Hill Incorporated — Management Reports 2025

Mar 3, 2025

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HILL INCORPORATED

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three- and six-month periods ended December 31, 2024 and 2023

The following management's discussion and analysis ("MD&A") provides a review of the activities, results of operations and financial condition of Hill Incorporated Inc., (the "Company", "We" or "Hill") for the three-and six-month periods ended December 31, 2024 and 2023. These comments should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 2024 and 2023 and accompanying notes included therein, which have been prepared in accordance with IFRS. This MD&A has been prepared as of March 3, 2025. Additional information relating to Hill is available on SEDAR.

All amounts are stated in Canadian dollars unless otherwise identified.

For the purposes of preparing this MD&A, management, in conjunction with the Board of Directors, considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the Company's common shares; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board of Directors, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.

Further information about the Company and its operations can be obtained from the Company website at www.hillincorporated.com, or at the Company's profile on http://www.sedarplus.ca/.

FORWARD-LOOKING STATEMENTS

Except for the historical information contained herein, the discussion in this MD&A contains certain forward-looking statements that involve risks and uncertainties, such as statements of Hill's plans, objectives, strategies, expectations and intentions. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "anticipate", "seek", "plan", "believe" or "continue" or the negatives of these terms or variations of them or similar terminology. Although Hill believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, undue reliance should not be placed on these forward-looking statements. These forward-looking statements are not guarantees and reflect Hill's views as of March 3, 2025 with respect to future events. Future events are subject to certain risks, uncertainties, and assumptions, which may cause actual performance and financial results to differ materially from such forward-looking statements. Any forward-looking statements, including statements regarding expected revenues, volumes, operating efficiencies, or costs may be based on, among other things, the following material factors and assumptions: sales volumes or licensing revenues will increase over time; no material changes in basic consumer preferences; manufacturing and packaging efficiencies will improve over time; the cost of input materials for manufacturing will increase over time; competitive activity from competitors will continue; foreign currency exchange rates will change; there will likely be material

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changes to the regulatory environment in which Hill operates, particularly regarding cannabis-related products, and there will be no material supply, cost or quality control issues with vendors. Readers are urged to consider the foregoing factors and assumptions when reading the forward-looking statements and for more information regarding the risks, uncertainties and assumptions that could cause Hill’s actual financial results to differ from the forward-looking statements, to also refer to the remainder of the discussion in this MD&A, Hill’s various other public filings as and when released by Hill. The forward-looking statements included in this MD&A are made only as of March 3, 2025 and, except as required by applicable securities laws, Hill does not undertake to publicly update such forward-looking statements to reflect new information, future events or otherwise.

HIGHLIGHTS FOR THE PERIOD ENDED DECEMBER 31, 2024

• DehydraTECH licensing revenues increased in Q2 FY 2025 vs. same quarter year ago on an adjusted basis (after adjusting down last year’s revenues for amounts subsequently written off at the close of FY2024), although they declined on an accounting basis (unadjusted for last year’s revenues ultimately written off). Fiscal year-to-date licensing revenues also increased on an adjusted basis but declined on an accounting basis.
• Vin(Zero) alcohol-free wine business had a strong quarter, even though the timing of the inventory replenishment cycle and corresponding sales resulted in a lower net revenue vs. Q2 FY 2024. Net revenue on this business is up a strong 20% for the six-month fiscal year-to-date vs. the same period year ago.
• Strong Q2 FY 2025 consolidated net revenue was the highest in a year but was below Q2 FY 2024, due to the quarterly inventory and revenue cycle timing on the Vin(Zero) business along with the unadjusted DehydraTECH licensing revenue comparison.
• Despite net revenue and gross profit declines vs. prior year on an accounting basis, the continued focus on managing costs enabled Hill to continue narrowing the net loss in the quarter, with a 44% improvement over the year ago period.

BUSINESS HIGHLIGHTS FOR THE PERIOD ENDED DECEMBER 31, 2024

DehydraTECH Licensing Business

DehydraTECH licensing revenues increased in Q2 FY 2025 vs. same quarter year ago on an adjusted basis (after adjusting down last year’s revenues for amounts subsequently written off at the close of FY2024), although they declined on an accounting basis (unadjusted for last year’s revenues ultimately written off). Fiscal year-to-date licensing revenues also increased on an adjusted basis but declined on an accounting basis.

