities in the above market segments with film studios, copyright owners, cable television networks and search companies. The company expects a number of these opportunities to be crystalised in the June 2017 quarter.

The Company has experienced significant commercial opportunities as a result of the success of VVE Play, our global demonstration of virtualized video, launched in February of this year. These opportunities exist across each of the targeted four key sectors.

The Company is also in talks with global technology providers. These discussions centre around the provision of a global virtual video backbone and the provision of solutions across our targeted four key sectors and others beyond.

Marketing & IR

In support of the operational plans of the business the Company expanded its marketing and PR spend. Key advisors and consultants have been hired and marketing activities have increased to raise the profile of the Company and the capabilities of the Linius technology to key players the targeted four key sectors and also to existing and new investors locally and internationally.

These activities included:

• Appointment of global investor relations firm Taylor Rafferty

• Formal launch of Linius VVE at South-by-South West in Austin, Texas (SXSW), further increasing the profile of the Company and its technology and providing valuable industry contacts and leads.

• Launching VVE Play with a dramatic demonstration of its capabilities through the virtualization of millions of public videos on Instagram

• Appointment of leading New York-based corporate advisory firm, EAS Advisors LLC

Software Development and Patents

This quarter saw significant activity and development spend as the Company refined its product offering and tailored its software towards the target markets identified in its Commercialisation Plan. Development activities have produced key releases to support marketing activities and product demonstrations, as well as enhanced the Company’s intellectual property and expansion of the Company’s patent portfolio and geographical reach.

Appendix 4C Quarterly Report and statement of cash flows

The ASX Appendix 4C Quarterly Report for the March 2017 quarter is attached to and lodged with this report. The Quarterly Report covers the 3 month period to 31 March 2017 and reflects the net cash outflows of the Company while pursuing its technology development, showcases, marketing activities and its stated business plan and objectives.

The Company is currently considering potential launch timelines for each of the targeted 4 key sectors in line with budgetary capacity. The cash balance at 31 March 2017 was $1.95 million, following March 2017 quarter operational cash burn of $0.8 million.

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About Linius Technologies Limited

Linius Technologies Limited (ASX: LNU) is set to revolutionise the world of video. Linius' patented Video Virtualization Engine has cracked the code of content intelligence and created the next evolution of video streaming. Video Virtualization Engine™ cuts costs and boosts revenues across the multi-billion dollar video industry.

Linius transforms cumbersome, static video files into agile, dynamic files that can be easily manipulated on the fly in order to deliver an enhanced, custom experience for both broadcasters and end-users in any way imaginable, and some as yet to be imagined.

Linius has the potential to transform many market sectors and is initially focused on:

1. Delivering personalised advertising solutions for broadcasters;

2. Video piracy reduction;

3. Enhancing search engine monetisation; and

4. Security-service applications.

For more information, please contact:

Chris Richardson, Chief Executive Officer.

Linius Technologies Limited

T: +61 3 9607 8234 E: info@linius.com

Media & Press Inquiries:

Australia USA & Europe Rod North, Managing Director, Michael Young, Chief Executive Office Bourse Communications Pty Ltd Actual. Agency T: +613 9510 8309 M: +61 408 670 706 T: +1 415 359 6420 E: rod@boursecommunications.com.au E: mby@actual.agency

Investor Relations:

Eric Ando, Associate, Taylor Rafferty LLC T: +1-212-889-4350 E: Eric.Ando@taylor-rafferty.com

Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

+Rule 4.7B

Appendix 4C

Quarterly report for entities subject to Listing Rule 4.7B

Introduced 31/03/00 Amended 30/09/01, 24/10/05, 17/12/10, 01/09/16

Name of entity

Linius Technologies Limited

Linius Technologies Limited
ABN 84 149 796 332	Quarter ended (“current quarter”)
84 149 796 332	31 March 2017

