Linius Technologies Limited
Annual Report 2018

Plain-text annual report

LINIUS TECHNOLOGIES LIMITED ACN 149 796 332 ANNUAL REPORT 2018 ANNUAL REPORT LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CONTENTS PAGE CORPORATE DIRECTORY…………………………………………………………………….……………………….……………….………2 CHAIRMAN'S LETTER TO SHAREHOLDERS ………………………………………….……………………………………….……...3 CHIEF EXECUTIVE OFFICER'S REVIEW OF OPERATIONS………………………………………………………………….……4-8 DIRECTORS' REPORT…………………………………………………………………………………………………………..…….…...9-20 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………………………………………………………………………………………..……..26-54 DIRECTORS' DECLARATION………………………………………………………………………………………………………………..55 INDEPENDENT AUDITOR'S REPORT…………………………………………………………………………………………….…56-60 ADDITIONAL INFORMATION FOR LISTED COMPANIES……………………………………………………………….…...61-64 PAGE 1 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CORPORATE DIRECTORY This annual report covers Linius Technologies Limited and its controlled entities (the “Group” or “Group”) during the year ended 30 June 2018. The functional and presentation currency of the Group is Australian dollars. OFFICERS Gerard Bongiorno Stephen McGovern Christopher Richardson Stephen Kerr (Executive Chairman) (Non-Executive Director) (Director and CEO) (Company Secretary and CFO) REGISTERED OFFICE Level 18, 101 Collins Street MELBOURNE VIC 3000 SOLICITORS AUDITORS SHARE REGISTRY PRINCIPAL PLACE OF BUSINESS 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 Level 18, 101 Collins Street MELBOURNE VIC 3000 Telephone: (03) 8680 2317 Facsimile: (03) 8680 2380 Email: info@linius.com WEBSITE ASX CODE www.linius.com LNU PAGE 2 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 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 2018. During the year the Company pursued its commercialisation plans with an expanded management team and a wider geographical footprint. We have brought on experienced resources with expertise in the video and film industry, hiring senior personnel with strong marketing, sales and technical skills. The team is now highly focussed on converting our commercialisation activities into a strong pipeline of opportunities and creating sustainable business revenue streams. Subsequent to the end of the 2018 financial year we were very pleased to announce a commercial deal with Newstag. Your directors are pleased with the progress to date and encouraged by the opportunities that exist with a growing deal pipeline with tier one global companies and sports organisations. The key now is execution and our team is very focused to this end. The Company has continued to develop, enhance and adapt its patented technology to meet the identified needs of the market. During the year the team has been refining the product offering, completing proof of concepts and providing relevant use cases for its target markets. Linius Video Virtualization Engine™ technology is now designed to be available as a SaaS platform as well as being deployed directly into customers’ systems and video workflows. During the year we were pleased to receive investment support from existing and new investors. The Company raised $1.5 million in July 2017 through a private placement at 5 cents per share to Village Roadshow Ltd and Kirby family interests, leaders in the Australian film and video industry. The company raised a further $4.25 million at 5 cents per share through a private placement in October 2017, $0.25 million at 5 cents per share through a private placement in December 2017, $9.75 million at 12 cents per share through a private placement in February 2018 and $2.75 million at 12 cents per share through private placements in May and June 2018. The Company also received additional capital of $0.8m during the year from option holders exercising their right to acquire shares at 7.5cents per share. We were very pleased that the wider investment community has recognised the opportunity and invested in the Company to fund our commercialisation phase. 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 2018 financial year. Gerard Bongiorno CHAIRMAN 26 September 2018 PAGE 3 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS Highlights Leveraging global investments in cloud infrastructure to scale the Company rapidly Linius on track to deliver global solutions in key market sectors The Company is well capitalised to fulfil its business objectives • • • • Commercial deal signed with Newstag • Successful Proof of Concepts (POCs) across core Education and Media & Entertainment industries • Channel expansion: New resource investments and advanced partner discussions • Building scalable processes and capability within sales, marketing and product teams The Company’s patented technology affords it opportunities in multiple high value markets on a global scale and, during FY2018, the Company has been able to establish a position from which it can exploit these opportunities. The Company continues to pursue its vision of making all the world’s video accessible as data. The company’s mission is to become the de facto standard for the management and broadcast of video. Commercialization: to deliver Linius’ vision and mission, the Company seeks to take its patented Video Virtualization Engine™ (VVE) to mass markets in 3 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 Mass Distribution through Partners Linius is setting up the business to scale rapidly and globally. Microsoft, Amazon, and IBM are all investing heavily in artificial intelligence and micro-services. Currently, these rely on data being wrapped around the video file as the video file itself is an impenetrable object. With Linius the video file data is exposed, making video as flexible as all other forms of data. In FY2018 the Company invested in leveraging the investment these cloud providers are making in order to facilitate rapid scale. Linius’ products are now available on IBM Cloud, Amazon AWS, and Microsoft Azure. Industry specific divisions and solution sets built around VVE VVE is an engine — it can power many solutions across the video space. In order to scale the business, in FY2018 the Company decided to invest in developing industry-specific, complete solutions built on top of its core VVE technology. These solutions help to scale the business, because they are easily replicated and sold by system-integration and managed service channel partners. The Company explicitly decided to focus on solutions based in its Search Division, targeting education, news, sports, and corporate communication. In FY2018 the Company announced Proofs of Concept with Oklahoma State University and MediaAmp in the U.S. Upon successful completion, these POCs will serve as an education-based solution which can be taken to the nearly 5,000 higher-education institutions, in the U.S. alone. Subsequent to the close of the year, MediaAmp signed an agreement to become a reseller of this solution in the U.S. education market. PAGE 4 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED Also subsequent to the close of the year, the Company announced a commercial agreement with Stockholm- based video news service, Newstag, which will deliver hyper-personalized news content for both consumers and broadcasters. According to Deloitte Global, by the end of 2018, at least 50 per