DehydraTECH licensing revenues continue to be fueled by legacy licensee 1906 as well as the more recent sublicensees brought on through Hill partner Dehydr8, LLC. However, because Hill wrote down revenue from 1906 at the close of FY 2024 (which included some Q2 revenue), we have made comparisons in this MD&A of Q2 2025 results to the same quarter prior year (which are pre-write-off) as well as on an adjusted basis (adjusting for the write offs) to provide the most accurate view of the trends.

The US cannabis industry continues to face a market environment of significant price reductions and margin compression, along with extended accounts receivable and delays in cash receipt. The impacts to Hill’s DehydraTECH licensing business from these industry-wide challenges are mainly that licensing fee

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rates have been compressed within our ecosystem of sublicensing partners and our accounts receivable of licensing fees from our licensee partners are affected by collection delays downstream. At this time, our outlook is that licensing fee rates will likely continue to be pressured in our US DehydraTECH business, even as the industry grows and we continue to expand operations.

Dehydr8, which now has DehydraTECH licensing rights in all US states, continues to focus on the rollouts and expansion of its base of DehydraTECH customers, while facing this very challenging cannabis market environment, price and margin compressions, and extended accounts receivable.

The key DehydraTECH customers of Dehydr8's in the US include MariMed, Greenlight Dispensary and Drecisco Farms.

1. MariMed

Major multi-state operator MariMed Inc. now has brands powered by DehydraTECH in Massachusetts, Maryland, Missouri, Delaware and Illinois, with more states on the horizon.

Today, the MariMed brands being powered by DehydraTECH include 'Vibations™' all-natural, full-spectrum cannabis drink mix, which won first place in the beverages category of the High Times Cannabis Cup in Massachusetts, 'K Fusion™' chewable tablets, and 'InHouse™' gummies.

MariMed Inc. is a leading multi-state cannabis operator, known for developing and managing state-of-the-art cultivation, production, and retail facilities. Their award-winning portfolio of cannabis brands sets them apart as an industry leader. The trusted brands, crafted with quality and innovation, are recognized and loved by consumers across the country. With a commitment to excellence, MariMed continues to drive growth and set new standards in the cannabis industry. More information on MariMed's brands can be found at MariMed Brands.

1. Greenlight Dispensary

Multi-state operator Greenlight Dispensary has launched new DehydraTECH-powered edibles products in its home state of Missouri.

Greenlight Dispensary is one of the leading cannabis brands in the United States, with operations in Missouri, Arkansas, West Virginia, Illinois and South Dakota. Greenlight's founders are some of the most innovative operators in the US, having built one of the world's largest dispensaries in Las Vegas, Nevada, the world's first "Marijuana Farmers Market" and the first cannabis museum in a dispensary.

1. Drecisco Farms

Drecisco Farms sells their "SweetBuzz" DehydraTECH-powered cannabis edibles products in Illinois including:

• "Sweet Somethings" candy cups
• "Sweet Sparks" chocolatey candies, and
• "Sweet Empowder" dissolvable powder

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Drecisco Farms is a social equity craft grow in Illinois, driven by the belief that delicious taste and a quality cannabis experience should be one and the same. Bringing their experience managing and leading a mainstream confectionary company, they are proud to bring their generational confectionary knowledge crafting the candies that consumers have known and loved to a craveable cannabis experience with their brand SweetBuzz.

Vin(Zero) Alcohol-Free Wine Business

Vin(Zero) alcohol-free wine business had a strong quarter, even though the timing of the inventory replenishment cycle and corresponding sales resulted in a lower net revenue vs. Q2 FY 2024. Net revenue on this business is up a strong 20% for the six-month fiscal year-to-date vs. the same period year ago.

