Linius Technologies Limited
Annual Report 2020

Plain-text annual report

LINIUS TECHNOLOGIES LIMITED ACN 149 796 332 ANNUAL REPORT 2020 ANNUAL REPORT LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CONTENTS PAGE CORPORATE DIRECTORY…………………………………………………………………….……………………….……………….………2 CHAIRMAN'S LETTER TO SHAREHOLDERS……………..…………………………….……………………………………….……...3 CHIEF EXECUTIVE OFFICER'S REVIEW OF OPERATIONS………………………………………………………………….……4-7 DIRECTORS' REPORT…………………………………………………………………………………………………………..…….…...8-21 CORPORATE GOVERNANCE STATEMENT..…………………………………………………………………………………………..21 AUDITOR'S INDEPENDENCE DECLARATION……………………………………………………………………………..……….…22 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME…………..…..….23 CONSOLIDATED STATEMENT OF FINANCIAL POSITION………………………….…………………………………………....24 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY………………………………………………………………….…..…25 CONSOLIDATED STATEMENT OF CASH FLOWS………………………………………………………………………….……..…26 NOTES TO THE FINANCIAL REPORT………………………………………………………………………………………..……..27-59 DIRECTORS' DECLARATION………………………………………………………………………………………………………………..60 INDEPENDENT AUDITOR'S REPORT…………………………………………………………………………………………….…61-65 ADDITIONAL INFORMATION FOR LISTED COMPANIES……………………………………………………………….…...66-67 PAGE 1 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CORPORATE DIRECTORY This annual report covers Linius Technologies Limited and its controlled entities (the “Group” or “Group”) during the year ended 30 June 2020. The presentation currency of the Group is Australian dollars. OFFICERS REGISTERED OFFICE SOLICITORS AUDITORS SHARE REGISTRY PRINCIPAL PLACE OF BUSINESS WEBSITE ASX CODE Gerard Bongiorno Stephen McGovern Christopher Richardson (Director and CEO) Giuseppe Rinarelli (Executive Chairman) (Non-Executive Director) (Company Secretary and CFO) Suite 13, Level 3, 299 Toorak Road, SOUTH YARRA VIC 3141 Milcor Legal Lawyers Level 1, 6 Thelma Street WEST PERTH WA 6872 KPMG Tower 2, Collins Square 727 Collins Street MELBOURNE VIC 3000 Advanced Share Registry Ltd 110 Stirling Highway NEDLANDS WA 6009 Telephone: Facsimile: (08) 9389 8033 (08) 9262 3723 Suite 13, Level 3, 299 Toorak Road, SOUTH YARRA VIC 3141 Telephone: Facsimile: Email: info@linius.com www.linius.com LNU (03) 8680 2317 (03) 8680 2380 PAGE 2 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 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 2020. 2020 was a real turning point for the company as we reached initial milestones in the commercialisation of our technology. In late 2019 and early 2020 we achieved multiple new clients wins, such as Racing.com, NBL and Sportshero. Unfortunately, the global pandemic heavily impacted the Sports broadcasting sector and subsequently our revenues were delayed. To this day we have multiple deployments sitting with clients awaiting the start of their respective seasons. Investors should be assured that when these seasons start our revenues will follow. Racing.com has continued operations, is expanding its use of our technology, and is delivering revenue. Importantly Racing.com are reporting significant uptake in their viewer engagement. Their customers like personalised TV. In March 2020 as a result of COVID 19 we reduced our cost base significantly. We will continue to maintain cost discipline and do not see any new material expenditure being introduced before significant revenues arrive. As we progressed through 2020 we continued to win new clients. In April we won Livetiles and successfully deployed into their platform and secured our first mutual client. In May we won Grafa, an intelligent finance news application, which will deploy in Q2 of the 2021 financial year. The Company has now won clients in all of its target sectors, and repeat sales in the Sports sector. Our plan now is to sell more of the same. We expect to see our sales cycle shorten as we are able to point to proven case studies, and as our partners such as the major cloud providers Amazon Web Services and Microsoft continue to introduce their clients to Linius. During the year we were pleased to receive continued investment support from existing and new investors. The Company raised $6,954,434, including $1,300,000 from directors or their nominees, before costs. An additional $250,000 was approved by shareholders on 6th August 2020 and received subsequent to year end. Most recently, the Company raised a further $5 million at 2.8 cents per share, with directors or their nominees to contribute $210,000 of this amount post approval at the upcoming AGM in November 2020. We were very pleased that the wider investment community has recognised the opportunity and continued to invest in the Company to fund the commercialisation of our core product. Thank you On behalf of your directors I would like to thank all shareholders who have supported us through this ongoing commercialisation phase. I look forward to seeing success from our commercialisation efforts and your continued to support as we pursue our business plans. I present to you the report on the Company and its controlled entities for the 30 June 2020 financial year. Gerard Bongiorno CHAIRMAN 30 September 2020 PAGE 3 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS 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 2020. 2020 was a real turning point for the company as we reached initial milestones in the continues to pursue its vision of making all the world’s video accessible as data. Linius’ mission is to become the de facto standard for the management and streaming of video. Linius’ core strategy of providing personalised TV solutions remains unchanged, as does the strategy of commercially validating solutions in each sector, then leveraging partners such as AWS and Microsoft to sell more of them. During FY2020 management felt that Linius had achieved commercial validation with multiple wins in the sports sector, including clients such as SportsHero, Racing.com, Essendon FC, and National Basketball League, only for them to be delayed by the COVID 19 pandemic. The technology is deployed and ready to go live as the sports open up once more. More recent commercial wins in April and May, Livetiles for the Video Conferencing solution and Grafa for the News solution, are insulated from these market conditions. Importantly, partners such as AWS now see the company as commercially validated. AWS are now actively introducing Linius solutions to their clients considering Linius’ revenue growth will in turn generate significant new traffic for AWS. Linius’ patented technology, known as Linius Video Services (LVS), is a best practice SaaS platform sat in AWS. It is fully operational, tested to internet scale with well-established and utilised APIs. Management are of the view that the new business wins in large markets, with the long-term revenue potential and long-trailing revenue models justify the FY20 investment and position the company well to repeat these solutions for new clients in the quarters ahead. Poised to Scale All of the solutions below are readily repeatable across large markets and will begin to deliver revenue to Linius in late September and early October. Linius’ AI Meeting Solution Linius’ AI Meeting Solution instantly searches the data within the recordings of meetings within selected time- frames, leverages AI including voice recognition, facial detection, transcripts, character recognition, labels, key frames, shot detection and objects recognition (e.g. pages from the actual documents presented in the meeting), and intelligently connects these knowledge assets to deliver them in personalized videos to employees. PAGE 4 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED The Linius AI Meeting solution is particularly relevant with the video conferencing sector booming:  Microsoft Teams now has 75 million daily active users, adding 31 million in just over a month1.  Zoom reported a 50% surge in use of the online meeting application in April 2020, up from 200 million to 300 million daily meeting participants2. On April 15th Linius and Livetiles announced that Linius’ technology would be integrated into the Livetiles platform. The parties were introduced by Microsoft and the solution draws video content from Microsoft Teams and Microsoft Stream with the solution developed likely to of be integrated into other global video conferencing platforms. Sales activities, to primarily Livetiles clients, has commenced around the first iteration of the product. Linius’ go to market strategy is to deploy, validate and repeat. Subsequent to the year end Livetiles have secured a leading university as a first client. Considering Linius’ video conferencing play is commercially validated, partners are actively introducing Linius into their video conferencing clients. Management have articulated its roll out plan for this technology taking it into the broader video conferencing market place and make the solution available to 100’s of millions of users. Linius’ personalised news service On May 6th Linius announced new client Grafa. Grafa will provide financial news, charting and market intelligence to its subscribers. Linius’ technology enables Grafa subscribers to personalize finance and business video content based on their interests. Users will input their preferences encompassing economic data, stock markets, forex and cryptocurrencies to effectively build their own bespoke business news channel, tailored specifically to them. Grafa are building their own platform, leveraging Linius Video Services (‘LVS’) APIs and are expected to deploy in Q4 2020 with revenue flowing within 30 days. Linius’ sports solution Linius’ clients in the sports sector continue to deal with a great deal of uncertainty, including a lack of live sports and distressed commercial models. In addition to a number of active POC’s, Linius has deployed solutions for a number of clients and is confident that when live sports re-commence the previously expected revenues will commence. Racing.com Racing.com continues to see great and growing success from Replay hub. The client is expected to continue to grow, with new features set to be deployed ahead of The Sprig Racing Carnival, and provides a valuable case study for the power of personalised video. Linius partners are now introducing Linius into further similar clients. 