Eve Health : Appendix 4C - March Quarter 2022

29 April 2022

March 2022 Quarterly Update

• • Share Placement at a price of 0.3 cents to raise $1.4m before costs

• • Proceeds from placement to support the probiotics product range development and marketing

• • Alliance commenced with health and wellness company Neptune Bio-Innovations to significantly expand Meluka Australia's national retail distribution channel

• • Meluka Australia launched a new e-commerce channel via WhatsApp in March

• • Cost reduction program initiated across business

EVE Health Group (ASX:EVE, EVE or the Company), a vertically integrated health, nutrition and wellness company, has today released its Appendix 4C Report for the three-month period to 31 March 2022 and is pleased to provide a review of operational progress during the quarter.

Advancing Probiotics

On 28 February, the Company completed a capital raising of $1.4m, before costs, via a placement to institutional and professional investors at $0.003 per share. The Company will use funds from the capital raising to support the expansion and development of the Meluka Australia probiotics range, particularly in the Australian market.

In the March quarter Group1 revenues were consistent at $1.1 million, however probiotics products in the Australian market grew 44% QoQ. Sales in Japan and Canada for Meluka Australia products grew slightly QoQ, while in the US revenue decreased QoQ by 16%. Longer shipping time frames, unreliability of shipping schedules and escalating freight costs have led to the Company focussing on the Australian market for the foreseeable future. The Company will continue to support sales of products in its offshore markets but has reduced its marketing spend and building of stock levels in these markets. The focus on Australia as well as cash conservation initiatives (see Corporate & Financial update) will see reduced outflow, particularly in relation to marketing expenditure, in future periods.

The March 2022 quarter was a record quarter of sales for Meluka Australia in the Australian market, primarily due to the successful launch of the new Raw Honey Probiotic Concentrate with Hydrolysed Natural Marine Collagen. Unfortunately, this product was sold mainly on backorder which did dampen sales of this product from mid-January with stocking arriving late in March.

1 Group revenue includes the revenue from all 100% owned subsidiaries as well as associates Naturally Australian Products (49% owned by EVE) and Omni Innovation (38% owned by EVE), the figures for associates are not consolidated into the Appendix 4C.

Figure 1: Raw Honey Probiotic Concentrate with Hydrolysed Natural Marine Collagen

Meluka Australia's product development program in the probiotics space continues to progress well under the Collaboration Agreement with Probiotics Australia. Meluka Australia will focus on the release of probiotic products in future quarters and subsequent marketing and promotional focus will be centred around these products. In the June quarter, the P3 Gut Builder Triple Action Postbiotic Tonic, incorporating prebiotics, probiotics and the newly emerging postbiotics will launch. This will be the first product to contain the proprietary Beebiotic MAP01™ probiotic strain, found in Meluka Australia's beehives. This strain is intended to form the basis for a range of future probiotic centric products for Meluka Australia.

Meluka Australia

Alliance Agreement with Neptune Bio-Innovations

Meluka Australia's Alliance Agreement with Australian health and wellness company, Neptune Bio-Innovations commenced during the quarter. A salesperson was appointed for New South Wales during March and additional sales personnel are still being sought in Victoria and Queensland. These sales endeavours are expected to deliver new distribution channels and initial sales before the end of Q4.

Pioneering New E-Commerce Channel

Meluka Australia has recently implemented new customer engagement technology provided by conversational messaging services company Gupshup. Australian customers can now access its e-commerce store from within the WhatsApp platform, providing an end-to-end shopping solution within the world's largest and most popular messaging service2. Meluka Australia is one of the first companies in the world to allow its customers the capability to be able to shop within WhatsApp and it provides a valuable engagement tool with customers.

Launched during March, the technology was showcased by Gupshup at Mobile World Congress with Meluka Australia featuring as the sole case study to have launched this pioneering solution. Meluka Australia anticipates that this new customer ecommerce option will improve customer conversion and repurchase rates while reducing customer acquisition costs.

Meluka Australia CEO, Ben Rohr said:

"Meluka Australia is extremely excited to be working with Gupshup to pioneer this technology. Our customers will enjoy the seamless and unique shopping experience in WhatsApp and we look forward to engaging in a more direct manner with our customers to make our relationship even stronger".

2https://www.businessofapps.com/data/messaging-app-market/

Gupshup CEO, Beerud Sheth said:

"Meluka Australia is pioneering world first technology that Gupshup has developed to enable better customer engagement via WhatsApp. This is the first-time customers can shop within the WhatsApp messaging app using our technology and we are very excited to work alongside Meluka Australia in this revolutionary ecommerce experience".

North America

During the quarter, Meluka Australia decided to postpone expansion plans in North America. The supply chain delays caused primarily by shipping challenges have made planning and execution of growth plans in North America cost prohibitive. Meluka Australia will maintain its current channels and support these with existing inventory already in North America. Marketing and PR will be significantly reduced until these supply chain problems improve determinately.

Whole Foods Market, Inc, through distributor UNFI, placed a further purchase order of Meluka's Organic Raw Honey, which was fulfilled from the Company's US warehouse during March.

Asia

Similar to the North American markets, supply chain issues caused by shipping delays and costs have impacted Meluka Australia's Singapore and Japanese markets. As a result, Meluka Australia has decided to no longer service the Singapore Amazon store and will slow down expansion plans into Japan. Due to the closer proximity to Japan, the shipping delays (approximately 4-6 weeks excluding customs clearance) are not as large as the US therefore Meluka Australia will continue to support a slower growth plan into the Japanese market until the supply chain pressure improves.