As communicated, we have fundamentally transformed our Vin(Zero) business model over the past two years, with major adjustments across all the key areas of production planning, shipping and logistics, warehousing, sales and retail distribution. These changes have led to several key positive financial impacts:

• removed the Hill onshore warehousing of finished goods, which reduced our warehousing costs as well as the level of working capital that we hold in finished goods inventory;
• shortened our order-to-cash cycle, as we now recognize revenue and invoice our distributor when inventory arrives onshore directly to the distributor's warehouse;
• reduced the need for more expensive temperature-controlled containers for our products as our forecasting, operations planning, and inventory logistics models create a more efficient shipping cycle.

The new streamlined commercial model creates a new and different cadence to the business, where dramatic quarter-to-quarter swings on the recognized revenues are planned based on inventory efficiencies and the timing of direct inventory arrivals to our distributor.

Following a strong level of inventory replenishment and revenue in Q1 FY 2025, our planned ordering and inventory management cycle resulted in less revenue for Q2 FY 2025 compared to a very high Q2 FY 2024. Sales from this line of business were still a very strong $588,421 for the quarter, but well below a very high $913,651 for Q2 FY 2024. Again, analysis of this business is better done over time vs. looking at quarter-to-quarter fluctuations. Further to this point, net revenue for the six-month period ending December 31, 2024 is up 20% vs. year ago.

As we adapt to the new cadence of supply shipments and recognized revenues, we look carefully at our case depletions, which represent the shipment figures from our distributor to retailers and are a more accurate indicator of the pace of the business. Our shipments from distributor warehouses to retail customers increased 2% in the quarter and are up 3% for the six-month fiscal year to date.

FINANCIAL HIGHLIGHTS FOR THE PERIOD ENDED DECEMBER 31, 2024

Strong Q2 FY 2025 consolidated net revenue was the highest in a year but was below Q2 FY 2024, due to the quarterly inventory and revenue cycle timing on the Vin(Zero) business along with the unadjusted DehydraTECH licensing revenue comparison.

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Consolidated net revenues as reported on an accounting basis were down 33% for Q2 and down 2% for the full six-month fiscal year-to-date. On an adjusted basis net revenues were down 18% for Q2 and up 37% for the six-month period, after adjusting down portions of last year's DehydraTECH revenues subsequently written off at the close of FY 2024.

Despite net revenue and gross profit declines vs. prior year on an accounting basis, the continued focus on managing costs enabled Hill to continue narrowing the net loss in the quarter, with a 44% improvement over the year ago period.

The 44% improvement for Q2 drove a year-to-date improvement of 34% for the first six months of the fiscal year.

DESCRIPTION OF THE BUSINESS

Hill Incorporated is a progressive bioscience implementation company that is dedicated to building pathways to better and healthier living by leveraging our deep CPG expertise to commercialize leading-edge technologies to craft superior cannabis solutions and non-alcoholic beverage products globally. The Company has fundamentally transformed its legacy business model to embrace a more profitable and more scalable global growth agenda.

The Company currently operates two lines of business:

1. Hill Street Beverages

This business unit represents the Company's legacy alcohol-free consumer beverage marketing and distribution business. It includes Vin(Zero) alcohol-free wine in Canada, and on a smaller scale, in the United States. Vin(Zero) uses only the finest craft ingredients and a proprietary process to remove alcohol from high-quality wines, delivering all the flavour, savour & splendour that you expect from fine wines, without the alcohol. Vin(Zero) has a simple mission of bringing consumers better quality experiences that taste better and are better for you. The products are sold in retail chain stores through Canadian distributors, exported outside of Canada through foreign distributors and offered direct to consumers online at www.hillstreetbeverages.com.

2. Hill Avenue Cannabis

Our Hill Avenue Cannabis business unit is pioneering the space where craft consumer products meet bioscience by combining our deep CPG commercialization expertise with our rights to use Lexaria Bioscience Corp's ground-breaking DehydraTECH patent portfolio for product development, licensing and B2B and B2C sales of cannabis ingredients or products on a global scale. DehydraTECH is a revolutionary, patented biodelivery technology that is scientifically proven to consistently and rapidly deliver precise doses of bioactive substances like cannabinoids into the bloodstream, for unparalleled bioavailability and onset time. For additional detail about Hill Avenue Cannabis or DehydraTECH technology, visit www.dehydratech-thc.com.

