MICRO-X LIMITED — Interim / Quarterly Report 2019

Feb 27, 2019

Micro-X Limited Appendix 4D Half-year report

1. Company details

Name of Company: Micro-X Limited ABN: 21 153 273 735 Reporting period: For the half-year ended 31 December 2018 Previous period: For the half-year ended 31 December 2017

2. Results for announcement to the market

			$’000
Revenues from ordinary activities	up	19.77% to	957
Loss from ordinary activities after tax attributable to the owners of Micro-
X Limited	up	26.45% to	(6,410)
Loss for the half-year attributable to the owners of Micro-X Limited	up	25.69% to	(6,277)

Dividends

There were no dividends paid, recommended or declared during the current financial period.

Comments

The loss for the group after providing for income tax amounted to $6.4M (31 December 2017: $5.1M).

3. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents (0.02)	Previous period Cents 5.81

4. Control gained over entities

Not applicable.

5. Loss of control over entities

Not applicable.

6. Dividends

Current period

There were no dividends paid, recommended or declared during the current financial period.

Previous period

There were no dividends paid, recommended or declared during the previous financial period.

Micro-X Limited Appendix 4D Half-year report

7. Dividend reinvestment plans

Not applicable.

8. Details of associates and joint venture entities

The relevant interest in XinRay Systems Inc. was 30% at 31 December 2018. As of the date of this report, Micro-X has disposed of their holding, and no longer holds an interest in XinRay Systems Inc.

9. Foreign entities

Details of origin of accounting standards used in compiling the report:

Not applicable.

10. Audit qualification or review

Details of audit/review dispute or qualification (if any):

The financial statements were subject to a review by the auditors and the review report is attached as part of the Half-Year Financial Report.

11. Attachments

Details of attachments (if any):

The Half-Year Financial Report of Micro-X Limited for the half-year ended 31 December 2018 is attached.

12. Signed by Patrick O’Brien (Non-Executive Chairman)

Signed ______

Date: 28 February 2019

Micro-X Limited

ABN 21 153 273 735

Half-Year Financial Statements- 31 December 2018

Micro-X Limited Contents 31 December 2018

Contents

Corporate directory	2
Directors' report	3
Auditor's independence declaration	6
Statement of profit or loss and other comprehensive income	7
Statement of financial position	8
Statement of changes in equity	9
Statement of cash flows	10
Notes to the financial statements	11
Directors' declaration	19
Independent auditor's review report to the members of Micro-X Limited	20

1

Micro-X Limited Corporate directory 31 December 2018

Directors Peter Robin Rowland (Managing Director) Patrick Gerard O'Brien (Non-Executive Chairman) Richard Nicholas Hannebery (Executive Director) Alexander Bennett Gosling (Non-Executive Director) Yasmin Anna King (Non-Executive Director) David Peter Symons (Non-Executive Director) – Resigned 21 November 2018 James White McDowell (Non-Executive Director) – Resigned 31 August 2018 Company secretary Georgina Carpendale Registered office A14, 6 MAB Eastern Promenade 1284 South Road, Tonsley Clovelly Park, SA 5068 (08) 7099 3966 Principal place of business A14, 6 MAB Eastern Promenade 1284 South Road, Tonsley Clovelly Park, SA 5068 (08) 7099 3966 Share register Computershare Investors Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford, VIC 3067 Phone: 1300 555 159 (within Australia) Phone: +61 3 8320 2222 (outside Australia) Auditor Grant Thornton Audit Pty Ltd Grant Thornton House, Level 3 170 Frome Street Adelaide, SA 5000 Phone: +61 8 8372 6666 Stock exchange listing Micro-X Limited shares are listed on the Australian Securities Exchange (ASX code: MX1) Website www.micro-x.com

2

Micro-X Limited Directors' report 31 December 2018

The directors present their report, together with the financial statements, on the group for the half-year ended 31 December 2018.

