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Lattice Biologics Ltd. Reports Fourth Quarter 2017, First Quarter 2018, and Year End 2017 Highlights

V.LBL.H | April 30, 2018

Lattice Biologics Ltd. Reports Fourth Quarter 2017, First Quarter 2018, and Year End 2017 Highlights

Gross Margins Increase to 66% Q1 2018 from 37% Q1 2017

Lattice Biologics Ltd. (TSX-V: LBL) (OTCBB: LBLTF) (“Lattice Biologics” or the “Company”) announces financial results for the fourth quarter 2017, year ended September 30, 2017, and first quarter 2018:

Highlights:

Gross profit margin was 65.8% for the three months ended December 31, 2017, compared to 36.6% for the three months ended December 31, 2016.
Cash flow positive from operations for the three months ended December 31, 2017.
Successfully relocated processing facility to Belgrade, Montana, while maintaining adequate inventory levels to maintain sales and expanding reach into personal injury and dental markets.
Maintained American Association of Tissue Bank certification after relocation of processing facilities.
Penetrated new international markets in Columbia and Dominican Republic.
Launched new products into higher margin dental market.

Financial Highlights:

Successfully relocated operations to Belgrade, Montana from Scottsdale, Arizona, resulting in operational efficiencies of over $ 230,000 per month, year over year.
Reduced net loss from $1,213,490 ($0.02/share) for three months ended December 31, 2016 to $132,726 or ($0.00/share) for the three months ended December 31, 2017.
Reduced net loss from $7,852,007 ($0.16/share) for fiscal year ended 2016 to $1,524,804 or ($0.02/share) for fiscal year ended 2017.
Total liabilities reduced from $10.5 million for fiscal year ended 2016 to $ 7.7 million for fiscal year ended 2017.
Cash from operations was $25,858 for quarter ended December 31, 2017 compared to a deficit of $522,495 for quarter ended December 31, 2016.
Negative EBITDA for quarter ended December 31, 2017 was $85,509 compared to negative EBITDA of $571,408 for quarter ended December 31, 2016.

2017 Business Update:

“After a careful review of overhead and operational throughput, the Company decided to relocate operations to Belgrade, Montana in June of 2017. While we expected the move to generate savings of approximately $ 80,000 per month, the actual savings turned out to be roughly $230,000 per month as borne out by our year over year financials,” said Guy Cook, CEO of Lattice Biologics.

“As a result, we have had our first quarter of being cash flow positive from operations, and a substantial increase in margins to 66% of revenues. Although sales are down year over year and quarter over quarter, the Company thought it would be prudent to not recognize revenues in the personal injury market until we have a clearer understanding of timeliness associated with reimbursements in this market.

“We remain focused on higher margin products as we continue to grow the business. With the reduction in overhead and associated expenses, the Company is well positioned to grow and be profitable in 2018 and beyond,” continued Cook.

The Company continues to make significant improvements on the balance sheet, and is working with creditors to convert certain balances to equity for working capital purposes.

The Company restructured Grenville debt to favorable terms, including the conversion of $2.7 million of royalty funding into equity, reduction of interest payments on the Grenville Secured Note from 12.5% to 4.244%, and reduced remaining royalty charges from 6% to 1.25%.

Lattice Biologics maintains its commitment to honoring the gift of donation by implementing a strong quality control environment for the recovery and processing of donors. The Company has significantly increased its processing efficiencies, and has substantial inventory reserves to meet customer demand.

As indicated below, the Company continues efforts to diversify the sales mix across the new higher margin product lines added in 2015, 2016, and 2017.

Fourth Quarter and Year End Financial Results (all figures denoted in USD):

The product launches have been well received by surgeons and the Company continues to replace unprofitable legacy contracts and focus on the newer higher margin products. Lattice Biologics’ total revenue was $362,137 in the three months ended September 30, 2017 compared to $732,905 for the three months ended September 30, 2016, a decrease of 50%, as shown in the following quarter sales table:


	Dec-31 2017				Sep-30 2017				Jun-30 2017				Mar-31 2017				Dec-31 2016				Sep-30 2016				Jun-30 2016				Mar-31 2016

ADM dermis	$	73,399	20	%	$	54,700	14	%	$	72,370	11	%	$	212,740	28	%	$	208,912	23	%	$	130,575	18	%	$	220,365	23	%	$	48,336	5	%
DBM putty		18,749	5	%		-	0	%		17,941	3	%		62,964	8	%		58,110	7	%		151,071	21	%		246,235	25	%		104,856	10	%
Bone scaffold		212,972	59	%		315,152	79	%		454,132	66	%		403,027	53	%		567,841	64	%		411,131	56	%		505,603	52	%		847,326	84	%
Other		57,017	16	%		28,690	7	%		139,583	20	%		86,626	11	%		56,588	6	%		40,128	5	%		117	0	%		6,457	1	%