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DehydraTECH technology was first developed in 2014 by Lexaria Bioscience Corp., a global innovator in drug delivery platforms. Today, the DehydraTECH intellectual property portfolio consists of 28 granted patents and approximately 50 patents pending worldwide. Hill Avenue Cannabis acquired the exclusive global rights to use and commercialize the DehydraTECH technology to power THC-infused cannabis products in late 2020.

Hill Avenue Cannabis is the DehydraTECH technology licensing, product development and commercialization partner to progressive cannabis brands worldwide who are committed to bringing exceptional, best-in-class cannabis products to market. Hill Avenue Cannabis also provides DehydraTECH-enabled business-to-business (B2B) solutions for both cannabis extractors and ingredient suppliers and consumer packaged goods (CPG) manufacturers whose products are infused with cannabis and or hemp extracts.

Findings from extensive scientific studies on the DehydraTECH technology performed by its creator Lexaria include:

• Increased bioavailability up to 5-10x – to equate to blood absorption by inhalational delivery
• Increased brain permeation up to 19x – as demonstrated in animal studies
• Avoids first-pass liver metabolism - mitigating unwanted side effects
• Reduced time of onset – effects are felt within 15-20 minutes vs. 60-120 minutes
• Masks unwanted tastes – eliminating the need for sugar-filled edibles

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SIX-MONTH RESULTS OF CONSOLIDATED OPERATIONS

Results for the Six-Month Period Ended	Dec. 31, 2024	Dec. 31, 2023	Dec. 31, 2022
	$	$	$
Gross Revenue	1,453,648	1,465,941	2,207,414
Chargebacks & listing fees	(263,230)	(257,111)	(275,931)
Net Revenue	1,190,418	1,208,830	1,931,483
Cost of sales	(563,487)	(450,582)	(851,253)
Gross profit	626,931	758,248	1,080,230
Expenses
Accretion expense	-	-	6,377
Bad debt expense	-	163,714	118,651
Bank charges and interest	19,200	(653)	7,541
Consulting fees	3,461	70,141	22,163
Depreciation	124,666	134,086	160,997
Filing and transfer agent fees	15,300	15,882	17,928
Insurance	50,400	81,458	134,981
Interest on promissory note	129,945	125,732	116,884
Management fees	43,329	41,778	63,986
Marketing	487	(11,478)	46,298
Office and miscellaneous	52,517	62,008	123,247
Professional fees	20,938	29,663	176,392
Stock-based compensation	30,597	49,449	89,829
Travel and meal allowance	480	9,989	30,877
Wages and salaries	437,122	504,596	515,624
Selling and delivery	164,081	132,497	305,380
	1,092,523	1,408,862	1,937,155
Loss before other income (expenses)	(465,592)	(650,614)	(856,925)
Other income (expenses)
Foreign exchange gain (loss)	9,123	(10,665)	(8,287)
Other (expenses) income	-	(972)	4,324
Recovery of bad debts	21,345	-	-
	30,468	(11,637)	(3,963)
Net loss and comprehensive loss	(435,124)	(662,251)	(860,888)

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FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2024 AND 2023

CONSOLIDATED NET REVENUES

For the Six-Month Period Ended	DECEMBER 31, 2024	DECEMBER 31, 2023
Non-alcoholic beverage sales	$ 1,060,181	922,877
DehydraTECH licensing income	387,643	513,857
Other income	5,824	29,207
Chargebacks and listing fees	(263,230)	(257,111)
	$ 1,190,418	1,208,830

For the six-month period ended December 31, 2024, consolidated net revenues decreased by 2% to $1,190,418, compared to $1,208,830 for the six-month period ended December 31, 2023. The decrease in net revenue vs. FY 2024 was due to the DehydraTECH licensing revenue comparison being impacted by the year ago period including amounts ultimately written off. As outlined earlier in this document, the adjusted net revenue is up substantially vs. prior year.

Chargebacks are fees charged by retailers and distributors for marketing programs and discounts, as well as other fees or penalties. Chargebacks for the six-month period ended December 31, 2024 were $263,230, compared to $257,111 for the six-month period ended December 31, 2023. These figures fluctuate based on the number of retailer programs that are going on during the time period and are tied more closely to retailer depletions than to the revenue timing of the business, which is based on inventory management and shipment arrivals.