Directors

The names of the Directors in office at any time during or since the end of the half-year are: Peter Robin Rowland (Managing Director) Patrick Gerard O'Brien (Non-Executive Chairman) Richard Nicholas Hannebery (Executive Director) Alexander Gosling (Non-Executive Director) Yasmin King (Non-Executive Director) David Peter Neil Symons (Non-Executive Director) - Resigned 21[st] November 2018 Jim McDowell (Non-Executive Director) - Resigned 31[st] August 2018

Directors have been in office since the start of the period to the date of this report unless otherwise stated.

Principal activities

Micro-X’s principal activities are focused on the design, development and manufacturing of ultra-lightweight carbon nanotube based x-ray products for the global healthcare and security (counter improvised explosive device imaging) markets.

No significant changes in the nature of these activities occurred during the half-year.

3

Micro-X Limited Directors' report 31 December 2018

Review of operations

Financial Overview:

The loss for the group after providing for income tax amounted to $6.4M (31 December 2017: $5.1M loss).

The majority of the loss was due to $3.4M in expenditure on research and development activity. Most of this was for finalisation of design on the group’s first product, the Carestream DRX Revolution Nano (‘Nano’); the remainder being expenditure on the group’s future products being the Mobile Backscatter Imager (‘MBI’), Rover and Future Airport Security Solutions (‘FASS’).

The decrease in loss in comparison to the previous comparative period was due to a ramp-up in unit sales to Carestream Health (‘Carestream’), which has in turn led to a reduction in research and development focus and expenditure as the group finalises Nano design. Focus has now been placed on future product development, with expenditure across these projects in their infancy.

During the period the group undertook two capital raisings. The first was completed in October 2018 by way of a fully subscribed private placement of 30,000 Unsecured Convertible Notes for a value of $3M. Costs in relation to the issue were recognised in our statement of profit and loss. The second capital raise was completed in December 2018 by way of a private placement of 7.4M Ordinary Shares for a value of $2M. As at 31 December 2018, $1.9M had been received in cash. The remaining funds were received by the end of January. Under the terms of the Issue investors also received call options on a 1 for 2 basis – being 3.7M options in total.

A Research and Development Tax Incentive cash refund of $3.8M was received in September 2018 for the 2017/18 financial year. The group held a Research and Development loan facility at this time for $1.6M, with the refund being used to pay this facility down in full. The loan facility is now closed.

The group was awarded a $2.4M grant through the Australian Government Department of Industry, Innovation and Science under the Advanced Manufacturing Growth Fund. This $47.5M fund was designed to encourage innovation, skills and employment in advanced manufacturing and will support the group’s investment in plant and equipment in a new state of the art manufacturing site in the Tonsley Innovation District. This expansion will be a co-located facility adjacent to the group’s existing manufacturing capability. Building works commenced on this site prior to the end of the period.

Revenues were received in relation to sales to Carestream of both Nano carts and Nano parts.

Strategic Partnering:

The development of the ‘Grand Alliance’ which we had hoped to conclude during the period was slowed by a change of scope and simplification of the arrangement which was mutually agreed with our preferred partner. The key tenets of technology and product collaborations backed by a significant investment remain as originally planned and negotiations are on track for an expected closing later in the current quarter

Carestream DRX Revolution Nano:

During the period, the group began commercial sales to Carestream with the first units being on-sold into hospitals in the USA. The Nano was featured strongly on the Carestream exhibition stand at the annual Radiological Society of North America Scientific Meeting in Chicago in November and there was strong procurement interest from visitors from all over the world. Early indications of unit sales volumes in the USA are very promising and in accordance with our expectations.

Following achievement of the CE Mark accreditation first deliveries to Europe were made at the end of the year and first clinical use has now commenced there. The CE Mark has enabled a listing on the Australian Register of Therapeutic Goods for Australian sales activity to commence and other regulatory approval processes have commenced in Korea and Singapore.

Rover – Mobile X-ray for Deployed Military Medical Facilities:

Micro-X has been advised of delays in the Department of Defence’s evaluation and source selection process for the tender for Project JP2060, the procurement project for turnkey provision of a new deployable medical facility for the Australian Army. A source selection announcement is expected early in 2019 with contract negotiations to follow. All tenderers are offering Micro-X’s product and the in-service date expected is consistent with our schedule for medical device approval for the Rover.

