Zelira Therapeutics : December 2021 Quarterly Activities Report

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QUARTER 2

UPDATE FY22

31 January 2022

Zelira continues to deliver on its growth plans

QUARTERLY ACTIVITIES REPORT FOR Q2 FY2022

ASX ANNOUNCEMENT

Key Highlights

Stable cash receipts in Q2, with substantial growth to occur in Q3

• Q2 cash receipts from customers of $0.341 million, relatively stable (Q1 FY2022: $0.362 million)
• $1.635 million received soon after quarter end, comprising a $1.292 million refund under the Australian Federal Government's Research and Development Tax Incentive Scheme, and $0.342 million1 partial receipt of the US$1 million EDCDM technology licensing fee (with the balance to be paid in Q3)

Commercialisation continuing to accelerate

• Expansion into New Zealand via exclusive distribution agreement with NUBU Pharmaceuticals for Zenivol® and Hope™
• Successfully demonstrated enhanced dissolution of cannabinoids using
  Zelira's enhanced distillate capture and dissolution matrix (EDCDM) and signed a foundation licensing deal for this proprietary technology

Research underpinning new products

• Successfully supported Levin Health's receipt of ethics approval for Phase 2A clinical trial for chronic pain
• Clinical trial results of Zelira's Phase 1 published in the peer-reviewed journal "Pain and Therapy"

US$5 million raised from US-based family office, at a substantial premium to stock market value, to accelerate growth initiatives

• Values Zelira and its share of associated entities at A$122.8 million2

Reference: 1.US$250k of the US$1 million upfront, non-refundable,non-contingent license fee in relation to Zelira's EDCDM technology license fee, and using a US$ / A$ exchange rate of 0.73. 2. Based on the placement price of Zelira's ordinary shares and the value of Zelira Dermatology at the investment value, and using a US$ / A$ exchange rate of 0.73.

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Receipts from customers to substantially grow in Q3 FY2022

Zelira generated quarterly cash receipts of $0.341 million in Q2 FY2022 underpinned by sales of SprinjeneCBD and consulting payments, relatively stable to Q1 FY2022's $0.362 million.

Q3 FY2022 will see substantial growth in cash receipts from customers

$0.342 million has already been received in the first two weeks of Q3 FY2022, being partial receipt of the US$1 million EDCDM technology licensing fee.

The US$750k balance of the EDCDM license fee will be paid in the current quarter, generating another circa A$1.0 million in cash receipts (depending on exchange rates at the time) in Q3.

With a suite of new products launched in H1 FY2022, Zelira is well placed to generate further growth in cashflows and revenue via its diversified income streams.

Receipt of R&D refund in Q3 FY2022

Subsequent to the end of Q2, Zelira received a $1.292 million refund under the Australian Federal Government's Research and Development Tax Incentive Scheme.

The funds will be used to support the growth in recent launched products including Zenivol® for Insomnia, HOPE™ for Autism and an additional CBD-Toothpaste into global markets, and also to advance Zelira's ongoing clinical and product development programs.

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Commercialisation continuing to accelerate

Expansion into New Zealand via exclusive distribution agreement with NUBU Pharmaceuticals for Zenivol® and Hope™

Zelira has expanded into New Zealand via a 5-year exclusive distribution agreement with NUBU Pharmaceuticals ("NUBU"), New Zealand's largest medicinal cannabis distribution company.

This distribution agreement expands the availability of Zenivol®, Zelira's clinically validated cannabinoid-based insomnia medication, beyond Australia and Germany, and HOPE™ beyond Australia and the United States, into the highly regulated and tightly held New Zealand market, further expanding Zelira's global footprint for its Rx business.

NUBU will be filing for formal New Zealand government registration with the Ministry of Health NZ for both Zenivol ® and HOPE™.

To retain exclusivity, NUBU is required to purchase annual minimum quantities of Zenivol® and HOPE™ totalling over A$2.6 million (with A$178,000 in Year 1) for New Zealand over the 5-year term of the distribution agreement.

