VECTION TECHNOLOGIES LTD — Capital/Financing Update 2020

Mar 1, 2020

2 March 2020 | Australia

ASX RELEASE

VECTION ACCELERATES REAL-TIME 3D CAD OFFERINGS THROUGH MINDESK ACQUISITION

Vection welcomes global institutional technology shareholder: HTC Vive

Real-time software company Vection Technologies Ltd (ASX: VR1 ) ( Vection or the Company ) is pleased to announce that it has entered into an agreement for the acquisition of Mindesk Inc. ( Mindesk ), the developer of the first Software as a Service ( SaaS ) real-time 3D design platform that combines Computer Aided Design ( CAD ) with Virtual Reality and graphic engines.

Backed by HTC Vive, the Mindesk team and associated technology represent a strong addition to Vection, driving further differentiation and growth across commercial CAD software for the Architecture, Engineering and Construction ( AEC ) industries. This acquisition is the logical next step in Vection’s overall evolution to a recurring SaaS revenue business model.

Highlights

• All scrip acquisition of Mindesk, the first SaaS real-time 3D design platform that integrates CAD with VR, introducing the possibility to design a CAD project from scratch in Virtual Reality

• Fully funded acquisition coming with ~A$1.2M cash at bank[1]

• Mindesk corporate and institutional investors, HTC Vive, Primomiglio SGR and A11-Venture, to join Vection’s shareholder base, escrowed for 12 months from issue date

• Mindesk partners with leading companies including Logitech, Dassault Systémes SolidWorks Corporation, McNeel, Autodesk, Epic Games, HP, and Varjo

• Platform integrated with leading commercial design software McNeel Rhinoceros 6 and Grasshopper, Dassault SolidWorks 2018 and 2019 and Epic Games Unreal Engine Editor

• Vection gains established global software distribution footprint with 21 value added resellers across 3 continents

• Mindesk platform adopted by AEC industry leaders including global contemporary architecture specialist Zaha Hadid Architects

• Commercial versions of Mindesk platform launched mid-2019, providing for strong user-adoption potential

• Mindesk and FrameS unlock a new generation of configurators powered by real-time connection to manufacturer design data

• Mindesk CEO, Mr Gabriele Sorrento, to join Vection’s Board of Directors as Non-Executive Director

• • Mindesk management to join Vection to drive global technological partnerships and sales growth • Acquisition to significantly boost Vection’s product suite, commercial CAD integration and SaaS sales strategy

1 AUD to EUR exchange rate of 0.5934 at 28 February 2020 (Source: Reserve Bank of Australia)

Vection Technologies Ltd (ASX:VR1) ACN: 614 814 041

Asia Pacific Europe Address: Suite 1, 437 Roberts Road Address: Via Isonzo 61 Subiaco WA 6008, Australia 40033 Casalecchio di Reno (BO), Italy Phone: +618 6380 2555 Phone: +39 051 0142248

Media Enquiries AUpress@vection.com.au EUpress@vection.com.au

Pearly Chen, Vice President of Business Development at HTC, commented:

“We are grateful to have had the opportunity to back Mindesk since their early days and share the team’s excitement about the possibilities this acquisition could unleash for Vection Technologies and their customers globally.

We are firm believers of the many positive ways virtual reality will transform how we work, collaborate, and connect with one another. It is great to see validation of Mindesk’s vision of accelerating productivity with real-time technologies and we look forward to supporting their joined journey onwards as a new shareholder of Vection Technologies.”

Bert Mondello, Non-Executive Chairman of Vection, commented:

“ I am pleased to welcome global institutional strategic investors HTC Vive, Primomiglio SGR and A11-Venture as new proposed shareholders in our Company.

The ongoing support demonstrated by these institutional equity partners in the acquisition of Mindesk is a strong endorsement of the Company’s overarching strategic direction towards market dominance across 3D, Virtual Reality, Augmented Reality, Industrial IoT and CAD real-time technologies.

We are excited to advance our global strategy supported by a strong institutional grade shareholder foundation.”

Mindesk Overview

Mindesk: Introduction

The addition of Mindesk to Vection’s existing product suite will accelerate Vection’s SaaS CAD strategy, unlocking value for engineers, architects and designers in the initial phases of product development.