1 https://www.businessinsider.com/microsoft-teams-hits-75-million-daily-active-users-2020-4 2https://www.bloomberg.com/news/articles/2020-04-22/zoom-daily-users-surge-to-300-million-despite-privacy-woes PAGE 5 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED Sportshero Sportshero is deployed and ready to go live. The go-live date and commencement of revenue is dependent on the recommencement of Indonesian football league. NBL Whilst awaiting the start of the NBL season, the company has taken the opportunity to enhance the commercial arrangement with NBL and is now preparing to deliver a more comprehensive solution for NBL that will be the gold standard for personalised sports TV. The solution will deploy before the seasons commencement. Other   A European security agency continues to pilot the technology in counter-terrorism related activity with live trials expected in the December quarter. Capabilities developed during POC’s previously undertaken with Universities are now being rolled out with LiveTiles with the first client win being a leading Australian University. Blockchain Proof of Concept The previous work in anti-piracy, including a Proof of Concept (“POC”) with Warner Bros., combined with the Company’s blockchain proof of concept, has continued to develop as a research and development project. The promise of blockchain is to have a transformative impact on management of digital assets in untrusted environments. However, this promise is yet to be realized in any significant way for traditional digital assets beyond currency — for example, video, audio, and photos. The Company has long believed its virtual video technology could be the enabling factor to make a video blockchain possible. In order to continue development of this concept, both from a business and an engineering perspective without having adverse impact on core Linius operations, the Company incorporated a wholly-owned subsidiary — Blockchain Video Services (“BVS”) — in the U.S. While optimistic for the future of video on blockchain, the Company does not foresee BVS being accretive to revenue in FY2021, and plans de minimis investment in the subsidiary, primarily focused on on-going research and development of blockchain related tools and platforms that aim to support and enhance the Company’s core business in the future. PAGE 6 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CHIEF EXECUTIVE OFFICER’S REVIEW OF OPERATIONS CONTINUED Building on the investment from 2020 Linius’ core strategy of providing personalised TV solutions remains unchanged and has achieved significant commercial wins. The Company is focussed on two things: 1. Generating significant near-term revenue growth from Linius’ proven technology solutions: ‐ ‐ ‐ Video conferencing solution, with Livetiles; Personalised Finance News product, with Grafa; and Sports personalisation, with Racing.com and other existing sports clients such as Sportshero and NBL as their markets re-open. 2. Deploying and repeating these established and commercially validated solutions with other similar organisations. Close Partners such as AWS and Microsoft are actively introducing these Linius’ solutions to their clients. The company has announced plans to roll out its video conferencing solution with a number of key initiatives now in the planning and implementation phases: ‐ Integration with webex and zoom, to make the service available to these users ‐ New pricing bundles ranging from the current US$3 to US$9, per user per month ‐ ‐ Significant new product features Interchangeable user interface to make the product available to a wide range of market sectors. The company sees the buoyant video conferencing market place as a great opportunity for its unique AI Meeting Solution product in 2020 and beyond. Christopher Richardson CHIEF EXECUTIVE OFFICER 30 September 2020 PAGE 7 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 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 2020. Directors The Directors in office during the year were: Gerard Bongiorno (Executive Chairman) Stephen McGovern (Non-Executive Director) Christopher Richardson (Executive Director & CEO) All Directors have been in office since the start of the financial year to the date of this report. Company Secretary Giuseppe Rinarelli B.Acc, CA Mr Rinarelli is the Group’s CFO and company secretary. He is an experienced finance professional having worked within a chartered environment in excess of 10 years. Appointed as company secretary on 3 June 2019. 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 2020 after income tax expense amounted to $7,820,189 (2019 loss: $11,557,874). This loss includes non-cash share based payments expense of $137,240 (2019: $587,461) and non-cash amortisation charges of $540,000 (2019: $540,000). During the year the Company proceeded with its commercialisation activities, expanded its management and operational teams to tackle global market opportunities and continued to develop and refine its core technology and product offerings. For more information on the years activities please refer to the above Chief Executive’s Review of Operations on pages 4 to 7. Significant changes in the state of affairs In the opinion of the directors there were no significant changes in the state of affairs of the Group that occurred during the financial year under review. Dividends Paid or Recommended No dividends were paid or declared for payment. Financial Position The net assets of the Group at 30 June 2020 are $4,384,019 ($5,501,534). PAGE 8 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED Going Concern For the year ended 30 June 2020, the Group had an operating net loss of $7,820,189 (30 June 2019: $11,557,874) and net cash outflows from operating activities of $7,217,631 (30 June 2019: $10,813,530). 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 Capital Raising Subsequent to year end on 23 September 2020, the Group received firm commitments from professional and sophisticated investors to raise $5,000,000 in additional capital, excluding transaction costs, via a placement to: directors or their nominees, via the issuance of 7,500,000 fully paid ordinary shares at $0.028 per share, being $210,000, subject to shareholder approval; and via the additional issuance of 171,071,429 fully paid ordinary shares at $0.028 per share, being $4,790,000. - - An additional $250,000 was approved by shareholders on 6th August 2020 and received subsequent to year end. COVID-19 There remains significant uncertainty regarding how the COVID-19 pandemic will evolve, including the duration of the pandemic, the severity of the downturn and the speed of economic recovery. In accordance with AASB 110 Events after the reporting date, the Group considered whether events after the reporting period confirmed conditions existing before the reporting date. Consideration was given to the macro-economic impact of lockdowns implemented locally and overseas and the extent government support available. The Group did not identify any subsequent events precipitated by COVID-19 related developments which would require adjustment to the amounts or disclosures in the financial statements. Further, no other material non- adjusting subsequent events relating to COVID-19 were identified requiring disclosure in the financial statements. Given the fluid nature of the current situation, the Group will continue to regularly review forward looking assumptions and forecast economic scenarios Other than the matters noted above, there has not been any matter or circumstance that has arisen after balance date that has significantly affected, or may significantly affect, the operations of the Group, the results of these operations, or the state of affairs of the Group in future financial periods. Environmental Issues There are no environmental regulations or requirements that the Company is subject to. PAGE 9 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED Information on Directors Gerard Bongiorno — Executive Chairman Experience Interest in Shares and Options at 30 June 2020 Loan shares accounted as options — Mr Bongiorno is Principal and Co-CEO of Sapient Capital Partners, a merchant banking operation and has over 30 years of professional experience in capital raisings and corporate advisory. Prior to forming Sapient (formerly Otway Capital), Gerard was Head of Property Funds Management at Challenger Financial Services Group (CFG) and was Group Special Projects Manager at Village Roadshow. Earlier in his career he worked at KPMG in insolvency and corporate finance. Gerard received his Bachelor’s Degree in Economics and Accounting from Monash University and completed the Program for Management Development at Harvard Business School PMD75. Director since 21 February 2017. — 45,745,673 Ordinary shares (inclusive of 20,000,000 loan shares) 20,000,000 loan shares options (included in the above) 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 2020 DIRECTORS’ REPORT CONT INUED 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 at 30 June 2020 — 45,714,284 Ordinary shares 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 2020 DIRECTORS’ REPORT CONT INU ED 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 at 30 June 2020 Directorships held in other listed entities in the last 3 years — Nil — 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 Giuseppe Rinarelli CFO and Company Secretary PAGE 12 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED 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 2020. 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. 2020 2019 (Loss) attributable to owners of the company ($7,820,189) ($11,557,874) Change in share price Closing share price ($0.031) $0.012 ($0.033) $0.043 Profit/(loss) amounts have been calculated in accordance with the Australian Accounting Standards (AASBs). The operating loss includes significant expenditures incurred on the continued development of the Group’s proprietary software technology. Non-executive Directors and executive Director Fees and payments to non-executive Directors and the executive Directors reflect the demands, which are made on, and the responsibilities of, the Directors. Non-executive Directors’ fees and payments are reviewed annually by the Board. Directors’ fees Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum pool limit currently stands at $300,000 per annum. Key Management Personnel Remuneration Policy The Board’s policy for determining the nature and amount of remuneration of key management for the Group is as follows: The remuneration structure for key management personnel is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the Group. There is currently no remuneration related to Group performance. The contracts for service between the Group and key management personnel are on a continuing basis, the terms of which are detailed below and are not expected to change in the immediate future. PAGE 13 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED 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 2020 are as follows: Gerard Bongiorno Name: Executive Chairman Title: Agreement commenced: 21 February 2017 Term of agreement: Details: 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. From April 2020 for a four-month period Mr Bongiorno has forgone 50% of his director fee and any additional consulting expenses for the period. 