cent of adults in developed countries will have at least two online-only media subscriptions. This is expected to double by the end of 2020.1 The Company continues to develop specific solutions targeting sports and corporate communication, and intends for all four of these solutions to be delivered globally by the Company’s growing network of channel partners. Achievement of Near Term Goals (NTGs) In FY18 the Company moved to a communication methodology of outlining Near Term Goals (NTGs) to the market, which would be indicative of scaling the business opportunity and moving towards revenue generation. An initial set of NTGs was issued in September, 2017, and a follow-on update to that was issued in April, 2018. Initial NTGs: Early in the FY18 fiscal year (in September, 2017), the Company announced a series of NTGs. Of the original 11 NTGs outlined, eight have been achieved and one replaced with a new NTG to better align with the Company’s evolving strategy:  Integration VVE into IBM’s Cloud (Oct. 2017)  Integration VVE with at least one world leading Over The Top (OTT) platform (Oct. 2017)  Engage with a global movie studio to develop Proof of Value (POV) in anti-piracy (Oct. 2017)  Deliver the integration of VVE into Microsoft Azure (Dec. 2017)  Deliver blockchain strategy and solution design (Dec. 2017)  Integrate VVE with at least one cognitive Artificial Intelligence (AI) provider (Dec. 2017)  Engage global movie studio to develop mass content distribution Proof of Value (Feb. 2018)  Deliver POC for Linius’ Video Search Solution in a global cloud environment (Dec. 2017)  Deliver an end-to-end piracy solution with a movie studio  Convert initial deal flow with IBM  Deliver the integration of VVE with Major OTT ad servers (replaced with new NTG) Note - Linius deprioritised the OTT ad-server integration, as previously communicated and focused on the AI driven search capability. 1https://www2.deloitte.com/content/dam/Deloitte/global/Images/infographics/technologymediatelecommunications/ gx-deloitte-tmt-2018-digital-media-report.pdf PAGE 5 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED NTG Highlights: Warner Bros. and Linius sign collaboration agreement: In February 2018, Linius announced the signing of a collaboration agreement in the U.S. with Warner Bros. Entertainment Inc. to conduct a technical pilot test in Australia of the Linius VVE in a transactional video on demand (“TVOD”) streaming and content platform, which provides content protection through distribution to an end-user. This agreement met the Company’s NTG to engage with a global movie studio to develop POV in anti-piracy. Linius integrates with Microsoft AI: In December 2017, Linius successfully integrated with Microsoft’s suite of Cognitive AI Services for video with its core VVE offering. In line with Linius’ strategy of integrating with Microsoft, AWS and IBM cloud providers, the Company is fast-tracking its integration with global leaders in AI. Expanded NTGs: To accelerate the commercialization process, Linius augmented the Company’s initial set of NTGs in April 2018. This second set of NTGs were designed to further Linius’ rapid business-scaling efforts, lay crucial foundations for generating revenue and support the long-term goals of increasing the penetration of virtual video globally.  Launch VVE as a SaaS platform (strong current developer, partner and channel-use SaaS environment)  Sign an education-sector reseller  Close two revenue-generating deals in the education sector  Close two revenue-generating deals in the news or sports sector  Close two revenue-generating deals in addition to those cited directly above  Sign a second agreement with a globally significant cloud services platform (beyond IBM)  Deliver an end-to-end piracy solution with a movie studio  Deliver POC for Linius’ Video Search Solution in a global cloud environment  Convert initial deal flow with IBM  Integrate IBM search capability NTG achievements: Linius signs commercial deal with Newstag, deploying Linius Video Search technology: Linius and innovative Stockholm-based video news service, Newstag, signed a commercial agreement, which will deliver hyper- personalized news content for both consumers and broadcasters. The signed agreement means Newstag will be a direct user of Linius’ software at a price point of US$1 per video virtualized and US$40 per thousand videos assembled (discounted to US$10 per thousand until future commercial deals are signed). This represents one of the two revenue-generating deals in the news or sports sector. Looking forward, the Company anticipates that Newstag will become a reseller of Linius’ software into the global news market. Newstag is currently deploying the Linius Search Solution across the Newstag site, allowing users to search news archives and generate their own personalized news experience. Linius and Newstag are finalizing a joint go-to- market strategy to sell the capability to the thousands of news broadcasters and news content providers around the world, including but not limited to existing Newstag clients. Newstag is an award-winning news platform that aggregates content for more than 20 broadcasters and agencies around the world, including leading news producers such as AP, AFP, CNN and Bloomberg. Newstag is a world leader in the use of data to learn and tailor content experiences for users in more than 150 countries. PAGE 6 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED Chairperson of Newstag, Ph.D Camilla Dahlin-Andersson, commented: “Newstag is excited about working with Linius to rapidly scale our personalised video news content offering helping users to find relevant content more efficiently. Linius’ technology will allow us to gain market share in this rapidly evolving market.” The commercial deal with Newstag was featured on Sky News Business show, Coincast TV, Friday 10 August. Coincast, the world’s first Blockchain TV news program on mainstream television, is broadcast to a global audience of over 170 million people. MediaAMP partners with Linius to deliver Cognitive Video Search to US education market: The recently announced execution of the MediaAMP Partnership Agreement met the NTG of an agreement with a reseller in the education sector. Under the agreement, MediaAMP will integrate Linius’ patented Video Virtualization Engine™ (VVE) with its video-first digital media asset management platform. MediaAMP will provide Linius’ video virtualization technology to its current and future education clients throughout the US. MediaAMP’s customers include the University of Washington, the University of California and Arizona State University. NTG progress update: Delivery of a piracy solution with a movie studio: The Warner Bros. POC is nearing completion of deployment, with the focus on a technical trial to demonstrate the analytics and KPI capabilities of virtual video. VVE as a SaaS platform: The company’s technology is available on Amazon AWS, Microsoft Azure, and IBM Cloud. In January 2018 the Company entered closed beta trial with a software-as-a-service (SaaS) version of its core Video Virtualization Engine™ — Linius Video Services (LVS). During the year, this beta was made available to developers, and select partners and channels. LVS serves as the foundation for the OK