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Figure 1: Expanded Product Suite: FrameS + Mindesk

Mindesk: Platform Overview

Mindesk is a Real-Time 3D design platform that integrates with existing commercial CAD software to extend their operations to the third-dimension: Virtual Reality, Augmented Reality, Real-time rendering, and Multiuser collaboration.

Mindesk introduces the possibility to design a CAD project from scratch in Virtual Reality : while the majority of commercially available VR CAD software requires time consuming project exportation, Mindesk enables users to switch from VR to desktop seamlessly, while editing the project in real-time on either platform.

Mindesk is the only VR platform on the market that provides the bi-directional, real-time link across multiple commercial CAD and design software, including:

• McNeel Rhinoceros 6 : Rhinoceros is the leading 3D surface CAD with 15 million worldwide users among Naval, AEC and Automotive designers. It includes the parametric design editor Grasshopper , to find and solve complex organic geometries.

• Dassault Solidworks 2018 and 2019 : one of the most widespread parametric mechanical CAD software used by more than 6 million users worldwide, primarily for light mechanics, gadgets, appliances, automation and metalworks in general.

• Epic Games Unreal Editor : Epic Games Unreal Engine is currently the most popular computer game engine, powering productions like Final Fantasy 7 Remake and Fortnite. Recently, Epic Games has been retargeting Unreal Engine for professional use, especially in the AEC CAD market segments.

Mindesk: The Technology

Mindesk has developed its own core Intellectual Property and technology stack, including its proprietary graphic engine, the data transfer protocol ( Live Link ), the multi-user collaboration feature, the User Interface, User Experience and Digital Rights Management.

While the majority of Mindesk’s competitors rely on third-party graphic engines, Mindesk has developed its own proprietary graphic engine, considered to be Mindesk’s most strategic asset, enabling:

• Great VR performance even with large and complex assets

• Reduced go-to-market period for additional CAD software integration

• Exportless 3D model dynamic process, resulting in an improved user experience

• Superior level of customisation and performance

Mindesk’s other major strategic asset is the Live Link, enabling CAD software to communicate in real-time with Virtual Reality, with third party game engines and with other remote instances over local networks or the cloud. The Live Link enables:

• Higher speed and lower latency

• High horizontal scalability to include more CAD and BIM software

• Secure data management, crucial in IP sensitive industries

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Figure 2: Rendering of Mindesk software

Mindesk: Partnerships

“Logitech VR Ink now works with Mindesk, and we are super excited to have Mindesk as a Logitech partner.” commented Denis O’Keeffe, Logitech Director of VR/AR Program ” Mindesk and VR Ink create a powerful combination where you can edit and create, for Rhino and Solidworks, content with precision and control directly within VR.”

For more information: logitech.com/en-roeu/promo/vr-ink.html

“Epic Games is happy to see Mindesk take the next step in using Epic’s Unreal Engine to innovate how manufacturers and architects can use real-time interaction as part of their design process." commented Ken Pimentel, Epic Games AEC Industry Manager .

Mindesk has built and consolidated unique strategic partnerships with leading global technology and industrial players including:

• Dassault SolidWorks : Mindesk was designated as a Certified Solution Partner by Solidworks in late 2019, which acknowledges that Mindesk is complementary and compatible with Solidworks 2018 and 2019 and that Dassault SolidWorks has verified that these products are commercially available, and members of the SolidWorks community have confirmed the usefulness of these products. It also enables Mindesk to access benefits and opportunities such as joint press releases and joint customers success stories.

• McNeel: The Mindesk and McNeel engineering teams collaborate to bring to market the most advanced VR interface in the CAD industry. Mindesk is involved in global McNeel sales and marketing initiatives, including being featured among their top apps on their official app portal.

• • Autodesk : Mindesk is a member of the Autodesk Developer Network, a program developed by Autodesk to assist developers to use Autodesk’s large investments and expertise in design and engineering platform technologies.

• HTC Vive Enterprise : Mindesk and the Enterprise division of HTC Vive regularly collaborate on joint marketing and sales initiatives.

