Hydration Pharmaceuticals : Q1 FY22 Quarterly Activities Report (App 4C)

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122

Company Announcement

ASX: HPC

For personal use only

DATE: 26/04/2022

All amounts in $US and unaudited unless otherwise specified

Q1 FY22 Quarterly Report and Appendix 4C

Hydralyte North America delivers strong Q1 FY2022 revenue growth

KEY HIGHLIGHTS

• • Hydralyte North America achieves strong revenue growth of 119% on prior corresponding period ('PCP') to $1.9m (Q1 FY2021: $0.9m)

• • Q1 FY2022 revenue, in a typically softer quarter of the year, marks a 9% increase on the last quarter (Q4 FY2021: US$1.7m)

• • Gross margin increased 7 percentage points from the last quarter to 50% (Q4 FY2021: 43%)

• • Prominent North American actress and entrepreneur with over 33 million Instagram followers, Shay Mitchell, secured as partner in growth and brand ambassador

• • Board and advisory team strengthened with the appointments of Ms Margaret Hardin as a Non-Executive Director and Ms Vanessa Dew to the advisory board

• • Ms Hardin is an experienced CEO, CFO, and COO who grew two US companies to more than USD$100M revenue during her tenure - former Ergobaby CEO

• • Ms Dew is a US-based entrepreneur and investor, co-founding and acting as Chief Sales Officer of US kombucha brand Health-Ade

• • Additional product development initiatives progressing on 13 products - new product launches set to support HPC growth strategies in the coming months

• • Strong foundation laid heading into the seasonally advantageous North American summer months

Hydration solutions company The Hydration Pharmaceuticals Company Limited (ASX: HPC) ("Hydralyte North America" or "the Company") is pleased to provide an update on its quarterly activities and Appendix 4C for the perioded ended 31 March 2022 (the 'quarter').

1

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122

Financial overview:

For personal use only

Revenue for the quarter increased 119% on PCP (Q1 FY2021: $0.9) and 9% on the previous quarter (Q4 FY21: US$1.7m), resulting in strong quarterly revenues of US$1.9m. The significant rise in revenues can largely be attributed to ongoing product uptake in the US and Canada through traditional bricks and mortar retail stores, as well as continued growth in online sales.

The following chart displays the eCommerce trailing 4-quarter growth through Q1 FY2022:

The following chart displays the strong YoY growth setting the foundation going into the stronger summer months in North America:

Marketing spend remained flat to the last quarter at $1.3M as the company continues to invest in the marketing flywheel with initiatives including Shay Mitchell, China distribution partnership, eCommerce website revamps, and continued investment in driving online sales growth.

2

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122

EBITDA loss remained largely flat from the last quarter at US$1.87m (Q4 FY2021: US$1.85m) as the company continued to invest in hiring and marketing initiatives going into the stronger summer months in North America.

For personal use only

Gross margin as a percentage of sales continued to increase pleasingly to 50%, up 7 percentage points on the last quarter (43% Q4FY2021). The increase is mainly attributable to reduced air freight costs in the quarter. Hydralyte North America held US$8.76m in cash at the end of the quarter, leaving the Company well capitalized with the financial flexibility to progress growth initiatives and revenue generating opportunities to leverage the upcoming North America summer months.

Strengthened board and management:

The Company bolstered its Board and advisory teams during the quarter with the appointments of two experienced US executives. Ms Margaret Hardin was appointed to the Board as an Independent Non-Executive Director and Ms Vanessa Dew joined Hydralyte North America's advisory team. Both appointments bring extensive experience in the US market and offer diverse skillsets which the Company will leverage.

Ms Hardin is a global products senior executive and board director, who has previously scaled two consumer goods companies to generate more than USD$100 million in revenue. Ms Dew, an entrepreneur and investor is the co-founder and Chief Sales Officer of Health-Ade, one of the largest kombucha brands in the USA. Both currently work with several emerging, innovative brands advising on growth opportunities.

Appointment of prominent North American actress and entrepreneur:

During the quarter, the Company entered into a binding deal memorandum with prominent North-American actress and entrepreneur Ms Shay Mitchell. Ms Mitchell is now a brand ambassador and equity partner, providing Hydralyte North America a key relationship in its prominent operating markets.

As per the terms of the agreement, Ms Mitchell was issued new fully paid ordinary shares equal to USD$250,000 at an issue price per share of the 10-day VWAP (volume weighted average price) immediately prior to the date of the agreement, which will be subject to voluntary escrow. Ms Mitchell will also be issued a further grant of shares equal to USD$250,000. For the full details regarding the agreement, please refer ASX announcement 29 March 2022.

3

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122

For personal use only

Ms Mitchell will help broaden the brand awareness, consulting on social strategy, using her own social media channels, and curating promotional events. Her extensive reach across social media channels includes boasting over 32.5 million Instagram followers, 3 million Twitter followers, 4 million YouTube subscribers and over 6 million followers on TikTok.

As part of Hydralyte North America's product development initiatives the Company has begun to collaborate with Ms Mitchell to create a new flavor of Hydralyte specifically designed for the actress.

Additional growth initiatives:

Further product development initiatives remain a focus, with the Company progressing 13 of new products for launch into the US and Canadian market. These product launches are set to coincide with the peak of the North American summer, providing potential increased uptake and enhanced sales.

The quarter has laid a strong foundation for the Company to capitalise on its growing brand awareness ahead of the North American summer. Increasing revenues and footprint in traditional bricks and mortar stores across the US and Canada in the period continue to support HPC's growth strategies with the strengthening of the board and advisory team in conjunction with the appointment of brand ambassador Shay Mitchell.

Comments on Cash Flows:

The company can report that it is on track to meet it's business objectives that sit behind the use of funds table. The following table represents the use of funds raised in the IPO since the 14 December 2021 IPO date:

Cash and cash equivalents for the quarter ending 31 March was $8.8M, leaving 4.3 quarters of cash at the current run rate. It is expected the run rate will be positively impacted with growth and other measures.

Additional Information:

4

4660 La Jolla Village Drive, Suite 100

San Diego, CA 92122

Payments to related parties and their associates for the quarter were $2,717 for IT services, excluding payments to directors for remuneration as disclosed in the remuneration report.

For personal use only

Management commentary:

Hydralyte North America CEO Oliver Baker said: "Progress made during the quarter has put us in an excellent position to continue to support our revenue growth plans through increasing our brand awareness and product development.

"Bringing Shay on board ahead of the pending North American summer is set to significantly ramp this up. She has an extensive following on social media and a track record of building brands using her own style, passion and authenticity.

"Now heading into the summer months in North America demand for our product is expected to increase in line with seasonality which may further add to our growing revenues through increased cash collection. I look forward to updating shareholders on progress made by the Company through the following months."

ENDS

This announcement was authorised for release by the Board of Hydralyte North America.

For further information:

Investors/Media Henry Jordan

Six Degrees Investor Relations 0431 271 [e-mail]

6