Strategic Elements : SOR Quarterly Update and Appendix 4C

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SOR Strategic Elements June Quarter Update

Perth, Australia - 29 July 2022 Strategic Elements Ltd (ASX: SOR) provides the following Company update to accompany the attached Appendix 4C lodged for the quarter ending 30 June 2022.

The technology sector has been under significant pressure since Q4 2021. Previous experience with this type of market uncertainty led the Board to focus on maximising cash management early. Throughout the period, the Company implemented programs to effectively manage this uncertainty in the unfortunate event that it extends throughout 2023.

The focus on cash management during the quarter resulted in the receipt of $471,000 in cash from the Australian Federal Government R&D Tax Incentive scheme for R&D conducted in 100% owned Stealth Technologies (STN) and Australian Advanced Materials (AAM) during FY21. In addition, the Company is preparing the FY22 applications to claim a similar amount for R&D conducted in FY22 under the R&D Tax Incentive in the next quarter. The result of this second application will be known in Q3, 2022. The successful receipt of R&D rebates significantly strengthens the Company's financial position without requiring shareholder dilution through capital raising.

The Company has always placed a high value on cash and in-kind funding under various Australian Federal grant bodies that provide non-dilutive cash funding and access to otherwise unobtainable researcher expertise, equipment and infrastructure worth millions of dollars. An underappreciated benefit includes the 3rd party technical due diligence process conducted by leading scientific peers before grants are awarded.

AAM previously applied to the Australian Research Council (ARC) for funding under a $1,600,000 Project to progress the Energy InkTM for use in wearable technologies. In Q2, AAM was informed that a new research and development agreement with The University of New South Wales was required for ARC grant funding to commence under the proposed Project. If an agreement is reached, the Company intends to start the ARC Project in Q3, 2022. The Project proposal contains $486,640 in cash to be provided by ARC and $554,178 in services and equipment (in-kind) to be provided by The University of New South Wales over three years. AAM would provide $350,000 in-kind and $220,000 in cash and maintain its current ownership of Energy InkTM IP. If funding is granted, the Company's financial position will be significantly strengthened without requiring shareholder dilution through capital raising.

Before this quarter, the development focus had been on 36cm2 cells targeted for electronic skin patches. Throughout the quarter, AAM worked to increase the Energy InkTM cell size area to test the impact on power output from larger printed cells. During this process, significant potential Intellectual Property was developed, and the team subsequently focused on acquiring data and conducting experiments to complete multiple new patent applications. UNSW has equipment that can screen print features as small as 100 micrometres and as large as 3m2 (30,000 cm2). Results of the investigation into larger Energy InkTM cell sizes will be available in Q3, 20221.

During the quarter, the AAM materials science team worked to develop, implement and validate multiple technology breakthroughs into a world-first Energy Ink Pack. The objective is to print an Energy Ink Pack using green, sustainable, safe materials able to harvest an ampere-hour range of electrical charge solely from moisture in the air. Development is firmly on track, and the Company expects results to be available in Q3, 2022.

Despite the current difficulty in general capital markets, the Company believes the imperative for more innovative, renewable energy creation and power sources will continue to grow. Unlike lithium-based batteries, Energy InkTM uses green, sustainable materials that are safe and non-flammable and, when printed onto flexible plastic, are under development to be flexed and bent around the human body or structures. Traditional battery technologies reduce the freedom of design for new electronic devices. Screen printed graphene-oxide-based cells that harvest energy from airborne water molecules could potentially directly power a device, compliment a battery by extending device life or providing energy for battery storage.

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Stealth Technologies Pty Ltd (Stealth) (100%) is conducting multiple activities in the Autonomous Security, Autonomous Defence and Autonomous Mining sectors.

During the quarter, Stealth continued discussions with global Fortune 100 software-industrial company Honeywell on an agreement to conduct multi-site pilot deployments of Autonomous Security Vehicles2. In May 2022, Stealth conducted a live demonstration of the ASV at the Eastern Regional Goldfield Prison for the Vice President & General Manager of Global Services (Honeywell Building Technologies). Stealth was extremely pleased with the outcome of the demonstration. The Stealth team has since significantly upgraded, designed and built an ASV for inclusion in the APAC Honeywell User Group 2022. This event will bring a diverse array of Honeywell customers together to share information, ideas, and experiences with industry peers and will be held in Sydney in August 2022.

During the quarter, Stealth completed a comparison and detailed analysis of mapping data captured over several weeks by the Stealth Sensor Pack from an underground mine in Western Australia as part of Phase 1 of a pilot investigation2 with a mining Company. The Stealth Sensor Pack captured mapping data of a portion of a mine's underground environment to validate the technology solution's potential suitability for several potential product applications. Stealth supplied and installed a Stealth Sensor Pack containing sensor fusion and computer vision technology from Stealth's Autonomous AxV platform. The next stage will see the parties decide whether to proceed to Phase 2 of the pilot investigation.

