SEC Filing :: Procaps Group, S.A

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of June 2023

Commission File Number: 001-40851

Procaps Group, S.A.

(Translation of registrant’s name in English)

9 rue de Bitbourg, L-1273

Luxembourg

Grand Duchy of Luxembourg

R.C.S. Luxembourg: B253360

Tel : +356 7995-6138

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

Financial Results for the Three Months Ended March 31, 2023

On June 5, 2023, Procaps Group, S.A. (the “Company”) released its unaudited interim financial statements for the three months ended March 31, 2023 (the “First Quarter Financials”). In addition, the Company released certain supplementary financial information relating to the three months ended March 31, 2023 (“Supplemental Financial Information”).

The First Quarter Financials and the Supplemental Financial Information are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to this Report on Form 6-K and are incorporated by reference herein and into the Company’s Post-Effective Amendment No. 2 to Form F-1 on Form F-3 (File No. 333-261366), filed with the Securities and Exchange Commission.

Exhibit Index

Exhibit Number		Exhibit Title
99.1		Unaudited Interim Financial Statements for the Three Months Ended March 31, 2023
99.2		Supplementary Financial Information Relating to the Three Months Ended March 31, 2023

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROCAPS GROUP, S.A.

By:	/s/ Ruben Minski
Name:	Ruben Minski
Title:	Chief Executive Officer

Dated: June 5, 2023

Exhibit 99.1

Procaps Group, S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Financial Statements for the three

months ended March 31, 2023 and 2022

Procaps Group, S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income
For the three ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

		For the three months ended March 31
	Notes	2023			2022
Revenue	5	$	84,162		$	85,630
Cost of sales			(38,100	)		(38,508	)
Gross profit			46,062			47,122

Sales and marketing expenses			(20,670	)		(20,157	)
Administrative expenses			(22,119	)		(24,556	)
Finance income, net	7		1,649			14,582
Other income, net	8		3,958			5,124
Income before tax			8,880			22,115

Income tax expense	9		(2,259	)		(5,669	)
Income for the period		$	6,621		$	16,446

Income for the period attributable to:
Owners of the Company			6,621			16,446
Non-controlling interests			—			—

Earnings per share:
Basic and diluted, income for the year attributable to ordinary equity holders of the Company¹			0.07			0.16

The Group reports net earnings per share in accordance with IAS 33 - Earnings Per Share. Basic income per share is calculated by dividing the income attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the period. No dilutive effect has been identified for the three months ended March 31, 2023 and 2022. The weighted average number of ordinary shares used as the denominator in calculating basic earnings per share for the three months ended March 31, 2023 and 2022 is 101,109,572.

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

Procaps Group, S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

For the three ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

	For the three months ended March 31
	2023		2022
Income for the period	$	6,621	$	16,446

Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurement of net defined benefit liability		—		—
Income tax relating to items that will not be reclassified subsequently to profit or loss		—		—
Net of Tax		—		—
Items that will be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations		426		2,234
Other comprehensive income for the period, net of tax		426		2,234
Total comprehensive income for the period	$	7,047	$	18,680

Total comprehensive income for the period attributable to:
Owners of the Company		7,047		18,679
Non-controlling interests		—		1

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

Procaps Group, S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Financial Position

As of March 31, 2023 and December 31, 2022

(In thousands of United States Dollars, unless otherwise stated)

	Notes	As of March 31, 2023			As of December 31, 2022
Assets
Non-current assets
Property, plant and equipment, net	11		82,450			73,965
Right-of-use assets, net			39,076			39,013
Goodwill			5,790			5,791
Intangible assets, net	10		34,375			32,208
Investments in joint ventures			1,717			1,505
Other financial assets			218			210
Deferred tax assets, net			6,712			6,974
Other assets			2,531			3,078
Total non-current assets		$	172,869		$	162,744
Current assets
Cash			23,033			43,003
Trade and other receivables, net	13		116,363			129,602
Inventories, net	12		99,149			96,833
Amounts owed by related parties, net			2,610			2,474
Current tax assets, net			23,997			21,187
Other current assets, net			3,695			4,344
Total current assets		$	268,847		$	297,443
Total assets		$	441,716		$	460,187

Liabilities and Stockholders’ Equity (Deficit)
Equity (Deficit)
Share capital			1,011			1,011
Share premium			377,677			377,677
Reserves			45,743			45,743
Accumulated deficit			(384,892	)		(391,513	)
Accumulated other comprehensive loss			(33,433	)		(33,859	)
Equity (deficit) attributable to owners of the company		$	6,106		$	(941	)
Non-controlling interest			(937	)		(937	)
Total equity (deficit)		$	5,169		$	(1,878	)
Non-Current liabilities
Borrowings	14		150,011			28,410
Warrant liabilities	16		6,971			10,916
Shares held in escrow	17		32,859			40,064
Deferred tax liabilities			6,616			7,821
Other liabilities			6,626			6,480
Total non-current liabilities		$	203,083		$	93,691
Current liabilities
Borrowings	14		135,112			257,525
Trade and other payables			79,909			90,187
Amounts owed to related parties			3,320			2,914
Current tax liabilities, net			7,411			6,133
Provisions	15		162			138
Other liabilities			7,550			11,477
Total current liabilities		$	233,464		$	368,374
Total liabilities and stockholders’ equity (deficit)		$	441,716		$	460,187

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

Procaps Group, S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

	Attributable to equity holders of the Group
	Issued Capital		Share premium		Reserves¹		Accumulated deficit			Other Comprehensive Income			Total			Non-controlling interest			Total equity (deficit)
Balance as of January 1, 2022	$	1,011	$	377,677	$	42,749	$	(431,059	)	$	(27,778	)	$	(37,400	)	$	(940	)	$	(38,340	)
Income for the period		—		—		—		16,446			—			16,446			—			16,446
Transfer reserves		—		—		2,994		(2,994	)		—			—			—			—
Other comprehensive income		—		—		—		—			2,233			2,233			1			2,234
Non-controlling interest		—		—		—		—			1			1			—			1
Others		—		—		—		—			—			—			—			—
Balance as of March 31, 2022	$	1,011	$	377,677	$	45,743	$	(417,607	)	$	(25,544	)	$	(18,720	)	$	(939	)	$	(19,659	)

Balance as of January 1, 2023		1,011		377,677		45,743		(391,513	)		(33,859	)		(941	)		(937	)		(1,878	)
Income for the period		—		—		—		6,621			—			6,621			—			6,621
Transfer reserves		—		—		—		—			—			—			—			—
Other comprehensive income		—		—		—		—			426			426			—			426
Balance as of March 31, 2023		1,011		377,677		45,743		(384,892	)		(33,433	)		6,106			(937	)		5,169

Includes the appropriate values from net income to comply with legal provisions related to asset protection according to applicable jurisdictions with cumulative earnings.