• HP : In 2019, Mindesk entered the HP Independent Software Vendor Program to leverage HP’s powerful line of VR ready products and to gain access to joint marketing initiatives.

• Microsoft BizSpark : In 2019, Mindesk graduated the Microsoft BizSpark global program designed to support startups to build and scale their companies. In 2020, Mindesk intends to continue to collaborate with Microsoft and engage in joint marketing activities.

• Epic Games : Epic Games sponsored the development of the Mindesk Rhinoceros Live LINK. Epic Games provide co-marketing opportunities and involve the Mindesk team in public activities.

• • Logitech : Mindesk and Logitech collaborated on the integration of Logitech’s VR Ink 3D pen device into the Mindesk platform. Logitech offered their SDK and technical support and marketed Mindesk on its VR Ink website.

• Varjo : Mindesk and Varjo collaborated on the integration of Varjo’s headset and native drivers into the Mindesk platform.

• ZHVR Group by Zaha Hadid Architects : Mindesk and Zaha Hadid’s ZHVR Group co-presented the Loop design use case at Epic Game’s Build:London 2019 event. Mindesk and ZHVR Group continue to co-develop immersive experiences and designs.

Mindesk: Sales Overview

This acquisition represents a significant opportunity to integrate a company that has recently launched its commercial platforms to the market. Since its inception, Mindesk has performed multiple beta launches and tests to understand its final users’ requirements and to refine its product.

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Figure 3: Mindesk’s product suite historical downloads vs paying customers

Following years of platform beta-testing, Mindesk launched its commercially-ready platforms to the market in 2019, experiencing consistent sales growth despite minimal marketing expenditure. For example, the conversion rate of paying users to app downloads has been steady at around 1%, which represents a significant opportunity for growth for Vection following the acquisition.

The Mindesk user base is global and geographically diversified, with a prevalence of tier-1 regions. Users tend to be concentrated into global metropolitan cities that are architecture/design hubs and regional manufacturing clusters.

In addition to the increase in user numbers, Mindesk has also registered a pronounced uptick in the usage metrics per user, further demonstrating the market’s need for these platforms. For instance, Mindesk for Rhino registered a ~350% increase in time per session per user on average to ~30 minutes per session, as shown below:

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Figure 4: Mindesk for Rhino historical time per session

Mindesk: Acquisition Rationale

The acquisition of Mindesk represents a significant acceleration in the evolution of Vection’s CAD strategy, boosting real-time Virtual Reality in design and manufacturing workflows.

Vection has pursued and investigated the acquisition of Mindesk for the following reasons:

• Product Suite : With the addition of Mindesk, Vection can accelerate on its commercial growth strategy to bring to market a 360° suite of software solutions addressing client companies’ digital needs, from design and engineering, to marketing and sales. With Mindesk, Vection believes it can establish itself as the technology partner for companies looking to transform their workflows and processes.

• Geographic Expansion and Enhanced Sales Opportunities : Vection, together with Mindesk, can leverage a strong value added and distribution network covering North America, Europe and Asia Pacific. This, coupled with Mindesk’s existing online e-commerce presence, represents a strong sales opportunity for Vection’s diversified product suite.

• Management Team : one of Mindesk’s greatest assets is the experience of its management and software development team:

• Gabriele Sorrento (CEO): Fulbright Alumnus, M.Sc. in Architectural Engineering, 13+ years of experience in 3D CAD, previously worked with Renzo Piano Building Workshop and Heller Manus Architects.

• Sergio Giorgio (CTO): 37+ years of experience in the development of automation, gaming, 3D graphics and Artificial Intelligence software. Previously worked for Alstom Ferroviaria (10 years) as Senior Architect and Developer. Developed and managed the national and regional system for the railways public information, circulation and safety.

• Vittorio Bava (Head of Saas): serial founder with experience in start-ups in food tech and consumer internet, he started his career at Google as a tech analyst. He holds a MSc. in international management from ESADE, Barcelona, and a BSc. in business administration from Bocconi University, Milan.

• Development team: composed of well qualified engineers with prior experiences at Airbus, General Electric, Epic Games and Bentley.

• Synergies : Vection and Mindesk can combine and integrate back-office and R&D frameworks providing for significant cost savings. Additionally, the combination of their sales networks represents a strong growth opportunity to achieve short-term sales increase, at minimum cost.

