Micro X : MX1 - Quarterly Cash Flows and Activities Statement

Micro-X Limited, ABN 21 153 273 735

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QUARTERLY ACTIVITIES & CASHFLOW REPORT

QUARTER ENDED 30 JUNE 2022

Adelaide, Australia, 29 July 2022: Australian hi-tech company Micro-X Ltd (ASX:MX1) (Micro-X or the Company), a leader in cold cathode x-ray technology for health and security markets globally, is pleased to release its Appendix 4C - Quarterly Cashflow report and Activities Update for the quarter ended 30 June 2022 (the Quarter). All financial results are in Australian dollars and are unaudited.

Highlights for the Quarter

• Mobile DR revenues of $3.8M for FY2022 (6% increase on prior year) and $0.5M for this Quarter
• Mobile DR US sales network expanded with the top two independent distributors MXR and Medlink now appointed; Medlink Imaging adds 100 sub-distributors and commitment to $1m sales annually
• IED X-ray camera 'Argus' imaging system integration complete - pre-launch activities well underway o Pre-production prototypes being built for customer trials in coming months
  o Responded to RFP for project 'Land 154' for X-ray Equipment for IED Search
• Passenger Self-Screening Checkpoint conceptual design accepted by the US Department of Homeland Security
• Closing cash balance on 30 June 2022 of $10.3M with a further $1.6M to be received from the Australian Stroke Alliance in July 2022
• On a "like for like" basis, non Contract Revenue related costs have been reduced by 23%.
• R&D Rebate of approximately $3.3M is expected in Q2 2023.

Commercialisation & Development Activities

During the Quarter, Micro-X achieved significant progress across all of its Business Units and as usual these are reported below in the order of commercial maturity.

Mobile DR Business Unit - Expanded sales network including key US distributor appointments,

The Mobile DR business unit continued to establish and build up its global network of distributors for long-term sales success. Following the Company's attendance at RSNA last December the sudden growth in brand recognition in the radiology market has enabled Micro-X to engage with much larger and more capable distributors than was previously possible.

Overall revenue for this Quarter was $0.5M (June 2021 quarter: $0.4M) and total Mobile DR revenue for the

year was $3.8M (FY2021: $3.6M). The Company is confident in the long term success of its new and growing distribution network which is a mixture of OEMs selling under their own brand and a number of high-profile, independent distributors selling the Micro-X branded product. The sales velocity for mobile x-ray units in North America is typically six to nine months, so revenue growth should build as more distributors sign up and start to build their pipelines.

In North America, MXR, the largest independent radiology distributor in the US which signed with Micro-X last quarter, has progressed a number of opportunities to the quotation stage and major demonstration roadshows in California, Texas, South Carolina, Ohio and New Jersey during July should further build their sales funnel. Micro-X has also initiated summer promotions for both customers and distributor sales personnel. During the

Micro-X Limited, ABN 21 153 273 735, 1284 South Road, Tonsley, South Australia, 5042, AUSTRALIA

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Quarter, Micro-X also enlarged distribution with the appointment of Medlink Imaging, Inc. (Medlink), the second largest independent and nation-wide distributor of digital radiology equipment in the USA. Medlink's parent company, Vieworks Co. Ltd is a global manufacturer of X-ray imaging detectors and, based in South Korea, is listed on the Korean stock exchange [100120.KQ]. The Medlink appointment adds over 100 sub-distributors to Micro-X's network and includes a commitment to acquire $1.0m of Rover mobile systems for each of the initial three years of the contract term once FDA clearance is received for the Rover cart integrated with Vieworks' proprietary software and digital detectors.

Three smaller but capable distributors, Centura, Associated and Turnkey were also added to Micro-X's North American distribution team during the Quarter and Micro-X is well progressed in discussions with two other large distribution organisations which will complete a very high-quality distribution capability in North America.

During the Quarter, Micro-X's OEM partner, Carestream Health, continued to flow sales at a steady rate for the Carestream Revolution Nano.

In Europe, despite the on-going delays which all medical device manufacturers are experiencing with Notified Bodies processing MDR applications, Micro-X has been successful in signing up five new distribution channels for the EMEA region and training of these has already commenced. A further seven distributors are ready to commence once CE Mark is granted and it is expected that many of these will purchase a demo unit immediately importation is permitted. Micro-X believes it is the final stages of the MDR approval and that CE Marking for Rover can be expected during the September quarter.

In the United Arab Emirates, the Micro-X Rover will now be distributed by Leader Healthcare Group, one of the largest medical imaging equipment suppliers across the Middle East and sales activity here can now commence based on the USA's FDA clearance. In APAC, Micro-X have signed new distribution partners in Thailand and Vietnam and are exploring new distributor options in Australia.

Marketing and technical sales support by Micro-X for this growing distribution network is critical for success and in mid July 2022, Micro-X featured Rover on its stand at the European Congress of Radiology in Vienna, one of the largest medical meetings in Europe and second-largest radiological meeting globally. Micro-X's UK distributor featured Rover on their stand at the UKIO congress in Liverpool to stimulate awareness and demand ahead of regulatory approval.

