Mr. Francois Roberge reports

LSL PHARMA GROUP REPORTS ITS FOURTH QUARTER AND YEAR-END 2023 RESULTS AND HIGHLIGHTS

LSL Pharma Group Inc. has released its financial results for the year ended Dec. 31, 2023 (FY 2023).

"During the year, LSL Pharma has completed an important corporate milestone by listing its shares on the TSX Venture Exchange. This event represents a key catalyst that enables our company to access the required capital to accomplish its growth objectives. During the year, we have successfully completed the relocation of our LSL Laboratory operations, thus providing 300-per-cent increased capacity for the site. During the same period, we successfully completed the Health Canada certification and improvement of our Steri-Med plant, with production capacity now reaching historical highs. Both sites are well positioned to achieve record levels in 2024, as we continue to add production equipment to take advantage of market demand for our products and services," commented Francois Roberge, president and chief executive officer.

Commenting on the 2023 results, Luc Mainville, executive vice-president and chief financial officer, said: "During the year, we completed a series of financial transactions aimed at positioning LSL Pharma for growth over the coming years. By raising in excess of $20-million and eliminating $3.8-million of debts and liabilities, we are taking pro-active measures to strengthen our balance sheet and improve our financial performance."

Two thousand twenty-three fiscal year financial results:

• Revenues have increased by 22 per cent at $10-million in FY 2023 compared with $8.2-million for FY 2022. As mentioned before, revenues have been positively impacted by the sales of erythromycin ophthalmic ointment in the United States market, as the company took advantage of a product shortage and successfully secured (through the company's U.S. partner -- Fera Pharmaceuticals) a temporary licence granted by the FDA (Food and Drug Administration) to sell its Canadian-labelled product to U.S. hospitals. The licence has since been extended to June 30, 2024, and, consequently, the company's revenues for the first part of FY 2024 will also be positively impacted by these non-recurrent sales.
• Gross margins for FY 2023 have increased by $3.8-million compared with FY 2022, at $1.6-million compared with negative margins of $2.2-million. While the company's margins have improved significantly between the two fiscal years, its LSL plant has only reached its normal operating level at the end of FY 2023. LSL Pharma Group expects LSL Laboratory to better contribute to the overall results in FY 2024. Similar to the company's revenues, its gross margins have been positively impacted in the later part of the year with sales of its erythromycin product into the U.S.
• Adjusted gross margin percentages for FY 2023 after eliminating the impact of depreciation, amortization, costs related to shutdown, plant upgrades and moving costs stood at 12 per cent, down from 41 per cent for FY 2022. LSL Pharma Group's adjusted gross margins for FY 2022 had been favourably impacted by a large adjustment for plant shutdown and relocation costs of $4.5-million, compared with a nominal impact of $100,000 in FY 2023.
• EBITDA (earnings before interest, taxes, depreciation and amortization) for FY 2023, after eliminating the impact of financial expenses, depreciation and amortization, was a loss of $5.5-million for FY 2023 compared with a loss of $6.1-million for the prior fiscal year, a 10-per-cent improvement.
• Adjusted EBITDA for FY 2023 was a $500,000 loss compared with a gain of $1.5-million for FY 2022. Again, the FY 2022 results were favourably impacted by the $4.5-million adjustment for plant shutdown and relocation costs, compared with a nominal impact of $100,000 in FY 2023.
• Adjusted EBITDA before taking into consideration the impact of plant shutdown and relocation show a $600,000 loss for FY 2023, compared with $3-million loss in FY 2022, a $2.4-million improvement.
• Net loss for the 2023 fiscal year of $8.5-million compared with a loss of $8.1-million for FY 2022.

Q4 2023 financial highlights:

• Q4 2023 revenues of $3.5-million, up 51 per cent over Q4 2022 of $2.3-million, positively impacted by the sales of erythromycin ophthalmic ointment in the U.S. market.
• Q4 2023 EBITDA profit of $300,000 compared with an EBITDA loss of $2.2-million for Q4 2022, positively impacted by the margins from incremental sales of erythromycin ophthalmic ointment in the U.S. market.
• Q4 2023 net loss of $500,000, compared with a net loss of $3-million for Q4 2022.