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

Procaps Group, S.A. and subsidiaries (The Group)

Unaudited Condensed Consolidated Interim Statement of Cash Flows

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

		For the three months ended March 31
	Notes	2023			2022
Operating activities
Income for the period		$	6,621		$	16,446
Adjustments to reconcile net income with cash flow from operating activities before changes in working capital:
Depreciation of property, plant and equipment	11		1,275			1,452
Depreciation of right-of-use assets			1,502			1,230
Amortization of intangibles	10		929			818
Income tax expense	9		2,259			5,669
Finance income	7		(1,649	)		(14,582	)
Unrealized currency exchange rate differences			2,590			—
Share of result of joint ventures			(199	)		100
Net loss on sale and disposal of property, plant and equipment	11		48			33
Inventory provision	12		996			591
Provision for bad debt	13		1,157			314
Provisions	15		29			—
Cash flow from operating activities before changes in working capital			15,558			12,071

(Increase)/decrease in operating assets and liabilities:
Trade and other receivables, net			11,751			5,573
Amounts owed by related parties			255			(521	)
Inventories, net			(813	)		(19,830	)
Current tax assets, net			(2,809	)		(6,757	)
Other current assets, net			649			2,092
Trade and other payables			(15,330	)		16,814
Amounts owed to related parties			322			333
Current tax liabilities, net			166			1,442
Other liabilities			(4,158	)		(2,843	)
Provisions	15		(6	)		(7	)
Other financial assets			(8	)		(12	)
Other assets			525			(541	)
Cash generated from operations			6,102			7,814

Interest paid			(905	)		(434	)
Income tax paid			(2,089	)		(1,046	)
Cash flow provided by operating activities		$	3,108		$	6,334

Investing activities
Acquisition of property, plant and equipment	11		(3,282	)		(2,197	)
Acquisition of intangibles	10		(1,582	)		(1,827	)
Advances to related parties			(163	)		(136	)

Cash flow used in investing activities		$	(5,027	)	$	(4,160	)

Financing activities
Proceeds from borrowings	14		16,360			30,334
Payments on borrowings	14		(26,403	)		(33,624	)
Payments to related parties			—			(2,359	)
Interest paid on borrowings	14		(6,887	)		(3,924	)
Payment of lease liabilities	14		(1,660	)		(587	)

Cash flow used in financing activities		$	(18,590	)	$	(10,160	)

Net decrease in cash			(20,509	)		(7,986	)
Cash at beginning of the period			43,003			72,112
Effect of exchange rate fluctuations			539			1,518
Cash at end of the period		$	23,033		$	65,644

Non-cash financing and investing activities¹		$	8,825		$	13,463

Non-cash investing and financing activities include new lease liabilities $783 (for the three months ended March 31, 2022: $146), invoices from suppliers financed via reverse factoring classified as Trade and other payables $1,113 (for the three months ended March 31, 2022: $438) and invoices from suppliers financed via reverse factoring classified as Borrowings $6,929 (for the three months ended March 31, 2022: $12,879).

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 1. General Company Information

Procaps Group, S.A, (the “Company”), a public limited liability company (société anonyme) governed by the laws of the Grand Duchy of Luxembourg and its subsidiaries (collectively “the Group”) primarily engages in developing, producing, and marketing pharmaceutical solutions. Further information about the Group’s business activities, reportable segments and key management personnel of the Group is included in Note 5. Revenue, Note 6. Segment reporting and Note 19. Key management personnel, respectively.

The Group’s principal subsidiaries as of March 31, 2023 and December 31, 2022, are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business.

	Place of business/	Ownership interests held by:
	country of	The Group						Non-controlling interests						Principal
Name of entity	incorporation	2023			2022			2023			2022			activities
Procaps S.A.	Colombia		100	%		100	%		—	%		—	%	Manufacturing and distribution of prescription and over-the-counter
C.I. Procaps S.A.	Colombia		100	%		100	%		—	%		—	%	pharmaceutical products.
Procaps S.A. de C.V	El Salvador		100	%		100	%		—	%		—	%
Softcaps - Colbras	Brazil		100	%		100	%		—	%		—	%
Diabetrics Healthcare S.A.S.	Colombia		100	%		100	%		—	%		—	%	Diabetes solutions and chronic disease management tool.

There are no significant restrictions on the ability of the Group to access or use assets to settle liabilities.

The unaudited condensed consolidated interim financial statements of the Group for the three months ended March 31, 2023 and 2022 comprise the Group and its interest in joint ventures, investments and operations.

The unaudited condensed consolidated interim financial statements are presented in USD (the Group’s presentation currency) and all amounts are rounded to the nearest thousands of USD, unless otherwise stated.

Emerging Growth Company Status

The Group is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The Group will remain an emerging growth company until the earliest of:

●

The last day of the first fiscal year (a) following the fifth anniversary of a public equity offering, (b) in which its annual gross revenue totals at least $1.07 billion or (c) when the Group is deemed to be a large, accelerated filer, which means the market value of the Group’s ordinary shares held by non-affiliates exceeds $700.0 million as of the prior June 30th; and

●

The date on which the Group has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Ongoing Military Operation in Ukraine and Related Sanctions

The ongoing military operation in Ukraine and the related sanctions targeted against the Russian Federation have disrupted international commerce and the global economy. The Group does not have any direct exposure to Ukraine, Russia or Belarus considering there are not any existing operations or sales in those locations.

