Strategic Elements : SOR Quarterly Update and Appendix 4C

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Strategic Elements December Quarter Update

Perth, Australia - 31 January 2022 Strategic Elements Ltd (ASX: SOR) provides the following Company update to accompany the attached Appendix 4C lodged for the quarter ending 31 December 2021.

The Australian Federal Government has registered Strategic Elements as a Pooled Development Fund with a mandate to back Australian innovation. The Company is listed on the ASX under the code "SOR". The Company operates as a venture builder where it generates high risk-high reward ventures by combining teams of leading scientists and innovators. SOR majority funds initial development of each venture whilst remaining open to a strategic investor that could strongly assist commercialisation.

Australian Advanced Materials (AAM) (100%) is developing Battery Ink technology under a formal collaboration with the University of New South Wales (UNSW). The group at UNSW have developed extensive experience in electronic inks, energy harvesting and storage over the past 10 years and are applying that in development of the Battery Ink technology. UNSW School of Materials Science and Engineering is a leader in Australia for material science and has a number of partnerships with leading companies such as Boral, Hitachi Chemical, One Steel and many more.

The collaboration is partially funded by the Federal Government through the Australian Research Council1. AAM combines this funding with Research and Development Tax Incentive to offset a significant amount of Battery Ink development costs. AAM has applied for other avenues of innovation funding during the quarter that do not require shares to be issued. The outcomes of these applications are expected to be known in Q1 and Q2, 2022.

Significant advances were made by Australian Advanced Materials (AAM) in the Battery Ink technology throughout the whole of Q4, 2021 and into 20222. Intellectual Property gained through development of the Company's Nanocube printable memory ink technology has enabled the Company and the University of New South Wales to achieve key development milestones rapidly and very early in the development process. Development conducted during the quarter resulted in significant technical breakthroughs that have been covered by patent application.

AAM has committed Q1, 2022 to providing the technical team with freedom to pursue deep research and development and trial-and-error materials engineering with the aspiration of achieving a further step change in moisture induced electrical energy generated from the Battery Ink.

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Stealth Technologies Pty Ltd (Stealth) (100%) successfully achieved multiple development and program milestones across the Autonomous Security Vehicle (ASV), Autonomous CBRN Agent Detection and Autonomous Mining applications under development.

Stealth is collaborating with global Fortune 100 software-industrial company Honeywell to develop autonomous security vehicles for the correctional sector. The ASV seamlessly integrates into the prison's security management platform and can autonomously navigate pre-defined missions to test key Perimeter Intrusion Detection Systems (PIDS) including photo-electric beams, microphonic and fibre-optic fence sensors, buried electromagnetic cables and microwave beams. Patrol surveillance is provided by a military grade camera that provides 360-degree high- definition video.

PIDS are the first line of defence to deter, detect and delay intruders, prevent escapes and keep staff safe. Operational testing of PIDS is required multiple times a day and is currently only possible through physical interaction between prison guards and PIDS. This is a critically important but mundane task for human guards which may produce inconsistent test results, cause physical damage to PIDS, and reduce testing frequency due to high labour costs. Importantly, PIDS testing engages highly skilled staff for a repetitive, labour-intensive process that can be re-deployed more productively elsewhere in the facility.

The world's first ASV successfully completed thousands of operational tests of advanced Perimeter Intrusion Detection Systems at a Western Australian prison facility3. This included 4,100 autonomous operational tests on the high security fence sensor system, > 2,300 autonomous operational tests on perimeter photo-electric beam detectors, > 2,200 autonomous operational tests on buried electromagnetic cable detectors and > 1,800 autonomous operational tests on advanced microwave motion sensors. Whilst autonomously testing and patrolling the secure perimeter, the ASV successfully fed hundreds of hours of mobile HD surveillance video to the prison's Patrol Control Centre. Stealth is currently conducting a full review and assessment of ASV missions made to date. Discussions on a commercial agreement between Stealth Technologies and Honeywell are continuing.

During the quarter Stealth agreed to commence a phased pilot investigation with a mining Company3. Phase 1 involves the supply and install of a Stealth Sensor Unit containing sensor fusion and computer vision technology from Stealth's Autonomous AxV platform. The Sensor Unit will capture mapping data of a portion of a mine's underground environment to assist in validating the potential suitability of a Stealth technology solution.