Q4 2023 business highlights:

• Oct. 18, 2023 -- the corporation entered into an exclusive agreement with Fera Pharmaceuticals to provide erythromycin ophthalmic ointment USP (five milligrams per gram (mg/g)) for the treatment of newborns in U.S. hospitals. The FDA granted Fera temporary discretion to import LSL Pharma's one-gram ointment product for the prevention of gonococcal ophthalmia neonatorum.
• Oct. 25, 2023 -- the corporation announced the signing of new orders representing $2.6-million of revenues for LSL Laboratory.
• Nov. 1, 2023 -- the corporation secured gross proceeds of $2,293,000, representing the first tranche of an unsecured convertible debentures brokered private placement, through the issuance of 229,300 debentures at a price of $10 per debenture. The net proceeds of the offering will be used for working capital, capital expenditures and for general corporate purposes. The offering was led by iA Capital Markets as sole agent. The corporation has received conditional approval to list the debentures on the TSX Venture Exchange after the expiry of a four-month hold period. The debentures are expected to trade under the symbol LSL.DB. Each debenture will, at the option of the holder, be convertible in its entirety into Class A shares of the capital stock of the company at any time prior to the close of business on the earlier of: (i) the last business day immediately preceding the maturity date; and (ii) the date fixed for redemption, at a conversion price of 70 cents per Class A share, subject to adjustment in certain events. A second tranche representing gross proceeds of $995,000 closed on Dec. 8, 2023.
• Dec. 4, 2023 -- the corporation appointed Mr. Mainville as executive vice-president and chief financial officer. Mr. Mainville brings 30 years of experience in the capital markets and life sciences industry. He is recognized for his financial and operational leadership, having been associated with several fast-growing companies.

Subsequent events

Subsequent to the company's fiscal year-end 2023, the corporation completed a series of transactions aimed at strengthening its balance sheet, and improved its working capital and other financial ratios:

• On Feb. 2, 2024 -- the corporation borrowed $750,000 from a company controlled by an officer at a 12-per-cent interest rate, repayable on Feb. 1, 2026; $271,000 of this amount was converted into the first tranche of the private placement closed on March 7, 2024.
• On Feb. 29, 2024 -- the corporation signed an amendment with a debentures holder representing $100,000 to extend the repayment date from March 9, 2024, to March 9, 2026. As a consideration for the extension, the interest rate has been increased from 6 per cent to 9.5 per cent.
• March 19, 2024 -- the corporation announced the closing of a non-brokered private placements for $6.4-million, representing the first closing of the $8-million combined financings announced on March 7, 2024. Pursuant to the financing, the corporation has issued 16,086,893 units at a price of 40 cents per unit for aggregate gross proceeds of $6,434,000. Each unit consists of one Class A share of the corporation and one common share purchase warrant. Each warrant entitles the holder, subject to adjustments in certain cases, to purchase one common share at a price of 70 cents for a period of 36 months following the closing of the financing. Each issued unit, common share, warrant and warrant share will be subject to a four-month hold period under the applicable securities laws. There were no finders' fees paid in connection with this private placement. The financing includes $2,685 in cash proceeds, and the conversion of $3,749 of the corporation's debts in units. The cash proceeds of the financing will be used to further expand production capacity at each of the LSL Laboratory and Steri-Med Pharma plants, and for general working capital purpose.
• The conversion of debt into units has helped strengthen the corporation's balance sheet by eliminating a total of $3.8-million of debts/liabilities, as described below:
  • Accounts payable of $1,366,000;
  • Secured debenture of $500,000 (nominal amount);
  • Short-term note payable of $1.16-million;
  • Long-term debt of $590,000.
• April 24, 2024 -- LSL Pharma Group announced the second and final tranche of its private placement financing of units for $3,794,000, representing the second closing of the upsized $7.5-million non-brokered private placement announced on April 11, 2024. The second tranche follows an initial first closing of $2.7-million announced on March 19, 2024, bringing the total gross cash proceeds from the private placement to $6.5-million when combined with the previous closing. In connection with this financing, the corporation paid to a finder, dealing at arm's-length with the corporation, finders' fees for a total of $30,000 in cash and issued 75,000 finders' warrants. Each finder's warrant entitles the holder to purchase one common share at a price of 70 cents for a period of 18 months following the closing of the financing.
• Subsequent to year-end, the corporation repaid multiple debts totalling $290,000.
• On April 23, 2024 -- LSL Pharma announced the addition of Diane Beaudry and Mario Paradis, as new members to its board of directors. Ms. Beaudry is a certified professional accountant and certified director by the Institute of Corporate Director, and has extensive experience in the field of finance and boards of directors. Mr. Paradis is actually the interim CFO of Exfo Inc. Prior to this, he was vice-president and chief financial officer of Neptune Wellness Solutions from 2015 to 2019. Prior to 2015, he was vice-president and chief financial officer at Atrium Innovations.

Financial statements, and management's discussion and analysis

LSL Pharma Group's financial statements, and management's discussion and analysis for the year-ended Dec. 31, 2023, are available on SEDAR+ and on the corporation's website.

Grant of options

The corporation granted an aggregate of 1,555,000 stock options to certain officers and directors in accordance with the corporation's long-term incentive compensation plan. The options will be exercisable at an exercise price of 40 cents per Class A common share of the corporation until April 29, 2034. All options will vest on grant.

About LSL Pharma Group Inc.

LSL Pharma is an integrated Canadian pharmaceutical company specializing in the development, manufacturing and commercialization of high-quality sterile ophthalmic pharmaceuticals, as well as natural health products in solid dosage forms.

We seek Safe Harbor.