Although the Group does not currently operate in Ukraine or Russia, the duration and severity of the effects on its business and the global economy are inherently unpredictable. Management will continue to monitor the effects of the war in Ukraine and its potential further impacts, including global supply chain disruptions, inflation, and rising interest rates, when making certain estimates and judgments relating to the preparation of the Consolidated Financial Statements of the Group.

Grupo Somar and Pearl Mexico Acquisition

Refer to the last annual consolidated financial statements as of and for the year ended December 31, 2022 (“last annual financial statements”) for background information on the Acquisition of Grupo Somar and Pearl Mexico. Following the failure of the transaction to close on December 31, 2022, the Group provided the sellers a formal notice on January 1, 2023 terminating the Stock Purchase Agreement (the “SPA”) in accordance with the terms thereof.

Bridge Loan Credit Agreement

Following the Group’s termination of the SPA, the Group advised the joint arrangers and book runners on January 1, 2023 of its desire to terminate the transaction documents (including, without limitation, the commitments under the bridge credit agreement and, for the avoidance of doubt, any commitments under the commitment letter) and pay all outstanding obligations, amounting to $5,719, under the bridge credit agreement and any other transaction document as of January 10, 2023.

Note 2. Basis of preparation and accounting

These unaudited condensed consolidated interim financial statements of the Group as of March 31, 2023 have been prepared on a going concern basis, and in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the last annual financial statements. They do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Standards. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group’s financial position and performance since the last annual financial statements.

These unaudited condensed consolidated interim financial statements were authorized for issue by the Group’s Audit Committee on May 31, 2023.

Note 2.1. Going concern

Management identified the following events and conditions which cast significant doubt on the Group’s ability to continue as a going concern:

As of December 31, 2022, the Group was in breach of certain of the covenants included under the Note Purchase Agreement (“NPA”), the Syndicated Loan Agreement and the BTG Credit Agreement. Refer to Note 14. Borrowings and Note 20. Events after the reporting period for further details regarding the breach of each covenant. Although none of the lenders declared an event of default under the applicable agreements, these breaches resulted in the lenders having the right to require immediate repayment of the applicable indebtedness and as a result, the Group classified the respective indebtedness, amounting to $139,155 in the aggregate, to current liabilities as of December 31, 2022.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

On March 28, March 31 and May 2, 2023 the Group obtained Waiver Agreements (“Waivers” or “Waiver”) from each lender under the NPA, the Syndicated Loan Agreement and the BTG Credit Agreement for the applicable covenant breaches. Under the terms of the Waivers, the lenders permanently waived their rights to accelerate the repayment of the loans related to the events of default as of December 31, 2022. In addition, the Group executed Waivers with the lenders to adjust the applicable covenant ratios for the periods ending March 31, June 30, and September 30, 2023, if applicable, as noted further within Note 14. Borrowings and Note 20. Events after the reporting period. For the period ending December 31, 2023, the applicable covenant ratios in the original borrowing arrangements are unmodified.

The Waiver for the Syndicated Loan Agreement was obtained subsequent to March 31, 2023, as noted above and within Note 20. Events after the reporting period. As a result, the outstanding balance of $18,898 remains classified as a current liability as of March 31, 2023.

Working capital

As of March 31, 2023, the Group had a net working capital surplus of $35,383 (working capital deficit of $70,931 as of December 31, 2022).

Management’s assessment

Management assessed the Group’s cash flow projections, ability to meet future covenants and other measures of liquidity for the next twelve months from the balance sheet date. Based on the Group’s cash flow projections and adjusted financial covenant ratios as a result of the Waivers, Management believes they will have sufficient funds to repay their obligations as they fall due and to meet its financial covenants in 2023. However, due to the uncertainty caused by current economic conditions, including rapid growth in inflation, increasing interest rates, global disruption to the supply chain, volatility in foreign exchange rates and industry price regulations, there is material uncertainty regarding the Group’s ability to meet its financial covenants. The Group’s failure to comply with such financial covenants would result in an event of default, which if that were to occur would materially and adversely affect the Group’s business, financial condition, liquidity and results of operations. In that event, the Group would seek additional waivers or alternative financing arrangements. As a result of these material uncertainties, Management concluded the above conditions and events raise significant doubt about the Group’s ability to continue as a going concern.

Management has implemented or is in the process of implementing the following plans to mitigate the effect of these events and conditions:

Cost saving and revenue growth

The Group has implemented certain measures with an aim to reduce its operating costs and generate additional revenue in 2023 including: 1) strict controlling and reducing business marketing and advertising expenses; 2) reducing headcount across multiple business units; and 3) focus on increasing sales volumes for core products and sell trademarks and sanitary records to generate additional revenue.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Renegotiation of existing loans

The Group is in the process of renegotiating the terms of the Syndicated Loan balance with Bancolombia and Davivienda, with the expectation of extending payment terms. In addition, the Group is in negotiations with BTG to restructure their short-term loan and negotiating their short term revolving credit facilities. Refer to Note 14. Borrowings for details regarding the carrying balance of loans that will be renegotiated as mentioned above. The Group has historically been successful in their negotiations with lenders to maintain and meet its liquidity needs and requirements. However, the Group’s ability to renegotiate with its lenders is not within the Group’s control. As of the date of these unaudited condensed consolidated interim financial statements, the Group cannot assure that it will be able to reach an agreement with its lenders, or to waive any potential non-compliance.

Additional measures

If the above actions do not generate sufficient liquidity for the Group to meet its contractual obligations, Management has identified additional measures which could be implemented to further reduce costs and increase total revenues in order to provide sufficient cash flow to meet obligations as they fall due including: 1) reduce discretionary spending on research and development, marketing and capital expenditures; 2) sell additional trademarks and sanitary records; and 3) further reduce headcount.

