XReality : Quarterly Activities Report and Appendix 4C - 31 March 22

xReality Group Limited (ASX:XRG) (xReality)

ACN 154 103 607

ASX Release

Sydney, Australia - 29 April 2022

Quarterly Activities Report

xReality Group Limited (ASX:XRG) (xReality) is pleased to provide its Quarterly Activities Report and Appendix 4C for the quarter ending 31 March 2022.

Key points

• • Gross Receipts for Quarter $2,255,382

• • Cash at Quarter End $1,067,268

• • Significant investment into Defence, Law Enforcement and Entertainment VR product development

• • Defence VR training product launched at Military conference in Canberra

• • Launch of Law Enforcement VR training product line

• • Defence VR training product sent the the US for evaluation and MOU for distribution signed

• • First in-house built VR game launched at FREAK Bondi

Retail sales through the quarter saw progressively increasing performance, with COVID restrictions, including wearing of masks, easing late in the month of January. Performance exceeded expectations through February and March.

Cash receipts for the quarter totalled $2,255,382. Net cash from operating activities for the period totalled ($353,825), which included $426,711 of aged creditor payments and supplier prepayments from outside the quarter. The company invested $482,564 in non-current assets which included continued investment in Defence and Consumer XR product development, along with Wind Tunnel upgrades.

Business Segment Activities

• • iFLY Indoor Skydiving

  iFLY Downunder had a softer start to the period than previous years with COVID restrictions in place. A noticeable improvement was seen when restrictions lifted with February revenue the best performing February since 2018.

  iFLY Gold Coast has benefited from the easing of QLD border restrictions prior to Christmas with Surfers Paradise and the wider Gold Coast region experiencing strong tourism numbers throughout the school holiday period in December and further strengthening in January.

• • FREAK Entertainment

  Similarly to iFLY, FREAK Entertainment saw a slower start in January that improved with restrictions easing through the quarter. The Westfield Bondi venue launched the new FREAK

Drive racing simulator product which proved instantly popular while adding incremental capacity to the venue.

FREAK's first in-house developed game, Androids and Outlaws, was launched at Bondi Westfield. Created by xReality Group's wholly owned VR studio, Red Cartel, the game has been built using underlying free roam VR technology and game mechanics developed as a part of the Operator VR system. All game related IP is owned by xReality Group.

The in-house games will deliver incremental value to the company directly through lowering game licencing costs, broadening the customer demographic, and building company owned game IP. This direction further enables growth focused business models for FREAK Entertainment including "turnkey" systems, franchising, and game licensing to both B2B and consumer markets.

Androids and Outlaws is rolling out to all venues in Q4 FY22. A minimum of 4 games will be released per year with the second game now in concepting stage.

• • Operator Tactical Solutions

  Product Launch of OP-1 Defence VR tactical trainer

  Operator officially launched the defence focused OP-1 Virtual Reality Tactical Trainer product line at the Military Communications and Information Systems (MilCIS) conference in Canberra on February 24th. The OP-1 system was demonstrated, and received very positive feedback from the defence force attendees. Post launch, strong interest has been received from global industry partners, academic institutions, defence and law enforcement. Trials with Defence end users are expected to commence in Q4 FY22.

  US Partner evaluation

  In late March, Several OP-1 systems were sent to a US based defence and law enforcement training organisation for evaluation as a US distribution partner. On receiving the equipment an MOU for Global Distibution was signed.

  Launch of Operator Law Enforcement edition

  On March 31st Operator entered the global law enforcement market with the launch of Operator Law Enforcement (LE). Operator LE allows Police and Law Enforcement Officers to train operational tactics and procedures within a portable, virtual reality environment. Complimenting existing training methods, the virtual reality system allows Officers to train more often, leading to increased preparedness across a broad range of scenarios.

  Operator LE training scenarios focus on de-escalation, use of force. domestic disputes, traffic stops and active armed offender drills, with Company developed training weapons. The first commercial opportunity is in progress.

  Provisional Patent granted for Operator's "V-Bolt" smart bolt design.

  A provisional patent has been granted for Operator's V-Bolt. The V-Bolt is a electronic hardware solution which converts a live service weapon such as an M4 assault rifle into a virtual reality training tool. This allows soldiers to train on their own weapons safely within a VR environment to enhance the training realism. This is an important requirement particularly for special forces divisions due to the highly individualised weapon configurations. The hardwear solution also significantly reduces the amount of equipment required to be held by the military unit.

OP-1 Mission Rehearsal System (MRS)

Overview: The MRS system focuses on Operational Planning and Mission Rehearsal. The MRS uses in house tools and third party data to simulate real world targets and environments, Positive Identification and Specific Threat Integration, and Command, Control & Communications (C3) planning and rehearsals. The vision is to allow rapid development of targets with live inputs to cater for time sensitive and detailed planning and rehearsals for operational environments.

Status: A prototype has been developed and is being demonstrated to focus groups within the Australian Special Operations Command during April/May 2022.

Next: Continued product development in conjunction with end user requirements to refine and expand system capabilities with a launch expected over the coming months.

Summary of Expenses

Net Cash from operating activities was ($353,825) for the quarter. This reconciles as gross receipts of $2,255,382 less operating and marketing expenses of $1,986,337, cost of finance of $105,879, income taxes $56,444, and creditors from prior periods of $376,711.

END

About xReality Group Limited (ACN: 154 103 607)

XReality Group Limited develops and operates physical and digital simulations. Portfolio companies include Indoor Skydiving facilities, Virtual Reality (VR) and Augmented Reality (AR) entertainment, training, and production.

The Company listed on ASX on 18th January 2013 under the code IDZ changing to XRG on 13th Dec 2021.

For further information visit:www.xrgroup.com.au

Wayne Jones, Chief Executive Officer,[e-mail] Stephen Tofler, Company Secretary,[e-mail]

Rule 4.7B

Appendix 4C

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

Name of entity

xReality Group Ltd

ABN

39 154 103 607

Quarter ended ("current quarter")

31 March 2022

Consolidated statement of cash flows	Current quarter $A	Year to date (9 months) $A
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) research and development (b) product manufacturing and operating costs (c) advertising and marketing (d) leased assets (e) staff costs (f) administration and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Government grants and tax incentives 1.8 Other (creditors from other periods) 1.9 Net cash from / (used in) operating activities	2,255,382 - -569,751 -185,800 -28,389 -945,619 -256,778 - - -189,715 -56,444 - -376,711	4,908,115 - -1,352,061 -356,383 -64,956 -2,073,820 -661,943 - - -465,329 -37,050 556,602 -555,875
-353,825	-102,700

2.

Cash flows from investing activities

2.1

Payments to acquire:

(a)	entities	-	-
(b)	businesses	-	-
(c)	property, plant and equipment	-	-
(d)	investments	-	-
(e)	intellectual property	-	-
(f)	other non-current assets	-482,564

-1,119,218

Appendix 4C

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

Consolidated statement of cash flows	Current quarter $A	Year to date (9 months) $A
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 from / (used in) investing activities	- - - - - - - - -	- - - - - - - - -
-482,564	-1,119,218

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 (creditor settlement to facilitate debt restructure) 3.10 Net cash from / (used in) financing activities	- - - - - -75,000 - - -	- - - - - - - - -
-75,000	-

4.

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

4.1

Cash and cash equivalents at beginning of period

4.2

Net cash from / (used in) operating activities (item 1.9 above)

4.3

Net cash from / (used in) investing activities (item 2.6 above)

1,978,657 -353,825 -482,564

2,364,186 -102,700 -1,119,218