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 Name: Title: Agreement commenced: 18 April 2016 No fixed term Term of agreement: An annual director fee of $90,000 plus superannuation. The fee paid to Mr McGovern Details: is subject to annual review by the Board. From April 2020 for a four-month period Mr McGovern has forgone 50% of his director fee for the period. 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 November 2016, these Options have lapsed during the year. From April 2020 Chris’ monthly fee was reduced to $5,000 per month. 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. Giuseppe Rinarelli Chief Financial Officer and Company Secretary Name: Title: Agreement commenced: 29 May 2019 No fixed term Term of agreement: An annual salary fee of $130,000 plus superannuation. Under the terms of the contract, Details: the Company granted Mr Rinarelli 1,500,000 Options in May 2019. From April 2020 for a four-month period Mr Rinarelli’s was reduced by 20%, The Company has also granted Mr Rinarelli 949,000 options during the period. The agreement can be terminated by either party on one month’s written notice. The Company will reimburse Mr Rinarelli for all reasonable expenses incurred in performing his duties. The agreement includes a non-competition clause. PAGE 14 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED 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: 2020 Directors’ fees & consultancy fees4 Superannuation payments Share-based payments5 $ $ 78,5542 7,462 Total6 $ 86,016 218,400 Share- based % - - $ - - 7,477 31,185 171,366 18.2 11,733 26,672 19,616 50,801 164,801 11.9 640,583 7.9 90,0002 8,325 - - 98,325 271,200 - - - - Non-executive directors: Stephen McGovern Executive directors: Christopher Richardson Gerard Bongiorno Executives: Giuseppe Rinarelli 2019 Non-executive directors: Stephen McGovern Executive directors: Christopher Richardson Gerard Bongiorno Executives: Stephen Kerr Giuseppe Rinarelli 218,4003 132,7041 133,452 563,110 271,2003 150,0001 110,0007 13,513 634,713 8,544 128,624 287,168 44.8 - 1,173 18,042 - 110,000 - 1,625 16,311 130,249 783,004 9.9 16.6 PAGE 15 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED 1. Director and consultancy fees were paid to Otway Capital Consulting, a related party of Gerard Bongiorno. 2. Director fees were paid to SMG Nominees Pty Ltd, a related party of Stephen McGovern. 3. Director fees were paid to Mirovoy Sales, s.r.o. , a related party of Christopher Richardson. 4. Includes leave accruals calculated in accordance with AASB 112 Employee benefits. 5. The fair value of the share based payments is calculated at the date of grant of the option or loan share using the binomial pricing model and allocated to each reporting period based on forecast estimated vesting dates. The value disclosed is the portion of the fair value recognised as an expense in each reporting period. 6. No performance related benefits have been provided during the period. 7. Mr Stephen Kerr resigned in the prior year on 3rd June 2019. Consultancy fees were paid to SC Kerr & Co, a related party of Stephen Kerr. Payments to Mr Kerr are to 3rd June 2019, any additional services provided by Mr Kerr post 3rd June 2019 are not included in this table. Performance income as a proportion of total remuneration Executive directors and executives were not paid performance based bonuses. Equity instruments granted as compensation Details on equity instruments that were granted as compensation to each key management person during the year and details on equity instruments vested during the year are as follows: The loan shares granted are the amounts approved by way of shareholder resolution at the Company’s Annual General Meeting on 28 November 2017, no further loan shares were approved or issued. 2020 Options Gerard Bongiorno Number of loan shares granted 2019 Grant date Fair value per loan share at grant date $ Value of loan granted under the loan share terms Exercise price $ 20,000,000 28 Nov 2017 0.026 0.05 $1,000,000 Total number of loan shares vested at 30 June 2020 20,000,000 Loan expiry date 30 Nov 2022 PAGE 16 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED Details of equity incentives affecting current and future remuneration Details of the vesting profiles of the options held by each key management person of the Group are detailed below. Instrument Number of shares or options Grant date % vested during the year % forfeited in year Financial years in which grant vests Loan shares 20,000,000 28 Nov 2017 25% - 2018-20 Options 10,000,000 30 Nov 2016 0% 100% 2017-20 Options 1,500,000 29 May 2019 33% Options 949,000 31 March 2020 - - - 2020-2022 2021 Gerard Bongiorno Christopher Richardson Giuseppe Rinarelli Giuseppe Rinarelli The loan shares are accounted for as options. The value of loan shares granted is the fair value of the loan shares calculated at grant date. The total value of the loan shares is included in the table above. There are three tranches and amounts are allocated to remuneration over the vesting period for each tranche (i.e. November 2017 to November 2019). Analysis of movements in equity instruments The value of options and loan shares in the Company granted to and exercised by each key management person during the year is detailed below: Giuseppe Rinarelli Granted in year $ Value exercised in year $ 3,796 - Options over equity instruments The movement during the reporting period, by number of options over ordinary shares in Linius Technologies Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Balance 1.7.2019 1,041,776 - 10,000,000 Granted/purcha sed during the year 2,500,000 Lapsed or exercised during the year (3,541,776) Held at 30.6.2020 - - - - (10,000,000) - - Gerard Bongiorno1 Stephen McGovern Christopher Richardson - - - Vested during the year Total Vested and Exercisable 30.6.2020 Giuseppe Rinarelli 1,500,000 949,000 - 2,449,000 500,000 Total 12,541,776 3,449,000 (13,541,776) 2,449,000 500,000 All options expire on the earlier of their expiry date or termination of the individual’s employment. 1. Options held or purchased during the period by Mr Bongiorno are not in respect of his employment. 2. For former Executives, the balance is as at the date they cease being KMP. - - - 500,000 500,000 PAGE 17 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED Exercise of options granted as compensation During the period, no options were exercised. Movements in shares The movement during the reporting period in the number of ordinary shares in Linius Technology Limited, held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Balance 1.7.2019 Received as Compensation Acquired during the year Balance 30.6.2020 Gerard Bongiorno Stephen McGovern Giuseppe Rinarelli Total 8,083,334 40,000,000 750,000 48,833,334 - - - - 17,662,339 25,745,673 5,714,284 45,714,284 704,540 1,454,540 24,081,163 72,914,497 Number of Loan Shares held by Key Management Personnel Balance 1.7.2019 Received as Compensation Balance at 30.6.2020 Vested at 30.6.2020 Not vested at 30.6.2020 Gerard Bongiorno Total 20,000,000 20,000,000 - - 20,000,000 20,000,000 20,000,000 20,000,000 - - Key management personnel transactions Transactions with related parties: Advisory fees paid to Otway Capital Consulting a consulting firm in which Gerard Bongiorno has an interest; disclosed as remuneration 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 Group 2020 $ 2019 $ 54,000 60,000 4,400 - 5,000 11,000 9,013 26,800 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 2020 DIRECTORS’ REPORT CONT INUED Meetings of Directors During the financial year, eight meetings of Directors were held. Attendance by each director was as follows: Number eligible to attend Number attended Directors’ Meetings Gerard Bongiorno Stephen McGovern Christopher Richardson 11 11 11 11 10 11 Indemnification and insurance of Directors and Officers The Company has agreed to indemnify all the directors of the Company for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as directors of the Company, and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the Company, other than conduct involving a wilful breach of duty in relation to the Group. The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of directors’ and officers’ liability and legal expenses’ insurance contracts, as such disclosure is prohibited under the terms of the contract. Options At the date of this report, the unissued ordinary shares of Linius Technologies Limited under option are as follows: Date of Expiry 30/06/2021 30/06/2021 30/06/2022 31/12/2022 15/02/2022 15/04/2022 29/05/2023 3/06/2023 1/07/2023 8/08/2023 12/11/2021 12/01/2022 2/09/2023 30/09/2022 22/10/2023 30/03/2024 31/03/2024 4/05/2024 Exercise Price Number Under Option unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted unlisted 4.5 cents 5.0 cents 7.4 cents 6 cents 6 cents 5.3 cents 3.53 cents 3.59 cents 4.42 cents 4.47 cents 12 cents 12 cents 3.37 cents 4.95 cents 4.07 cents 1.19 cents 1 cent 1.65 cents 1,250,000 2,000,000 300,000 5,687,500 2,000,000 2,000,000 1,500,000 300,000 300,000 780,000 250,000 250,000 780,000 2,000,000 300,000 780,000 20,545,125 3,000,000 44,022,625 PAGE 19 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED During the year ended 30 June 2020, 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. Auditor’s Independence Declaration The Lead auditor’s independence declaration is set out on page 22 and forms part of the directors’ report for the financial year ended 30 June 2020. Non-Audit Services During the year, KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporation Act 2001 for the following reasons: - - all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditors of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set out below In dollars Audit and review of financial statements Services other than audit and review of financial statements Taxation compliance services Total paid to KPMG 2020 $ 87,437 - 87,437 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. PAGE 20 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT CONT INUED 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/. Signed in accordance with a resolution of the Board of Directors. Gerard Bongiorno Director 30 September 2020 Melbourne PAGE 21 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Linius Technologies Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Linius Technologies Limited for the financial year ended 30 June 2020 there here have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Tony Batsakis Partner Melbourne 30 September 2020 22 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR YEAR ENDED 30 JUNE 2020 Note Group 2020 $ 2019 $ Revenue Administrative expenses Employee benefit expenses Amortisation expense Consultant expenses Depreciation expense Director remuneration expenses 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 66,523 (377,611) (1,624,423) (540,000) (818,381) (20,180) (390,598) (137,240) (207,611) 164,254 (674,801) (684,328) (540,000) (2,624,546) (9,081) (468,070) (587,461) (282,560) (2,744,109) (4,336,239) (573,960) (163,202) (63,287) (226,110) (731,310) (42,160) (161,856) (579,716) (7,820,189) (11,557,874) - - (7,820,189) (11,557,874) - - (7,820,189) (11,557,874) (0.67) (0.67) (1.2) (1.2) The accompanying notes form part of the financial report. PAGE 23 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 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 2020 $ 2019 $ 8 9 1,597,029 2,298,200 125,411 286,389 1,722,440 2,584,589 10 2,925,000 3,465,000 45,158 34,929 2,970,158 3,499,929 4,692,598 6,084,518 254,772 53,807 308,579 308,579 529,856 53,128 582,984 582,984 4,384,019 5,501,534 38,908,990 32,381,556 5,161,861 4,986,621 (39,686,832) (31,866,643) 4,384,019 5,501,534 11 12 19 The accompanying notes form part of the financial report PAGE 24 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Group Balance 1 July 2018 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) Issued Capital $ Share Based Payments Reserve Accumulated Losses $ $ Total $ 30,047,557 4,363,160 (20,308,769) 14,101,948 - - - 2,333,999 - - - - (11,557,874) (11,557,874) - - (11,557,874) (11,557,874) Share-based payments - 623,461 Total transactions with owners of the Company Balance at 30 June 2019 2,333,999 32,381,556 623,461 4,986,621 (31,866,643) 2,333,999 623,461 2,957,460 5,501,534 Balance 1 July 2019 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) 32,381,556 4,986,621 (31,866,643) 5,501,534 - - - 6,527,434 - - - - (7,820,189) (7,820,189) - - (7,820,189) (7,820,189) Share-based payments - 175,240 Total transactions with owners of the Company 6,527,434 175,240 Balance at 30 June 2020 38,908,990 5,161,861 (39,686,832) The accompanying notes form part of the financial report - - - - - - 6,527,434 175,240 6,702,674 4,384,019 PAGE 25 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers Other income received Interest received Note Group 2020 $ 59,400 2019 $ - (7,283,554) (10,956,994) - 6,523 36,091 107,373 Net cash used in operating activities 13 (7,217,631) (10,813,530) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant & equipment Net cash provided by /(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Insurance premium funding payments 11 Proceeds from issue of shares and options 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 (30,409) (30,409) (24,297) (24,297) (18,565) 6,954,434 (389,000) 6,546,869 (701,171) 2,298,200 1,597,029 - 2,549,999 (180,000) 2,369,999 (8,467,828) 10,766,028 2,298,200 The accompanying notes form part of the financial report PAGE 26 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES These general purpose financial statements comprise the financial report and notes of Linius Technologies Limited (the “Company”) and its controlled entities (the “Group”), a listed Australian company incorporated in Australia. Basis of Preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board and the Corporations Act 2001. The financial statements comprise the consolidated financial statements for the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity, involved in the development of technology products, software development and the commercialisation and licencing of computer software. Australian Accounting Standards set out accounting policies that the Australian Accounting Standards Board has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. The financial report and notes also comply with International Financial Reporting Standards adopted by the International Accounting Standards Board. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial report was authorised for issue by the Board of Directors on 30 September 2020. This is the first set of Group’s annual financial statements in which AASB 16 Leases has been applied. Changes to significant accounting policies are described in Note 23. 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 27 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Going Concern For the year ended 30 June 2020, the Group incurred an operating net loss of $7,820,189 (2019: $11,557,874) and net cash outflows from operating activities of $7,217,631 (2019: $10,813,530). 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 2020 until 30 September 2021 that support the Group’s ability to continue as a going concern. These cashflow projections assume the Group’s ability to control expenditures to the level of funding available in addition to raising additional capital. The Directors note that subsequent to balance date, the Group has received firm commitments from professional and sophisticated investors to raise $5,000,000 in additional capital, excluding transaction costs. Of this amount, $210,000 is subject to shareholder approval. An additional $250,000 was approved by shareholders on 6th August 2020 and received subsequent to year end. The additional capital raised provides the Group with sufficient funding to meet its planned development and commercialisation activities. The Group’s ability to continue to operate as a going concern is dependent upon the items listed above, the achievement of which is uncertain at the date of approval of these financial statements. These conditions give rise to a material uncertainty as to whether the Group will be able to continue as a going concern and, should the Group be unable to continue as a going concern it may be required to realise assets at an amount different to that recorded in the statement of financial position, settle liabilities other than in the ordinary course of business and make provisions for other costs which may arise. Income Tax (a) The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/(benefit). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities/(assets) are therefore measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. PAGE 28 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax (continued) (a) Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the period as well as unused tax losses. Current and deferred income tax expense/(benefit) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial report. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. (b) (i) Financial Instruments Recognition and Initial Measurement Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. PAGE 29 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) (ii) Financial Instruments (continued) Classification and Subsequent Measurement On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI – debt investment; FVOCI – equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. • On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets – Subsequent measurement and gains and losses Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. There were no financial assets at FVTPL during or at year end. Financial assets at amortised cost These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses are recognized in profit or loss any gain or loss on derecognition is recognised in profit or loss. PAGE 30 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial Instruments (continued) Debt investments at FVOCI These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. There were no debt investments at FVOCI during or at year end. Equity investments at FVOCI These asset are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss. There were no equity investments at FVOCI during or at year end. Financial liabilities – Classification, subsequent measurement and gains and losses Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. (iii) Derecognition Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. PAGE 31 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) (iv) Financial Instruments (continued) Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. (c) Impairment testing of tangible and intangible assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets of CGUs. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds it recoverable amount. Impairment loss is recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rate basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only when to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (d) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (e) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 12 months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities in the statement of financial position. (f) Revenue and Other Income Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer. The below provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies. PAGE 32 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Revenue and Other Income (continued) Services rendered Nature and timing of satisfaction of performance obligations, including significant payment terms The Group derives its revenue primarily from ‘software-as-a-service’ subscriptions, where customers subscribe to access the platform and associated support services. Invoices for providing software-as-a-service and related support revenue are issued on a monthly basis and are usually payable within 30 days. Revenue recognition under AASB 15 Services are both distinct and capable of being distinct in the context of the contract, representing a series of recurring services that the Group stands ready to perform over the contract term. Revenue is typically recognised on services over time as a series of services performed over the contract term. Government grant revenue is recognised on receipt. All revenue is stated net of the amount of goods and services tax (GST). (g) Trade and Other Payables Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the Group during the reporting period, which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition of the liability. (h) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (i) Comparative Figures Where required by Accounting standards, comparative figures have been adjusted to conform to changes in the presentation for the current financial year. (j) Critical Accounting Estimates and Judgments The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. The Group has considered the impact of COVID-19 and associated market volatility in preparing its financial statements. The impact of COVID-19 has resulted in the application of further judgement in the areas in which significant judgement already occurs. PAGE 33 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Critical Accounting Estimates and Judgments (continued) Given the dynamic and evolving nature of COVID-19, limited recent experience of the economic and financial impacts of such a pandemic, and the relatively short period of time between the declaration of the pandemic and the preparation of these financial statements, changes to the estimates and outcomes that have been applied in the measurement of the Group’s assets and liabilities may arise in the future. The impacts of COVID-19 has been considered in respect of impairment as noted below. 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 amount of the Group’s intangible assets incorporate a number of key estimates. Management has also made reasonable assumptions of the impact of COVID-19 when determining the cash flow projections to be used for the value in use calculations; the COVID-19 impact has not been material to the value-in- use calculations. Share based payment transactions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is typically determined using a binomial option pricing model. (k) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Linius Technologies Limited. (l) Trade and other receivables Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 30 days. Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms. Factors considered by the Group in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Group. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance. PAGE 34 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Trade and other receivables (continued) 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. (m) Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. (n) Employee leave benefits Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the balance date are recognised in other payables in respect of employees’ services up to the balance date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departures, and period of service. Expected future payments are discounted using market yields at the balance date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (o) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a new business are not included in the cost of acquisition as part of the purchase consideration. (p) Earnings per share Basic earnings per share is calculated as net profit/loss attributable to members of the Company, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. PAGE 35 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Earnings per share (continued) 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) Foreign currency translation Both the functional and presentation currency of Linius Technologies Limited is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. As at the balance date the assets and liabilities of any foreign subsidiary is translated into the presentation currency of Linius Technologies Limited at the rate of exchange ruling at the balance date and income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. In addition, in relation to the partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. PAGE 36 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Share-based payments (r) 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. Parent entity financial information (s) The financial information for the parent entity, Linius Technologies Limited, disclosed in Note 22 has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the parent entity’s financial statements. The investment amounts are assessed for recoverability and an impairment is recorded where the recoverable amount is lower than cost. The recoverable amount is determined by taking into account the market capitalisation of the Group at balance date. 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. (iii) Receivables from subsidiaries These receivables are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. (t) Plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost, which includes capitalised borrowing costs, less accumulated depreciation and any accumulated impairment losses. If significant parts of property, plant and equipment have different useful lives, then they are accounted for as separate items of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. PAGE 37 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (t) Plant and equipment (ii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lovers unless it is reasonably certain that the group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful loves of the property, plant and equipment for current and comparative periods are as follows: - IT equipment 3 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (u) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (ii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (v) Impairment Non-derivative financial assets Financial instruments and contract assets The Group recognises loss allowances for ECLs on:    financial assets measured at amortised cost; debt investments measured at FVOCI. The Group did not have any debt investment of FVOCI during and as at 30 June 2020; and contract assets. The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:   debt securities that are determined to have low credit risk at the reporting date; and other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. PAGE 38 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) Impairment (continued) Non-derivative financial assets (continued) When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 90 days past due. The Group considers a financial asset to be in default when:   the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or the financial asset is more than 180 days past due. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:      significant financial difficulty of the borrower or issuer; a breach of contract such as a default or being more than 90 days past due; the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; it is probable that the borrower will enter bankruptcy or other financial reorganisation; or the disappearance of an active market for a security because of financial difficulties. PAGE 39 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) Impairment (continued) Presentation of allowance for ECL in the statement of financial position Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in OCI. Write-off The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 180 days past due based on historical experience of recoveries of similar assets. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. (w) Adoption of new and revised standards Standards issued but not yet effective In the year ended 30 June 2020, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Group and effective for the current annual reporting period. The Group has not early adopted any standards during the current period in preparing these consolidated financial statements. As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group’s financial statements. PAGE 40 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 2: REVENUE Revenue for services rendered Other revenue: Government grants Interest received Total revenue NOTE 3: LOSS FOR THE YEAR Other expenses: Occupancy costs Group 2019 $ 14,534 40,090 109,630 164,254 2020 $ 60,000 - 6,523 66,523 Group 2020 $ 2019 $ 101,866 133,830 PAGE 41 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 4: INCOME TAX EXPENSE Group 2020 $ 2019 $ (2,111,759) (3,007,849) (187) 2,111,946 - (7,724) 3,015,573 - (a) Income tax expense Current tax benefit Deferred tax – origination and reversal of temporary differences Deferred tax assets not recognised (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% (2,150,552) (3,178,415) Add / (Less) Tax effect of: Share based payments Other non-allowable items Unused tax losses and other balances not recognised as deferred assets 37,741 865 2,111,946 161,552 1,290 3,015,573 Income tax attributable to operating loss - - (c) Unrecognised deferred tax assets Unused Australian tax losses for which no deferred tax asset has been recognised Temporary differences not recognised Total 8,355,810 6,244,051* 14,797 8,370,607 14,610 6,258,661* Potential deferred tax assets attributable to tax losses carried forward have not been brought to account at 30 June 2020 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. * Prior year balances have been updated to reflect assessed amounts. PAGE 42 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 5 : KEY MANAGEMENT PERSONNEL The total of remuneration paid to KMP of the Group during the period are as follows: 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: Audit and review services KPMG: auditing and reviewing of financial statements Other services KPMG: taxation advisory NOTE 7: EARNINGS/LOSS PER SHARE Group 2020 $ 589,782 50,801 640,583 2019 $ 652,755 130,249 783,004 Group 2020 $ 2019 $ 87,437 84,870 - 87,437 27,232 112,102 Group 2020 $ 2019 $ a. Reconciliation of earnings to profit or loss Loss used to calculate basic and diluted EPS (7,820,189) (11,557,874) b. Weighted average number of ordinary shares outstanding during the period used in calculating basic and diluted EPS No. No. 1,161,254,794 953,465,552 Potential ordinary shares comprising 44,022,625 options (2019: 115,645,850) were excluded in the calculation of diluted EPS given they are antidilutive. PAGE 43 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 8: CASH AND CASH EQUIVALENTS Cash at bank and in hand Group 2020 $ 2019 $ 1,597,029 2,298,200 The effective interest rate on short-term bank deposits was varying between 0.01% to 2.6%. 