Summary

Management has evaluated the Group’s capital position, its ability to continue in the normal course of business for the foreseeable future and ability to meet its financial obligations for the next twelve months from the balance sheet date. While Management believes that their cost savings, revenue growth, and loan renegotiation will allow the group to be able to meet its financial obligations and finance its growth, there is no assurance that these plans can be successfully implemented to generate the liquidity required to meet the Group’s need. Failure to successfully implement these plans may have a material adverse effect on the Group’s business, results of operations and financial position, and may materially adversely affect its ability to continue as a going concern. As a result, Management concluded there is material uncertainty related to the events and conditions noted above that cast significant doubt on the entity’s ability to continue as a going concern.

However, Management believes that the Group will be successful in implementing the above plan and, accordingly, have prepared the unaudited condensed consolidated interim financial statements on a going concern basis. As a result, the unaudited condensed consolidated interim financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Group be unable to continue as a going concern.

Note 3. Summary of significant accounting policies

Note 3.1. Change in accounting policy

The accounting policies applied in these unaudited condensed consolidated interim financial statements are the same as those applied in the Group’s last annual financial statements. The policy for recognizing and measuring income taxes in the interim periods is consistent with that applied in the previous interim period and is described in Note 9. Income tax.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 3.2. New and amended IFRS Standards that are effective for the current period

Certain new accounting standards, interpretations or amendments to accounting standards are effective for annual periods beginning after January 1, 2023. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective in the preparation of these unaudited condensed consolidated interim financial statements.

The Group adopted the following accounting standard amendments from January 1, 2023. The evaluation performed by management determined that these amendments did not result in a significant impact in relation to the Group’s unaudited condensed consolidated interim financial statements.

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) - Effective January 1, 2023

The amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.

The amendments had no impact on the Group’s unaudited condensed consolidated interim financial statements, but are expected to affect the accounting policy disclosures in the Group’s annual consolidated financial statements.

Definition of Accounting Estimate (Amendments to IAS 8) - Effective January 1, 2023

The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The distinction between the two is important because changes in accounting policies are applied retrospectively, whereas changes in accounting estimates are applied prospectively.

The Group has determined the amendment has no significant impact in its unaudited condensed consolidated interim financial statements.

Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes - Effective January 1, 2023

The amendments to IAS 12 Income Tax narrow the scope of the initial recognition exception, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences such as leases and decommissioning liabilities. The amendments had no impact on the Group’s unaudited condensed consolidated interim financial statements.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 4. Critical accounting judgements and key sources of estimation uncertainty

In preparing these unaudited condensed consolidated interim financial statements, management has made judgments, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily observable in other sources. The estimates and underlying assumptions are based on historical experience and other relevant factors. Actual results may differ from these estimates.

The significant judgements made by Management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those described in the Group’s last annual financial statements.

Note 5. Revenue

The Group recognizes its revenues from the transfer of goods and services to the fulfillment of its performance obligations. The Group’s revenue for the three months ended March 31, 2023 includes $781 (for the three months ended March 31, 2022: $1,302) in revenue recognized from intellectual property licensing and dossier generation.

Disaggregation of revenue from contracts with customers

Revenue from contracts with customers is disaggregated by primary geographical market and major products (refer to Note 6. Segment reporting) and by timing of revenue recognition in the table below.

	Reportable segments
For the three months ended March 31 2023	NextGel			Procaps Colombia			CAN			CASAND			Diabetrics			Total

Segment revenue		44,754			29,767			15,147			19,709			6,815			116,192
Inter-segment revenue		(19,794	)		(210	)		(5,581	)		(3,687	)		(2,758	)		(32,030	)
Revenue from contracts with customers		24,960			29,557			9,566			16,022			4,057			84,162

Timing of revenue recognition
Goods transferred at a point in time		24,179			29,557			9,566			16,022			4,057			83,381
Services transferred over time		781			—			—			—			—			781
Total revenue from contracts with customers		24,960			29,557			9,566			16,022			4,057			84,162

	Reportable segments
For the three months ended March 31 2022	NextGel			Procaps Colombia		CAN			CASAND			Diabetrics			Total

Segment revenue		58,155			31,549		15,400			16,525			7,594			129,223
Inter-segment revenue		(32,818	)		309		(4,130	)		(3,963	)		(2,991	)		(43,593	)
Revenue from contracts with customers		25,337			31,858		11,270			12,562			4,603			85,630

Timing of revenue recognition
Goods transferred at a point in time		24,486			31,858		11,270			12,111			4,603			84,328
Services transferred over time		851			—		—			451			—			1,302
Total revenue from contracts with customers		25,337			31,858		11,270			12,562			4,603			85,630

Revenue recognized from goods transferred at a point in time include revenues related to “sales of goods” and “sales of trademarks and sanitary provisions”. Revenue recognized from services transferred over time include revenues related to “intellectual property licensing” and “dossier generation”. Revenues, other than sales of goods, are not material to the group.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 6. Segment reporting

Segment information is presented at a combination of geographical segments and business units, consistent with the information that is available and evaluated regularly by the chief operating decision maker.

The Group operates its business through five segments which are its reportable segments for financial reporting purposes: Procaps Colombia, Central America North (“CAN”), Central America South and North Andes (“CASAND”), NextGel and Diabetrics. Segment management, the respective Vice Presidents, are responsible for managing performance, underlying risks and operations. Management uses a broad set of performance indicators to measure segment performance and to make decisions around resource allocation.

The Group’s customer revenue recognition (external revenue) policy has been consistent with inter-segment revenue generated.

