VERILUMA : Quarterly Activities Report and Appendix 4C

28 July 2017‌‌‌

ASX Announcement

June 2017 Quarterly Activities Report

Highlights

• Record Revenue for Veriluma's core technology business
• Sales of mining assets completed, bringing in substantial funds
• Strong Pipeline of new business opportunities building

Veriluma Limited (ASX:VRI, Veriluma, or 'the Company') is one of Australia's leading Artificial Intelligence companies and focuses of Prescriptive Analytics. Orbis Research estimates that this US$4.6bn market will grow at a CAGR of over 22%pa over the next 5 years to reach an estimated US$20bn by 2022.

Financials

Cash receipts for the quarter were $0.196m and represent the company's first quarter of sales since its RTO in 2016. The bulk of sales comprised of payments made under the Australian Dept. of Defence contract to build a prototype 'Indicators and Warnings' model for Climate and Disaster Preparedness. The full value of this contract is

$0.124m and included a six-month license of the software and associated services as part of Phase 1 of a potentially larger project. The Gilbert + Tobin proof of concept trial - also now complete - contributed to revenue during the quarter.

With expenses relatively stable, the Company had net cashflow of ($0.409m) which, adjusting for the timing of cash receipts from asset sales, was close to expectations. The sale of the company's legacy mining assets will reduce annual cash outflow related to tenement holding costs by $0.2m. On current forecasts, the company expects a stable cost base for the September quarter.‌

Business Development

The company continues to aggressively target revenue generation in its three key verticals of Defence / National Security; Legal Services and Financial Services. More recently, opportunities are appearing in a potential fourth vertical: Agriculture.

VERILUMA: MORE INSIGHT. BETTER DECISIONS

Our predictive software means organisations are better able to anticipate what is likely to happen and highlights the future opportunities and risks to be mitigated. Situations can be continually reassessed - re-predicted - as new information comes to hand.

The sales opportunity is so large and so diverse in its industry verticals that it is really only constrained by the size of the Company's sales force. A key objective going forward is to boost the sales team to take advantage of the opportunities that Veriluma has identified.

However, in order to minimise overheads and maximise sales, one of the Company's strategic priorities is to direct its own sales efforts towards those potential customers and or partners who can embed our technology into their own product offerings. This should be especially powerful should Veriluma's software be adopted on a large scale by large multinational legal and financial institutions in particular.

While the sales cycle for Veriluma's technology can be long, particularly when dealing with Government agencies, the Company is very encouraged by the breadth of business opportunities before it. Veriluma enters the second half of CY17 with a pleasing level of momentum - with key Proof of Concept trials successfully concluded and commercial discussions with multiple new potential partners ongoing.

National Security:

The Australian DoD contract was successfully delivered over the March and June quarters. As Cheryl Durrant, Director of Preparedness and Mobilisation at the DoD observed of the trial: ""Defence engaged Veriluma to support trial of the Intelfuze product in providing insight to a cross Government preparedness problem. Veriluma provided a high quality team and the trial successfully achieved its outcomes."

As mentioned earlier, the company awaits news on a potential Phase 2 contract and is in discussions with DoD regarding this opportunity. The company expects any potential Phase 2 project to be materially larger and decision regarding Phase 2 is expected in the Sept quarter.

Further commercial opportunities in the government sector are available and the company continues to engage with multiple Australian Government agencies, such as the AFP, the ATO and Attorney General's Dept. to name a few. Intelligence and security sales opportunities are not limited just to the Government sector, however, and the Company is in discussions with private companies at the leading edge of the non- government intelligence sector.

Legal Services:

The pilot with Gilbert + Tobin to provide an application which can improve client outcomes by predicting risks and offering greater insight earlier was successfully completed during the quarter. Discussions with Gilbert + Tobin regarding the results of this trial and future potential revenue streams are ongoing. The company is also in discussions with other large nationally based law firms for Proof of Concept trials for bespoke legal applications in a variety of commercial areas. Commercial opportunities in the Legal Services vertical in Europe are also being pursued.