State POC and the Newstag solution. The commercial launch of LVS is expected shortly, in-line with the Company’s strategy to scale the availability of Linius’ VVE rapidly and drive pervasive usage of video virtualization worldwide. As the solution rolls out, users will be able to log-on and pay to virtualize their videos themselves, and build new products and businesses on top of VVE, through a suite of API’s built for global scale, without the requirement for Linius resources. The global SaaS market grew from US$5bn in 2005 to US$105bn in 20172. Converting initial deal flow with IBM: Linius is now in final proposal stage with IBM technology partners and managed service providers. Oklahoma State University (OK State) to satisfy multiple NTGs: As the OK State POC rapidly approaches a successful close, it is expected to imminently achieve multiple NTGs, including: Search in a global cloud environment, revenue-generating deals in the education sector and a reseller agreement in the education sector (completed September 2018). In addition to the April 2018 NTGs already stated, the Company is confident of signing additional global and regional distribution agreements with reseller partners and Managed Service Providers, to support rapid commercialization moving into the 2018 December quarter and beyond. New NTGs will be announced in the December 2018 quarter for the December 2018 to March 19 quarters. 2 https://www.statista.com/statistics/510333/worldwide-public-cloud-software-as-a-service/ PAGE 7 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED Outlook During FY18, the Company focused on completing key activities to directly support its NTGs, including executing high-profile POCs to support its future direct sales pipeline, investing in channel development, as well as hiring world-class talent across its sales, marketing, product and management functions. The execution of these measures is intended to both drive revenue and increase the penetration of virtual video within the Company’s chosen markets. As the Company began to grow its direct sales force in FY2018, a strong pipeline began to fill. Based on the size and strength of the pipeline, and the reaction by prospects to the Company’s technology, we believe more than ever that we have the key that unlocks the massive value of the video market. Moving forward, the Company intends to complete its NTGs as well as other commercial initiatives. To accomplish this, the Company’s strategy remains to complete announced POCs, deliver direct sales, and drive those results through channels as solutions.. Whilst proving use cases in the market for Linius’ Security and Defence, Personalized Ads and Anti-Piracy solutions remain priorities for the business, the Company has decided that the fastest way to progress with commercialization in order to achieve revenue-generating deals is to continuing aggressively pursuing POCs for its Search solutions in sports, news, education, and corporate communications. In accordance with this focus, the Company is already working with Newstag and MediaAMP to rapidly pursue the news and education markets respectively with Linius’ Video Search Solution. Actively working on first video blockchain: Linius plans to launch the world’s first video blockchain, and is actively working to deliver on that strategy in conjunction with its global partners. The Company continues to believe that virtual video remains the only mechanism by which blockchain can be used to fulfil its purpose of protecting ownership rights of video as a digital asset. Bolstering channel network and capabilities: As the Company completes its previously announced strategic POCs and POVs, it anticipates these to be repurposed as replicable, commercial solutions that can be sold either by the Company directly or by resellers in the relevant verticals. The Company is working with multiple channel partners around the world and continues to leverage the investments being made by the leading cloud providers in cloud infrastructure and artificial intelligence. Building scalable processes and capability within sales, marketing and product teams: • Key hires: Expansion of the Company’s sales, marketing and product development teams continues • Linius has focused on building its internal delivery resources; which will be crucial for execution as Linius anticipates rapid progress through the Company’s commercialization milestones Christopher Richardson CHIEF EXECUTIVE OFFICER 26 September 2018 PAGE 8 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 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 2018. 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 Stephen Kerr B.Com, CA, FGIA Mr Kerr provides 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. 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 2018 after income tax expense amounted to $10,714,098 (30 June 2017 loss: $4,230,052). This loss includes non-cash share based payments expense of $1,358,869 and non-cash amortisation charges of $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 8. Dividends Paid or Recommended No dividends were paid or declared for payment. Financial Position The net assets of the Group at 30 June 2018 are $14,101,948 ($5,043,444). Going Concern For the year ended 30 June 2018, the Group had an operating net loss of $10,714,098 (30 June 2017: $4,230,052) and net cash outflows from operating activities of $8,544,365 (30 June 2017: $3,037,565). PAGE 9 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED 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 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 2018. Interest in Shares and Options — 28,083,334 Ordinary shares 3,541,667 Options Directorships held in other listed entities in the last 3 years — In the 3 years immediately before the end of the financial year, Gerard Bongiorno served as a director of the following listed companies: Dubber Corporation Limited (ASX:DUB) PAGE 10 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED 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 Options — 40,000,000 Ordinary shares 6,000,000 Options (unlisted) Directorships held in other listed entities in the last 3 years — In the 3 years immediately before the end of the financial year, Stephen McGovern served as a director of the following listed companies: Dubber Corporation Limited (ASX:DUB) Christopher Richardson Experience — Director and CEO — 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. PAGE 11 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED Previously, Mr Richardson served as global General Manager of KIT digital’s network- operator 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 options in Directorships held other listed entities in the last 3 years — 20,000,000 Options — Nil 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 Stephen Kerr CFO and Company Secretary PAGE 12 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 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 2018. 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. 2018 2017 (Loss) attributable to owners of the company $(10,714,098) $(4,230,052) Change in share price $0.024 $(0.022) Profit/(loss) amounts have been calculated in accordance with the Australian Accounting Standards (AASBs). 