Non-Alcoholic Beverage Sales

6 months	Dec 31, 2024	Dec 31, 2023	Dec 31, 2022
Gross Revenue	1,060,181	922,877	1,674,603
Chargebacks*	(263,230)	(257,111)	(275,931)
Net Revenue	796,951	665,766	1,398,672
CoGS	(563,487)	(450,582)	(851,253)
Gross Profit	233,464	215,184	547,419
GP %*	22%	23%	33%

• As noted above, chargebacks are tied more closely to retail depletions from our distributor than to the timing of shipment arrivals and revenue recognition, which alters the calculation of GP% based on timing of these two independent components.

DehydraTECH Licensing Revenue

For the three-month period ended December 31, 2024, DehydraTECH adjusted licensing revenues increased by 31% to $177,011, compared to $134,746 for the three-month period ended December 31, 2023. The increase in adjusted DehydraTECH revenues vs. year ago was due to the reduction in Q2 FY 2024 revenues associated with the write-off and reversal of 1906 licensing fees as part of our FY 2024 licensing fee structure renegotiation.

The following chart shows the quarterly adjusted licensing revenues, taking into account the write-offs for previous periods.

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	Dec 31, 2024	Sept. 30, 2024	June 30, 2024	Mar 31, 2024	Dec 31, 2023	Sept. 30, 2023	June 30, 2023	Mar 31, 2023
Adjusted Licensing Revenue*	177,011	210,632	142,093	121,610	134,746	38,571	221,450	416,109

*Licensing Revenue has been adjusted to reflect licensing revenues, net of actual bad debts recognized in subsequent periods that would relate to the previous periods' income.

COST OF SALES/DIRECT COSTS

Consolidated cost of sales were $563,487 or 39% of gross revenue for the six-month period ended December 31, 2024, compared to $450,582 or 31% of gross revenue, for the six-month period ended December 31, 2023. The increase in cost of sales is the result of a change in the mix of consolidated sales for the quarter compared to the previous year on an accounting basis. For the six-month period ended December 31, 2024, we had sales growth on alcohol-free wine and the year ago accounting based revenues also had higher DehydraTECH licensing revenues that do not have significant costs of sales.

OPERATING EXPENSES

Ordinary operating expenses include selling, delivery and marketing expenses, employee expenses, interest, insurance, professional fees, and other general and administrative expenses. For the six-month period ended December 31, 2024, operating expenses were $1,092,523, compared to $1,408,862 for the six-month period ended December 31, 2023. The decrease was primarily driven by reductions in wages and salaries, stock-based compensation, insurance, depreciation and consulting fees, partially offset by increases in selling and delivery expenses from higher alcohol-free wine sales and interest expenses related to the Holdco loan obtained during the period.

OPERATING EXPENSES – ONE TIME

For the six-month period ended December 31, 2024, the Company incurred non-cash expenses totaling $298,235 which includes expenses related to the vesting of restricted share units, depreciation, and accrued interest. For the six-month period ended December 31, 2023, the Company incurred non-cash expenses of $472,981, which also includes expenses related to the vesting of restricted share units, bad debt, depreciation and accrued interest.

OTHER INCOME (EXPENSES)

For the six-month period ended December 31, 2024, the Company recognized other income totaling $30,468, which includes a recovery of bad debts of $21,345 and a foreign exchange gain of $9,123. For the six-month period ended December 31, 2023, the Company recognized other expenses totaling $11,637, including a foreign exchange loss of $10,665 and other expenses of $972.

NET EARNINGS

The Company improved its net earnings by 34%, reporting a net loss of $435,124 for the six-month period ended December 31, 2024, compared to a net loss of $662,251 for the six-month period ended December 31, 2023. The improvement was primarily driven by a 22% reduction in operating expenses.

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The basic and diluted loss per share for the six-month period ended December 31, 2024 was $0.13 per share, compared to $0.20 for the six-month period ended December 31, 2023, representing a 35% improvement.