Stealth is also developing technology to automate the capture and integration of multiple data types and produce 3D location maps of agricultural weeds3. 3D Mapping of agricultural weeds will enable farmers to apply modern agronomy to weed management. Stealth is collaborating with the Australian Herbicide Resistance Initiative, which are world-leading global research group in herbicide resistance and its management in cropping systems. Stealth technology was successfully deployed as pilot technology onto John Deere, CASE, New Holland, and MacDon combine harvesting equipment. During this quarter, Stealth has been enhancing its sensor pack in preparation for an expanded live trial and validation of the technology that will commence in Q4 2022.

Stealth is also collaborating with Defence Science Technology Group (DSTG), part of the Australian Department of Defence, and the University of Western Australia to build a world-first, autonomous drone-carrying vehicle that automates the detection and sensing of chemical, biological, radiological and nuclear (CBRN) agents4. During the quarter, the Stealth team progressed proxy sensor and drone integration in preparation for a live trial of the Stealth AxV stack flying drones with the DSTG CBRN detection algorithms. The live trial is anticipated to commence in Q3 2022.

Cognition Engines (CE) (100%) has engaged leading data systems sector expert Michael Counsel to provide Chief Technology Officer services to Cognition Engines Pty Ltd and development/commercialisation services to other Strategic Elements Ltd group companies5.

Michael spent 20 years with Oracle Corporation (USD 190 Billion market cap), where he held senior positions, including Group Vice President and Chief Technology Officer Asia Pacific and Director Enterprise Architecture. Michael and his team repeatedly drove multi-million dollar deals. They incubated the development and deployment of new and horizon technologies and industry solutions with deal sizes over USD 10M for software licenses with ongoing annual support and services of millions per account. Along with his commercial roles, Michael focused on technology and developing high-performance computing, large-scale data management and analysis algorithms. Michael was also formerly CTO and VP of Consulting, Products and Services Asia Pacific-Japan and Europe -MiddleEast-Africa for Symantec Corporation. He ran the consulting and cyber security services businesses.

Maria Resources Pty Ltd (Maria) (100%) has a firm focus on technology metals (e.g. Ni, Cu, Au, PGE (platinum group elements) related to batteries and advanced technology and applying innovative geological models to unexplored terrains. The highly underexplored Madura Province on the Nullarbor is experiencing increased activity with exploration tenement applications by companies including Rio Tinto, BHP Nickel West, Chalice Gold Mines (under JV with Sensore) and more recently by Northern Mineral Resources (NMR). Maria Resources owns the Leviathan Project (technology metals) and recently expanded Cyclops Project (technology metals).

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The Leviathan and Cyclops Projects are adjacent to ASX-listed explorer Northern Mineral Resources (ASX: NMR), which recently completed the first deep hole in the area. On 8 July 2022, NMR announced6:

"a 500m-long mixed RC and diamond drill hole into the centre of the Helios magnetic target. Based on preliminary observations, NMR has intercepted significant hematite, sericite, magnetite, and pyrite alteration. This style of alteration is indicative of and often found in association with other Iron Oxide Copper Gold (IOCG) deposits in Australia. This is the first drill hole known to NMR to have encountered significant IOCG-style alteration in the under-explored Madura Province and one of the first possible IOCG- style occurrences in Western Australia. The basement is only 110m below the surface, making this an exciting new area requiring further investigation." …."Also completed a high-resolution ground gravity

survey over the Helios target in preparation for a follow-up diamond drill hole (HELIOS_DDH002)".

During the quarter, Maria Resources negotiated with traditional owners and reviewed further geological interpretation, geophysics, historical drilling and exploration in the wider Madura Province. This led to tenements E69/4051 and E69/4059 being applied for and the commencement of the new Red Rock Project (technology metals). Maria Resources has an early mover advantage in securing tenements in an emerging frontier exploration for technology metals.

Strategic Elements Ltd ended the June quarter with $4.82M in cash. Across the group, net expenditure was $358k. During the quarter, the Company received $471k in cash rebates under the R&D Tax Incentive scheme for R&D conducted in Stealth Technologies and Australian Advanced Materials during FY2021. Strategic Elements Ltd incurred an expenditure of $386k; this included internal costs incurred in operating the ASX listed entity, the Pooled Development Fund and providing management assistance to investee companies, principally Australian Advanced Materials (memory and battery technology) and Stealth Technologies (robotics and artificial intelligence). The Company has reported payments of $176k to related parties and their associates at item 6.1 of the accompanying Appendix 4C. These payments comprise director's fees for Directors and salaries for Executive Directors.