Future Aviation Security Solutions in UK:

Micro-X completed its deliverables for the first phase of its contract with the Defence Science and Technology Laboratory (DSTL) of the UK Ministry of Defence by presenting the imaging performance results of its lightweight x-ray imaging system for detecting explosives hidden in consumer electronic devices.

4

Micro-X Limited Directors' report 31 December 2018

Micro-X also presented to the Department for Transport (DfT) in London in September a product configuration model of a mobile scanner for carry-on baggage which incorporates this technology and which meets the needs identified by DfT for the Future Aviation Security Solutions (FASS) programme. This product concept created exceptional interest among the user community and Micro-X was invited to discussions with the security team at Heathrow Airport as to how this same technology might be applied to a new automated checkpoint configuration. These discussions have led to identification of a development pathway for the technology to much broader applications in airport security.

Micro-X’s proposal to DSTL for funding for the second, developmental phase of the FASS programme was lodged in November.

Corporate Development:

Micro-X conducted a very successful proof-of-concept imaging trial of its Brain Tomographic Imager at the Royal Melbourne Hospital. The trial showed that image quality required to enable stroke diagnosis was possible from a small, lightweight, x-ray unit which could be easily fitted in ambulances. Following this succesful trial, Micro-X is collaborating with the Melbourne Brain Centre in an application for funding under the current Frontier Health Program as part of the Australian Government’s Medical Research Future Fund.

Micro-X’s expansion of its in-house engineering capability has been boosted with a graduate intern program in Biomedical Engineering. Undergraduate engineers in this discipline on 20 week placements have also shown to be a valuable addition to the team as engineering of the company’s next generation of products gets under way.

Micro-X intends to simplify its capital structure over the next 6 to 12 months. Our focus will continue to be on maintaining sufficient liquidity to support the development and commercial realisation of the wide range of product categories that the CNT technology is poised to revolutionise.

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the group during the financial half-year.

Auditor's independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page.

This declaration is made in accordance with a resolution of the Board of Directors.

On behalf of the Directors

==> picture [95 x 55] intentionally omitted <==

______ Mr Patrick O’Brien Non-Executive Chairman

28 February 2019

5

==> picture [158 x 31] intentionally omitted <==

Grant Thornton House, Level 3 170 Frome Street Adelaide SA 5000

Correspondence to: GPO Box 1270 Adelaide SA 5001

T +61 8 8372 6666 F +61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au

Auditor’s Independence Declaration

To the Directors of Micro-X Limited

In accordance with the requirements of section 307C of the Corporations Act 2001 , as lead auditor for the review of Micro-X Limited for the half-year ended 31 December 2018. I declare that, to the best of my knowledge and belief, there have been:

a No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

b No contraventions of any applicable code of professional conduct in relation to the review.

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

B K Wundersitz Partner – Audit & Assurance

Adelaide, 28 February 2019

Grant Thornton Audit Pty Ltd ACN 130 913 594

www.grantthornton.com.au

a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.

Liability limited by a scheme approved under Professional Standards Legislation.

6

6

Micro-X Limited Consolidated statement of profit or loss and other comprehensive income For the half-year ended 31 December 2018

Cost of sales Note Revenue 5 Gross Profit Expenses Employee and director costs Office and administrative expenses Corporate expenses Quality and regulatory Project development costs Depreciation and amortisation expense Other expenses Professional fees Total expenses Operating Loss Finances costs 6 Other income 7 Share of loss of associates accounted for using the equity method 8 Loss before income tax expense Income tax expense Loss after income tax expense for the half-year attributable to the owners of Micro-X Ltd Other comprehensive income Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Other comprehensive income for the half-year, net of tax Total comprehensive income for the half-year attributable to the owners of Micro-X Limited Basic earnings per share 19 Diluted earnings per share 19	(829) 31 December 2018 $’000 957 128 (2,367) (432) (71) (31) (3,353) (141) (614) (305) (7,314) (7,186) (868) 1,886 (231) (6,399) (11) (6,410) 133 133 (6,277) Cents (4.44) (4.44)	(315) 31 December 2017 $’000 799 484 (1,797) (322) (44) (13) (5,304) (52) (454) (175) (8,161) (7,677) (93) 2,775 (74) (5,069) - (5,069) 75 75 (4,994) Cents (3.51) (3.51)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