	NextGel							Procaps Colombia							CAN							CASAND
For the three months ended March 31, 2023	Total		Inter- segment eliminations			External		Total		Inter- segment eliminations			External		Total		Inter- segment eliminations			External		Total		Inter- segment eliminations			External
Revenue		44,754		(19,794	)		24,960		29,767		(210	)		29,557		15,147		(5,581	)		9,566		19,709		(3,687	)		16,022
Contribution margin 1		9,091		(666	)		8,425		9,004		66			9,070		2,053		749			2,802		2,671		3,866			6,537

	Diabetrics									Corporate								Total
For the three months ended March 31, 2023	Total			Inter- segment eliminations			External			Total			Inter- segment eliminations		External			Total			Inter- segment eliminations			External
Revenue		6,815			(2,758	)		4,057			—			—		—			116,192			(32,030	)		84,162
Contribution margin ¹		(213	)		(287	)		(500	)		(14,775	)		13,833		(942	)		7,831			17,561			25,392
Administrative expenses		—			—			—			22,119			—		22,119			22,119			—			22,119
Finance expenses		—			—			—			(1,649	)		—		(1,649	)		(1,649	)		—			(1,649	)
Other expenses		—			—			—			(3,958	)		—		(3,958	)		(3,958	)		—			(3,958	)
Income (loss) before tax																			(8,681	)		17,561			8,880

	NextGel							Procaps Colombia						CAN							CASAND
For the three months ended March 31, 2022	Total		Inter- segment eliminations			External		Total		Inter- segment eliminations		External		Total		Inter- segment eliminations			External		Total		Inter- segment eliminations			External
Revenue		58,155		(32,818	)		25,337		31,549		309		31,858		15,400		(4,130	)		11,270		16,525		(3,963	)		12,562
Contribution margin 1		17,731		(7,519	)		10,212		8,901		850		9,751		2,765		(631	)		2,134		1,594		3,305			4,899

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

	Diabetrics								Corporate									Total
For the three months ended March 31, 2022	Total		Inter- segment eliminations			External			Total			Inter- segment eliminations			External			Total			Inter- segment eliminations			External
Revenue		7,594		(2,991	)		4,603			—			—			—			129,223			(43,593	)		85,630
Contribution margin ¹		49		(133	)		(84	)		1,496			(1,443	)		53			32,536			(5,571	)		26,965
Administrative expenses		—		—			—			24,556			—			24,556			24,556			—			24,556
Finance expenses		—		—			—			(14,582	)		—			(14,582	)		(14,582	)		—			(14,582	)
Other expenses		—		—			—			(5,124	)		—			(5,124	)		(5,124	)		—			(5,124	)
Income (loss) before tax																			27,686			(5,571	)		22,115

Contribution margin is determined by subtracting sales and marketing expenses from gross profit. The Group’s customer revenue recognition (external revenue) policy has been consistent with inter-segment revenue generated.

Major customer

The Group does not have revenue from a single customer comprising more than ten percent of its consolidated revenue.

Geographical information

In presenting information based on geographical segments, segment revenue is based on the geographical location of the customers.

	For the three months ended March 31
	2023		2022
South America	$	59,743	$	59,200
Central America		15,747		16,281
North America		7,426		8,232
Europe		1,246		1,917
Total	$	84,162	$	85,630

Seasonality of operations

The Group has been subject to normal seasonal fluctuations that generate less income during the first half of the year. In general, there are no significant variations on sales to customers throughout the year.

Note 7. Finance income, net

	For the three months ended March 31
	2023			2022
Banking expenses	$	(223	)	$	(316	)
Bank fees		(206	)		(107	)
Other financial expenses¹		(296	)		(149	)
Net fair value gain of warrant liabilities²		3,945			1,728
Net fair value gain of shares held in escrow²		7,205			18,510
Interest expense		(8,776	)		(5,084	)
Total	$	1,649		$	14,582

For the three months ended March 31, 2023, interest on lease liabilities amounted to $296 (for the three months ended March 31, 2022: $147).

Refer to Note 16. Warrant liabilities, Note 17. Shares in escrow and Note 18. Financial instruments for further information related to net fair value gains for the three months ended March 31, 2023.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Net fair value gains recognized in finance income, net for the three months ended March 31, 2023 and 2022 are unrealized.

Note 8. Other income, net

	For the three months ended March 31
	2023			2022
Currency exchange rate differences¹	$	3,930		$	5,170
Economic emergency contribution expenses		(316	)		(273	)
Fines, surcharges, penalties and taxes assumed		(80	)		(82	)
Donations		(155	)		(80	)
Other		579			389
Total	$	3,958		$	5,124

The decrease in currency exchange rate income for the three months ended March 31, 2023 and 2022 is mainly related to a decrease of 3% and 6%, respectively, in the Colombian Pesos/USD exchange rate for the period and the Group’s Colombian entities’ liability position towards USD.

Note 9. Income tax

Income tax recognized through profit or loss

Income tax expense is recognized at an amount determined by multiplying the profit before tax for the interim reporting period by management’s best estimate of the weighted-average annual income tax rate expected for the full financial year, adjusted for the tax effect of certain items recognized in full in the interim period. As such, the effective tax rate in the condensed consolidated interim financial statements may differ from management’s estimate of the effective tax rate for the annual financial statements.

The Group’s consolidated income before tax for the three months ended March 31, 2023 amounts to $8,880 (for the three months ended March 31, 2022: $22,115). The income tax expense for the three months ended March 31, 2023 was $2,259 (for the three months ended March 31, 2022: $5,669). The Group’s consolidated effective tax rate with respect to continuing operations for the three months ended March 31, 2023 was 25.44% (for the three months ended March 31, 2022: 25.64%) The change in the consolidated effective tax rate was mainly caused by the following factors: (i) Optimization of the use of tax credits, rate changed from 25% up to 30% in Colombia, (ii) tax rate reduction from 30% to 10% in El Salvador, and from 35% to 15% in Colombia resulting in profits from the sale of intangible assets.

