Annual Report 2023

ANNUAL

REPORT

31 DECEMBER 2023

ABN 24094515992

Holista Colltech Limited Corporate directory

31 December 2023

Global:

WeR1 Consultants Pte Ltd 1 Raffles Pl

Singapore 048616 Telephone: +65 67217161 Email: holista@wer1.net

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Holista Colltech Limited

Contents

31 December 2023

General information

The consolidated financial statements cover Holista Colltech Limited as a consolidated entity consisting of Holista Colltech Limited (Company) and the entities it controlled at the end of, or during, the year (Group). The consolidated financial statements are presented in Australian dollars. Holista Colltech Limited's functional and presentation currency is Australian Dollars.

Holista Colltech Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are:

A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the consolidated financial statements.

The financial statements were authorised for issue, in accordance with a resolution of directors, on 28 March 2023. The directors have the power to amend and reissue the consolidated financial statements.

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Holista Colltech Limited Directors' report

31 December 2023

About Us

Holista Colltech's core business is to conduct research to find natural solutions so that people can live healthier lives. The Group holds proprietary solutions to help food manufacturers produce healthier alternatives - without use of chemicals - that do not compromise tastes and mouth-feel. Building on its partnership network and expertise, Holista has also developed sanitising solutions for individual and corporate use to control pandemic infections.

Corporate Profile

Holista Colltech Ltd ("Holista") is a research-driven biotech company, a result of the merger of Holista Biotech Sdn Bhd and Colltech Australia Ltd. It is listed on the Australian Securities Exchange (ASX:HCT), headquartered in Perth and has extensive operations in multiple countries, including Malaysia and North America.

In the Food Ingredients space, Holista specialises in herbs and natural products that allow food manufacturers to produce healthier products. Mindful that people find it difficult to change eating habits despite the growing incidence of diabetes and obesity, Holista has created a suite of ingredients that does not compromise on taste, odour and mouthfeel. It has brought to markets thus far, low-Glycemic Index (GI) bread, noodles/pasta and flatbreads as well as a low-calorie/Low-GI sugar substitute.

Holista is the only company in the world that produces ovine collagen from disease-free Australian sheep using patented extraction methods.

Holista is a leader in Malaysia for the distribution of natural health supplements. It leverages on its R&D background and scientific expertise to build a world-class company focused on providing consumers with scientifically enhanced natural supplements and consumer products.

Further, the Group also has a range of all-natural,non-toxic and effective sanitisers for consumers and industrial applications within its product portfolio.

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Holista Colltech Limited Directors' report

31 December 2023

Letter from Chair

Dear Shareholders,

On behalf of the Board of Directors (the Board) of Holista Colltech Limited (Holista, the Company, or the Group), I present our Annual Report and audited statements for the financial year ended 31 December 2023 (FY2023).

Update on ASIC Legal Matter

This report is being presented to you following significant corporate and legal developments having occurred subsequent to the 2023 financial year end. On 19 March 2023 the Federal Court delivered judgement in relation to ASIC's civil proceedings against the Company. In brief, i) the Company been ordered to pay a pecuniary penalty of $1.8 million; ii) the Company's former CEO and Managing Director, Dr Rajen Marnickavasagar has been disqualified from managing a corporation for four years; iii) the Company has been ordered to pay the plaintiff's legal costs in excess of $200,000; and iv) the Company has been ordered to file written submissions regarding the payment of the pecuniary penalty in instalments.

Over the past three years the Board has continued to update shareholders on this legal matter. I draw your attention to the judgement to provide context for the performance of the year under review, as well as the forward actions the Company is taking to achieve corporate recovery and improve its financial position.

Review of Financial Performance

Our performance in FY2023 should be seen against the backdrop of our emergence from the nearly two years of movement restrictions in Malaysia due to the pandemic. At the same time the aforementioned legal case consumed significant management time and financial resources subsequently affecting management's ability to develop and launch new products and pursue new business opportunities.