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. PAGE 13 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED 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 2018 are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Gerard Bongiorno Executive Chairman 21 February 2017 No fixed term 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. Stephen McGovern Non-Executive Director 18 April 2016 No fixed term 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: Title: Agreement commenced: 1 December 2015 Term of agreement: Details: Christopher Richardson Director and CEO No fixed term 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 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: Title: Agreement commenced: 21 January 2016 Term of agreement: Details: Stephen Kerr Chief Financial Officer and Company Secretary No fixed term 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 and 1,500,000 options in November 2016. The agreement can be terminated by either party on three month’s written notice. The Company will reimburse Mr Kerr for all reasonable expenses incurred in performing his duties. The agreement includes a non-competition clause. PAGE 14 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED 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: 2018 Non-executive directors: Directors’ fees & consultancy fees $ Super- annuation payments Share- based payments5 Total Performance Related Share-based $ $ % Stephen McGovern 90,0002 8,325 - 98,325 Executive directors: Christopher Richardson 230,8003 - 97,089 327,889 Gerard Bongiorno 90,0001 8,544 349,583 448,127 114,0004 - 14,563 128,563 524,800 16,869 461,235 1,002,904 Directors’ fees & consultancy fees $ Super- annuation payments Share- based payments5 Total Performance Related Performance Related $ $ % Executives: Stephen Kerr 2017 Non-executive directors: Gerard Bongiorno Stephen McGovern Executive directors: 30,0001 90,0002 2,850 8,325 - - 32,850 98,325 Christopher Richardson 150,0003 Executives: Stephen Kerr 84,0004 - - 310,360 460,360 44,210 128,210 354,000 11,175 354,570 719,745 - - - - - - - - - - % - 29.6 78.0 11.3 46.0 % - - 67.4 34.5 49.3 PAGE 15 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED 1. Consultancy fees were paid to Otway Capital Consulting, a related party of Gerard Bongiorno. 2. Consultancy fees were paid to SMG Nominees Pty Ltd, a related party of Stephen McGovern. 3. Consultancy 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. 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. Performance income as a proportion of total remuneration Executive directors and executives were not paid performance based bonuses. Equity instruments granted as compensation - audited 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: Number of loan shares granted 2018 Grant date Exercise price $ Fair value per loan share at grant date $ Value of loan granted under the loan share terms 20,000,000 28 Nov 2017 0.026 0.05 $1,000,000 2018 Options Gerard Bongiorno Number of options vested during 2018 10,000,000 Loan expiry date 30 Nov 2022 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. PAGE 16 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED Details of equity incentives affecting current and future remuneration – audited Details of the vesting profiles of the options held by each key management person of the Group are detailed below. Instrument Number of shares or options Grant date % vested during the year % forfeited in year Gerard Bongiorno Christopher Richardson Loan shares 20,000,000 Options 10,000,000 Stephen Kerr Options 1,500,000 28 Nov 2017 30 Nov 2016 30 Nov 2016 50% 30% 30% - - - Financial years in which grant vests 2018-20 2017-19 2017-19 Analysis of movements in equity instruments – audited 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: Gerard Bongiorno Granted in year $ Value exercised in year 510,000 - The loan shares are accounted for as options. The value of loan shares granted in the year 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). Options over equity instruments – audited 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: Balance 1.7.2017 Stephen McGovern 6,000,000 Granted during the year - Lapsed or exercised during the year - Held at 30.6.2018 6,000,000 Vested during the year - Total Vested and Exercisable 30.6.2018 6,000,000 Christopher Richardson Stephen Kerr Total 20,000,000 3,000,000 29,000,000 - - - - - - 20,000,000 3,000,000 14,000,000 3,000,000 450,000 2,100,000 29,000,000 3,450,000 22,100,000 All options expire on the earlier of their expiry date or termination of the individual’s employment. PAGE 17 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED Exercise of options granted as compensation During the period, no options were exercised. Movements in shares - audited 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 1.7.2017 Received as Compensation Acquired during the year Balance 30.6.2018 Gerard Bongiorno Stephen McGovern Total 1,000,000 40,000,000 41,000,000 - - - 7,083,334 8,083,334 - 40,000,000 7,083,334 48,083,334 Number of Loan Shares held by Key Management Personnel Balance 1.7.2017 Received as Compensation Balance at 30.6.2018 Vested at 30.6.2018 Not vested at 30.6.2018 Gerard Bongiorno Total - - 20,000,000 20,000,000 10,000,000 10,000,000 20,000,000 20,000,000 10,000,000 10,000,000 Key management personnel transactions - audited Group Transactions with related parties: Advisory fees paid to Otway Capital Consulting a consulting firm in which Gerard Bongiorno has an interest. Amounts owing to related parties (included in trade and other payables) Entity related to Gerard Bongiorno Entity related to Stephen McGovern Entity related to Christopher Richardson Entity related to Stephen Kerr 2018 $ 62,000 11,000 9,013 30,379 11,000 2017 $ - 8,193 31,655 7,700 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 18 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED Meetings of Directors During the financial year, ten meetings of Directors were held. Attendance by each director was as follows: Directors’ Meetings Number eligible to attend Number attended Gerard Bongiorno Stephen McGovern Christopher Richardson 9 9 9 9 7 9 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. 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 31/03/2019 30/11/2019 30/5/2019 31/12/2019 31/12/2019 31/12/2019 31/12/2019 30/09/2019 30/09/2019 30/06/2021 30/06/2021 08/02/2020 unlisted unlisted unlisted unlisted unlisted unlisted unlisted listed unlisted unlisted unlisted unlisted 5 cents 4.5 cents 7.5 cents 7 cents 7.5 cents 8 cents 8.5 cents 16 cents 22 cents 4.5 cents 5 cents 17 cents 61,500,000 11,500,000 63,760,000 3,375,000 3,375,000 3,375,000 3,375,000 62,083,350 10,000,000 3,750,000 2,000,000 1,000,000 229,093,350 During the year ended 30 June 2018, no 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 19 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT CONTINUED 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. 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/. 