After significant development work conducted in conjunction with Legal Logix Holdings Pty Ltd during the June quarter, the first application, focusing on property settlement issues in family law cases, is now expected to launch in the September quarter. It is expected to be a material contributor to revenue in CY18. Other areas of focus for this joint venture for future applications include estate disputes, personal injury, immigration and employment in Australia and other jurisdictions.

Financial Services:

Progress continues to be made on marketing SAMI, Veriluma's application designed to surveil the quality of the advice provided by financial planners. Veriluma has collaborated with Advice Regtech, an Australian fintech firm to market this software to the Australian financial advice industry. The company is also in active negotiations with several of the Big 4 accounting firms with regards to integrating Veriluma technology into their own product offerings - consistent with the Company's strategy of leveraging external sales teams where possible.

Agriculture:

The Australian agriculture sector is looking to digital technologies, and in particular the Internet of Things (IoT) to double output by 2030. Matt Brand, the CEO of NSW Farmers has observed: "The key enabler is digital technology and capability: data being converted into meaningful solutions".

Cisco partnered with the National Farmers Federation among others to launch Innovation Central in Sydney in 2016 to work on data based solutions for farmers and Veriluma believes there are substantial opportunities for its technology to be part of the solution here.

Corporate

During the quarter, changes to the Board were announced as the Company's transition to a more 'steady state' technology business continued. Mr Nigel Gellard resigned as Non-Executive Direct and Mr Justin Clyne resigned as Company Secretary. Veriluma was pleased to announce on 27 April the appointment of Mr Henry Cappa to the Board.

Mr Cappa is a highly experienced financial services industry executive with a 35-year career and has extensive Board experience. His most recent executive role was as Managing Director and Head of Custody

& Fund Services - Australia and New Zealand for J.P. Morgan.

He has more recently been advising small businesses around product development, investments, business development and general business management. His experience will be particularly useful as Veriluma further develops and implements its product and growth strategy.

Funding

At the end of the quarter the Company's cash position (unaudited) was $0.362m. Subsequent to the end of the period the company announced the completion of sale of its legacy mining assets. This yielded an additional payment of $0.450m (and potential for future contingent payments of a further $0.5m) and thus a pro forma cash balance of approximately $0.8m. The company is left well funded to cover near term expenditure commitments.

In addition, the company is in the process of collating required information for FY17 R&D tax incentive and expects further news on this in the September quarter.

For further information, please contact: Investor Relations [e-mail]

[phone]

www.veriluma.com

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

Appendix 4C

+Rule 4.7B

Quarterly report for entities subject to Listing Rule 4.7B

Introduced 31/03/00 Amended 30/09/01, 24/10/05, 17/12/10, 01/09/16

Name of entity
Veriluma Limited
ABN	Quarter ended ("current quarter")
48 142 901 353	30 June 2017

Consolidated statement of cash flows		Current quarter $A'000	Year to date (12 months) $A'000
1.	Cash flows from operating activities	196	201
1.1	Receipts from customers
1.2	Payments for	(158)	(473)
(a) research and development
(b) product manufacturing		-	-
(c) advertising and marketing		(70)	(231)
(d) leased assets		-	-
(e) staff costs		(144)	(705)
(f) administration, corporate costs and operating costs		(230)	(1,370)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	-	1
1.5	Interest and other costs of finance paid	(2)	(13)
1.6	Income taxes paid	-	-
1.7	Government grants and tax incentives	-	247
1.8	Other (provide details if material)	-	-
1.9	Net cash from / (used in) operating activities	(409)	(2,344)

1. Cash flows from investing activities

2. Payments to acquire:

3. property, plant and equipment - -

4. businesses (see item 10) - -

5. investments - -

6. + See chapter 19 for defined terms

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