7

Micro-X Limited Consolidated statement of financial position As at 31 December 2018

Note Assets Current assets Cash and cash equivalents Trade and other receivables 9 Inventories (raw materials) Other assets (prepayments) Total current assets Non-current assets Investments accounted for using the equity method 10 Plant and equipment Intangibles assets 11 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Unearned income 12 Borrowings 13(a) Provisions Total current liabilities Non-Current liabilities Borrowings 13(b) Provisions Total non-current liabilities Total liabilities Net assets/(liabilities) Equity Issued capital 14 Foreign currency translation reserve Share based payment reserve 15 Other contributed equity 17 Convertible notes 13(b) Accumulated losses Total equity/(deficiency)	31 December 2018 $’000 4,373 3,442 1,141 36 8,992 1,812 535 2,200 4,547 13,539 5,221 1,244 - 258 6,723 6,750 231 6,981 13,704 (165) 48,024 559 1,593 1,867 5,000 (57,208) (165)	30 June 2018 $’000 4,068 4,467 1,550 27 10,112 1,911 393 2,239 4,543 14,655 5,321 - 4,600 263 10,184 5,000 198 5,198 15,382 (727) 48,024 426 1,621 - - (50,798) (727)

The above consolidated statement of financial position should be read in conjunction with the accompanying notes

8

Micro-X Limited Consolidated statement of changes in equity For the half-year ended 31 December 2018

Balance at 1 July 2017 Loss after income tax expense for the period Other comprehensive income for the period, net of tax Total comprehensive income for the period Transactions with owners in their capacity as owners: Share-based payments (note 15) Reclassification of convertible notes (note 13(b)) Shares not issued, monies received (note 17) Balance at 31 December 2017 Balance at 1 July 2018 Loss after income tax expense for the period Other comprehensive income for the period, net of tax Total comprehensive income for the period Transactions with owners in their capacity as owners: Share-based payments (note 15) Reclassification of convertible notes (note 13(b)) Shares not issued, monies received (note 17) Balance at 31 December 2018	Issued capital $'000 48,024 - - - - - - 48,024 Issued capital $'000 48,024 - - - - - - 48,024		Share based payment reserve $'000 1,317 - - - 197 - - 1,514 Share based payment reserve $'000 1,621 - - - (28) - - 1,593		Foreign currency translation reserve $'000 186 - 75 75 - - - 261 Foreign currency translation reserve $'000 426 - 133 133 - - - 559		Other contributed equity $'000 - - - - - - - - Other contributed equity $'000 - - - - - - 1,867 1,867		Convertible notes $'000 - - - - - - - - Convertible notes $'000 - - - - - 5,000 - 5,000	Accumulated losses $'000 (34,203) (5,069) - (5,069) - - - (39,272) Accumulated losses $'000 (50,798) (6,410) - (6,410) - - - (57,208)	Total Equity $'000 15,324 (5,069) 75 (4,994) 197 - - 10,527 Total Equity $'000 (727) (6,410) 133 (6,277) (28) 5,000 1,867 (165)

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes

9

Micro-X Limited Consolidated statement of cash flows For the half-year ended 31 December 2018

3 Cash flows from investing activities Payments for plant and equipment Payments for intangibles Net cash used in investing activities Cash flows from financing activities Repayments of borrowings Proceeds from convertible notes Proceeds from issued capital Net cash from investing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial half-year Cash and cash equivalents at the end of the financial half-year Cash flows from operating activities Receipts from customers (inclusive of GST) Receipts from grant funding (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received GST refunds received Research and development incentive tax refunds Interest paid Rent expense Net cash used in operating activities	1 December 2018 $’000 (223) (21) 265 1,372 (8,140) 7 243 3,840 (113) (192) (2,718)		31 December 2017 $’000 (70) (12) (82) - - - (1,476) 5,573 4,097 569 - (9,362) 16 584 7,032 (89) (144) (1,394)
	(244)
	(1,600) 3,000 1,867
	3,267
	305 4,068
	4,373

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes

10

Micro-X Limited Notes to the financial statements 31 December 2018

Note 1. General information

The financial statements cover Micro-X Limited as a group. The financial statements are presented in Australian dollars, which is Micro-X Limited's functional and presentation currency.