Future product evolution for the Micro-X Rover centres on the new x-ray tube and in-house developed generator, which extends the Rover's imaging capability into the more demanding x-ray exams required in emergency departments and operating theatres. To be launched as the 'Rover Plus', this product is now in the final stages of manufacturing validation and preparations are underway building stocks of the new generators and tubes in order to transition the production line to this new model.

X-Ray Camera Business Unit - Imaging integration in progress

Pre-production prototypes of the 'Argus' IED X-ray camera are close to completion following delays in recent weeks caused by technical issues in commissioning manufacturing equipment for the new 'Columbus' x-ray tube and some high voltage component supplier quality issues. With these challenges now successfully resolved, the first imaging testing by the integrated, pre-production Argus unit has been achieved with pleasing results in line with imaging performance expectations.

Further integration of all the Argus sub-systems and refinement of the high-voltage components will now be followed by verification and validation testing of the product. Argus units are expected to be available for first customer demonstrations with potential distributors and end-users in coming weeks and the product launch is expected during the December Quarter.

Micro-X Limited, 1284 South Road, Tonsley, South Australia, 5042, AUSTRALIA

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Commercial activity this Quarter was focused on the submission of a full and compliant response to the Australian Department of Defence's Request for Tender (RFT) for project 'Land 154' for X-ray Equipment for IED Search'. This RFT calls for 64 lightweight, robot-deployablestand-off backscatter x-ray imaging units and the published acquisition schedule for the project is for source selection at the end of 2022 and contract award early in 2023 with product deliveries during 2023.

Micro-X was pleased to receive advice during the Quarter that its patent application for the Argus' backscatter imaging architecture has been approved in the USA.

Checkpoints Business Unit - Baggage scanner on track for completion within 12 months

During the Quarter both of Micro-X's Checkpoints programmes for the US Department of Homeland Security (DHS) achieved their planned milestones and remain on-budget and on-schedule.

The CT Baggage Scanner development team has now commenced detailed design of the prototype following the formal acceptance of the Design Review by DHS last quarter. With less than a year before the first prototype CT scanner is due to be delivered to DHS for testing, work has begun to build customer awareness of the CT Scanner's capabilities in standalone airport checkpoint screening and identify other potential applications outside of the aviation industry. To this end Micro-X was invited during the Quarter to present the CT Scanner and Self-Service Checkpoint concept at a restricted international aviation security workshop in Europe attended by government regulators and airline and airport security managers where it created great interest and many potential customer leads.

Micro-X's initial design concept for the Passenger Self-Screening Checkpoint was also delivered and accepted by DHS during this Quarter. This major milestone with a payment of US$0.6M from DHS was achieved on-time and on-budget and also secures the remainder of the DHS contract to completion, worth a further US$1.3M. The next phase of development, worth US$0.7M over six months, will see Micro-X working with its partners to initially model the system using simulations and then prove the concept with hands-on testing of a mock-up in the Seattle office with volunteer passengers and representatives of airlines, airports and DHS.

CT Business Unit - Milestone payment recognises development progress

The development of Micro-X's Brain CT scanner for mobile, pre-hospital stroke imaging in conjunction with the Australian Stroke Alliance (ASA) achieved planned progress during the Quarter and remains on-budget and on- time. This Quarter's priority was the creation of an automated imaging test platform to gather x-ray data for imaging algorithm development. The team continues to work towards the major Preliminary Design Review milestone next quarter and in recognition of the progress to date, Micro-X is due to receive an interim $1.6M milestone payment from the ASA in July 2022.

During the Quarter, the lead investigator at The Johns Hopkins University gave a presentation on the Brain CT image reconstruction work it is doing for Micro-X at the prestigious global scientific CT Meeting 2022 in Baltimore.

Micro-X is in discussions with Norsk LuftAmbulanse (NLA), the Norwegian Air Ambulance service similar to Australia's Royal Flying Doctor Service, about fitting a prototype of Micro-X's Brain CT imager to one of their Airbus 145 helicopters to create an airborne Mobile Stroke Unit. NLA invited Micro-X to participate in a recent international aeromedical conference in Austria, fitting a Micro-X demonstration scanner in their display helicopter. The Brain CT imaging technology received significant attention at the show and Micro-X is now engaging with a number of European Helicopter Emergency Medical Service organisations who expressed interest in acquiring the capability once developed.

Micro-X Limited, 1284 South Road, Tonsley, South Australia, 5042, AUSTRALIA

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Corporate Activities

Following the easing of COVID restrictions Micro-X was pleased to re-instate its annual Investor Open Day for shareholders and the public at its Tonsley facility. Well over 100 attendees, many from interstate, toured the site to see first-hand the Company's innovative technology and manufacturing and additionally enjoyed the opportunity to interact with management, engineering and manufacturing teams. Management has also been actively engaging with current and potential shareholders in recent months with in-person presentations in the United States and Australia.