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) research and development (b) product manufacturing and operating costs (c) advertising and marketing (d) leased assets (e) staff and consultant costs (f) administration, travel and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Government grants and tax incentives 1.8 Other – legal & patent costs 1.9 Net cash from / (used in) operating activities	- (255) - (179) - (201) (137) 9 (40)	- (636) - (376) - (501) (338) 36 (245)
	(803)	(2,060)
2. Cash flows from investing activities 2.1 Payments to acquire: (a) property, plant and equipment (b) businesses (see item 10) (c) investments

• See chapter 19 for defined terms

1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
(d) intellectual property (e) other non-current assets 2.2 Proceeds from disposal of: (a) property, plant and equipment (b) businesses (see item 10) (c) investments (d) intellectual property (e) other non-current assets 2.3 Cash flows from loans to other entities 2.4 Dividends received (see note 3) 2.5 Other (provide details if material) 2.6 Net cash from / (used in) investing activities
	-	-
3. Cash flows from financing activities 3.1 Proceeds from issues of shares 3.2 Proceeds from issue of convertible notes 3.3 Proceeds from exercise of share options 3.4 Transaction costs related to issues of shares, convertible notes or options 3.5 Proceeds from borrowings 3.6 Repayment of borrowings 3.7 Transaction costs related to loans and borrowings 3.8 Dividends paid 3.9 Other (provide details if material) 3.10 Net cash from / (used in) financing activities	12 (25)	761 (25)
	(13)	736
4. Net increase / (decrease) in cash and cash equivalents for the period 4.1 Cash and cash equivalents at beginning of quarter/year to date 4.2 Net cash from / (used in) operating activities (item 1.9 above) 4.3 Net cash from / (used in) investing activities (item 2.6 above) 4.4 Net cash from / (used in) financing activities (item 3.10 above)	2,767 (803) - (13)	3,275 (2,060) - 736

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end of quarter	-	-
	1,951	1,951
5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A’000	Previous quarter $A’000
5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other – term deposits 5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above)	183 243 - 1,525	258 984 - 1,525
	1,951	2,767
6. Payments to directors of the entity and their associates Current quarter $A'000 6.1 Aggregate amount of payments to these parties included in item 1.2 83 6.2 Aggregate amount of cash flow from loans to these parties included in item 2.3 - 6.3 Include below any explanation necessary to understand the transactions included in items 6.1 and 6.2
		Current quarter $A'000
		83
		-
Amounts in item 6.1 relate to remuneration of directors.
7. Payments to related entities of the entity and their associates Current quarter $A'000 7.1 Aggregate amount of payments to these parties included in item 1.2 - 7.2 Aggregate amount of cash flow from loans to these parties included in item 2.3 - 7.3 Include below any explanation necessary to understand the transactions included in items 7.1 and 7.2
		Current quarter $A'000
		-
		-

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

	8. Financing facilities available Add notes as necessary for an understanding of the position Total facility amount at quarter end $A’000 Amount drawn at quarter end $A’000 8.1 Loan facilities - - 8.2 Credit standby arrangements - - 8.3 Other (please specify) - - 8.4 Include below a description of each facility above, including the lender, interest rate and whether it is secured or unsecured. If any additional facilities have been entered into or are proposed to be entered into after quarter end, include details of those facilities as well.	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000
		-	-
		-	-
		-	-

9. Estimated cash outflows for next quarter	$A’000
9.1 Research and development 9.2 Product manufacturing and operating costs 9.3 Advertising and marketing 9.4 Leased assets 9.5 Staff and consultant costs 9.6 Administration, travel and corporate costs 9.7 Other – legal & patent costs 9.8 Total estimated cash outflows	315 - 285 - 265 105 45
	1,015

10. Acquisitions and disposals of business entities (items 2.1(b) and 2.2(b) above)	Acquisitions	Disposals
10.1 Name of entity
10.2 Place of incorporation or registration
10.3 Consideration for acquisition or disposal
10.4 Total net assets
10.5 Nature of business

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

Sign here:

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Date: 28 April 2017

(Company secretary)

Print name: Stephen Kerr

Notes

1. The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity that wishes to disclose additional information is encouraged to do so, in a note or notes included in or attached to this report.

2. If this quarterly report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standard applies to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. See chapter 19 for defined terms 1 September 2016

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