While Group revenue declined 28% to $5.9 million in FY2023 compared to FY2022, Holista demonstrated resilience by achieving a 70-basis point increase in gross margin to 49.1% and a 63% improvement in net operating cash outflow to $410,000. These achievements were driven primarily by favourable changes in the sales mix and effective cost controls. They helped to mitigate some of the losses from slower sales across Holista's key divisions, as outlined below.

Holista reported a FY2023 net loss after tax of $4.9 million (FY2022 net loss: $1.5 million) due to a combination of unfavourable foreign exchange rates, increased research and development investments relating to new launches, higher impairment charges, as well as abnormally high professional fees associated with the legal case referred to above.

Impact of Court's Decision on ASIC Matter

As a consequence of Dr Rajen Manika's disqualification, Mr Lai Kwok Kin, a Singaporean who specialises in investor relations and crisis communications, was appointed as an Independent Director on 19 March 2024. Through deemed interest he is currently Holista's fourth largest shareholder. The current Board now comprises three Independent Directors who will all be due for re-election at the Annual General Meeting to be convened on 17 May 2024.

On the matter of the penalty, the Board and will be submitting a proposal to pay the penalty in instalments. The Board hopes to achieve a balance between the progressive full settlement of the penalty and management of cashflow, a balance necessary corporate recovery.

Over the past three years Holista has navigated through uncertainty, largely stemming from the ASIC legal matter. This case tested our resilience and focused our commitment to compliance and governance. It also consumed significant Group resources in terms of both human and financial capital.

The Court's decision on 19 March 2024 and the immediate changes outlined above will eliminate a layer of uncertainty which had held back product launches and affected negotiations with suppliers. At the same time, we expect our non-operational costs to decline substantially in the current year. This closure of this matter will free up resources and management time to re-focus on organic growth including the development and launch of new products, re- branding of product lines, move to the online marketing and sales and the pursuit of additional business opportunities.

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Holista Colltech Limited Directors' report

31 December 2023

We are currently working to arrange a payment plan for the penalty that will allow Holista to meet its obligations and provide some latitude to manage the business. Effective liquidity management, contingent upon a structured repayment schedule for the penalty, is paramount to ensuring the company's ongoing viability and future success.

While the details of the ASIC legal case have been complex, the outcome has set a clear path forward for us. These initiatives reflect our commitment to rectify the issues identified and fulfill our obligations while still providing scope for the business to succeed.

The lessons learned serve as a bedrock for our future strategies and actions. With the resolution of the ASIC legal case, we can now re-direct our full attention back to the core of our mission to harness the potential of our assets, our people, and our innovations, to not only recover but also to thrive.

While the last financial year has been a challenging period, management expects to deliver an improved result for FY2024 due to growth in revenue and operating leverage from cost efficiencies achieved in FY2023.

The restructuring of Holista's sales and marketing team has been completed. Sales have been improved from the low experienced in the second quarter of 2023. Consumer spending in Malaysia is starting to recover. The Company intends to launch introduce a number of new innovations this year that are expected to bolster revenue and earnings.

These include a line of cosmetics containing exosomes1 and Holista's patented ovine collagen, due to roll out in the second half of this year. Holista also plans to expand its Holista-Nugevity product line to include new supplements. These new innovations are expected to give the Dietary Supplements division an additional tailwind in FY2024.

Separately, the recent rebound in the Food Ingredients division is expected to persist. Discussions with Rex Industry and other potential customers indicate that demand for Holista's innovative ingredients should be higher in 2024 than in the prior year.

Meanwhile, Holista is optimistic about the outlook for the Ovine Collagen division. The Group is in active negotiations with Behn Meyer Thailand for a new supply agreement. It is also fielding enquiries from potential customers such as Guangzhou Sinbio Cosmetic Co Ltd, a Chinese State-Owned Enterprise, which continues to test Holista's ovine collagen product for a new range of cosmetics.

Holista believes it will deliver improved results in FY2024 as a result of the expected growth of its two largest divisions, Dietary Supplements and Food Ingredients, which contributed around 95% of total revenue in FY2023, is likely to more than offset weakness in other divisions.