SECOND QUARTER FY 2024 RESULTS OF CONSOLIDATED OPERATIONS

Results for the Three-Month Period Ended	Dec. 31, 2024	Dec. 31, 2023	Dec. 31, 2022
	$	$	$
Gross Revenue	768,789	1,239,884	1,826,912
Chargebacks & listing fees	(107,666)	(257,111)	(249,079)
Net Revenue	661,123	982,773	1,577,833
Cost of sales	(314,663)	(445,555)	(738,156)
Gross profit	346,460	537,218	839,677
Expenses
Accretion expense	-	-	3,277
Bad debt expense	-	163,714	500
Bank charges and interest	11,534	363	4,312
Consulting fees	-	49,901	-
Depreciation	62,333	67,043	80,499
Filing and transfer agent fees	4,679	8,398	11,900
Insurance	26,101	20,403	75,591
Interest on promissory note	65,573	63,496	62,655
Management fees	21,853	20,705	27,750
Marketing	273	317	26,322
Office and miscellaneous	24,867	28,877	53,102
Professional fees	5,461	23,093	115,989
Stock-based compensation	14,791	19,531	53,097
Travel and meal allowance	203	5,487	20,780
Wages and salaries	220,004	257,663	264,707
Selling and delivery	91,088	126,802	230,257
	548,760	855,793	1,030,738
Loss before other income (expenses)	(202,300)	(318,575)	(191,061)
Other income (expenses)
Foreign exchange gain (loss)	14,905	(15,738)	(26,583)
Other income	-	-	2,627
	14,905	(15,738)	(23,956)
Net loss and comprehensive loss	(187,395)	(334,313)	(215,017)

REVENUES

Consolidated net revenues for the three-month period ended December 31, 2024, were $661,123 on an accounting basis compared to $982,773 for the three-month period ended December 31, 2023. This 33% decrease vs. prior year was driven by a few factors: (i) with respect to our Vin(Zero) business, last year we

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had larger inventory production orders and associated sales revenue in Q2 after a low Q1, and this year our planned ordering pattern delivered smoother revenue across both Q1 and Q2, with first half net revenue up 20% in total, and (ii) in our DehydraTECH licensing business, as previously mentioned, revenues were down this quarter when compared with last year's unadjusted Q2 revenues, although when compared with last year's Q2 revenues as subsequently adjusted down due to write-offs, DehydraTECH revenues increased in the quarter.

COST OF SALES/DIRECT COSTS

Consolidated cost of sales were $314,663 or 41% of gross revenue for the three-month period ended December 31, 2024, compared to $445,555 or 36% of gross revenue, for the three-month period ended December 31, 2023. The decrease in cost of sales is the result of the planned ordering and inventory management cycle resulting in less alcohol-free sales for Q2 FY 2025 compared to a very high Q2 FY 2024. The increase in % of gross revenue is due to higher DehydraTECH licensing revenues on an accounting basis in Q2 FY 2024 that do not have significant costs of sales.

OPERATING EXPENSES

Ordinary operating expenses include selling, delivery and marketing expenses, employee expenses, interest, insurance, professional fees, and other general and administrative expenses. For the three-month period ended December 31, 2024, operating expenses were $548,760, compared to $855,793 for the three-month period ended December 31, 2023. The decrease was primarily driven by reductions in wages and salaries, stock-based compensation, bad debt, professional fees, selling and delivery and consulting fees, partially offset by increases in management fees, insurance and interest expenses related to the Holdco loan obtained during the period.

OPERATING EXPENSES – ONE TIME

For the three-month period ended December 31, 2024, the Company incurred non-cash expenses totaling $150,975 which includes expenses related to the vesting of restricted share units, depreciation, and accrued interest. For the three-month period ended December 31, 2023, the Company incurred non-cash expenses of $313,784, which also includes expenses related to the vesting of restricted share units, bad debt, depreciation and accrued interest.

OTHER INCOME (EXPENSES)

For the three-month period ended December 31, 2024, the Company recognized other income totaling $14,905, solely related to foreign exchange gain. For the three-month period ended December 31, 2023, the Company recognized other expenses totaling 15,738, solely related to foreign exchange loss.

NET EARNINGS

The Company improved its net earnings by 44%, reporting a net loss of $187,395 for the three-month period ended December 31, 2024, compared to a net loss of $334,313 for the three-month period ended December 31, 2023. The improvement was primarily driven by a 36% reduction in operating expenses.