The tax rate used for the three months ended March 31, 2023 represents the tax rate of 35% (for the three months ended March 31, 2022: 35%) on the taxable income payable by the most representative entities of the Group in Colombia, in accordance with the tax laws of said jurisdiction. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 10. Intangible assets, net

Cost	Total
Balance as of January 1, 2022	$	53,926
Additions		294
Additions from internal developments		1,533
Foreign currency exchange		2,590
Balance as of March 31, 2022	$	58,343

Balance as of January 1, 2023	$	57,831
Additions		353
Additions from internal developments		1,874
Foreign currency exchange		1,488
Transfers		28
Balance as of March 31, 2023	$	61,574

Accumulated amortization	Total
Balance as of January 1, 2022	$	23,755
Amortization expense		818
Foreign currency exchange		1,063
Balance as of March 31, 2022	$	25,636

Balance as of January 1, 2023	$	25,623
Amortization expense		929
Foreign currency exchange		647
Balance as of March 31, 2023	$	27,199

As of March 31, 2022
Net book value	$	32,707
As of March 31, 2023
Net book value	$	34,375

For the three months ended March 31, 2023 and 2022, amortization expenses were recognized within the Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income as administrative expenses.

Foreign currency exchange corresponds to the effect of translating the intangible asset amounts attributable to the subsidiaries of the Group whose functional currencies are different from that of the Group.

Note 11. Property, plant and equipment, net

Cost	Total
Balance as of January 1, 2022	$	116,654
Additions		2,197
Disposals		(41	)
Effect of exchange differences in foreign currency		6,540
Balance as of March 31, 2022	$	125,350

Balance as of January 1, 2023	$	121,898
Additions		8,034
Disposals		(265	)
Effect of exchange differences in foreign currency		2,995
Transfers		(30	)
Balance as of March 31, 2023	$	132,632

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Accumulated depreciation	Total
Balance as of January 1, 2022	$	44,016
Disposals		(8	)
Depreciation expense		1,452
Effect of exchange differences in foreign currency		2,594
Balance as of March 31, 2022	$	48,054

Balance as of January 1, 2023	$	47,933
Disposals		(217	)
Depreciation expense		1,275
Effect of exchange differences in foreign currency		1,229
Transfers		(38	)
Balance as of March 31, 2023	$	50,182

As of March 31, 2022
Net book value	$	77,296
As of March 31, 2023
Net book value	$	82,450

For the three months ended March 31, 2023, depreciation expense was recognized as follows: $990 was recognized as cost of goods sold (for the three months ended March 31, 2022: $784) and $285 (for the three months ended March 31, 2022: $668) within administrative expense.

Financial Commitments

As of March 31, 2023, the Group has commitments to acquire capital expenditures for $5,080 (as of March 31, 2022: $8,777).

Note 12. Inventories, net

	As of March 31, 2023			As of December 31, 2022
Raw materials and supplies	$	42,848		$	42,701
Products in process		8,473			7,412
Finished products and merchandise		43,022			41,492
Inventory in transit		11,211			11,531
Subtotal	$	105,554		$	103,136
Less: Provision		(6,405	)		(6,303	)
Total	$	99,149		$	96,833

Inventories recognized as cost of goods sold for the three months ended March 31, 2023 amounted to $38,100 (for the three months ended March 31, 2022: $38,508). Inventories used as samples for the three months ended March 31, 2023 amounted to $1,952 (for the three months ended March 31, 2022: $1,588), were recognized as marketing expenses.

Write-downs of inventories to net realizable value and obsolescence adjustments for the three months ended March 31, 2023 amounted to $996 (for the three months ended March 31, 2022: $591), were recognized within sales expenses.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 13. Trade and other receivables, net

	As of March 31, 2023			As of December 31, 2022
Trade receivables, net of discounts ¹	$	116,989		$	126,456
Other receivables		12,591			15,211
Impairment of trade and other receivables ²		(13,217	)		(12,065	)
Trade receivables, net of discounts and impairment	$	116,363		$	129,602

Discount and return provision amounts to $13,373 (as of December 31, 2022: $13,443).

Total impairment balance is comprised of $11,063 (as of December 31, 2022: $10,768) for trade receivables and $2,153 (as of December 31, 2022 $1,297) for other receivables.

Refer to Note 18. Financial instruments for the Group’s disclosures on credit risk management and expected credit losses.

The Group has entered into factoring arrangements to sell certain trade receivables to third parties under recourse programs, retaining all risk and rewards incidental to the trade receivables, so no derecognition of the financial assets has been performed. Trade receivables which collateralize factoring obligations as of March 31, 2023 amounts to $1,940 (as of December 31, 2022: $2,547).

Note 14. Borrowings

	As of March 31, 2023		As of December 31, 2022
Borrowings at amortized cost^(a)
Syndicated term loan ⁽¹⁾	$	38,204	$	38,626
Other term loan ⁽²⁾		96,487		95,720
Lease liabilities ⁽³⁾		33,980		34,192
Factoring obligations ⁽⁴⁾		1,144		2,317
Bank overdrafts ⁽⁵⁾		308		80
Notes ⁽⁶⁾		115,000		115,000
Total Interest bearing liabilities	$	285,123	$	285,935

Current		135,112		257,525
Non-Current	$	150,011	$	28,410

^(a)

Borrowings at amortized cost are unsecured, with the exception of factoring obligations which are collateralized by trade receivables. Refer to Note 13. Trade and other receivables, net.