A description of the nature of the group's operations and its principal activities are included in the directors' report, which is not part of the financial statements.

The financial statements were authorised for issue, in accordance with a resolution of directors, on 28 February 2019.

Note 2. Significant accounting policies

These general purpose financial statements for the interim half-year reporting period ended 31 December 2018 have been prepared in accordance with Australian Accounting Standard AASB 134 'Interim Financial Reporting' and the Corporations Act 2001, as appropriate for for-profit oriented entities. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting'.

These general purpose financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual report for the year ended 30 June 2018 and any public announcements made by the group during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The principal accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.

Going concern

The group incurred a net loss after tax for the half-year ended 31 December 2018 of $6.4M (half-year ended December 2017: $5.1M loss) and had net cash outflows from operating activities of $2.7M (half-year ended December 2017: $1.4M). The group is in a net liability position of $165K for the half-year ended 31 December 2018 (half-year ended December 2017: net liability position of $727K). Within the group’s net liabilities is $1.2M of unearned income in relation to grant funding received under the Advanced Manufacturing Growth Fund.

Notwithstanding these results, the directors believe that the group will be able to continue as a going concern, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business and as a result the financial statements have been prepared on a going concern basis. The accounts have been prepared on the assumption that the group is a going concern for the following reasons:

• the operating loss and operating cash flow outcomes for the half-year ended 31 December 2018 reflect the results of the group's major activity during that period, which was product development and early commercialisation revenue for the Nano product but the business is still not yet cash-flow positive;

• the finalisation of research and development activities on the DRX Revolution Nano, which the group is undertaking with the objective that the outcomes of these activities be profitable and generate positive operating cash flows;

• increased sales to customer, Carestream Health, consisting of both DRX-Revolution Nano units and service parts sales;

• convertible notes and shares not issued within non-current liabilities are non-cash in nature and will not effect future cash-flows;

• the positivity of future product pipelines, including the Rover, MBI and MBS Systems;

• • the group is planning to consolidate its operating activities at a profitable and cash-flow positive level going forward;

• as the group is an ASX-listed entity, it has the ability to raise additional funds if required;

• • the group has received approval of an extension to the repayment of the the South Australian Financing Authority (SAFA) loan;

• the group is actively working to engage strategic partners for future products; and

• The Directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recognised in the half-year report as at 31 December 2018.

11

Micro-X Limited Notes to the financial statements 31 December 2018

Accordingly, this financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities as might be necessary should the group not continue as a going concern.

Notwithstanding the above, there is a material uncertainty related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Rounding of amounts

The group is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with the Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Note 3. Change in significant accounting policies

The interim financial statements have been prepared in accordance with the same accounting policies adopted in the Group’s last annual financial statements for the year ended 30 June 2018, except as described below. Note that the changes in accounting policies specified below only apply to the current period. The accounting policies included in the Group’s last financial statements for the year ended 30 June 2018 are the relevant policies for the purposes of comparatives.

AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments (2014) became effective for periods beginning on or after 1 January 2018. Accordingly, the Group applied AASB 15 and AASB 9 for the first time to the interim period ended 30 June 2018. Changes to the Group’s accounting policies arising from these standards are summarised below.

Both AASB 9 and AASB 15 were adopted without being applied to comparitives, given no impact.

AASB 9 Financial Instruments

Recognition and recognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and initial measurement of financial assets

Financial assets are classified according to their business model and the characteristics of their contractual cash flows. Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable).

Subsequent measurement of financial assets

For the purpose of subsequent measurement, the group’s financial assets are classified as financial assets at amortised cost.

Financial assets with contractual cash flows representing solely payments of principal and interest and held within a business model of ‘hold to collect’ are accounted for at amortised cost using the effective interest method. The Group’s trade and other receivables falls into this category.

12

Micro-X Limited Notes to the financial statements 31 December 2018

Impairment of financial assets

AASB 9’s new forward looking impairment model applies to the Group’s investments held at amortised cost. The application of the new impairment model depends on whether there has been a significant increase in credit risk.