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 2018. Non-Audit Services KPMG provided taxation advisory services during the year. Signed in accordance with a resolution of the Board of Directors. Gerard Bongiorno Director 26 September 2018 Melbourne PAGE 20 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR YEAR ENDED 30 JUNE 2018 Note Group 2018 $ 2017 $ Revenue Administrative expenses Employee benefit expenses Amortisation expense Consultant expenses Depreciation expense Share-based payments expense Financial and compliance expenses Software development expenses Marketing and promotional expenses Patent costs Legal expenses Travel and accommodation expenses Loss before income tax Income tax expense Loss for the year Other comprehensive loss Total comprehensive loss for the year Basic loss per share (cents per share) Diluted loss per share (cents per share) 2 19 4 7 7 91,142 (557,157) (342,936) (540,000) (3,239,727) (7,021) (1,358,869) (310,154) (2,991,301) (713,903) (60,535) (108,701) (574,936) 41,492 (331,850) (34,462) (540,000) (692,055) (239) (384,570) (142,897) (895,440) (761,368) (73,793) (140,561) (274,309) (10,714,098) (4,230,052) - - (10,714,098) (4,230,052) - - (10,714,098) (4,230,052) (1.3) (1.3) (0.7) (0.7) The accompanying notes form part of the financial report. PAGE 22 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 CURRENT ASSETS Cash and cash equivalents Other receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Intellectual property Property, plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Employee Provisions TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Share based payments reserve Accumulated losses TOTAL EQUITY Note Group 2018 $ 2017 $ 8 9 10,766,028 265,192 959,270 77,475 11,031,220 1,036,745 10 4,005,000 4,545,000 19,713 14,124 4,024,713 4,559,124 15,055,933 5,595,869 928,944 25,041 953,985 953,985 550,320 2,105 552,425 552,425 14,101,948 5,043,444 30,047,557 12,575,410 4,363,160 2,062,705 (20,308,769) (9,594,671) 14,101,948 5,043,444 11 12 19 The accompanying notes form part of the financial report PAGE 23 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Group Issued Capital $ Share Based Payments Reserve Accumulated Losses $ $ Total $ Balance at 1 July 2016 11,809,470 1,708,135 (5,364,619) 8,152,986 Total comprehensive loss Loss for the year Other comprehensive loss Total comprehensive loss Transactions with owners of the Company Shares and options issued during the year (net of capital raising costs) Share-based payments Total transactions with owners of the Company - - - 765,940 - - - - - 354,570 765,940 354,570 (4,230,052) (4,230,052) - - (4,230,052) (4,230,052) - - - 765,940 354,570 1,120,510 5,043,444 Balance at 30 June 2017 12,575,410 2,062,705 (9,594,671) Balance 1 July 2017 12,575,410 2,062,705 (9,594,671) 5,043,444 Total comprehensive loss Loss for the year Other comprehensive loss Total comprehensive loss Transactions with owners of the Company Shares and options issued during the year (net of capital raising costs) Share-based payments Total transactions with owners of the Company - - - 17,472,147 - - - - - 2,300,455 Balance at 30 June 2018 30,047,557 17,472,147 2,300,455 4,363,160 (10,714,098) (10,714,098) - - (10,714,098) (10,714,098) - - - (20,308,769) 17,472,147 2,300,455 19,772,602 14,101,948 The accompanying notes form part of the financial report PAGE 24 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 Note Group CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers Other income received Interest received 2018 $ 2017 $ (8,620,815) (3,084,744) 56,789 19,661 - 47,179 Net cash used in operating activities 13 (8,544,365) (3,037,565) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant & equipment Net cash provided by /(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Capital raising costs paid Net cash inflows from financing activities Net increase/(decrease) in cash held Cash at beginning of financial year Cash at end of financial year 8 (12,610) (12,610) 19,343,000 (979,267) 18,363,733 9,806,758 959,270 10,766,028 (14,363) (14,363) 760,940 (25,000) 735,940 (2,315,988) 3,275,258 959,270 The accompanying notes form part of the financial report PAGE 25 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 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 26 September 2018. 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 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Going Concern For the year ended 30 June 2018, the Group incurred an operating net loss of $10,714,098 (2017: $4,230,052) and net cash outflows from operating activities of $8,544,365 (2017: $3,037,565 ). 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 2018 until 30 September 2019 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. The Directors are confident the Group will be able to secure sufficient capital funds and the Group has a demonstrated track record of raising capital as required. 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. 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. PAGE 27 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. PAGE 28 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. v. Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. 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 29 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (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. 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. PAGE 30 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. 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. Goods and Services Tax (GST) h. 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. Comparative Figures i. Where required by Accounting standards, comparative figures have been adjusted to conform to changes in the presentation for the current financial year. PAGE 31 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Critical Accounting Estimates and Judgments j. 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. Income tax Balances disclosed in the financial report and the notes thereto related to taxation are based on the best estimates of Directors. These estimates take into account both the financial performance and position of the Group as they pertain to current income taxation legislation, and the Directors’ understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents that Directors’ best estimate, pending an assessment by the Australian Taxation Office. Deferred taxation Potential deferred income tax benefits have not been brought to account at reporting date because the Directors do not believe that it is appropriate to regard realisations of deferred income tax benefits as probable. 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 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. PAGE 32 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Intangible assets m. 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. Employee leave benefits n. 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. PAGE 33 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. q. Adoption of new and revised standards Standards issued but not yet effective In the year ended 30 June 2018, 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 and earlier adoptions is permitted; however, the Group has not early adopted the following new or amended standards in preparing these consolidated financial statements: • AAS15 Revenue from Contracts with Customers; • AASB 9 Financial Instruments; • AASB16 Leases. 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. r. 