On behalf of the Board, I wish to thank suppliers, partners, customers, and shareholders for their past support this last year.

Following three years of legal challenges and uncertainty, we now move forward with a clear vision and renewed sense of purpose. We remain steadfast in our commitment to deliver value to shareholders and contribute positively to our community and the wider economy.

Best regards,

David Deloub

Non-Executive Chair

1 Exosomes are found in biological fluids, such as saliva and blood, and have specialised functions in physiological processes, from coagulation and waste management to intercellular communication.

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Holista Colltech Limited Directors' report

31 December 2023

Your directors present their report on the consolidated entity, consisting of Holista Colltech Limited (Holista, or the Company) and its controlled entities (collectively the Group), for the financial year ended 31 December 2023.

Holista is listed on the Australian Securities Exchange (ASX:HCT).

Directors

The following persons were directors of Holista Colltech Limited during the whole of the financial year and up to the date of this report, unless otherwise stated:

Company Secretary

Mr Stephenson appointed on 1 September 2021 as the Company Secretary, has been involved in business development for over 30 years including the past 25 years as Director, Chief Financial Officer, and Company Secretary for various listed and unlisted entities in IT, food, nutraceuticals, resources, manufacturing, wine, hotels, and property. He has been involved in business acquisitions, mergers, initial public offerings, capital raisings, business restructuring as well managing all areas of finance for companies.

Currently he is a non-executive Director of Dragon Mountain Gold Limited, and Stonehorse Energy Limited as well as Company Secretary for a number of ASX Listed resource and industrial companies and a Director of a number of private companies.

Dividends paid or recommended

There were no dividends paid, recommended or declared during the current or previous financial year.

Principal activities

During the financial year ended 31 December 2023 (FY2023), the Group, consisting of Holista Colltech Limited and its controlled entities, remained focused on the four core areas Healthy Food Ingredients, Dietary Supplements, Ovine Collagen and Infection Control Solutions.

Group Operations Review

Holista Colltech Limited (Holista or the Company) recorded a 28% decline in Group revenue to $5.9 million, as net loss after tax increased by 255.7% to $4.8 million in the financial year 2023 (FY2023) when compared to the prior year.

A challenging trading environment, particularly in Malaysia, and the restructuring of the sales team weighed on Group performance in the period, although Holista believes that its performance in FY2024 will show a marked improvement over last year.

Additionally, Holista delivered an increase in gross margin to 49.1% and a 63% improvement in net operating cash outflow to $410K in FY2023 despite the headwinds.

During FY2023, the Group focused on its four core business areas as follows:

• Healthy Food Ingredients: Holista's Health Food Ingredients division reported a 54.5% pcp decline in revenue to $852,000 in FY2023. A slowdown in orders from customers in the United States more than offset robust demand from Malaysia-based food and drinks manufacturer, Rex Industry Berhad (Rex Industry).
  Sales from this division have started to recover steadily since hitting a low point of $107,000 in the second quarter of FY2023. Revenue in the third and fourth quarters were $204,000 and $334,000 respectively.

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Holista Colltech Limited

Directors' report

31 December 2023

• Dietary Supplements: The Dietary Supplements division, Holista's largest business by sales, recorded a 20.6% decline in revenue for FY2023 to $4.8 million compared to a year earlier. This division has been most impacted by a challenging trading environment, particularly in Malaysia. The sales team in Malaysia has undergone a recent reorganisation.
  Meanwhile, the launch of Holista-Nugevity branded plant-based protein supplement in October last year was still ramping up. Due to the launch timing this new offering did not make a meaningful contribution in FY2023. However, it is expected to be a key growth driver for the current year.
• Ovine Collagen: The performance of the Ovine Collagen division was largely steady with revenue of $301,000 in FY2023 compared to $306,000 a year earlier.
  Holista has a binding sales contract that ran to the end of FY2023 with cosmetics manufacturer, Behn Meyer Thailand, with whom a new one is currently being renegotiated.
• Infection Control: Finally, the Infection Control division - the newest and smallest revenue contributor - recorded negligible sales last year. This business may provide optionality to Holista in the future.