During the period, Meluka Australia released a variety of new products to the Japanese market via its Amazon Japan store, including its range of Essential Oil blends, Botanical Raw Honey collection, Raw Honey Probiotic Concentrate - Tea Tree and Apple Cider Vinegar infused Raw Honey. In addition, Meluka Australia's Japanese website was launched, directing consumers to its Amazon Japan online store.

Meluka Australia's CEO, Ben Rohr, promoted the Meluka Australia brand and range of Australian health and wellness products to potential Japanese buyers during Foodex Japan held from March 8 - 11. As part of an opportunity through Investment NSW's Going Global Export Program, Meluka Australia was one of 15 NSW companies co-exhibiting at the 47th International Food & Beverage Exhibition, which is Japan's largest food expo.

World Expo

Meluka Australia was awarded the opportunity to pitch via video to high-profile investors at a NSW agri-food event at the World Expo held in Dubai (originally scheduled for 2020 but delayed due to Covid to Feb 2022) during February. Meluka Australia was proud to be representing NSW and share its products and passion with high profile investors and customers. World Expo aims to create opportunities for interconnectivity and innovation. Bringing the world together with the goal of exchanging new perspectives to inspire action for sustainable solutions to global issues.

Jenbrook

The Company owns and operates the Robyndale organic tea tree plantation in the Bungawalbin Valley in Northern New South Wales. During the quarter and into April the region experienced two substantial rainfall events that caused severe flooding in the region. The impact of the floods on the Company's plantation and infrastructure is still being assessed. At this stage the infrastructure (irrigation, roads, fencing and buildings) received only minor damage. The main impacts being debris caught in fences and clean-up of mud and debris on the distillation shed floor. Plant and equipment (tractors and other farm equipment) have been tested and are operational. The distillation boiler and equipment will be tested shortly once the boiler maintenance contractor is available to visit site.

The plantation areas were inundated with flood waters during the first rainfall event however the water receded quickly. The ground however is very waterlogged as a result of both rainfall events and access to all parts of the property is still restricted. Tea tree is a plant that requires high rainfall for its survival so the impacts on this year's crop are likely to be a delayed harvest due to heavy ground conditions. Further updates will be provided once our team have been able to access all areas of the property.

The company still has inventory of five tonnes of organic tea tree oil.

Naturally Australian Products Inc (49% EVE)

Naturally Australian Products (NAP), the US distribution business held 49% by EVE, which sells bulk essential oils and extracts to North American businesses recorded revenue of $0.5 million in the quarter.

During March, the NAP sales team exhibited in person at the Natural Products Expo West in California. Attendance at the exhibition was successful in building brand awareness and showcasing the company's range of essential oils, hydrosols, native extracts and carrier oils to a new potential audience.

NAP is owned 49% by EVE, accordingly it is accounted for as an investment in an associate, meaning its revenue is not consolidated into the Appendix 4C.

Omni Innovation (38% EVE)

During the quarter, Myopharm Limited, which holds the pre-meal diabetes IP licence for Australia, China and Europe reverted to a non-exclusive licence following the failure by Myopharm to complete an IPO in the required time period. Myopharm continued to make payment of licence fees as required under the non-exclusive licence agreement.

Additionally, during the quarter Omni Innovation and Myopharm engaged in discussions about a potential sale of the Omni Innovation portfolio to Myopharm. Following these discussions, which did not lead to an outcome that could be accepted by Omni Innovation shareholders, Myopharm was advised that the non-exclusive licence agreement was Omni Innovation's preferred option going forward.

Following the lapse of exclusivity, Omni Innovation is now considering other potential commercialisation partners or proceeding with a launch of the product by Omni Innovation in its own right.

Omni is owned 38% by EVE, accordingly it is accounted for as an investment in an associate, meaning its revenue is not consolidated into the Appendix 4C.

Corporate & Financial Update

Key statistics

• • Total unaudited Group1 revenue for the quarter was $1.1 million

• • Cash at bank of $1.1 million

• • Inventory increased to $1.5 million

• • Receivables and prepayments decreased to $0.45 million from $0.55m

• • Creditors payable increased from $0.4 million to $0.5m

• • $0.95 million in debt facilities with $0.45 million drawn, $0.1m repaid in the quarter

Overall, the cash outflow was higher in the quarter due to the lower receipts from customers. Sales of organic tea tree oil harvested during the year has yet to be sold and realised as revenue.

The key financial metrics for the quarter include:

• • Receipts from customers totalled $0.6m, down $0.3m on the prior quarter

• • Product manufacturing and operating costs of $0.4m, were $0.05m lower than the prior quarter

• • Advertising and marketing activities spend of $0.6m in the quarter, consistent with the prior quarter.

This included marketing costs for the launch of the collagen probiotic product.

• • Net cash used in operating activities of $1m, broadly in line with the prior quarter cash used. Staff costs were lower by $0.15m and administration costs were slightly lower than the prior quarter

• • During the quarter the Company has paid $97,000 in director fees and $32,000 for a fully provisioned office and administration staff

The following is a summary of the breakup of group1 revenue by category, region and sales channel for the quarter and YTD:

Bulk sales, 55%Contract manufacturing, 12% Branded product sales, 40%

Bulk sales, 51%Contract manufacturing, 13% Branded product sales, 35%

Figure 2: Breakdown of sales across EVE companies by product type in March quarter and YTD.

North America, 63% Asia (Excl China), 5% Australia, 39%

North America, 59% Asia (Excl China), 4% Australia, 37%

Figure 3: Breakdown of sales across EVE companies by region in March quarter and YTD.

Distributor, 1%

Wholesale, 67%

Direct to Consumer, 39%

Distributor, 1%

Wholesale, 65%

Direct to

Consumer,

35%

Figure 4: Breakdown of sales across EVE companies by sales channel in March quarter and YTD.