^(b)

As mentioned in Note 2.1. Going concern the Group is renegotiating $19,000 balance with BTG, and Syndicated balance of $38,204 with Bancolombia and Davivienda. Additionally, the Group expects to maintain revolving credit lines with other lending parties.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

1. Syndicated term loan

	Currency	Range of Interest	Maturity Year		As of March 31, 2023			As of December 31, 2022
Syndicated term loan	COP	IBR + 5.30%		2023-2025	$	38,664		$	39,156
Amortized cost	COP	N/A		2023		(460	)		(530	)
Total Syndicated term loan					$	38,204		$	38,626

On November 20, 2018, Procaps S.A. entered into a syndicated term loan agreement the “Syndicated Loan Agreement”) with the following banks: Portion in Colombian pesos (COP) - Davivienda and Bancolombia; US dollar portion (USD) - Banco de Credito del Peru, Bancolombia Panama and Banco Sabadell. The total value of the syndicated loan amounts to $200,434 million COP (portion in COP) and $35 million USD (portion in USD), Fiduciaria Bancolombia acts as the agent of the loan. C.I. Procaps S.A., Procaps S.A. de C.V, Biokemical S.A., Pharmarketing S.A. (Panama), Pharmarketing Salvador S.A. de C.V., Pharmarketing S.A. (Guatemala S.A.), C.D.I. Salvador S.A. de C.V., C.D.I. Nicaragua S.A., C.D.I. Guatemala S.A., Pharmarketing Dominicana SRL, and Pharmarketing Costa Rica S.A., act as co-debtors, while Pharmayect S.A., Inversiones Crynssen S.A.S., Inversiones Ganeden S.A.S., Inversiones Henia S.A.S., Inversiones Jades S.A.S., and Industrias Kadima S.A.S., act as guarantors.

The resources obtained were used for advance payment and/or novation of some obligations to be refinanced. The conditions of the loan had a term of 5 years for installment payments and the interest rates agreed are as follows: IBR + 5.30% for the portion in COP and Libor + 4.80% for the USD portion.

The significant covenants required by the Syndicated Loan Agreement are as follows:

Financial covenants

	●	Indebtedness Indicator (Indebtedness/EBITDA) as of June 30 and December 31 of each year, during the loan term, must be less than or equal to 3.5 times. If the indicator is greater than 3.0 and less than 3.5, it proceeds to the extent that this value is originated by causes other than additional debt and the justification of the increase must be presented to the agent.

	●	Short-term leverage ratio < 1.0 on the last day of each semester.

●

EBITDA ratio / financial expenses = or > 3.0 on the last day of each semester.

Other covenants

	●	The Syndicated Loan Agreement establishes that each of the jointly obligated parties, unless they have the express, prior and written authorization of the Agent, will refrain from incurring any type of financial debt when the proforma indebtedness indicator, once acquired the additional financial debt, is greater than 3.0 times and maintaining any type of financial debt when the pro forma indebtedness indicator, once the national debt is acquired, is greater than 3.5 times.

●

Each of the joint obligated parties, except with express, prior and written authorization of the Agent to do otherwise, will refrain from contracting finance and/or operating lease obligations with purchase option with a joint balance payable greater than $85,000,000 (Eighty-Five Billion Pesos, local currency) or its equivalent in another currency. For purposes of clarity, the reclassification of obligations as financial lease obligations by application of the Accounting Standards will not consume the balance set forth herein and may not be renewed.

●

The payment of dividends is restricted to anyone other than the jointly obligated parties.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

The Syndicated Loan Agreement establishes that, in the event of breach of covenants by the debtor, the lenders shall be entitled to declare early maturity of the debts.

As mentioned in Note 2.1. Going concern, as of December 31, 2022, the Group was not in compliance with certain covenants under the Syndicated Loan Agreement. As a result, as of December 31, 2022, $19,665 unpaid principal balance previously classified as non-current borrowings, was reclassified to current borrowings within the Group’s Consolidated Statement of Financial Position.

On May 2, 2023 the Group obtained a Waiver for the loan covenant breaches described above. Under the terms of the Waiver, the lenders agreed to waive the event of default as of December 31, 2022. The Waiver was obtained subsequent to March 31, 2023, therefore, the balance of $18,898 is classified as current borrowings as of March 31, 2023. In addition, the Group negotiated an additional Waiver to adjust the covenant ratios as noted within Note 20. Events after the reporting period.

2. Other term loan

	Currency	Range of Interest	Maturity Year		As of March 31, 2023		As of December 31, 2022
Other term loan	COP	IBR+ 9.0%, 16.5%-25.3% (2022: IBR+ 5.0%, DTF+ 3%, 13.99%-25.3%)		2022-2025	$	11,181	$	9,549
	COP	IBR + 2.25%- IBR 7.95% (2022: IBR+2.25%-10.2%)		2022-2025		22,566		21,267
	Soles	8.0% - 14.50% (Fixed) (2022: 8.0% - 12.79% (Fixed))		2022-2024		4,864		6,837
	Reales	9.84% - 18% N.A.		2023-2024		1,806		2,176
	USD	SOFR+ (4.80%-5.80%) (2022: SOFR+ (4.80%-5.80%))		2023		23,454		23,454
	USD	SOFR6M+(2%-3%), 6.36%-16.8% (2022: 6.36%-16.8%)		2022-2025		32,616		32,437
Total Other term loans					$	96,487	$	95,720

On June 28, 2022, Procaps, S.A. (the “Company”) entered into a credit agreement with BTG to borrow $8,672. The covenants required by the loan contract are:

	●	The Company’s consolidated Indebtedness Indicator (Indebtedness / EBITDA) should not be greater than 3.5x.

●

The Company’s consolidated EBITDA/Finance expense should not be less than 3x.

As mentioned in Note 2.1. Going concern, as of December 31, 2022, the Group was not in compliance with the loan covenants related to the BTG Credit Agreement. As a result, the $4,490 unpaid principal balance previously classified as a non-current borrowings, was reclassified to current borrowings within the Group’s Consolidated Statement of Financial Position as of December 31, 2022.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

On March 28, 2023 the Group obtained a Waiver for the loan covenant breach. Under the terms of the Waiver, BTG Pactual agreed to waive the event of default as of December 31, 2022. As a result, the unpaid principal balance is classified as non-current borrowings as of March 31, 2023. In addition, the Group negotiated an additional Waiver to adjust the covenant ratios as noted below:

For the period ending June 30, 2023, as part of the waiver negotiations, the lenders agreed to adjust the covenant ratios as noted below (the covenants will return to the original terms from December 31, 2023, onwards):

	●	The Company’s consolidated Indebtedness Indicator (Indebtedness / EBITDA) must not be greater than 4.5x (original covenant: greater than 3.5x).