Outlook

The last financial year has been a challenging period for Holista, but management is expecting to deliver an improved result for FY2024 due to growth in total revenue and operating leverage from cost efficiencies achieved in the previous year.

Topline growth is expected to be driven by several factors. Firstly, the restructure of sales team has been successfully completed and sales have been recovering since the 2023 second quarter low.

Economic headwinds in Malaysia are also easing with consumer spending starting to recover. This bodes well for Holista as it intends to launch several new innovations in 2024 that are expected to bolster revenue and earnings.

This includes a line of cosmetics containing exosomes and Holista's patented ovine collagen, in the second half of this year. Holista also plans to expand its Holista-Nugevity product line to include new supplements. These new innovations are expected to give the Dietary Supplements division an additional tailwind in FY2024.

Separately, the recent rebound in the Food Ingredients division is expected to persist. Discussions with Rex Industry and other potential customers indicate that demand for Holista's innovative ingredients should be higher in 2024 than in the prior year.

Meanwhile, Holista is optimistic about the outlook for the Ovine Collagen division. The Group is in active negotiations with Behn Meyer Thailand for a new supply agreement and is fielding enquiries from other potential customers.

Guangzhou Sinbio Cosmetic Co Ltd, a Chinese State-Owned Enterprise, continues to test Holista's ovine collagen product in a new range of cosmetics, although there is no certainty that a commercial agreement will eventuate.

Importantly, Holista believes it will deliver improved results in FY2024 even if the Ovine Collagen and Infection Control businesses underperform. This is because the expected growth in its two largest divisions, Dietary Supplements and Food Ingredients, which contributed around 95% of total revenue in FY2023, is likely to more than offset weakness in other parts of the Group.

While there are several headwinds buffeting the global economy, Holista believes it is well positioned to overcome these challenges, and that the Group's short and longer-term outlook is generally positive. This optimism is grounded in the following factors:

• Organic Growth in Key Markets: Holista's largest divisions are strategically positioned in rapidly expanding markets due to the increasing demand for health products. For example, the global health food ingredients market is projected to grow at a compound annual growth rate (CAGR) of 7.8% from 2022 to 2027, reaching a value of US$146.3 billion2. Similarly, the global vitamins and supplements market is forecasted to achieve a CAGR of 6.1% from 2021 to 2028, reaching US$196.6 billion3.

1. https://www.marketsandmarkets.com/Market-Reports/health-ingredients-market-69194289.
2. htm2https://www.fortunebusinessinsights.com/vitamins-and-supplements-market-104051.

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Holista Colltech Limited

Directors' report

31 December 2023

• Potential Peaking of Inflation: Cost pressures have begun to ease since 2022. If this trend persists, as predicted by numerous economists, it will positively impact Holista's margins and further enhance the Group's ability to increase operating cash flow in the current financial year.
• Rebound in the Dietary Supplement Division: As previously outlined, there has been a significant improvement in the sales of Holista's market-leading supplements in Malaysia, following a subdued performance in the December quarter. The rebound experienced in January 2023 has continued, and management anticipates a robust performance from this division (which constitutes the largest cash contributor of the Group) in the current quarter and beyond.
• Reopening of the Chinese Economy: The return to normal business operations in China is expected to unlock new growth opportunities as highlighted earlier. While the success of these initiatives by Holista's partners is not imperative for driving further growth, these opportunities have the potential to significantly scale over the medium to longer-term without necessitating significant investments from Holista's part to pursue.

Business Risks

There are specific risks associated with the activities of the Company and general risks which are largely beyond the control of the Company and the Directors. The risks identified below, or other risk factors, may have a material impact on the future financial performance of the Company.

All companies are exposed to risks and the Company continues to monitor risks associated with current activities whilst also analysing the risks associated with any new opportunities.