Total revenue	$	362,137	100	%	$	398,542	100	%	$	684,026	100	%	$	765,357	100	%	$	891,451	100	%	$	732,905	100	%	$	972,320	100	%	$	1,006,975	100	%

The following table sets out selected unaudited financial information, prepared in accordance with IFRS. The information contained herein is drawn from interim financial statements of the Company for each of the following quarterly periods ending:


	Dec-31 2017			Sep-30 2017			Jun-30 2017			Mar-31 2017			Dec-31 2016			Sep-30 2016			Jun-30 2016			Mar-31 2016

Revenue	$	362,137		$	398,542		$	684,026		$	765,357		$	891,451		$	732,905		$	972,320		$	1,006,975
Cost of sales		123,938			554,717			514,761			533,957			564,831			558,396			744,094			818,884
Gross profit		238,199			(156,175	)		169,265			231,400			326,620			174,509			228,226			188,091
Operating costs (i)		336,332			536,590			605,968			950,833			917,809			1,267,507			836,955			965,394
EBITDA (ii)		(85,509	)		(678,425	)		(416,922	)		(699,652	)		(571,408	)		(1,072,009	)		(577,075	)		(763,988	)

Certain adjustments have been made to the quarterly information for the first three quarters of the fiscal year ended September 30, 2016, as compared to data contained in the quarterly filings for such quarters. These changes relate to certain adjustments for cost of sales and operating costs that were not recognized until the fourth quarter of such fiscal year.

(i) Operating costs are defined as all general and administrative costs, professional fees, rent, salaries and benefits, sales and marketing, and utilities expenses.

(ii) EBITDA is defined as gross profit less operating costs (as defined above).

About Lattice Biologics Ltd.:

Lattice Biologics recently completed its RTO, becoming a publicly traded company on January 4, 2016 and is traded on the TSX-V under the symbol: LBL. The Company is an emerging personalized/precision medicine leader in the field of cellular therapies and tissue engineering, with a focus on bone, skin, and cartilage regeneration.

Lattice Biologics develops and manufactures biologic products to domestic and international markets. The Company’s products are used in a variety of surgical applications.

Lattice Biologics maintains its headquarters, laboratory and manufacturing facilities in Belgrade, Montana as well as offices in Phoenix, Arizona. The facility includes ISO Class 1000 and ISO Class 100 clean rooms, and specialized equipment capable of crafting traditional allografts and precision specialty allografts for various clinical applications. The Lattice Biologics team includes highly trained tissue bank specialists, surgical technicians, certified sterile processing and distribution technicians, and CNC operators who maintain the highest standards of aseptic technique throughout each step of the manufacturing process. From donor acceptance to the final packaging and distribution of finished allografts, Lattice is committed to maintaining the highest standards of allograft quality, innovation, and customer satisfaction.

Lattice Biologics maintains all necessary licensures to process and sell its tissue engineered products within the U.S. and internationally. This includes Certificates to Foreign Governments from the U.S. Food and Drug Administration (FDA) and registrations for 29 countries, which allow the export of bone, tendon, meniscus, ligament, soft tissue, and cartilage products outside of the U.S.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Statement on Forward-Looking Information:

Certain information contained in this news release constitutes “forward-looking statements” within the meaning of the ‘safe harbour’ provisions of Canadian securities laws. All statements herein, other than statements of historical fact, are to be considered forward looking. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “planned”, “potential”, “future”, “expected”, “could”, “possible”, “goal”, “intends”, “will” or similar expressions. Forward-looking statements in this news release include, without limitation: information pertaining to the Company’s strategy, plans, or future financial performance, such as statements with respect to the Transaction, and other statements that express management’s expectations or estimates of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Lattice to be materially different from those expressed or implied by such forward-looking statements.

Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management as of the date such statements are made, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The factors and assumptions that could prove to be incorrect, include, but are not limited to: that market prices will be consistent with expectations, the continued availability of capital and financing, and that general economic, market and business conditions will be consistent with expectations. The forward-looking statements are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statements, except as required by law. Readers are cautioned not to put undue reliance on these forward-looking statements.

United States Advisory: The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), and may not be offered, sold, or resold in the United States or to, or for the account of or benefit of, a U.S. Person (as such term is defined in Regulation S under the U.S. Securities Act) unless an exemption from the registration requirements of the U.S. Securities Act is available. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in the state in the United States in which such offer, solicitation or sale would be unlawful.

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