Trade and other receivables

The Group makes use of a simplified approach in accounting for trade and other receivables and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.

The Group has made an assessment in regard to expected credit losses for this reporting period and has determined that no expected credit losses can be foreseen, and hence have not impaired trade and other receivables at this point in time.

Classification and measurement of financial liabilities

As the accounting for financial liabilities remains largely unchanged from AASB 139, the Group’s financial liabilities were not impacted by the adoption of AASB 9. However, for completeness, the accounting policy is disclosed below.

The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments.

Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.

Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss.

The Group has designated its convertible note liabilities at FVPL in order to provide the most relevant information to users, and furthermore to keep consistency with initial recognition on inception of these instruments. An assessment will be made at each reporting period in regard to underlying valuation of this liability in regard to share price upon conversion of the convertible notes.

Impact of AASB 9 vs AASB 139

The only impact from change in accounting standards during the current period is the change in classification for trade and receivables from ‘loans and receivables’ per AASB 139 to ‘amortised cost’ per AASB 9. As noted above however, the group has determined that no expected credit loss is to be recognised against these receivables and hence no change in the carrying amount of this asset in the current period.

AASB 15 Revenue from Contracts with Customers

Revenue arises mainly from the sale of goods.

As per the new revenue standard AASB 15, to determine whether to recognise revenue the Group follows a 5-step process:

• 1) Identifying the contract with a customer

• 2) Identifying the performance obligations

• 3) Determining the transaction price

• 4) Allocating the transaction price to the performance obligations 5) Recognising revenue when/as performance obligation(s) are satisfied.

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations.

13

Micro-X Limited Notes to the financial statements 31 December 2018

Sale of Goods

Revenue from sale of goods is currently recognised when the Group transfers control of assets to the customer and is recognised at a point in time only.

Control is determined to have transferred to the customer by reference to individual commercial contract terms with each customer.

Transaction price is then allocated on a per-unit basis, with a delivery of product on a unit-by-unit basis being considered as the performance obligation.

An assessment has been made during the period by the group of whether the adoption of AASB 15, from AASB 118, will have a material impact on the entity. Revenue for sale of goods was previously recognised in the same manner under AASB 118 and hence it has been determined there will be no impact to the current period or comparative figures for the Group with the change in standard.

Note 4. Operating segments

The group is organised into one operating segment being the design, development and manufacturing of ultra-lightweight carbon nanotube based x-ray products for the global healthcare and counter improvised explosive device imaging security markets. This operating segment is based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources.

Note 5. Revenue

Sale of goods Contract revenue	31 December 2018 $’000 957 -	31 December 2017 $’000 363 436 799
	957

All revenue from the sale of goods during the current period is recognised at a point in time. The company did not amend comparitives for AASB 15 being adopted this period.

Note 6. Finance costs

Note 6. Finance costs
Implied interest on convertible notes Other finance costs	31 December 2018 31 December 2017 $’000 $’000 (750 ) - (118 ) (93) (868) (93)
	(868)

14

Micro-X Limited Notes to the financial statements 31 December 2018

Note 7. Other income

Interest received Research and Development tax incentive refund Net foreign exchange (loss)/gain Gain/(loss) on disposal of assets Grant funding received Note 8. Share of loss of associates accounted for using the equity method Share of loss - associates Note 9. Current assets - Trade & other receivables Trade receivables Research and Development tax incentive refund Deposits GST Receivable	31 December 2018 $’000 7 1,944 (193) (1) 129	31 December 2017 $’000 16 2,788 (29) - - 2,775 31 December 2017 $’000 (74) 30 June 2018 $’000 533 3,840 4 65 4,467
	1,886
	31 December 2018 $’000 (231)
	31 December 2018 $’000 1,442 1,944 4 52
	3,442

Note 10. Non-current assets - Investments in associates

XinRay Inc. investment	31 December 2018 $’000 1,812	30 June 2018 $’000 1,911

At 31 December 2018, the group had a 30% (30 June 2018: 30%) equity holding in XinRay Systems Inc. (‘XinRay’), a Company incorporated in Delaware, United States.