Successfully demonstrated enhanced dissolution of cannabinoids using Zelira's enhanced distillate capture and dissolution matrix (EDCDM) and signed a foundation licensing deal for this proprietary technology

In November 2021, Zelira announced that it had successfully demonstrated enhanced dissolution of cannabinoids using its enhanced distillate capture and dissolution matrix (EDCDM), and signed a foundation licensing deal for this proprietary technology that included an upfront non-refundable,non-contingent licensing fee of US$1 million.

Historically the market has had difficulty in formulating and developing free flow solid oral dosage forms based on cannabinoid distillate. This is due to the non-uniformity of cannabinoid distillate and its separation from the powder bed. Zelira's EDCDM technology resolved this problem by creating the capacity to capture distillate in a unique and proprietary matrix. When combined with the cannabinoid distillate, it creates a free-flowing powder base for capsules and tablets.

Comparative analytical testing results demonstrated the efficacy of Zelira's proprietary EDCDM technology in substantially improving average dissolution of cannabinoid capsules with EDCDM technology relative to cannabinoid capsules without the EDCDM technology (see announcement of 3 November 2021).

The enhanced dissolution characteristics of Zelira's EDCDM technology provides an opportunity for rapid commercialisation opportunities. A licensing agreement was signed with DRCN Holdings to develop products underpinned by Zelira's EDCDM (see announcements of 3 November 2021 and 10 January 2022).

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Research underpinning new products

Successfully supported Levin Health's receipt of ethics approval for Phase 2A clinical trial for chronic pain

In December 2021, Zelira announced it had successfully project managed ethics approval for a Phase 2a clinical trial to evaluate the efficacy of its licensed patented cannabinoid formulation, ZTL-106, in treating patients with chronic pain. Levin Health licensed ZTL-106 from Zelira and are the sponsors of the trial being undertaken at La Trobe University's Sport and Exercise Medicine Research Centre (Melbourne, Australia).

This outcome further cements Zelira's ability to design and have approved clinical trials with medicinal cannabis products.

Clinical trial results of Zelira's Phase 1 published in the peer-reviewed journal "Pain and Therapy"

In December 2021, Zelira also announced that the St Vincent's Hospital Melbourne (SVHM) Department of Addiction Medicine research team that undertook the open label dose escalation trial, which results were originally announced on 14 July 2020, in chronic non-cancer pain patients had the results of its trial published in the peer-reviewed journal Pain And Therapy.

The publication of these trial results is further testament of Zelira's world class pharmaceutical development and formulation and commitment to producing the highest quality, evidence-based cannabinoid medicines. Zelira has also leveraged the knowledge gained from this work to support the development of the proprietary formulation licenced to Levin Health (refer above) and to inform the design of other chronic non-cancer pain trials.

US$5 million raised from US-based family office at a premium value to accelerate growth initiatives

In October 2021, Zelira raised a total of US$5 million from Quincy Street Capital LLC (Quincy Street), a US-based family office fund, comprising:

• US$3.5 million (A$4.79 million2) via a placement of fully paid ordinary shares at A$0.06 per share (Placement), a 54% premium to the stock's 19 October 2021 closing price
• 1 unlisted option for every 2 ordinary shares issued, expiring 2 years from the date of issue with an exercise price of A$0.09 per option
• US$1.5 million (A$2.05 million2) via an equity investment in Ilera Derm LLC (Zelira Dermatology) for a 3% shareholding in that company, valuing Zelira Dermatology at US$50 million.

Following the fundraising, Quincy Street became a substantial shareholder in Zelira with a 6.3% shareholding.

The funds raised will be used to accelerate Zelira's growth initiatives, including:

• Clinical development and ongoing trials in Australia and the US
• Additional licensing for Zelira Rx products and technologies
• Commercialisation of RAF FIVE ™ products with a focus on rapid market penetration
• Expansion of Zelira's SprinjeneCBD footprint in the US and emerging global CBD markets.