The basic and diluted loss per share for the three-month period ended December 31, 2024 was $0.06 per share, compared to $0.10 for the three-month period ended December 31, 2023, representing a 40% improvement.

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SELECTED QUARTERLY INFORMATION

The following table summarizes certain financial information of the Company for the quarters indicated below:

	Dec 31, 2024	Sept 30, 2024	June 30, 2024	March 31, 2024	Dec 31, 2023	Sept. 30, 2023	June 30, 2023	March 31, 2023
Gross Revenue	$768,789	$684,859	$601,326	$557,218	$1,239,884	$226,057	$608,095	$468,297
Net Revenue	$661,123	$529,295	$473,040	$525,633	$982,773	$226,057	$484,028	$468,297
Direct Costs	$314,663	$248,824	$329,308	$86,801	$445,555	$5,027	$169,487	$14,877
Gross Profit	$346,460	$280,471	$143,732	$438,832	$537,218	$221,030	$314,541	$453,420
Net Loss	$187,395	$247,729	$633,183	$329,501	$334,313	$327,938	$983,019	$263,295
Total Assets	$3,059,520	$3,112,954	$3,087,123	$3,612,621	$3,882,180	$4,042,167	$4,495,982	$5,180,124
Total Liabilities	$3,394,894	$3,275,724	$3,017,970	$2,903,727	$2,860,811	$2,706,016	$2,861,811	$2,720,838
Shareholder' Equity (Deficiency)	($335,374)	($162,770)	$69,153	$708,894	$1,021,369	$1,336,151	$1,634,171	$2,459,286

LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL POSITION

The Company's principal capital needs are for operating expenses related to inventory, general and administrative, public company costs, and marketing expenses for its two main lines of business. The Company's alcohol-free beverage business requires significant periodic investments in finished goods production orders that are not necessary in the DehydraTECH licensing business. As discussed, we have dramatically reduced the order-to-cash cycle and the level of working capital in this business. However, in Q1, the company received an unsecured loan of $250,000 from Holdco (St. Catharines) Ltd. to help support the inventory purchasing and to pay certain operational costs related to its alcohol-free wine business.

Additional investments may be made to support the Company's DehydraTECH licensing business to monetize the DehydraTECH intellectual property rights.

The Company will continue prioritizing the push to achieve positive quarterly cash flow without additional fundraising through its revenue generation and cost containment. However, as our DehydraTECH business relies on the US cannabis industry, we continue to face challenges with price compression affecting our licensing fees and timely collection of accounts receivable.

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To that end, we have had productive dialogue with Holdco, our lender, regarding potential extension of the maturity date of the unsecured loan if needed.

WORKING CAPITAL

As of December 31, 2024, the Company had a positive working capital of $113,930 compared to a positive working capital of $253,709 at June 30, 2024.

Balances for the Period Ended	Dec. 31, 2024	June 30, 2024
Cash and cash equivalents	$40,134	$66,001
Accounts receivable	$487,865	$454,785
Total Cash + Accounts receivable	$527,999	$520,786

CASH FLOWS

During the six-month period ended December 31, 2024, Hill experienced a 34% improvement in cash flows used in operating activities, with negative cash flow of $268,367 compared to negative cash flow of $407,570 for the six-month period ended December 31, 2023. This improvement was primarily due to a decrease in the changes in accounts payable and accrued liabilities compared to the prior year quarter.

During the periods ended December 31, 2024, and 2023, there were no cash flows from investing activities.

Cash provided by financing activities for the six-month period ended December 31, 2024, totaled $242,500. The positive cash flow was driven by proceeds from an unsecured loan of $250,000 received from Holdco (St. Catharines) Ltd., reduced by a $7,500 commitment fee paid to the same party. The negative cash flow in the prior year quarter was due to the Company's partial repayment of promissory notes payable.