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. PAGE 34 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. s. 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 share- based 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. t. 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. PAGE 35 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. u. 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. PAGE 36 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) v. 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. NOTE 2: REVENUE Other revenue: Government grants – Export market development grant Interest received Total revenue NOTE 3: LOSS FOR THE YEAR Other expenses: Occupancy costs Group 2018 $ 56,789 34,353 91,142 2017 $ - 41,492 41,492 Group 2018 $ 2017 $ 98,570 31,741 PAGE 37 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 4: INCOME TAX EXPENSE Group 2018 $ 2017 $ (a) Income tax expense Current tax benefit (2,556,599) (1,050,515) Deferred tax – origination and reversal of temporary differences (6,307) - Deferred tax assets not recognised 2,562,906 1,050,515 - - (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% (2,946,377) (1,163,264) Add / (Less) Tax effect of: Share based payments Other non-allowable items Unused tax losses not recognised as deferred assets Income tax attributable to operating loss 373,689 9,782 2,562,906 97,507 15,242 1,050,515 - - (c) Unrecognised deferred tax assets Unused Australian tax losses for which no deferred tax asset has been recognised Temporary differences not recognised Total 3,786,579 1,223,673 6,886 579 3,793,465 1,224,252 Potential deferred tax assets attributable to tax losses carried forward have not been brought to account at 30 June 2018 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 38 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 5 : KEY MANAGEMENT PERSONNEL The total of remuneration paid to KMP of the Group during the period are as follows: Group Short-term employee benefits Share-based payments NOTE 6: AUDITOR’S REMUNERATION Remuneration of the auditor for services provide to the Group and the Parent during the year: — auditing and reviewing of financial statements: KPMG - taxation advisory KPMG NOTE 7: EARNINGS/LOSS PER SHARE 2018 $ 541,669 461,235 1,002,904 Group 2018 $ 82,000 4,410 86,410 2017 $ 365,175 354,570 719,745 2017 $ 69,000 - 69,000 Group 2018 $ 2017 $ a. Reconciliation of earnings to profit or loss Loss used to calculate basic and diluted EPS (10,714,098) (4,230,052) b. Weighted average number of ordinary shares outstanding during the period used in calculating basic and diluted EPS No. No. 811,545,392 632,821,305 Potential ordinary shares comprising 229,093,350 options (2017: 73,000,000) were excluded in the calculation of diluted EPS given they are antidilutive. PAGE 39 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 8: CASH AND CASH EQUIVALENTS Cash at bank and in hand Group 2018 $ 10,766,028 2017 $ 959,270 The effective interest rate on short-term bank deposits was varying between 2.15% to 2.57%. 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 10,766,028 959,270 NOTE 9: OTHER RECEIVABLES CURRENT GST receivable Prepaid expenses and other receivables Group 2018 $ 84,861 180,331 265,192 2017 $ 39,033 38,442 77,475 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. Intellectual property at cost Accumulated amortisation Group 2018 $ 5,400,000 (1,395,000) 4,005,000 2017 $ 5,400,000 (855,000) 4,545,000 PAGE 40 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 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 copyright. covered by the intellectual property purchased was trademarks and valid patents, 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 2018 consist principally of cash of $10,766,028 and intellectual property, after amortisation, of $4,005,000. Net assets are $14,101,948. Linius shares closed at a price of 7.6 cents per share on 30 June 2018. Total fully paid ordinary shares on issue at 30 June 2018 are 935,597,548. This gives a market capitalisation of Linius of $71,105,413. 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 2018 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 3%, which is consistent with market assumptions of the long term growth target for Australia of between 2% and 3%. • Revenue was based on a staged pipeline of licence income being earned, which is anticipated to grow in FY19 and FY20 based on the number of customer take-on of the Linius technology. From 2021 to 2023 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% 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. 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. PAGE 41 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 11: TRADE AND OTHER PAYABLES Trade payables* Sundry payables and accrued expenses Group 2018 $ 702,224 226,720 928,944 2017 $ 280,455 269,865 550,320 *Terms of trade are in line with normal commercial terms (usually 30 to 60 days). NOTE 12: ISSUED CAPITAL AND RESERVES Issued Capital 2018 Opening balance 1 July 2017 Issue of shares through private placement (net of costs)* Issue of shares as share based payment to consultant Issue of loan funded shares Issue of shares on conversion of unlisted options At reporting date Note $ Group Number (Legal parent) 12,575,410 679,190,880 16,579,147 224,166,668 50,000 - 843,000 1,000,000 20,000,000 11,240,000 30,047,557 935,597,548 The Company has issued share capital amounting to 935,597,548 ordinary shares of no par value. * Net of $941,586 of share based payment transaction costs and $979,267 in cash incurred transaction costs. 2017 Opening balance 1 July 2016 Issue of shares through private placement (net of costs) Issue of shares as share based payment to corporate advisor Conversion of performance shares Issue of shares on conversion of listed options At 30 June 2017 11,809,470 562,238,580 475,000 30,000 10,000,000 428,794 - 100,000,000 260,940 6,523,506 12,575,410 679,190,880 PAGE 42 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 12: ISSUED CAPITAL AND RESERVES (CONTINUED) Ordinary shares Opening balance Fully paid shares issued during the year — September 2016 (issue of shares via private placement) — September 2016 (share based payment of consulting fees) — November 2016 (share based payment of consulting fees) — November 2016 (conversion of performance shares) — December 2016 (conversion of performance shares) — December 2016 (issue of shares on exercise of unlisted options) — July 2017 (issue of shares by private placement) — October 2017 (issue of shares by private placement) — December 2017 (issue of shares by private placement) — December 2017 (share based payment to director) — December 2017 (issue of shares on exercise of unlisted options) — January 2018 (issue of shares on exercise of unlisted options) — February 2018 (issue of shares on exercise of unlisted options) — February 2018 (issue of shares by private placement) — March 2018 (issue of shares on exercise of unlisted options) — March 2018 (share based payment of consulting fees) — May 2018 (issue of shares by private placement) — June 2018 issue of shares by private placement) Legal parent entity 2018 No. 2017 No. 679,190,880 562,238,580 10,000,000 197,511 231,283 50,000,000 50,000,000 6,523,506 30,000,000 85,000,000 5,000,000 20,000,000 3,500,000 6,340,000 500,000 81,250,000 900,000 1,000,000 2,083,334 20,833,334 At reporting date 935,597,548 679,190,880 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 43 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 12: ISSUED CAPITAL AND RESERVES (CONTINUED) Performance shares on issue Opening balance Performance shares issued during the year Number converted to ordinary shares during the period At reporting date Legal parent entity 2018 No. - - - - 2017 No. 100,000,000 - (100,000,000) - The performance shares were unlisted and were divided into 4 classes (A, B, C and D) of 50,000,000 performance shares per class where performance shares in the relevant class converted into ordinary shares upon achievement of certain milestones. At 30 June 2016 Milestone 1 and Milestone 2 had been achieved and 100,000,000 performance shares had converted to ordinary shares. At 30 June 2017 all Milestones had been achieved and the balance of 100,000,000 performance shares had been converted to ordinary shares. 