15

Micro-X Limited Notes to the financial statements 31 December 2018

Note 11. Non-current assets - Intangibles

Capitalised development costs Patents and trademarks – at cost Note 12. Current liabilities – Unearned income Advanced manufacturing growth fund Note 13(a). Current liabilities – Borrowings Short term loan – South Australian Government Financing Authority/R&D Capital Loans	31 December 2018 $’000 1,920 280		30 June 2018 $’000 1,980 259 2,239 30 June 2018 $’000 - 30 June 2018 $’000 4,600 4,600
	2,200
	31 December 2018 $’000 1,244
	31 December 2018 $’000 -
	-

The South Australian Government Financing Authority loan facility agreement with the South Australian Treasurer is for a loan commitment of $3.0M with an agreed interest rate of 5.75% per annum paid monthly in arrears. This loan facility was approved to be extended for a further 24 months during the period, bringing the repayment date to 31 December 2020. Interest rate for the renewal period will be charged at 6.75% for the period 1 January 2019 to 31 December 2019, and 7.75% for the period 1 January 2020 to 31 December 2020. There will be ongoing employee target conditions to be met regarding this facility. As at 31 December 2018, balance is now recognised as a non-current liability as repayment date is now 24 months from balance date – Refer Note 13(b) below.

The loan facility held with R&D Capital as at 30 June 2018 was paid down in full during the period, upon receipt of the group’s Research and Development Tax Incentive refund in relation to the 2017/2018 financial year. Amounts drawn-down on this facility as of repayment date was $1.6M.

Note 13(b). Non-Current liabilities – Borrowings

Convertible Notes – Tranche A Convertible Notes – Tranche B Long Term Loan – South Australian Government Financing Authority***	31 December 2018 $’000 - 3,750 3,000	30 June 2018 $’000 5,000 - - 5,000
	6,750

16

Micro-X Limited Notes to the financial statements 31 December 2018

• Tranche A held by the group as at 30 June 2018. As of 31 December 2018, this balance has been transferred to equity in full. As a qualifying capital raising did not occur per terms of the convertible note deed, there is now only an obligation to deliver a fixed, and not variable, number of shares to investors on conversion and hence the balance has been transferred to equity.

** Tranche B is in relation to a capital raising which was finalised during October 2018. As a secondary qualifying capital raising may still occur per terms of the convertible note deed, there currently lies an obligation to deliver a variable, and not fixed, number of shares to investors on conversion and hence the balance is recognised as a liability as at 31 December 2018.

During the period, a $750K finance cost has been recognised against this Tranche. Per the convertible note deed, there is an implied cost of finance being a 20% discount on the share price on conversion of the notes to ordinary shares. On assumption that the ceiling price is not met for the life of the notes, the company will convert $3.75M worth of shares and hence have increased the liability to this value.

***Refer above Note 13(a) for details of facility. Extension approved for a further 24 months, with repayment date now being 31 December 2020, thereby classified as a non-current liability as at 31 December 2018.

Note 14. Equity - Issued capital

Ordinary shares - fully paid	31 December 2018 Shares 144,350,698	30 June 2018 Shares 144,350,698	31 December 2018 $’000 48,024	30 June 2018 $’000 48,024

Note 15. Equity – Share-based payment reserve

Share-based payments reserve	31 December 2018 $’000 1,593	30 June 2018 $’000 1,621

Note 16. Contingent liabilities

The consolidated group had no contingent liabilities at 31 December 2018 and 30 June 2018.

Note 17. Events after the reporting period

A capital raising was completed in December 2018 by way of a private placement of 7.4M Ordinary Shares for a value of $2M. Under the terms of the Issue investors also received call options on a 1 for 2 basis – being 3.7M options in total. Shares were issued to investors as from the commencement of trading on 3 January 2019, and hence cash amounts received to 31 December 2018 of $1.87M were recognised as an other contributed equity within the Statement of Finanicial Position.

An agreement has been reached with XinRay as of 27 February 2019 for the full transfer of Micro-X’s 30% shareholding back to XinRay, in exchange for the proceeds of the disposal to be used as a credit against XinRay invoices accrued to 31 December 2018. This transfer was completed on 27 February 2019. Any gains or losses on this transaction will be recognised within the statement of profit or loss and other comprehensive income.