CONTRACTUAL OBLIGATIONS

A summary of the Company's contractual obligations for future periods is as follows:

Contractual Obligations	Payments due in:				Total
	1 year	2-3 years	4-5 years	Over 5 years
Accounts payable and accrued liabilities	$329,189	-	-	-	$329,189
Holdco Loan	$260,069	-	-	-	$260,069
Note payable	$58,302	$148,500	$124,538	$2,478,838	$2,810,178
Total	$647,560	$148,500	$124,538	$2,478,838	$3,399,436

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14

SHARE CAPITAL

The Company is authorized to issue an unlimited number of Common Shares of which 3,282,812 Common Shares are issued and outstanding as of the date hereof.

No common shares, stock options or RSUs were issued during the six-month period ended December 31, 2024.

CAPITAL RESOURCES

As of December 31, 2024, the Company did not have commitments for capital expenditures.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the financial performance or financial condition of the Company.

TRANSACTIONS WITH RELATED PARTIES

The Company considers its executive officers and directors to be key management personnel. The Company incurred the following amounts to related parties during the respective periods for key management personnel compensation.

During the six-month period ended December 31,	2024	2023
Total salaries, benefits and management fees	$352,318	$375,111
Stock-based compensation	$30,597	$49,449
Management and director compensation	$382,915	$424,560

Included in accounts payable and accrued liabilities as at December 31, 2024 is $60,707 (June 30, 2024: $42,751) payable to directors and officers of the Company for officer wages, including vacation payable. The amount is non-interest bearing and unsecured.

On August 9, 2024, Hill Street Marketing Inc., a wholly-owned subsidiary of the Company, received an unsecured loan of $250,000 from Holdco, the Company's largest shareholder. The loan bears interest at a rate of 10% per annum and matures on the earlier of August 9, 2025, or upon the occurrence of certain events as outlined in the Loan Agreement. In connection with the loan, the Company paid a commitment fee of $7,500.

OUTLOOK

Both the Company's alcohol-free beverage and DehydraTECH licensing businesses have growth potential in on-trend, global consumer categories. We have made significant advances in transforming our alcohol-free beverage business model for efficiencies and better financial metrics.

While we have faced and will continue to face challenges associated with the growing US cannabis industry, we have expanded our US commercial operations on a state-by-state basis for DehydraTECH licensing and we have developed a broad portfolio of consumer form factors with an expanded ecosystem

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of multi-state partners that are pushing forward in FY 2025. However, as mentioned earlier, we anticipate that licensing fee rates will likely continue to be pressured in our US DehydraTECH business, even as the industry grows and we continue to expand operations.

OUTSTANDING SHARE DATA

As of February 28, 2025, the Company has the following securities issued and outstanding:

Security Designation	Number issued and outstanding
Common Shares	3,282,812
Incentive Stock Options	183,713
Restricted Share Units	141,482
Fully Diluted	3,608,007

CRITICAL ACCOUNTING ESTIMATES

The determination of income tax is inherently complex and requires making certain estimates and assumptions about future events. While income tax filings are subject to audits and reassessments, the Company has adequately provided for all income tax obligations. However, changes in facts and circumstances as a result of income tax audits, reassessments, jurisprudence and any new legislation may result in an increase or decrease in the provision for income taxes.

Calculation of the net book value of machinery and equipment requires management to make estimates of the useful economic life of the assets, residual value at the end of the asset's useful economic life, method of depreciation and whether impairment in value has occurred. Residual values of the assets, estimated useful lives and depreciation methodology are reviewed annually with prospective application of any changes, if deemed appropriate. Changes to estimates could be caused by a variety of factors, including changes to the physical life of the assets. A change in any of the estimates would result in a change in the amount of depreciation and, as a result, a charge to net income recorded in the period in which the change occurs, with a similar change in the carrying value of the asset on the balance sheet.

GOING CONCERN

As at December 31, 2024, the Company had not yet achieved profitable operations, had a net loss of $435,124 (December 31 2023: $662,251), accumulated deficit of $26,390,832 (June 30, 2024: $25,955,708), and expects to incur further losses in the foreseeable future, all of which indicate the existence of a material uncertainty that may cast significant doubt upon the Company's ability to continue as a going concern. We continue, along with the cannabis industry, to face challenges with price compression and timely collection of accounts receivable. Realization values may be substantially different from carrying values as shown and these condensed interim consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. Such adjustments could be material.