AAM incurred a net expenditure of $200k related to R&D development undertaken at UNSW, consultants and other costs incurred in developing and managing AAM's IP portfolio. An additional $68k was applied to AAM's R&D development costs due to the ongoing collaborative grant announced under the ARC Linkage project7. Stealth Technologies (Stealth) incurred $163k in direct expenses related to staff, consultants and R&D development costs across projects with Honeywell, Mining Industry, Defence Science and Technology Group and the Australian Herbicide Resistance Initiative/University of Western Australia. Cognition Engines incurred a net expenditure of $24k related to early technology costs. Maria Resources incurred $55k in costs associated with the evaluation of exploration projects. Strategic Materials did not incur any expenditure during the quarter.

The Australian Federal Government has registered Strategic Elements as a Pooled Development Fund with a mandate to back Australian innovation. The Company supports leading Australian scientists and innovators in high-risk-high reward ventures. SOR majority funds the initial development of each Venture whilst seeking a major strategic investor/partner able to assist commercialisation. The Company is backing projects across robotics, artificial intelligence, printable technologies (battery, storage) and strategic technology metals.

More Information:

Mr Matthew Howard, Executive Director / Company Secretary Phone: [phone] [e-mail] www.strategicelements.com.au

Footnotes

• ASX Announcement 11/05/2022 | 2 ASX Announcement 31/01/2022
  3 ASX Announcement 27/07/2021 | 4 ASX Announcement 06/07/2021
  5 ASX Announcement 16/07/2022 | 6 NMR ASX Announcement 08/07/2022 7 ASX Announcement 30/06/2020

Rule 4.7B

Appendix 4C

For personal use only

Quarterly cash flow report for entities subject to Listing Rule 4.7B

Name of entity
Strategic Elements Limited
ABN	Quarter ended ("current quarter")
47 122 437 503	30 June 2022
Consolidated statement of cash flows	Current quarter	Year to date (12
	$A'000	months)
		$A'000

1. Cash flows from operating activities

1.1	Receipts from customers	-	205
1.2	Payments for
	(a)	research and development	(313)	(1,380)
	(b)	product manufacturing and operating	-	-
		costs
	(c)	advertising and marketing	(20)	(120)
	(d)	leased assets	-	-
	(e)	staff costs	(353)	(1,591)
	(f)	administration and corporate costs	(143)	(673)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	1	2
1.5	Interest and other costs of finance paid	-	(2)
1.6	Income taxes paid	-	-
1.7	Government grants and tax incentives	471	471
1.8	Other	-	-
1.9	Net cash used in operating activities	(358)	(3,088)

2. Cash flows from investing activities

2.1 Payments to acquire or for:

(a)	entities	-	-
(b)	businesses	-	-
(c)	property, plant and equipment	-	(13)
(d)	investments	-	-
(e)	intellectual property	-	-
(f)	other non-current assets	-	-

ASX Listing Rules Appendix 4C (17/07/20)	Page 1
+ See chapter 19 of the ASX Listing Rules for defined terms.

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

For personal use only

Consolidated statement of cash flows	Current quarter	Year to date (12
	$A'000	months)
		$A'000

2.2 Proceeds from disposal of:

	(a)	entities	-
	(b)	businesses	-	-
	(c)	property, plant and equipment	-	-
	(d)	investments	-	-
	(e)	intellectual property	-	-
	(f)	other non-current assets	-	-
2.3	Cash flows from loans to other entities	-	-
2.4	Dividends received (see note 3)	-	-
2.5	Other (provide details if material)	-	-
2.6	Net cash used in investing activities	-	(13)

3. Cash flows from financing activities

3.1 Proceeds from issues of equity securities

	(excluding convertible debt securities)	-	-
3.2	Proceeds from issue of convertible debt	-	-
	securities
3.3	Proceeds from exercise of options	-	-
3.4	Transaction costs related to issues of	-	-
	equity securities or convertible debt
	securities
3.5	Proceeds from borrowings	-	-
3.6	Repayment of borrowings	-	-
3.7	Transaction costs related to loans and	-	-
	borrowings
3.8	Dividends paid	-	-
3.9	Other (provide details if material)	-	-
3.10	Net cash from financing activities	-	-

4. Net increase/(decrease) in cash and cash equivalents for the period

4.1 Cash and cash equivalents at beginning of

	period	5,182	7,925
4.2	Net cash used in operating activities	(358)	(3,088)
	(item 1.9 above)
4.3	Net cash used in investing activities	-	(13)
	(item 2.6 above)
4.4	Net cash from financing activities (item 3.10	-	-
	above)

ASX Listing Rules Appendix 4C (17/07/20)	Page 2
+ See chapter 19 of the ASX Listing Rules for defined terms.