17

Micro-X Limited Notes to the financial statements 31 December 2018

Note 18. Share-based payments

Share-based payments relate to share Option Awards as outlined in the group’s Prospectus dated 25 November 2015. Set out below are the options outstanding at the end of the financial half-year:

Grant date Expiry date Exercise price 01/09/2014 31/12/2019 $0.575 01/09/2014 31/12/2019 $0.625 21/12/2015 31/12/2019 $0.575 21/12/2015 31/12/2019 $0.625 05/12/2016 01/12/2020 $0.625 01/04/2017 01/04/2021 $0.625 11/09/2017 01/09/2021 $0.625	Balance at the start of the half- year 1,393,112 2,786,228 1,800,000 3,600,000 320,000 2,500,000 320,000 12,719,340	Granted - - - - - - - -	Exercised - - - - - - - -	Forefeited - - (800,000) - - - (320,000) (1,120,00)	Expired - - - - - - - -	Balance at the end of the the half- year 1,393,112 2,786,228 1,000,000 3,600,000 320,000 2,500,000 -
						11,599,340

Note 19. Earnings per share

Loss after income tax attributable to the owners of Micro-X Limited Basic earnings per share Diluted earnings per share	31 December 2018 $’000 (6,410)	31 December 2017 $’000 (5,069) Cents (3.51) (3.51) Number
	Cents (4.44) (4.44) Number

Weighted average number of ordrinary shares used in calculating basic earnings per share 144,350,698 144,350,698

Weighted average number of ordrinary shares used in calculating diluted earnings per share 144,350,698 144,350,698

18

Micro-X Limited Directors' declaration 31 December 2018

In the directors' opinion:

• the attached financial statements and notes comply with the Corporations Act 2001, Australian Accounting Standard AASB 134 'Interim Financial Reporting', the Corporations Regulations 2001 and other mandatory professional reporting requirements;

• the attached financial statements and notes give a true and fair view of the group's financial position as at 31 December 2018 and of its performance for the financial half-year ended on that date; and

• there are reasonable grounds to believe that Micro-X Limited will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of directors made pursuant to section 303(5)(a) of the Corporations Act 2001.

On behalf of the directors

==> picture [94 x 55] intentionally omitted <==

______ Mr Patrick O’Brien Non-Executive Chairman

28 February 2019

19

==> picture [158 x 31] intentionally omitted <==

Grant Thornton House, Level 3 170 Frome Street Adelaide SA 5000

Correspondence to: GPO Box 1270 Adelaide SA 5001

T +61 8 8372 6666 F +61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au

Independent Auditor’s Review Report

To the Members of Micro-X Limited

Report on the review of the half year financial report

Conclusion

We have reviewed the accompanying half year financial report of Micro-X Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2018, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half year ended on that date, a description of accounting policies, other selected explanatory notes, and the directors’ declaration.

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the half year financial report of Micro-X Limited does not give a true and fair view of the financial position of the Group as at 31 December 2018, and of its financial performance and its cash flows for the half year ended on that date, in accordance with the Corporations Act 2001 , including complying with Accounting Standard AASB 134 Interim Financial Reporting .

Material uncertainty related to going concern

We draw attention to Note 2 in the financial report, which indicates that the Group incurred a net loss of $6,410,000 during the half year ended 31 December 2018 and, as of that date, the Group had net cash outflows from operating activities of $2,718,000. At 31 December 2018, the Group holds a net liability position of $165,000. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.

Directors’ responsibility for the half year financial report

The Directors of the Company are responsible for the preparation of the half year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the half year financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389

www.grantthornton.com.au

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.

Liability limited by a scheme approved under Professional Standards Legislation.

20

==> picture [157 x 31] intentionally omitted <==

Auditor’s responsibility

Our responsibility is to express a conclusion on the half year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the Group’s financial position as at 31 December 2018 and its performance for the half year ended on that date, and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Micro-X Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

B K Wundersitz Partner – Audit & Assurance

Adelaide, 28 February 2019

21