Ms. Hamutal Yitzhak reports

ELSE NUTRITION REPORTS SECOND QUARTER 2023 FINANCIAL RESULTS

Else Nutrition Holdings Inc. has released its second quarter 2023 financial results for the period ending June 30, 2023. The financial statements and MD&A (management's discussion and analysis) are available on SEDAR under the company's profile.

Financial highlights:

• Q2 2023 total revenues were $2.4-million, a 3-per-cent increase versus $2.3-million in Q2 22. H1 2023 revenues increased 35 per cent YoY (year over year), versus H1 2022.
• Sales to brick-and-mortar retailers in the United States and Canada during Q2 2023 increased by 157 per cent YoY, versus 2Q22. As of 2Q23, Else products were listed in nearly 13,000 stores in North America, compared with 3,000 stores in Q2 2022. Management expects to reach over 15,000 listed stores and over 40,000 points of distribution by the end of 2023.
• Total e-commerce sales during Q2 2023 decreased by 42 per cent YoY, versus 2Q22. The decline in sales was the consequence of the company's decision to divert product from e-commerce channels in favour of brick-and-mortar retailers in the last three quarters. The company is amid rebuilding its sales velocity on Amazon and its own e-commerce store and expects these channels to return to growth in H2 2023. E-commerce sales increased 26 per cent in Q2 2023 versus Q1 2023.
• Cash balance as of June 30, 2023, was $4.6-million, including restricted cash and short-term bank deposit. On July 10, Else received an additional $3-million ($2.5-million (U.S.)) of investment from Lind Partners. The total amount for potential investment from Lind Partners was up to $19-million ($13-million (U.S.)) of which the company has drawn down $8.1-million (U.S.).

Recent business highlights:

• Expanded distribution to more than 7,000 CVS stores, more than 1,100 Walmart stores, 900 Shoppers Drug Mart locations across 11 provinces and territories, over 440 Loblaws stores, over 600 Sobey's stores, 161 Giant Food Stores and 110 Schnucks Supermarkets.
• Else Kids Vanilla, Else Kids Cocoa, and Else Toddler Organic & Else Toddler Omega, were approved for U.S. federal insurance billing under the Center for Medicare & Medicaid Services, opening new avenues for distribution and increasing the accessibility of Else's plant-based nutrition products.
• Else nutritional products for toddlers and kids have been approved by the Oklahoma Women, Infants and Children (WIC) program. This authorization comes on the heels of the company's recent achievements of product approvals in Arizona and under U.S. federal insurance billing, reflecting the continued execution of its strategic vision to broaden the accessibility of plant-based nutrition products across the United States.
• Expanded production capacity by adding a second manufacturing facility in the U.S. and launching its first production facility in Europe. The additional facilities will increase the company's production capacity by about three times, greatly reducing the risk of future out of stock situations. The company anticipates the new scaled manufacturing capacity to decrease its manufacturing costs, beginning in H2 2023.
• Expected to launch kids ready to drink products in H2 2023 in the U.S. and Canada and adult ready-to-drink products in 2024.
• The company plans to enter western Europe in H2 2023. The initial launch will be in the United Kingdom through Amazon and natural food distributors, with other European countries to follow.
• The company plans to enter Australia in H2 2023. The initial launch will be through Amazon, to be followed by drug and grocery chains.
• Received critical approval by the Institutional Review Board (IRB) of the infant growth study protocol for the testing of the Else Infant Formula.

Management commentary

Hamutal Yitzhak, chief executive officer of Else Nutrition, commented: "Q2 2023 was another step forward in our mission to become a global leader in the plant-based nutrition arena. We are continuing to expand our points of distribution among various geographies and channels. Else has now become a national brand in North America and we are now being sold in prominent retailers such as Walmart, CVS and Shoppers Drug Mart. We expect to reach over 15,000 retail locations by the end of 2023.

"Our two new manufacturing facilities in the U.S. and Europe are now operational, more than tripling our production capacity, allowing us to properly meet our customers' growing demands and mitigating the risk of future out-of-stock situations. In addition, our new facilities have made our production more efficient and cost-effective and we expect to realize a lower cost of production leading to higher margin in upcoming quarters.

"While we have now right-sized our production and inventory levels, there is still work to do to remedy the effects caused by our production issues. After approximately nine months of diverting inventory from e-commerce channels in favour of brick-and-mortar customers, we are now in the process of rebuilding our sales velocity in e-commerce channels which should lead to increased growth in H2 2023.

"Our sales to retail stores remain robust as retailers are seeing healthy sales of our products and we continue to grow our store count. Importantly, major retailers are expanding the number SKUs. As an example, we recently announced that Walmart has added both Toddler Organic and Toddler Omega to its shelves alongside the already available Super Cereal and Kids Shake products.

"Our international expansion remains on track. Our launch into the Canadian market in Q3 2022 was above our expectations and the consumer enthusiasm has continued. Furthermore, we are excited at the prospect of entering Western Europe and Australia in H2 2023.

"Our growth objectives in 2023 and beyond remain intact. However, given the challenging capital markets environment, we are now even more focused on expense management, capital efficiency and being good stewards of capital. In recent months, we have reduced expenses across all areas of our business and implemented significant efficiencies. Total operating expenses in H1 2023 decreased 17 per cent versus the same period last year, despite our revenues increasing 35 per cent. We believe that our revised expense structure combined with our anticipated top-line growth and margin expansion will allow us to reach cash flow breakeven during H2 2024."

FDA update

As part of the pathway to bring its infant formulation to market under FDA and other authorities' approvals, Else concluded two successful preclinical safety studies on its plant-based infant formula, to demonstrate safety and nutrient bioavailability of the infant formula and its ingredients. The results demonstrated proper growth, similar to dairy-based infant formula, in a neonatal preclinical model, as well as the infant formula protein efficiency and quality. Those are the key two steps out of three, on the path to obtaining the FDA and other regulatory permits to bring the product to market.

In February, 2023, the company announced that the Institutional Review Board (the ethical committee) approved the infant growth study protocol for the testing of the Else Infant Formula. As a final step before initiating the study, the company has now submitted the preclinical studies results, as well as the infant growth study protocol, to the FDA for review and is in discussion with the FDA for the infant formula optimization prior to the clinical study initiation, in parallel to continuously seeking for a comparator formula which is currently unavailable due to the continuous infant formula shortage followed by several recent product recalls in the U.S.

Conference call

Ms. Yitzhak, CEO and co-founder, will hold a conference call to discuss the quarter's financial results at 10 a.m. ET on Aug. 14, 2023. Interested parties can listen through a live webcast on-line.

A replay will be available after the call, in the investors section of the company's website.

About Else Nutrition Holdings Inc.

Else Nutrition Holdings is a food and nutrition company in the international expansion stage focused on developing innovative, clean and plant-based food and nutrition products for infants, toddlers, children and adults.

We seek Safe Harbor.