Hydration Pharmaceuticals : FY21 Annual Report

CEO report 2

Review of operations 3

Financial overview 5

Effects of COVID-19 8

Outlook 8

Audited Consolidated Financial Statements 10

All amounts in US$ unless otherwise specified.

Chairman's letter

Dear fellow shareholders,

On behalf of the Board of Directors, it is my pleasure to present the Hydration Pharmaceuticals Company Limited's annual report and financial statements for the year ended 31 December 2021 ("FY2021"). This is the company's inaugural annual report as an ASX-listed company following the completion of a successful listing on the Australian Securities Exchange.

Adem Karafili for his work as Executive Chairman during the period. Adem was instrumental in the company's growth trajectory and has agreed to undertake a role as Non-Executive Director moving forward. I also extend my gratitude to the company's other previous directors for their service, I would like to also note, they remain long term and committed shareholders.

With an exceptional team in place and new funding, we are confident that the company will continue its encouraging financial performance.

Hydration Pharmaceuticals Company Limited or Hydralyte North America is a consumer products company, focused on the marketing and sale of a range of liquid, tablet and powder solutions to assist with healthy hydration. The company is focused on the large, addressable markets across the United States and Canada, as well as other countries where there is considerable potential.

During FY2021, Hydralyte North America achieved strong revenue growth, driven by sales through established online channels and key retailers, while increasing gross margin and gross profit.

The company is well positioned to leverage its well-known brand, established in Australia in 2001, and grow its footprint in the healthy hydration solutions category, which generates between US$800 million to US$1.1 billion in annual sales in North America alone.

To capitalise on this unique market opportunity, the company took the decision to list on the ASX in late 2021. As part of its IPO, the company issued approximately 59 million new shares at A$0.29 to raise A$17 million in new capital. This has provided Hydralyte North America with the necessary financial flexibility to capitalise on a number of near term objectives.

Despite the effects of COVID-19 and lockdowns in our key operating markets, the company has taken a proactive approach towards building a presence in traditional bricks and mortar retail outlets. This included ongoing discussions with our major customers to build stock and ensure no supply chain interruptions. We anticipate that as restrictions continue to ease, customers will focus on proactive, healthy solutions and sales will continue to increase.

Over the last year, we have established an excellent foundation for growth and are well positioned to capitalise. I would like to take this opportunity to thank the company's shareholders for the ongoing support and I look forward to providing further updates on progress throughout the upcoming financial year.

Prior to the successful IPO, the company assembled a Board and management team with skills in the beverage and FMCG sectors, as well as public company expertise. It is my pleasure to welcome both Gretta van Riel and Margaret Hardin to the Board. Further, I would like to thank

Mr George Livery Chairman

CEO report

Hydralyte North America completed a transformational period in FY2021. We continued to execute on our development objectives and achieved strong operational and financial results.

Our focus during the period was to continue sales growth in our key operating markets of Canada and the US. Pleasingly we achieved this goal, increasing revenue by 63% to

US$6.1 million.

The surge in revenue was driven by a mix of traditional retail and online sales, with ecommerce transactions increasing to 40% of all net sales. Gross margin improved to 46% during FY2021 from 36% in FY2020, allowing the company to increase gross margin by 109% on a dollar basis to US$2.8 million.

With the significant rise in year-on-year revenue, our sales and marketing investment increased to US$3.1 million. This directly reflects Hydralyte North America's ongoing focus of increasing brand awareness, top line growth and broadening stockists. We anticipate that the investment into sales representatives and digital advertising will unlock numerous revenue generating opportunities in the coming months.

While one-off or non-cash items impacted costs, Hydralyte North America's underlying EBITDA for FY2021 was approximately US$4.0 million. During the current period, we expect to increase sales through both traditional retail outlets andonline channels, with continued focus on cost control and capital management in order to achieve the goal of breaking even in subsequent years.

To drive sales, work continued towards the development of new products which will build on the products launched during FY2021. Most recently, the company has launched a new strawberry lemonade flavour tablet, which has fast become our best selling product in Canada to date.

To build on this momentum, we plan to launch five new stock keeping units ("SKU") during H1 FY2022. These new product introductions will coincide with targeted marketing campaigns, leveraging our previous investment in digital advertising.

I look forward to providing further updates to shareholders over the course of FY2022. As a final word, I would like to thank all investors that participated in our recent IPO, our existing shareholders, Hydralyte North America's team members, the Board, retail partners and our customers for their loyalty and support.

Oliver Baker

Chief Executive Officer

Review of operations

Hydration solutions company The Hydration Pharmaceuticals Company Limited (ASX: HPC) ("Hydralyte North America" or the "Company")

is pleased to provide the following review of operations and financial overview for the 12-month period ended 31 December 2021 ("FY2021").

Hydralyte is a well-known, existing brand that was developed in Australia in 2001 to product a range of electrolyte rich tablets, liquids and powders. Hydralyte North America was formed in 2014 and aims to grow rapidly its footprint in large, new international markets.

Successful initial public offer and ASX listing

Hydralyte North America commenced trading on the Australian Securities Exchange (ASX) on 14 December 2021, following the completion of a successful initial public offer (IPO) to fund growth.

As part of the IPO, the Company issued approximately 59 million new fully paid ordinary shares at A$0.29 per share to raise A$17 million, for an indicative market capitalisation of ~A$46.7 million. Leading Melbourne- based corporate advisory firm, BW Equities acted as sole lead manager to the capital raise.

Hydralyte North America will utilise the funds raised during the IPO to scale up marketing through online and traditional retail channels, progress new product development initiatives and for general working capital purposes.

Board and management changes

During the period, the Company made a number of strategic Board transitions to assist with its proposed IPO and to underpin its growth strategy.

Mr George Livery was appointed as Chairman. Mr Livery is an experienced senior executive, having held a number of roles across various industries for the last 30 years. His career included roles such as the CEO of Village Cinemas Australia, COO of Village International, Commercial Director at Hoyts Ltd, Director of Operations (Non-Academic Services) at University of Sydney's USU, and both Commercial Director at Swisse Vitamins and Director of Strategy & Corporate at Swisse Wellness Group.

Mr Livery also led the corporate integration of Swisse Wellness into the Hong Kong listed H&H Group of companies and enjoyed a dual role during that time as Group Senior VP Legal and Risk. He was also a Fellow of the Australian Marketing Institute.