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 1,597,029 2,298,200 NOTE 9: OTHER RECEIVABLES CURRENT Accounts receivable GST receivable Prepaid expenses and other receivables 2020 $ 21,134 15,970 88,307 125,411 Group 2019 $ 14,534 70,323 201,532 286,389 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 2020 $ 5,400,000 (2,475,000) 2,925,000 Group 2019 $ 5,400,000 (1,935,000) 3,465,000 PAGE 44 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 10: INTELLECTUAL PROPERTY (CONTINUED) The directors have assessed the value and useful life of the intellectual property at balance date. The cost of the intellectual property was established upon the purchase of the intellectual property through a third party transaction during the financial period ended 30 June 2016. The value of the intellectual property was further validated through the reverse takeover process and capital raising undertaken by Linius Technologies Limited (Linius) in April/May 2016. During this process an independent report was commissioned, which gave the directors comfort that the intellectual property purchased was covered by valid patents, trademarks and copyright. The directors note that the intellectual property is at an early stage in its commercial life, with the associated technology recently commencing commercialisation. The value and lifespan of the owned intellectual property continues to be enhanced by further patent registrations in new jurisdictions across the world and through continued development of the technology associated with the intellectual property. The directors have currently assessed the useful life of the intellectual property as being 10 years. The directors consider that a 10 year useful life is reasonable and appropriate and have amortised the value of intellectual property at balance date on that basis. Impairment testing As a result of the operating loss incurred, impairment analysis of the intellectual property has been performed using the following alternative methods: (i) Market capitalisation approach Since listing on ASX, the shares of Linius have traded in a ready market, supporting the value of the intellectual property asset. The assets of the Group at 30 June 2020 consist principally of cash of $1,597,029 and intellectual property, after amortisation, of $2,925,000. Net assets are $4,384,019. Linius shares closed at a price of 1.2 cents per share on 30 June 2020. Total fully paid ordinary shares on issue at 30 June 2020 are 1,310,329,369. This gives a market capitalisation of Linius of $15,723,952. 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 2020 is supported by the market value of Linius. (ii) Discounted cashflow approach The recoverable amount of the CGU (being the Group as a whole at this stage of the Group’s lifecycle) was estimated based on the value in use of the Group, determined by discounting the future cash flows to be generated from the continuing use of the Group’s intellectual property. The following were key assumptions in the value in use analysis:  Cash flows were forecast for a five year period. The terminal value of the Group was based on the fifth year cash flow and a long-term growth rate of 2.5%, which is consistent with market assumptions of the long term growth target for Australia.  Revenue was based on a staged pipeline of licence income being earned, which is anticipated to grow in FY21 and FY22 based on the number of customer take-on of the Linius technology. From 2023 to 2025 it is based on a compounded growth. Expenses are set based on the 2021 budget, increasing by anticipated growth required to the support the increase in revenue forecast.  An after tax discount rate of 15% (pre-tax 18.85%) 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 45 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 11: TRADE AND OTHER PAYABLES Trade payables* Insurance premium funding** Sundry payables and accrued expenses 2020 $ 123,995 77,122 53,655 254,772 Group 2019 $ 431,948 - 97,908 529,856 * Terms of trade are in line with normal commercial terms (usually 30 to 60 days). Reconciliation of movements of liabilities to cash flows arising from financing activities. ** Initial loan balance of $95,597 was non cash as the insurance premium was paid directly by financier. During the year, $18,475 was repaid. Nominal interest rate is 8.12% and this loan is repayable by February 2021. NOTE 12: ISSUED CAPITAL AND RESERVES Issued Capital 2020 Opening balance 1 July 2019 Issue of options Issue of shares through private placement (net of costs)* Issue of shares as share based payment to consultants** At reporting date Note $ Group Number (Legal parent) 32,381,556 1,013,026,120 4,434 - 6,523,000 296,753,249 - 550,000 38,908,990 1,310,329,369 The Company has issued share capital amounting to 1,310,329,369 ordinary shares of no par value. 2019 Opening balance 1 July 2018 Issue of shares through private placement (net of costs)* Issue of shares as share based payment to consultants** Issue of shares on conversion of unlisted options At reporting date 30,047,557 935,597,548 2,283,999 71,428,572 - 50,000 5,000,000 1,000,000 32,381,556 1,013,026,120 *Net of $38,000 (2019: $36,000) of share based payment transaction costs and $389,000 of other transaction costs. **Net of $17,050 (2019: $ 272,500) of share based payments expense recorded in the profit and loss and share based payments reserve. PAGE 46 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 12: ISSUED CAPITAL AND RESERVES (CONTINUED) Ordinary shares Opening balance Fully paid shares issued during the year — August 2018 (share based payment of consulting fees) — February 2019 (share based payment of consulting fees) — March 2019 (issue of shares on exercise of unlisted options) — April 2019 (issue of shares by private placement) — June 2019 (share based payment of consulting fees) — July 2019 (issue of shares by private placement to directors) — October 2019 (issue of shares by private placement) — October 2019 (issue of shares by private placement) — November 2019 (share based payment of consulting fees) — December 2019 (issue of shares by private placement to directors) — December 2019 (share based payment of consulting fees) — May 2020 (issue of shares by private placement) Legal parent entity 2020 No. 2019 No. 1,013,026,120 935,597,548 - - - - - 2,500,000 1,250,000 1,000,000 71,428,572 1,250,000 28,571,430 119,696,980 7,575,750 275,000 9,090,909 275,000 131,818,180 - - - - - - At reporting date 1,310,329,369 1,013,026,120 At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. All ordinary shares rank equally with regard to the Company’s residual assets. PAGE 47 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 12: ISSUED CAPITAL AND RESERVES (CONTINUED) NATURE AND PURPOSE OF RESERVES Share-Based Payments Reserve This reserve is used to record the equity value of share based payment expenses incurred as consideration for employee and consultant services. Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders. Due to the nature of the Group’s activities, being an early stage technology company, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. Therefore, the focus of the Group’s capital risk management is the current working capital position against the requirements of the Group to meet research and development of software, early stage business commercialisation initiatives and corporate overheads. The Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The working capital position of the Group at 30 June 2020 is as follows: Cash and cash equivalents Trade and other receivables Trade and other payables and other liabilities Working capital position 2020 $ 1,597,029 125,411 (308,579) 1,413,861 Group 2019 $ 2,298,200 286,389 (582,984) 2,001,605 PAGE 48 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 13: CASH FLOW INFORMATION Cash flows excluded from loss attributable to operating activities: Loss after income tax 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 2020 $ 2019 $ (7,820,189) (11,557,874) 20,180 540,000 137,240 - 679 (256,519) 160,978 9,081 540,000 587,461 - 28,087 (399,088) (21,197) Cash flows used in operating activities (7,217,631) (10,813,530) PAGE 49 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 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; disclosed as remuneration (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 Group 2020 $ 2019 $ 54,000 60,000 4,400 - 5,000 11,000 9,013 26,800 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 Linius (Aust) Pty Ltd Linius Solutions Pty Ltd Linius UK Ltd Linius Inc. Linius Blockchain Pty Ltd Linius Blockchain Inc. Place of incorporation Class of shares Australia Australia UK USA Australia USA Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 2020 100% 100% 100% 100% 100% 100% 2019 100% 100% 100% 100% - - PAGE 50 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 16: OPERATING SEGMENTS Segment Information AASB 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Group’s operating segments have been determined with reference to the monthly management accounts used by the Chief Operating Decision Maker to make decisions regarding the Group’s operations and allocation of working capital. Due to the size and nature of the Group, the Board as a whole has been determined as the Chief Operating Decision Maker. Based on the quantitative thresholds included in AASB 8, there is only one reportable segment, being the development of computer software in the Australasian region. The revenues and results of this segment are those of the Group as a whole and are set out in the consolidated statement of profit or loss and other comprehensive income. The segment assets and liabilities of this segment are those of the Group and are set out in the consolidated statement of financial position. NOTE 17: COMMITMENTS There are no material lease or other commitments as at balance date. The entity operates from premises which are leased on a short-term tenancy. NOTE 18: CONTINGENCIES There are no contingent assets or liabilities as at balance date. NOTE 19: SHARE-BASED PAYMENTS Share option and loan share schemes Employee share option plan An employee share option plan (ESOP) has been established by