Epsilon Healthcare : Q4 2021 Quarterly Update and Appendix 4C

ASX RELEASE (31 JANUARY 2022)

For personal use only

Q4 2021 Quarterly Update & Appendix 4C

Key Points:

• Epsilon nears final execution of long term exclusive partnership with The Valens Company (NASDAQ: VLNS) (Valens), a leading Canadian manufacturer of cannabis products, for access to Epsilon's GMP Manufacturing Facility in Southport, Queensland - expected by 28 February 2022
• Valens to cover all capital and operating expenditure at the Southport Facility following execution of final documentation
• Valens Purchase Orders for Q1 2022 delivery expected to be finalised early February
• Strong performance at Tetra Health with FY21 revenues on track to exceed 200% of revenues achieved in FY20
• Tetra Health continues to grow profitably with 36% quarter-on-quarter growth following new in-person consultation offering
• Capital raising completed in December 2021 to strengthen cash balance in advance of commencement of Valens partnership and receipt of Valens funding
• AusIndustry R&D Tax Incentive payment of over $1 million expected in coming weeks

Epsilon Healthcare Limited (ASX:EPN) (Epsilon or the Company) is pleased to provide an update on its activities and provides its Appendix 4C for the quarter ended 31 December 2021.

Partnership with The Valens Company (NASDAQ: VLNS)

The Binding Heads of Agreement between Valens and Epsilon provides the framework for the exclusive partnership, including an operational consultancy in which Valens allows Epsilon a license to use Valens' intellectual property in operating the Southport Facility, and for Valens to provide personnel and support to the facility.

Valens has additionally committed to fund all future operational and capital expenditure of the Southport Facility for the duration of the partnership on a reimbursement basis in return for access to up to 85% of the planned manufacturing of the Southport Facility on a prioritised first right of refusal basis.

	Suite 305 Level 3
Epsilon Healthcare Limited (ASX: EPN)	35 Lime Street
ACN: 614 508 039	Sydney NSW 2000
	epsilonhealthcare.com.au

ASX RELEASE 31 JANUARY 2022

For personal use only

The definitive agreements which give effect to the Binding Heads of Agreement between the Company and Valens were due to be executed on or before 31 January 2022, however the parties have agreed, by way of further Deed of Amendment to the Binding Heads of Agreement, to extend this to 28 February 2022.

Both Epsilon and Valens have expressed confidence in achievement of this new target execution date and expect to be announcing the formalisation of this exclusive partnership shortly.

Notwithstanding that the definitive agreements are yet to be executed, Valens and Epsilon, with support from Cannvalate, are continuing to develop a strong sales pipeline for the Southport Facility through 2022. The Company is in the process of finalising new orders in early February with both Valens and Cannvalate, for delivery in Q1 2022.

Tetra Health Clinics Update

Epsilon is pleased to report that its clinic network, Tetra Health, continues to achieve profitable growth. In Q4 2021, Tetra achieved a 36% increase in the number of doctors consultations over Q3 2021. Further, Tetra Health has continued on its record high revenue run-rate, and is expected to exceed $1.5 million (unaudited) revenue for FY21, more than doubling the revenue result achieved in FY20.

Completion of Capital Raise

During the quarter, Epsilon completed a capital raising of $2.7 million to professional and sophisticated investors, led by CPS Capital (the Placement).

The Placement was completed at $0.09 per share and resulted in the issue of 32.22 million fully paid ordinary shares, receiving strong support from both new and existing sophisticated and professional investors exempt from the disclosure under section 708 of the Corporations Act 2001.

The Placement included an issue of options exercisable at $0.15 expiring three years from their issue, which are to be issued subject to shareholder approval to be sought at the upcoming 2022 Annual General Meeting. The Company will provide a further update on its Annual General Meeting closer to date.

Additional Disclosure

The Company notes that receipts from customers in Q4 2021 was a decrease over Q3 2021, with the majority of those receipts continuing to be derived from the Company's medicinal cannabis business units - Tetra Health and the Southport Facility operator, THC Pharma. The decrease over Q3 2021 was primarily as a result of activities at the Southport Facility being geared towards operational improvements and changes required to be made in advance of commencing large scale production activities under the Company's relationship with The Valens Company.