The below risks are not exhaustive but are the minimum exposure areas observed by the Company. These risks may cover such areas as:

Economic

General economic conditions, introduction of tax reform, new legislation, the general level of activity within the bio tech industry, movements in interest and inflation rates and currency exchange rates may have an adverse effect on the Company's activities, as well as on its ability to fund those activities.

Future funding risk

In the future, the Company may require additional funds (whether by way of debt and/or equity), so as to, without limitation:

• fund business development; and
• fund corporate, administrative, and working capital needs.

Exchange Rate Risk

The Company with operations across Malaysia, Australia, and the USA, is exposed to exchange rate risks primarily involving the Australian Dollar (AUD), Malaysian Ringgit (MYR), and the United States Dollar (USD). These risks arise from transactional activities such as sales and purchases in different currencies, and from translating financial statements of international operations into AUD, affecting our profitability and reported financial position. To mitigate these risks, we employ strategies including natural hedging, use of financial derivatives like forward contracts, and diversification of currency exposure. Despite the inherent volatility in currency exchange rates, our proactive risk management approach, including monitoring market conditions and employing effective hedging strategies, aims to minimise the financial impact on Holista, ensuring we remain resilient against the uncertainties of currency fluctuations.

Regulatory Risk

On 19 March 2023, the Federal Court Justice Sarah C Derrington has delivered her judgement in the matter between the Company and the Australian Securities and Investments Commission (ASIC) in relation to ASIC's civil penalty proceedings (Order). A summary of the Order as it relates to the Company (the First Defendant) is outlined in the subsequent event note.

As part of our commitment to uphold the highest standards of corporate governance and compliance, we continuously monitor and assess the landscape of regulatory requirements that impact our operations globally. The regulatory environment in which we operate is subject to change due to political, economic, and social pressures. It is important to acknowledge that such changes can have significant implications for our business practices, cost structure, and competitive positioning.

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Holista Colltech Limited Directors' report

31 December 2023

1. Changes in Legislation and Regulation: Our operations are governed by laws and regulations at local, national, and international levels. Any changes in these legal frameworks can impose new obligations on our company. For instance, amendments to tax laws, environmental regulations, data protection statutes, and employment legislation could necessitate operational adjustments, entail additional compliance costs, or lead to exposure to new legal risks.
2. Compliance and Enforcement Trends: Regulatory bodies worldwide are enhancing their scrutiny and enforcement activities across various sectors. An increase in enforcement actions can result in significant financial penalties, reputational damage, and operational disruptions. We have implemented comprehensive compliance programs and internal controls to mitigate such risks, but no system can completely eliminate the possibility of non-compliance.
3. Regulatory Approvals and Licenses: Certain aspects of our operations require approvals, permits, or licenses from regulatory authorities. Delays in obtaining or renewing these approvals, or the revocation thereof, can impact our ability to carry out our business activities, launch new products or services, and enter or expand in specific markets.
4. International Trade and Sanctions: Our international operations are subject to laws and regulations related to trade compliance and economic sanctions. Changes in trade policies, tariffs, and sanctions regimes can affect our supply chains, increase costs, or restrict access to key markets and technologies.
5. Environmental, Social, and Governance (ESG) Regulations: The evolving landscape of ESG-relatedregulations requires us to continually adapt our business practices to meet higher standards of environmental stewardship, social responsibility, and corporate governance. Non-compliancewith ESG standards and regulations can affect investor confidence and consumer perception, alongside potential legal and financial repercussions.

Risk Management Approach

To manage regulatory risks, we employ a proactive approach that includes regular monitoring of the regulatory environment, engagement with legal and industry experts, and active participation in relevant trade associations. Our risk management framework is designed to identify, assess, and mitigate regulatory risks, ensuring that we remain agile and compliant in a dynamic regulatory landscape.

Outlook

We remain vigilant in monitoring regulatory developments and are committed to adapting our compliance strategies to meet the challenges posed by the evolving regulatory environment. By maintaining open lines of communication with regulators, staying informed about impending regulatory changes, and investing in compliance infrastructure, we aim to minimise our regulatory risk exposure and safeguard our operations and strategic objectives.

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