The Company does not consider the pilot investigation material at this stage. There is no payment involved in Phase 1 for the Stealth Sensor Unit. Phase 2 will be dependent on the successful delivery of Phase 1 and further discussion and commercial agreement. Stealth is very appreciative of the opportunity to supply and install its technology into an operational underground mine and looks forward to demonstrating its potential to solve existing real-world problems. It is intended that Phase 1 will complete in Q1, 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 detection and sensing of chemical, biological, radiological and nuclear (CBRN) agents4. Multiple streams of work have been focused on further development of the AxV Gen 2 software and hardware stack, with expanded capabilities to support the CBRN project including sensor drivers, navigation modules and the mission control system. Concept design of the AxV Gen 2 is expected to be released in February 2022. Live drone testing of the mission control algorithms for multi-drone CBRN search has commenced and will complete in Q1, 20223.

Stealth is also developing technology to automate capture and integration of multiple types of data and produce 3D location maps of agricultural weeds5. 3D Mapping of agricultural weeds will enable farmers to apply modern agronomy to weed management. Stealth is collaborating with Australian Herbicide Resistance Initiative, who are world leading global researchers in herbicide resistance and its management in cropping systems. The technology was deployed and trialled at multiple farm locations during the quarter. Data has been received and is currently being processed by the Stealth team. Results are expected to be available in Q1, 2022.

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Maria Resources Pty Ltd (Maria) (100%) has a firm focus on technology metals (e.g Ni, Cu, Co, PGE (platinum group elements) related to batteries and advanced technology and applying innovative geological models to unexplored terrains. Maria Resources lodged further permit applications in the Madura Province during the quarter that have been grouped into the Cyclops Project6. There has been increased activity in the Madura Province with exploration tenement applications by companies including Rio Tinto and BHP Nickel West. Three of the Maria Resources permit applications are adjacent to Rio Tinto permit applications. With continued interest and demand for technology metals the Company has entered further negotiations with traditional owners on the 222km2 Cyclops Project area. Subject to successful negotiation and geological appraisal, Maria will commence initial exploration of the Cyclops Project during Q1 2022.

Cognition Engines Pty Ltd (Cognition) (100%) has been actively working on innovative approaches to transform how data is used. A patent application was made during Q3 2021 with the invention title Cognitive Engine. Further information on the activities of Cognition will be made available at the appropriate time.

Strategic Elements Ltd ended the December quarter with $6.0M in cash. Across the group, net expenditure was $840k. Strategic Elements Ltd incurred expenditure of $410k, 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 $177k to related parties and their associates at item 6.1 of the accompanying Appendix 4C. These payments comprise of director's fees for Directors and salaries for Executive Directors.

AAM incurred net expenditure of $235k which relates to R&D development undertaken at UNSW, consultants and other costs incurred in developing and managing AAM's IP portfolio. As discussed, development costs were offset directly as a result of the ongoing collaborative grant announced under the ARC Linkage project1 and the Research and Development Tax Incentive.

Stealth Technologies (Stealth) incurred $307k in direct costs related to staff and development costs across projects with Honeywell, Defence Science and technology Group and the Australian Herbicide Resistance Initiative/University of Western Australia. Stealth received $130k in contract revenue during the December quarter resulting in net expenditure of $173k. Maria Resources incurred $28k in costs associated with the evaluation of exploration projects. Strategic Materials expensed 2k during the quarter.

More Information:

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

Footnotes

• ASX Announcement 30/06/2020
  2 ASX Announcement 25/01/2022
  3 ASX Announcement 23/12/2021
  4 ASX Announcement 06/07/2021
  5 ASX Announcement 27/07/2021
  6 ASX Announcement 29/10/2021

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	31 December 2021
Consolidated statement of cash flows	Current quarter	Year to date (6
	$A'000	months)
		$A'000

1. Cash flows from operating activities

1.1	Receipts from customers	135	204
1.2	Payments for
	(a)	research and development	(368)	(601)
	(b)	product manufacturing and operating	-	-
		costs
	(c)	advertising and marketing	(26)	(78)
	(d)	leased assets	-	-
	(e)	staff costs	(363)	(851)
	(f)	administration and corporate costs	(216)	(529)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	-	-
1.5	Interest and other costs of finance paid	(1)	(2)
1.6	Income taxes paid	-	-
1.7	Government grants and tax incentives	-	-
1.8	Other	-	-
1.9	Net cash used in operating activities	(839)	(1,857)

2. Cash flows from investing activities

2.1 Payments to acquire or for:

(a)	entities	-	-
(b)	businesses	-	-
(c)	property, plant and equipment	(10)	(10)
(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 (6
	$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	(10)	(10)

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	6,917	7,925
4.2	Net cash used in operating activities	(839)	(1,857)
	(item 1.9 above)
4.3	Net cash used in investing activities	(10)	(10)
	(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.