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 2018 is as follows: Cash and cash equivalents Trade and other receivables Trade and other payables and other liabilities Working capital position Group 2018 $ 10,766,028 265,192 (953,985) 10,077,235 2017 $ 959,270 77,475 (552,425) 484,320 PAGE 44 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 13: CASH FLOW INFORMATION Loss after income tax Cash flows excluded from loss attributable to operating activities Non cash items - Depreciation - Amortisation - Share-based payments expense - Shares issued for payment of trade payable Changes in assets and liabilities - Increase/(decrease) in provisions - Increase/(decrease) in trade payables and accruals - (Increase)/decrease in trade receivables and prepayments Group 2018 $ 2017 $ (10,714,098) (4,230,052) 7,021 540,000 1,358,869 50,000 22,936 378,624 (187,717) 239 540,000 384,570 - 2,105 267,542 (1,969) Cash flows used in operating activities (8,544,365) (3,037,565) Changes in liabilities arising from financing activities There were no changes in liabilities arising from financing activities (2017: nil). PAGE 45 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: RELATED PARTY TRANSACTIONS (i) Transactions with key management personnel: Advisory fees paid to Otway Capital Consulting, a consulting firm in which Gerard Bongiorno has an interest (ii) Amounts owing to key management personnel (included in trade and other payables): Entity related to Gerard Bongiorno Entity related to Stephen McGovern Entity related to Christopher Richardson Entity related to Stephen Kerr Group 2018 $ 62,000 11,000 9,013 30,379 11,000 2017 $ - - 8,193 31,655 7,700 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: % Held Name of the subsidiary Place of incorporation Class of shares 2018 Firestrike Resources Incorporated (a) Linius (Aust) Pty Ltd Linius Solutions Pty Ltd (a) Deregistered in 2018. USA Australia Australia Ordinary Ordinary Ordinary - 100% 100% 2017 100% 100% 100% Balances and transactions between the parent and its subsidiaries, which are related parties of the parent, have been eliminated on consolidation and not disclosed in this note. PAGE 46 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 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 47 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) Share options and loan shares (equity settled) The key terms and conditions of share options and loan shares on issue are as follows; all options are to be settled by the physical delivery of shares. Grant date Options granted to key management personnel and employees: Employees On 11/15 January 2018 Key Management Personnel On 30 November 2016 On 29 April 2016* Loan shares granted to key management personnel: Number of instruments Exercise price Vesting conditions Contractual life of options 3,750,000 4.5 cents 33% vesting on each of 1st, 2nd and 3rd anniversary of employment date 3.3 years 11,500,000 58,500,000 4.5 cents 5 cents Refer to Note A below Vested 3 years 3 years On 28 November 2017 20,000,000 5.0 cents 50% vesting on issue, 25% vesting in 12 months, 25% vesting in 24 months 5 years Options granted to consultants: On 28 May 2018 On 22 February 2018 On 28 February 2018 On 28 February 2018 On 15 February 2018 On 15 February 2018 On 15 February 2018 On 15 February 2018 On 28 November 2017 On 29 April 2016 1,000,000 2,000,000 17 cents 5.0 cents 10,000,000 10,000,000 3,375,000 3,375,000 3,375,000 3,375,000 10,000,000 3,000,000 22 cents 16 cents 7 cents 7.5 cents 8 cents 8.5 cents 7.5 cents 5 cents Vested on issue 33% vesting on each of 1st, 2nd and 3rd anniversary of engagement date Vested on issue Vested on issue Vested on issue Vested on issue Vested on issue Vested on issue Vested on issue Vested 21 months 3.3 years 19 months 19 months 22 months 22 months 22 months 22 months 18 months 3 years *Include options issued to former employees. PAGE 48 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 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: Name Position Vesting Condition Options Christopher Richardson Stephen Kerr Total Managing Director and Chief Executive Officer Chief Financial Officer and Company Secretary Vesting Condition 1 Vesting Condition 2 Vesting Condition 3 Vesting Condition 4 Vesting Condition 5 Vesting Condition 1 Vesting Condition 2 Vesting Condition 3 Vesting Condition 4 Vesting Condition 5 2,000,000* 2,000,000 2,000,000 2,000,000 2,000,000 300,000* 300,000 300,000 300,000 300,000 11,500,000 * 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 (eg 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 49 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) Share based payments (equity settled) expense recognised in profit or loss Options Christopher Richardson Stephen Kerr Options issued under the ESOP Options issued to consultants Cost of options issued to consultants for capital raising services, applied against equity Shares Consulting fees settled via share issue Gerard Bongiorno – Loan funded shares 2018 $ 2017 $ 97,089 14,563 360,361 1,478,546 (941,273) 310,360 44,210 - - - 1,009,286 354,570 - 30,000 349,583 - 1,358,869 384,570 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: Options on issue Outstanding at 1 July Listed options over ordinary shares exercised during the year Listed options – expired during the year Options issued during the year Options exercised during the year Listed options issued during the year Options issued during the year Options issued during the year ESOP options granted during the year Options issued during the year Outstanding at 30 June Exercisable at 30 June Number of options 2018 73,000,000 Weighted average exercise price 2018 4.9 cents 75,000,000 (11,240,000) 62,083,350 13,500,000 10,000,000 5,750,000 1,000,000 229,093,350 218,360,017 7.5 cents 7.5 cents 16.0 cents 7.75 cents 22.0 cents 4.7 cents 17.0 cents 9.6 cents 9.8 cents Number of options 2017 76,027,554 (6,523,506) (8,004,048) 11,500,000 Weighted average exercise price 2017 4.8 cents 4 cents 4 cents 4.5 cents 73,000,000 62,650,000 4.9 cents 5.0 cents PAGE 50 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) Loan shares on issue* Outstanding at 1 July Loan shares granted during the year Outstanding at 30 June Vested