the Group, whereby the Group may, at the discretion of the Board, grant options over ordinary shares in the Company to personnel of the Group. The options are issued for nil consideration and are granted in accordance with time based and/or performance targets established by the Board. Loan funded share plan A loan funded share plan (LFSP) has been established by the Group, pursuant to which, at the discretion of the Board, fully paid ordinary shares in the Company may be acquired by certain key personnel and Directors using financial assistance given by the Company. Participants will acquire or be issued loan funded shares at market value as at the grant date using a loan provided by the Company. The loan is interest-free and limited recourse in accordance with the loan terms and the LFSP rules. The LFSP rules require the loan to be repaid before a participant can sell their shares. The shares are granted in accordance with time based and/or performance targets established by the Board. PAGE 51 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 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 Employees: On 15 January 2018 Number of instruments Exercise price Vesting conditions Contractual life of options 1,250,000 4.5 cents 33% vesting on each of 1st and 2nd 3.3 years On 22 February 2018 2,000,000 On 7 August 2018 300,000 On 13-21 December 2018 5,687,500 On 3 June 2019 On 1 July 2019 On 8 August 2019 300,000 300,000 780,000 On 2 September 2019 780,000 On 22 October 2019 300,000 On 30 March 2020 780,000 On 31 March 2020 Options granted to Key Management Personnel On 29 May 2019 On 31 March 2020 19,596,125 32,073,625 1,500,000 949,000 2,449,000 anniversary of employment date 5.0 cents 33% vesting on each of 1st, 2nd and 3rd anniversary of engagement date 7.4 cents 33% vesting on each of 1st, 2nd and 3rd anniversary of employment date 6 cents 33% vesting in 6 months, 33% vesting in 18 months and 33% vesting in 30 months 3.59 cents 33% vesting on each of 1st, 2nd and 3rd anniversary of employment date 4.42 cents 33% vesting on each of 1st, 2nd and 3rd anniversary of employment date 4.47 cents 25% vesting on each of 1st, 2nd, 3rd and 4th anniversary of employment date 3.37 cents 25% vesting on each of 1st, 2nd, 3rd and 4th anniversary of employment date 4.07 cents 25% vesting on each of 1st, 2nd, 3rd and 4th anniversary of employment date 1.19 cents 25% vesting on each of 1st, 2nd, 3rd and 4th anniversary of employment date 3.3 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years 1 cent 100% vesting on 1st April 2021 4 years 3.53 cents 33% vesting on each of 1st, 2nd and 3rd anniversary of employment date 4 years 1 cent 100% vesting on 1st April 2021 4 years PAGE 52 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) Grant date Number of instruments Exercise price Vesting conditions Contractual life of options Options granted to consultants: On 15 February 2019 On 26 March 2019 On 9 August 2019 On 30 September 2019 On 14 April 2020 Loan shares granted to key management personnel On 28 November 2017 2,000,000 2,000,000 500,000 6 cents Vested on issue 5.3 cents Vested on issue 12 cents Vesting upon share price closing at 3 years 3 years 2.3 years 12 cents 4.95 cents Vested on issue 1.65 cents Vested on issue 2,000,000 3,000,000 9,500,000 3 years 3 years 20,000,000 5.0 cents 50% vesting on issue, 25% vesting in 12 5 years months, 25% vesting in 24 months Share based payments (equity settled) expense recognised in profit or loss Options Options issued to KMPs: - Giuseppe Rinarelli Options issued under the ESOP Options issued to consultants Cost of options issued to consultants for capital raising services, applied against equity Shares Shares issued to KMPs: - Gerard Bongiorno – Loan funded shares 2020 $ 2019 $ 19,616 54,672 69,767 (38,000) 106,055 1,625 114,589 378,623 (36,000) 458,837 31,185 137,240 128,624 587,461 PAGE 53 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) 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 Options expired during the year Options exercised during the year ESOP options granted during the year Options issued during the year Options issued during the year Options issued during the year Outstanding at 30 June Exercisable at 30 June Number of options 2020 115,645,850 (100,908,350) - 23,785,125 500,000 2,000,000 3,000,000 44,022,625 12,912,500 Weighted average exercise price 2020 12.8 cents 13.9 cents - 1.36 cents 12 cents 4.95 cents 1.65 cents 3.0 cents 4.3 cents Number of options 2019 229,093,350 (126,635,000) (1,000,000) 7,987,500 4,200,000 2,000,000 - 115,645,850 98,266,683 Weighted average exercise price 2019 9.6 cents 6.3 cents 5 cents 5.45 cents 6 cents 5.3 cents - 12.8 cents 14.2 cents Loan shares on issue* Outstanding at 1 July Loan shares granted during the year Number of loan shares 2020 20,000,000 - Weighted average price 2020 5.0 cents - Number of loan shares 2019 20,000,000 - Weighted average price 2019 5.0 cents - Outstanding at 30 June Vested at 30 June 20,000,000 20,000,000 5.0 cents 5.0 cents 20,000,000 15,000,000 5.0 cents 5.0 cents * Loan shares are accounted for as options in the financial accounts. PAGE 54 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 19: SHARE-BASED PAYMENTS (CONTINUED) The fair value of the equity-settled share options and loan shares granted in the current year is estimated as at the date of grant using an independent valuation, which is based on the binomial model and Black-Scholes model, which considers the terms and conditions upon which the options were granted: 30 June 2020 300,000 Unlisted ESOP options 780,000 Unlisted ESOP options 780,000 Unlisted ESOP options 300,000 Unlisted ESOP 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 Grant date Nil 80% 1.080% 4 $0.0442 $0.044 Nil 80% 0.96% 4 Nil 68% 0.69% 4 Nil 68% 0.81% 4 $0.0447 $0.047 $0.0337 $0.030 $0.0407 $0.044 $0.018 1 July 2019 $0.21 8 July 2019 $0.015 $0.021 2 Sep 2019 22 Oct 2019 780,000 Unlisted ESOP options 2,000,000 Unlisted 500,000 Unlisted 20,545,125 Unlisted ESOP options 3,000,000 Unlisted 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 70% 0.255 4 $0.0119 $0.01 $0.004 Nil 68% 0.875% 3 $0.0495 $0.040 $0.13 Nil 68% 0.705% 2.3 $0.12 $0.036 $0.005 Nil 70% 0.33% 4 $0.01 $0.01 $0.004 Nil 70% 0.26% 3 $0.0165 $0.014 $0.004 Grant date 30 Mar 2020 30 Sep 2019 9 Aug 2019 31 Mar 2020 14 Apr 2020 Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behaviour. PAGE 55 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 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 0.33% at 30 June 2020 (2019: 1.63%). 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 $1,948 (2019: $6,532) Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and marketable securities are available to meet the current and future commitments of the Group. Due to the nature of the Group’s activities, the Group does not have ready access to credit facilities, with the primary source of funding being equity raisings. The Board of Directors constantly monitors the state of equity markets in conjunction with the Group’s current and future funding requirements, with a view to initiating appropriate capital raisings as required. The financial liabilities of the Group are confined to trade and other payables which have a contractual due date of less than two months. The Board manages liquidity risk by monitoring forecast cash flows against actual liquidity level on a regular basis. There are no unused borrowing facilities from any financial institution. PAGE 56 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 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 low. The Group holds cash deposits with Australian banking financial institutions, namely the National Australia Bank (NAB). The NAB has an AA rating with Standard & Poors. Price risk The Group is not exposed to commodity price risk. b. Financial Instruments i. ii. Derivative Financial Instruments Derivative financial instruments are not used by the Group. Financial instrument composition and liquidity risk: The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and excluded contractual interest payments. 30 June 2020 Non-derivative financial liabilities Trade and other payables Insurance premium funding Total Financial Liabilities 30 June 2019 Non-derivative financial liabilities Trade and other payables Insurance premium funding Total Financial Liabilities iii. Net Fair Values Carrying amount $ 1-12 months $ 177,650 177,650 77,122 77,122 254,772 254,772 529,856 529,856 - - 529,856 529,856 Financial assets (cash and other receivables) and financial liabilities (trade and other payables) are carried at amortised cost which approximates their fair values. PAGE 57 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 21: EVENTS AFTER THE REPORTING PERIOD Capital raising Subsequent to year end on 23 September 2020, the Group received firm commitments from professional and sophisticated investors to raise $5,000,000 in additional capital, excluding transaction costs, via a placement to: - directors or their nominees, via the issuance of 7,500,000 fully paid ordinary shares at $0.028 per share, being $210,000, subject to shareholder approval; and via the additional issuance of 171,071,429 fully paid ordinary shares at $0.028 per share, being $4,790,000. - An additional $250,000 was approved by shareholders on 6th August 2020 and received subsequent to year end. COVID-19 There remains significant uncertainty regarding how the COVID-19 pandemic will evolve, including the duration of the pandemic, the severity of the downturn and the speed of economic recovery. In accordance with AASB 110 Events after the reporting date, the Group considered whether events after the reporting period confirmed conditions existing before the reporting date. Consideration was given to the macro-economic impact of lockdowns implemented locally and overseas and the extent government support available. The Group did not identify any subsequent events precipitated by COVID-19 related developments which would require adjustment to the amounts or disclosures in the financial statements. Further, no other material non- adjusting subsequent events relating to COVID-19 were identified requiring disclosure in the financial statements. Given the fluid nature of the current situation, the Group will continue to regularly review forward looking assumptions and forecast economic scenarios. Other than the matters noted above, there has not been any matter or circumstance that has arisen after balance date that has significantly affected, or may significantly affect, the operations of the Group, the results of these operations, or the state of affairs of the Group in future financial periods. NOTE 22: PARENT ENTITY DISCLOSURES The following information is related to the legal parent entity Linius Technologies Limited as at 30 June 2020: Financial position 2020 $ 2019 $ Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities 1,562,189 2,175,132 14,321,364 37,139,948 15,883,553 39,315,080 159,601 159,601 111,167 111,167 PAGE 58 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 NOTES TO THE FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 NOTE 22: PARENT ENTITY DISCLOSURES (CONTINUED) Financial position (continued) 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. NOTE 23: CHANGES IN ACCOUNTING POLICY 2020 $ 2019 $ 54,549,945 48,022,511 36,462 36,462 5,161,861 4,986,621 (44,024,316) (13,841,681) 15,723,952 39,203,913 2020 $ 30,182,635 30,185,635 2019 $ 2,213,040 2,213,040 Except for the change below, the Group has consistently applied the accounting policies set out in Note 1 to all periods presented in these consolidated financial statements. The Group has initially applied AASB 16 from 1 July 2019. This has no impact as the Group does did not have a lease contract at the beginning or end of the financial year. A number of other new standards, are also effective from 1 July 2019 but they do not have a material effect on the Group’s financial statements. Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards. PAGE 59 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 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 23 to 59 and the Remuneration report on pages 13 to 18 in the Directors’ report, are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance, for the financial year ended on that date; and 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. 3. 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 2020. 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 30 September 2020 PAGE 60 Independent Auditor’s Report To the shareholders of Linius Technologies Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Linius Technologies Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including:   giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises:  Consolidated statement of financial position as at 30 June 2020  Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended  Notes including a summary of significant accounting policies  Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 61 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Material uncertainty related to going concern We draw attention to Note 1, “Going Concern” in the financial report. The conditions disclosed in Note 1, indicate a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Our opinion is not modified in respect of this matter. In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty regarding events or conditions casting significant doubt in the Group’s assessment of going concern. This included:  Analysing the cash flow projections by:  Evaluating the underlying data used to generate the projections for consistency with other information tested by us, our understanding of the Group’s intentions, and past results and practices;  Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s historical results, results since year end, and our understanding of the business, industry and economic conditions of the Group;    Assessing significant forecast cash inflows and outflows for feasibility, quantum and timing. We used our knowledge of the client, its industry and financial position to assess the level of associated uncertainty; and Reading Directors minutes and assessing other relevant information to understand the Group’s ability to raise additional shareholder funds, including assessing the level of associated uncertainty. Evaluating the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. We specifically focused on the principal matters giving rise to the material uncertainty. Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the Key Audit Matter. 62 Recoverable amount of intellectual property ($2,925,000) Refer to Note 10 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s testing of intellectual property for impairment, given the size of the balance (being 62.3% of total assets) and the Group’s history of operating losses which increase the possibility of the intellectual property being impaired. We focused on the significant forward-looking assumptions the Group applied in their value in use model. The judgements included forecast cash flows, discount rates applied, forecast growth rates and long term growth rates applied as incorporated in the value in use model. The model uses forward looking estimations which can be inherently difficult to determine with precision and to audit. This is particularly challenging given the early product commercialisation stage of the Group and further steps, such as organisational support structure, required to be undertaken to prepare the Group for sales readiness and growth. In assessing this Key Audit Matter, we involved senior audit team members, including valuation specialists, who collectively understand the Group’s business and the market it operates in. Our procedures included:  We compared forecast cash flows, forecast growth rates and long term growth rates used in the value in use model, for consistency with the Group’s board approved plans. We challenged these, including the feasibility of their commercialisation activities, plans for the form of sales model to be implemented, the organisational support structure and the nature of costs to facilitate the forecast growth. We used our knowledge of the Group’s past performance, business and our industry experience.  We assessed the Group’s estimate of the remaining useful life of the intellectual property by reference to the external report on intellectual property ownership previously obtained by the Group and considered changes to the Group since the date of the report.  Working with our valuation specialists we used our knowledge of the Group and market to assess the key assumptions used in the Group’s value in use model. To do this we: assessed the appropriateness of the value in use model used against the requirements of the accounting standards. We assessed the accuracy of the underlying calculation formulas; considered the sensitivity of the model by varying key assumptions, such as forecast growth rates, long term growth rates and discount rates, within reasonably possible range. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures; and analysed the Group’s discount rate against publicly available data of a group of comparable entities. We independently developed a discount rate range considered comparable using publicly available data for comparable entities, adjusted by risk factors specific to the Group and the industry it - - - 63 operates in.  We compared the Group’s alternative recoverability testing analysis, which included the market capitalisation approach based on the recent quoted share price on the ASX and the share price for capital raised during the year and subsequent to year end, to the value in use model prepared.  Assessed the adequacy of financial report disclosures in respect of the carrying value of intellectual property using our understanding obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in Linius Technologies Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for:  preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001   implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. 64 Auditor’s responsibilities for the audit of the Financial Report Our objective is:   to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Linius Technologies Limited for the year ended 30 June 2020, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 13 to 18 of the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Tony Batsakis Partner Melbourne 30 September 2020 65 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 ADDITIONAL INFORMATION FOR LISTED COMPANIES 1. Shareholdings as at 23 September 2020 1a. 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 of Holders Number of Ordinary Shares 42 107 175 1,437 1,115 2,876 7,064 413,407 1,422,484 64,178,102 1,267,035,582 1,333,056,639 1b. The number of shareholdings held in less than marketable parcels is 559. 1c. The names of the substantial shareholders listed in the holding Group’s register as at 23 September 2020 is: Shareholder Number Ordinary % Earthrise Holdings Pty Ltd 110,836,336 Gerard Bongiorno Technical Investing Pty Ltd 1d. Voting Rights 68,472,943 74,743,734 The voting rights attached to each class of equity security are as follows: Ordinary shares 8.31 5.13 5.60 —Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. PAGE 66 LINIUS TECHNOLOGIES LIMITED ANNUAL REPORT 2020 ADDITIONAL INFORMATION FOR LISTED COMPANIES (CONTINUED) 1e. 20 Largest Shareholders — Ordinary Shares Name Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Earthrise Holdings Pty Ltd Anbaume Pty Ltd Steve McGovern Nominees Pty Ltd One Managed Investment Funds Ltd Parlin Investments Pty Ltd Mr Anthony Finbar O’Hanlon HSBC Custody Nominees (Australia) Ltd VR Corporate Services Pty Ltd One Managed Investment Funds Ltd Mr Stephen Wayne Velik Bogan River Investments Pty Ltd Archaea Pty Ltd Ellismi Pty Ltd One Managed Investment Funds Ltd Naley Pty Ltd Mr Gregory Paul Yeatman One Managed Investment Funds Ltd Clarkirb Nominees Pty Ltd Vector Leadership Pty Ltd Unrandom Pty Ltd Total number of ordinary fully paid shares held 90,000,000 67,472,943 40,000,000 31,533,334 30,000,000 23,232,075 20,204,803 20,000,000 18,576,354 16,231,672 15,000,000 14,285,716 13,649,644 13,106,773 12,750,000 11,499,998 10,727,273 10,000,000 10,000,000 10,000,000 478,270,585 1,333,056,639 6.75% 5.06% 3.00% 2.37% 2.25% 1.74% 1.52% 1.50% 1.39% 1.22% 1.13% 1.07% 1.02% 0.98% 0.96% 0.86% 0.80% 0.75% 0.75% 0.75% 35.87% 2. 3. The name of the Company Secretary is Mr Giuseppe Rinarelli. The address of the principal registered office in Australia is: Suite 13, Level 3, 299 Toorak Road, SOUTH YARRA VIC 3141 4. Registers of securities are held at the following addresses: Advance Share Registry 110 Stirling Hwy NEDLANDS WA 6009 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. PAGE 67

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