All services and solutions offered by Mindesk will continue to operate as usual, with no immediate changes for current customers. Vection will collaborate closely with Mindesk’s management in the coming months to achieve a strong acceleration in sales and to integrate and leverage the Mindesk technology within the Vection suite of products.

Although the financial impact is not determinable at this time with revenues subject to the success of the Mindesk platforms, the Mindesk acquisition is anticipated to be material for the Company. This view is based on the strength of the Mindesk offering in the market and the respective platforms experiencing consistent sales growth despite minimal marketing expenditure.

Mindesk: Combined Strategy

Following the acquisition of Mindesk, Vection’s directors intend to leverage the combined companies’ strength to accelerate its subscription-based growth strategy:

• Sales Focus : leveraging the combined group’s market presence, and its online ecommerce presence, to focus on near-term sales initiatives to accelerate subscription uptake across the group’s product suite.

• Shared Resources : Mindesk’s SaaS infrastructure represents an opportunity for the combined group to achieve user adoption growth with minimum upfront capital expenditure.

• Technology Partnerships : Vection intends to integrate its extended product suite with Mindesk’s established partners to increase its market share.

• Client Access : Vection enables Mindesk to reach a new customer base, providing for further, significant potential growth.

Mindesk: Investors

Mindesk has received significant support and investment from key institutional investors globally, further underpinning the validity and potential of the technology and the company.

Key institutional investors include:

• HTC Vive : Global smart mobile devices and technology innovator HTC through its VR focused global accelerator program Vive X.

• Primomiglio SGR : A prominent venture capital firm focused on seed and early stage startups. (primomigliosgr.it)

• A11 Venture : Leading entrepreneur backed venture capital fund. (a11venture.it)

Mindesk: Acquisition Overview

• Consideration: • 165,505,199 Vection fully paid ordinary shares ( Shares ) ( Consideration Shares ). • Up to 108,000,000 Shares ( Deferred Consideration ) subject to multiple audited revenue milestones.

• • The issue of the Consideration Shares and the Deferred Consideration Shares is subject to approval of Vection’s shareholders

• For further information please refer to Appendix A.

• Conditions Settlement is subject to and conditional on the following conditions precedent: Precedent: • ( Shareholder Approval ) All shareholder approvals required by the Corporations Act and the ASX Listing Rules in order to proceed with and implement the acquisition of Mindesk;

• • ( Net Cash ) Mindesk retaining Net Cash of €750,000 (~A$1,200,000[[1]] ) at completion;

• • ( Escrow Agreements ): Mindesk’s shareholders entering into restriction agreements in respect of the Consideration Shares held by the Vendors for a period of 12 months from issue; and

• • ( Employment Agreement ) Various members of Mindesk’s management team entering into contracting and/or employment agreements with Mindesk.

• Other Appointment of Mr Gabriele Sorrento to the Board of Directors of Vection as a Non- Obligations: Executive Director

• ( Net Cash ) Mindesk retaining Net Cash of €750,000 (~A$1,200,000[[1]] ) at completion;

Mindesk: Acquisition Timetable

The current proposed timetable is as follows:

Event	Date
ASX Announcement of the Proposed Transaction	2 March 2020
Despatch of Notice of Meeting for approval of issue of Shares as consideration for the Acquisition	6 March 2020
Meeting of Vection shareholders to approve the Acquisition	6 April 2020
Satisfaction (or waiver) of conditions precedent	10 April 2020
Completion of Acquisition	13 April 2020

The above timetable is indicative only and subject to change.

Gabriele Sorrento, CEO of Mindesk, commented:

“ We are thrilled to join forces with Vection Technologies.

The integration of Vection’s FrameS and Mindesk real-time core technology is the starting point towards a new generation of SAAS tools that will cover design enterprise’s needs 360°. We believe that the combination of Vection’s capillary distribution network and Mindesk’s worldwide partner network is the logical step to sling both businesses to the next level. ”

Gianmarco Biagi, Managing Director of Vection, commented:

“ The acquisition of Mindesk represents a milestone acceleration in the evolution of Vection’s CAD strategy to make design projects significantly more accessible to both technical and non-professionals.