at 30 June Number of loan shares 2018 - 20,000,000 20,000,000 10,000,000 Weighted average price 2018 Number of loan shares 2017 Weighted average price 2017 - 5.0 cents 5.0 cents 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, which considers the terms and conditions upon which the options were granted: 30 June 2018 2,000,000 Unlisted ESOP options 1,875,000 Unlisted ESOP options 1,875,000 Unlisted ESOP options 20,000,000 Loan shares 13,500,000 Unlisted options Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Exercise price (cents) Grant date share price Grant date fair value Nil 90% 2.15% 3 $0.05 $0.122 $0.082 Nil 90% 2.18% 3 $0.045 $0.179 $0.143 Nil 90% 2.19% 3 $0.045 $0.189 $0.152 Nil 90% 2.13% 5 $0.050 $0.049 $0.0255 Nil 95% 1.83% 2 $0.0775 $0.055 $0.082 Grant date 22 Feb 2018 11 Jan 2018 15 Jan 2018 28 Nov 2017 15 Feb 2018 10,000,000 Unlisted options 1,000,000 Unlisted options 10,000,000 Listed options 10,000,000 Unlisted options Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Exercise price (cents) Grant date share price Grant date fair value Nil 90% 1.68% 1.5 $0.075 $0.049 $0.014 Nil 90% 2.005% 2 $0.170 $0.110 $0.050 Nil 90% 1.87% 1.5 $0.160 $0.130 $0.045 Nil 90% 1.87% 1.5 $0.220 $0.130 $0.035 Grant date 28 Nov 2017 28 May 2018 28 Feb 2018 28 Feb 2018 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 51 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 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 1.96% at 30 June 2018. 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 $5,863 (2017: $959) 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 52 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 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) and ANZ Bank. The NAB and ANZ Bank have 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. Weighted Average Effective Interest Rate 2018 % 1.96 2017 % 0.45 - - Financial Assets: Cash and cash equivalents Total Financial Assets Financial Liabilities: Trade and other payables Total Financial Liabilities iii. Net Fair Values Floating Interest Rate 2018 $ 10,766,028 2017 $ 959,270 10,766,028 959,270 928,944 928,944 550,320 550,320 Financial assets (cash and other receivables) and financial liabilities (trade and other receivables) are carried at amortised cost which approximates their fair values. PAGE 53 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 NOTE 21: EVENTS AFTER THE REPORTING PERIOD 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 2018: Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Equity Issued Capital Option premium reserve Share based payments reserve Accumulated losses Total equity Financial performance Loss for the year Total comprehensive loss For details on commitments, see Note 17. 2018 $ 2017 $ 10,522,465 806,996 28,081,250 20,972,465 38,603,715 21,779,461 144,223 144,223 294,244 294,244 45,688,511 28,216,364 36,462 36,462 4,363,160 2,062,705 (11,628,641) (8,830,314) 38,459,492 21,485,217 2018 $ 2,798,327 2,798,327 2017 $ 1,523,264 1,523,264 PAGE 54 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 DIRECTORS’ DECLARATION 1. In the opinion of the directors of Linius Technologies Limited (“the Company”): (a) the consolidated financial statements and notes that are set out on pages 22 to 54 and the Remuneration report on pages 13 to 18 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 2018 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 (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. 2. 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 2018. 3. 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. Gerard Bongiorno Director 26 September 2018 PAGE 55 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 ADDITIONAL INFORMATION FOR LISTED COMPAN IES 1. Shareholdings as at 31 August 2018 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 36 140 272 5,539 548,587 2,219,451 1,200 52,736,905 783 882,587,066 2,431 938,097,548 b. The number of shareholdings held in less than marketable parcels is 252. c. The names of the substantial shareholders listed in the holding Group’s register as at 31 August 2018 are: Shareholder 1 Phoenix Myrrh Technology Pty Ltd / Anthony Finbar O’Hanlon 2 Earthrise Holdings Pty Ltd 3 Technical Investing Pty Ltd Number Ordinary 91,305,054 90,000,000 50,602,833 % 9.76 9.59 5.39 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 61 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 ADDITIONAL INFORMATION FOR LISTED COMPAN IES (CONTINUED) e. 20 Largest Shareholders — Ordinary Shares Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Earthrise Holdings Pty Ltd Steve McGovern Nominees Pty Ltd Phoenix Myrrh Technology Pty Ltd Naley Pty Ltd Parlin Investments Pty Ltd One Managed Investment Funds Limited Anbaume Pty Ltd Mr Anthony Finbar O'Hanlon HSBC Custody Nominees (Australia) Limited VR Corporate Services Pty Ltd Stephen Wayne Velik Mr Anthony Finbar O'Hanlon One Managed Investment Funds Limited Clarkirb Nominees Pty Ltd Boscombe Holdings Limited Unrandom Pty Ltd One Managed Investment Funds Limited Riversdale Capital Funding Pty Ltd Ninkirb Nominees Pty Ltd Caerlaverock Investments Pty Ltd Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 90,000,000 40,000,000 36,532,768 32,500,000 30,000,000 27,833,334 22,083,334 20,605,375 20,229,515 20,000,000 15,865,005 13,800,000 10,640,000 10,000,000 9,759,584 8,533,674 8,379,500 7,783,740 7,500,000 6,831,465 438,877,294 9.59 4.26 3.89 3.46 3.20 2.97 2.35 2.20 2.16 2.13 1.69 1.47 1.13 1.07 1.04 0.91 0.89 0.83 0.80 0.73 46.77 PAGE 62 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 ADDITIONAL INFORMATION FOR LISTED COMPAN IES (CONTINUED) f. 20 Largest holders – Listed Options (ASX:LNUOA) Name One Managed Investment Funds Limited Celtic Capital Pty Ltd Mr David Peter Valentino CPS Capital Investments Pty Ltd HSBC Custody Nominees (Australia) Limited Morgan Stanley Australia Securities (Nominee) Pty Limited Mr Anthony Julian Bongiorno Sunshore Holdings Pty Ltd Riversdale Capital Funding Pty Ltd Anbaume Pty Ltd Sunset Capital Management Pty Ltd Gazump Resources Pty Ltd Beck Corporation Pty Ltd Ninkirb Nominees Pty Ltd Seven Bob Investments Pty Ltd EMBR Capital LLC Jurrah Investments Pty Ltd Wilberforce Pty Ltd Robert Kirby Investments Pty Ltd GW Burke Investments Pty Ltd 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Number of Options Held % Held 10,416,667 3,500,000 3,500,000 3,000,000 2,500,000 1,666,666 1,500,000 1,250,000 1,041,667 1,041,667 1,000,000 984,548 833,333 833,333 720,484 625,000 625,000 550,000 520,834 520,834 36,630,033 16.78 5.64 5.64 4.83 4.03 2.68 2.42 2.01 1.68 1.68 1.61 1.59 1.34 1.34 1.16 1.01 1.01 0.89 0.84 0.84 59.04 PAGE 63 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2018 2. 3. The name of the Company Secretary is Mr Stephen Kerr. The address of the principal registered office in Australia is: Level 18, 101 Collins Street MELBOURNE VIC 3000 Telephone 03 8680 2317 4. Registers of securities are held at the following addresses: Advance Share Registry 110 Stirling Hwy NEDLANDS WA 6009 Australia 5. Securities Exchange Listing Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Securities Exchange Limited. 6. 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 64

Continue reading text version or see original annual report in PDF format above