The schedule of future engineering development required under our contracts with the US DHS and Australian Stroke Alliance highlights the importance of acquiring talented engineering staff. Micro-X has conducted a recruitment campaign in Europe during the Quarter to source the talent needed for this future growth.

Financial Summary & Cashflows

Cost Reduction Programme

During the Quarter, Micro-X completed a strategic realignment of resources across all business units and operations to best manage its cash resources in the current market conditions. Overall, Micro-X has sought to better align and reduce its cash expenditure in its Mobile DR business unit to more closely match the level of sales being forecast for the upcoming year, in addition to making cost reductions in its Corporate Overheads. One element is a reduction in headcount of 15 positions from original plans for FY2023, which after one-off redundancy payments in July 2022, will be EBIT accretive from September 2022.

Micro-X has also re-allocated some cash expenditure to the development work in its Checkpoints and CT divisions which is matched by contracted funding due to be received.

In FY2023, cash expenditure before any product sales on a "like for like" basis has been reduced by $4.5M (23%), net of Contracted Revenue due to be received for the Checkpoints and CT projects. This is seen as a prudent refocus of cash expenditure which will be improved by the gross margins received on all sales of Rover and Argus systems and the annual R&D tax rebate.

Accordingly, from July 2022, Micro-X is now budgeting for:

• Mobile DR business unit to reduce cash expenditure by approximately 40%. This has been achieved through fewer technical staff and associated costs following completion of the high-powered generator project; a reduction in technical and manufacturing headcount to better align with current production levels; and a shift to a distribution only model in Australia and reduction in direct sales staff. In addition, a large number of skilled technical and manufacturing staff in the Mobile DR division have been redeployed to the Argus, CT and Checkpoints business units as they begin to ramp up, in lieu of new hires by each of those business units;
• Argus division to transition from development to the commercialisation phase, with cash expenditure levels of $3M, similar to FY2022 rather than increasing as originally planned. This has been achieved by the reduction in technical staff and the reallocation of expenditure to sales, marketing and associated commercial activities;
• Checkpoints and CT divisions to increase expenditures from FY2022 levels, with the objective to be largely cash flow neutral, with the majority of this increased cash expenditure to be matched by the ongoing ASA and DHS contracts;

Micro-X Limited, 1284 South Road, Tonsley, South Australia, 5042, AUSTRALIA

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• Corporate overheads to reduce by $1.1M from FY2022 levels with savings related to compensation, travel and entertainment, marketing, and general overheads.

Quarterly Cashflows

During the Quarter, the Company:

• built, shipped, and invoiced $0.5 million of Mobile DR units and associated parts;
• received $0.9M in customer receipts from sales, a further $1.5M from its contracts with DHS and ASA and $0.1M in Other Income;
• had cash outflows from Operations of $7.7M, resulting in net operating cash outflows of $5.2 M. These outflows included payments to Directors of $0.15 M relating to the salary of the Managing Director and fees for Non-Executive Directors;
• had cash outflows of $0.4M from Investing Activities, for buying additional capital equipment;
• had cash outflows of $0.2M from Financing Activities, representing the principal component of operating lease repayments as calculated under AASB 1016;
• had overall net cash outflows of $5.8 million and a cash balance of $10.3 M as at 30 June 2022. In addition to its June 30 cash balance, in July 2022, a further $1.6m is due to be received in July from the Australian Stroke Alliance.

In addition, the Company is expecting to receive approximately $3.3M in R&D tax rebate when it lodges its tax return with the Australian Tax Office. The Company continues to manage cashflows carefully and will explore multiple options for funding. Adopting a conservative sales forecast, the Company remains funded into the first half of CY 2023, without reducing any planned commercial or development activities.

Future Outlook

Looking ahead, commercial launch of the Argus IED X-ray Camera remains the biggest priority in the upcoming quarter as the focus shifts from final development to commercialisation activities. The sales team has been active in building market awareness and a growing list of influential organisations are anxious to trial prototypes as soon as they are available. A number of these have expressed an interest in early procurement following successful demonstration of the capability. Success in the ADF's procurement in Land 154 by the end of 2022 would then be an ideal validation and launch platform for building global sales for Argus.

In the Mobile DR division, continued support for the growing distribution network is critical as they build sales opportunities. The introduction and transition to the new Rover Plus with the extended capability is expected to add increased interest from potential customers and the recently onboarded distributors. While it is understood that Micro-X is close to achieving MDR approval for Rover in Europe the timing is difficult to predict. There is a growing team of distributors in place in EMEA to take advantage of that market opportunity, once CE marking is received.

Micro-X's Managing Director, Peter Rowland, commented:

"As the 2022 financial year comes to a close, I am very pleased with what we have achieved this year in what has been a volatile period in markets globally, but obviously impatient for more rapid sales growth. Its frustrating that we were not able to engage with the quality independent distributors we needed prior to our RSNA debut last year but we really do believe that now we have the right partners and the right strategy to deliver the long- term results for Rover.

Micro-X Limited, 1284 South Road, Tonsley, South Australia, 5042, AUSTRALIA

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