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ASX RELEASE 31 JANUARY 2022

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Similarly, the majority of the Company's expenditure from operating activities relates to operations at the Company's Southport Facility. Acquisitions of property plant and equipment in the quarter relate to the acquisition of distillation equipment and other items required for the further processing of material at the Southport Facility.

The Company also notes that payments to related parties and their associates in the quarter were all remuneration for services as directors in the ordinary course of business.

Jarrod White, Chief Executive Officer of Epsilon, said: "The primary focus of Q4 2021 was to ensure

that the Southport Facility was setting the foundations for the commencement of the Company's partnership with The Valens Company (NASDAQ: VLNS) and Cannvalate. With that completed, and the execution of the definitive agreements in sight, we're looking forward to what will be a very busy Q1 2022."

ENDS

ASX release authorised by the EPN Board of Directors.

For further information, please contact:

Jarrod White	Sonny Didugu	Steven Xu
Group Chief Executive Officer	Group Chief Operating Officer	Non-Exec Chairman
e: [e-mail]	e: [e-mail]	e: [e-mail]

Investor & Media Enquiries:
Rod Hinchcliffe	Melissa Hamilton
Media and Capital Partners	Media and Capital Partners
p: [phone]	p: [phone]
e: [e-mail]	e: [e-mail]

Epsilon Healthcare Limited (ASX: EPN) - epsilonhealthcare.com.au

Epsilon Healthcare (ASX:EPN) is a diversified global healthcare and pharmaceuticals company. EPN owns a number of medicinal cannabis assets including the largest GMP cannabis manufacturing facility in the Southern Hemisphere, the Tetra Health clinic group, and the Medimar Platform. EPN additionally operates a turn-key cannabis cultivation solutions provider based in Vancouver, Canada.

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Rule 4.7B

Appendix 4C

For personal use only

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

Name of entity

Epsilon Healthcare Limited

ABN	Quarter ended ("current quarter")
33 614 508 039	31 December 2021

Consolidated statement of cash flows	Current quarter	Year to date
		$A'000	(12 months)
			$A'000
1.	Cash flows from operating activities
1.1	Receipts from customers	458	4,981

1.2 Payments for

	(a)	research and development	(48)	(369)
	(b)	product manufacturing and operating	(618)	(4,027)
		costs
	(c)	advertising and marketing	(56)	(134)
	(d)	leased assets	(96)	(551)
	(e)	staff costs	(545)	(4,086)
	(f)	administration and corporate costs	(788)	(2,426)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	16	20
1.5	Interest and other costs of finance paid	(34)	(474)
1.6	Income taxes paid	-	-
1.7	Government grants and tax incentives	-	1,055
1.8	Deposits refunded	-	148
1.9	Net cash from / (used in) operating	(1,711)	(5,863)
	activities

2. Cash flows from investing activities

2.1 Payments to acquire or for:

(a)	entities	-	-
(b)	businesses	-	-
(c)	property, plant and equipment	(33)	(768)
(d)	investments	-	-
(e)	intellectual property	-	(40)
(f)	other non-current assets	-	-

ASX Listing Rules Appendix 4C (17/07/20)	Page 1
+ See chapter 19 of the ASX Listing Rules for defined terms.

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

For personal use only

Consolidated statement of cash flows

1. Proceeds from disposal of:
2. 1. entities
   2. businesses
   3. property, plant and equipment
   4. investments
   5. intellectual property
   6. other non-current assets
3. Cash flows from loans to other entities
4. Dividends received (see note 3)
5. Other (provide details if material)
6. Net cash from / (used in) investing activities

3. Cash flows from financing activities

1. Proceeds from issues of equity securities (excluding convertible debt securities)
2. Proceeds from issue of convertible debt securities
3. Proceeds from exercise of options
4. Transaction costs related to issues of equity securities or convertible debt securities
5. Proceeds from borrowings
6. Repayment of borrowings
7. Transaction costs related to loans and borrowings
8. Dividends paid
9. Other (provide details if material)
10. Net cash from / (used in) financing activities

Current quarter	Year to date
$A'000	(12 months)
	$A'000
-	-
-	-
-	50
-	-
-	-
-	-
-	-
-	-
-	-
(33)	(758)

2,700	2,700
-	-
-	-
(255)	(255)
-	-
-	(477)
-	-
-	-
-	-
2,445	1,968

ASX Listing Rules Appendix 4C (17/07/20)	Page 2
+ See chapter 19 of the ASX Listing Rules for defined terms.