Together, Vection and Mindesk bring significant client access represented by global companies such as Lamborghini, Ferretti Yachts and Volvo Italy with best-in-class technology partnerships including Dassault SolidWorks, McNeel, Autodesk, Epic Games, HP, Logitech and Varjo. ”

For more information: For media enquiries: Gianmarco Orgnoni Henry Kinstlinger Director & COO +61 8 6380 2555 +61 2 9251 7177 gianmarco.orgnoni@vection.com.au vection@mmrcorporate.com

About Vection:

Vection Technologies Ltd (ASX:VR1) is a multinational software company that focuses on real-time technologies for industrial companies’ digital transformation.

Through a combination of our 3D, Virtual Reality, Augmented Reality, Industrial IoT and CAD solutions, Vection helps companies and organisations to innovate, collaborate and create value. vection.com.au

About Mindesk:

Mindesk Inc. is a multinational SaaS company that develops a Real-Time 3D design platform that integrates with existing commercial CAD software to extend their operations to the third-dimension: Virtual Reality, Augmented Reality, Real-time rendering, and Multi-user collaboration. mindeskvr.com

ASX release authorised by the Board of Directors of Vection Technologies Ltd.

Appendix A:

Subject to shareholder approval, Shares in Vection are to be issued to the Mindesk vendors as both upfront consideration and deferred consideration subject to achievement of audited revenue targets. The effect of the acquisition of Mindesk on the capital structure of Vection is set out below:

	Shares	Options	Performance Rights	Deferred Consideration Shares
Current issued capital	657,171,676	2,500,0001	172,500,0002	Nil
Mindesk Acquisition (upfront consideration)	165,505,1993	Nil	Nil	108,000,0004
Total	822,676,875	2,500,000	172,500,000	108,000,000

Notes :

• 1) Unquoted options exercisable at $0.30 each and expiring on 16 March 2020. 2) Comprising of:

• a) 50,000,000 performance rights each converting into Shares (on a one for one basis) upon Vection Italy Srl (Vection Italy) earnings before interest, tax, depreciation and amortization at the end of a financial year being at least $500,000 (as verified by the Company’s auditors) within 24 months of 12 April 2019;

• b) 50,000,000 performance rights each converting into Shares (on a one for one basis) upon the revenue generated by Vection Italy achieving a minimum of $1,500,000 (as verified by the Company’s auditors) within 24 months of 12 April 2019;

• c) 50,000,000 performance rights each converting into Shares (on a one for one basis) upon:

  • i) the volume weighted average price for the Shares on twenty (20) consecutive days on which sales are recorded being no less than $0.03; and

  • ii) the revenue generated by Vection Italy achieving a minimum of $2,500,000 (as verified by the Company’s auditors) within 36 months of 12 April 2019.

• d) 7,500,000 performance rights each converting into Shares (on a one for one basis) upon the average price for the Shares on fourteen (14) consecutive days on which sales are recorded being no less than $0.035;

• e) 7,500,000 performance rights each converting into Shares (on a one for one basis) upon the average price for the Shares on fourteen (14) consecutive days on which sales are recorded being no less than $0.045; and

• f) 7,500,000 performance rights each converting into Shares (on a one for one basis) upon the average price for the Shares on fourteen (14) consecutive days on which sales are recorded being no less than $0.065.

• 3) Escrowed for 12 months for the date of issue.

• 4) The Deferred Consideration payable by the Company is comprised of seven tranches of fully paid ordinary shares in the capital of the Company, as described below, and where the following terms have the following definitions:

• a) Mindesk Revenues means the audited revenue generated by Mindesk developed products, including nonrefundable grants provided by third parties, but excluding any and all tax credits; and

• b) Combined Revenue means the revenue generated by the Company (including Mindesk) but excluding any acquisitions conducted by the Company and/or body related corporate following settlement of the Proposed Transaction.

Summary Table minimum Deferred Consideration scenario:

	Number of Deferred
	Consideration Shares	Mindesk Revenues	Combined Revenue
Deferred Consideration A	8.0 M	Technology	Milestone
Deferred Consideration B - 2020:	9.0 M	$1.6 M
Deferred Consideration C – 2021:	18.0 M	$4.9 M
Deferred Consideration D – 2021:	2.0 M		$15.7 M
Deferred Consideration E – 2022:	2.0 M		$25.3 M
Deferred Consideration F – 2023:	15.0 M		$37.1 M
Deferred Consideration G – 2024:	15.0 M		$40.8 M

Summary Table maximum Deferred Consideration scenario:

	Number of Deferred
	Consideration Shares	Mindesk Revenue	Combined Revenue
Deferred Consideration A	8.0 M	Technology	Milestone
Deferred Consideration B - 2020:	20.0 M	$2.2 M
Deferred Consideration C – 2021:	40.0 M	$7.4 M
Deferred Consideration D – 2021:	5.0 M		$20.2 M
Deferred Consideration E – 2022:	5.0 M		$33.7 M
Deferred Consideration F – 2023:	15.0 M		$37.1 M
Deferred Consideration G – 2024:	15.0 M		$40.8 M

Notes:

a. If targets above are not met, Mindesk’s vendors will not receive any Deferred Consideration.

b. The issue of tranches D – G of the Deferred Consideration Shares will be subject to shareholder approval as and when the relevant revenue milestones are satisfied.

• c. AUD to EUR exchange rate of 0.5934 at 28 February 2020 (Source: Reserve Bank of Australia)

Detailed explanation of Deferred Consideration:

Deferred Consideration A:

8,000,000 Shares (on a one for one basis) upon Mindesk achieving specific milestones relating to the development of a collaboration module compatible with or otherwise integrated into the Mindesk plugin for McNeel Rhinoceros 6 on or prior to 31 December 2021 (technology milestone).

Deferred Consideration B - 2020:	A. 9,000,000 Shares upon the achievement of minimum audited Mindesk Revenues equal to €920,001 in calendar year 2020; or B. 20,000,000 Shares upon the achievement of minimum audited Mindesk Revenues equal to €1,300,001 in calendar year 2020.
Deferred Consideration C – 2021:	A. 18,000,000 Shares upon the achievement of minimum audited Mindesk Revenues equal to €2,950,001 in calendar year 2021; or B. 40,000,000 Shares upon the achievement of minimum audited Mindesk Revenues equal to €4,400,001 in calendar year 2021.

( Combined Revenue Deferred Consideration ): The Company and Mindesk foresee that by commencement of the calendar year 2021, multiple software products and services will be jointly developed and commercialized, and thus performance milestones solely related to the performance by Mindesk would not depict a correct picture of the value of the new business. Hence, the Company and Mindesk consider it would be in the best interest of their shareholders to benchmark the issue of the following deferred consideration subject to the combined group results, excluding any acquisition occurring following the settlement date of the proposed acquisition:

Deferred Consideration D – 2021:	A. 2,000,000 Shares upon the achievement of minimum audited Combined Revenue equal to €9,300,001 in calendar year 2021; or B. 5,000,000 Shares upon the achievement of minimum audited Combined Revenue equal to €12,000,001 in calendar year 2021.
Deferred Consideration E – 2022:	A. 2,000,000 Shares upon the achievement of minimum audited Combined Revenue equal to €15,000,001 in calendar year 2022; or B. 5,000,000 Shares upon the achievement of minimum audited Combined Revenue equal to €20,000,001 in calendar year 2022.
Deferred Consideration F – 2023:	15,000,000 Shares upon the achievement of minimum audited Combined Revenue in the calendar year 2023 equal to at least €22,000,001.
Deferred Consideration G – 2024:	15,000,000 Shares upon the achievement of minimum audited Combined Revenue in calendar year 2024 financial period equal to at least €24,200,001.

The Company intends to convene a general meeting seeking shareholder approval for the issue of the Consideration Shares and for the issue of tranches A – C of the Deferred Consideration Shares described above. The Company has sought and been conditionally granted waivers from ASX Listing Rules 10.11 and 7.3.4 to permit the issue of these shares in due course as and when the relevant revenue milestone is satisfied ( ASX Waivers ).

The conditions attached to the ASX Waivers will be included in the Company’s notice of meeting, which the Company intends to dispatch to shareholders in the near future.