●

The Company’s consolidated EBITDA/Finance expense must not be less than 1.8x (original covenant: less than 3.0x).

Along with the BTG Credit Agreement, the Group borrowed $19,000 on October 14, 2022 as part of a short-term agreement with BTG Pactual which is payable in 2023.

3. Lease liabilities

	Currency	Range of Interest	Maturity Year	As of March 31, 2023		As of December 31, 2022
Lease liabilities	COP	IBR+(3.82%-7.3%) (2022: DTF + (5,18% - 10,11%) T.A., IBR+7.5%)	2022-2030	$	10,362	$	10,475
	COP	IBR+ (4.2%-8.2%) (2022: DTF+ 4.54%-10.42 T.A.	2022-2025		3,804		3,653
	USD	0.75%-21.48%	2023-2032		14,393		14,787
	COP	1.91%-21.75%, IBR+3.82-4.10% (2022: 1.91%-12.23%, IBR+4.68%)	2023-2027		4,879		4,703
	Reales	0.70-8.72% (Fixed)	2023-2024		542		574
Total Lease Liabilities				$	33,980	$	34,192

4. Factoring obligations

	Currency	Range of Interest	Maturity Year	As of March 31, 2023		As of December 31, 2022
Portfolio factoring	COP	DTF+8%	2023	$	1,144	$	1,508
	COP	15.0% - 27% N.A.	2023		—		809
Total Factoring				$	1,144	$	2,317

5. Bank overdraft

Currency

Range of Interest

Maturity Year

As of
March 31,
2023

As of
December 31,
2022

Overdrafts and credit cards

COP

19.68% - 32% E.A. (Fixed)

2023

308

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

6. Notes

On November 12, 2021, the Group closed the private placement offering of $115 million aggregate principal amount of 4.75% guaranteed senior notes (the “Senior Notes”) issued by Procaps, S.A., a subsidiary of the Group, due November 12, 2031, pursuant to the NPA entered into on November 5, 2021 with The Prudential Insurance Company of America, Prudential Annuities Life Assurance Corporation, Healthspring Life & Health Insurance Company, Inc. and Cigna Health and Life Insurance Company Inc.

The Senior Notes are a senior unsecured obligations of Procaps, S.A. and unconditionally guaranteed by Procaps Group, S.A. and the following subsidiaries of the Group: C.I. Procaps, S.A., Diabetrics Healthcare S.A.S., Pharmayect S.A., Procaps, S.A. de C.V., Biokemical, S.A. de C.V., Colbras Indústria e Comércio Ltda., and Sofgen Pharmaceuticals LLC.

Debt issuance costs related to the Senior Notes of $2,142, comprised of commissions payable to the initial purchasers of $1,390 and attorneys’ costs of $752, were allocated to the liability of the Notes based on their relative values. Issuance incremental costs are part of the effective rate and amortized to interest expense using the effective interest method over the contractual term.

As mentioned in Note 1. General Company Information, the Notes Payoff did not occur on or prior to November 30, 2022, therefore triggering the 3.75% per annum waiver fee on the outstanding principal amount of Senior Notes, raising the interest rate from 4.75% to 8.50%. As a result, the Group has treated the rate increase as a debt extinguishment, derecognised a liability in the amount of $113,400, expensed $1,600 in unamortized transaction costs, and recognized a new liability in the amount of $115,000 as of December 31, 2022.

The Senior Notes require Procaps, S.A., the Group and the following subsidiaries of the Group: C.I. Procaps, S.A., Diabetrics Healthcare S.A.S., Pharmayect S.A., Procaps, S.A. de C.V., Biokemical, S.A. de C.V., Colbras Indústria e Comércio Ltda., and Sofgen Pharmaceuticals LLC. to comply with the following financial ratios:

●

The consolidated total debt of Procaps, S.A., the Group and the other obligors thereunder to consolidated EBITDA for the last twelve months of 3.50:1.00 or less (Indebtedness Indicator), measured at certain dates of determination and;

	●	An EBITDA interest coverage ratio (calculated as the consolidated EBITDA for the last twelve months of Procaps, S.A. and the other obligors thereunder divided by the consolidated interest expenses of Procaps, S.A. and the other obligors thereunder) in excess of, or equal to, 3.00:1.00, calculated at certain dates of determination.

●

Short-term leverage ratio equal to or less than 1.00

Complying with the Note Purchase Agreement protocols and as a result of the more favorable provisions of the Syndicated Loan Agreement, the Group gave notice on April 7, 2022 that specific provisions related to reporting covenants, affirmative covenants, negative covenants, events of default, and mandatory prepayment events, as set forth in the Syndicated Loan Agreement, shall apply to the Senior Notes.

As mentioned in Note 2.1. Going concern, as of December 31, 2022, the Group was not in compliance with the financial covenants related to the Senior Notes. As a result, the $115,000 unpaid principal balance previously classified as a non-current borrowings, was reclassified to current borrowings within the Group’s Consolidated Statement of Financial Position as of December 31, 2022.

On March 31, 2023 the Group obtained a Waiver for the NPA covenant breaches described above. Under the terms of the Waiver, the noteholders agreed to waive the event of default as of December 31, 2022. As a result, the unpaid principal balance is classified as non-current borrowings as of March 31, 2023 In addition, the Group negotiated an additional Waiver to adjust the covenant ratios as noted below:

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

For the periods ending March 31, June 30 and September 30, 2023, as part of the waiver negotiations, the lenders agreed to adjust the covenant ratios as noted below (the covenants. will return to the original terms from December 31, 2023, onwards):

	●	The consolidated total debt of Procaps, S.A., the Group and the other obligors thereunder to consolidated EBITDA for the last twelve months of 4:00:1.00 or less (original covenant: 3.50:1.00 or less).

	●	An EBITDA interest coverage ratio in excess of, or equal to, 2.20:1.00 (original covenant: in excess of, or equal to, 3.00:1.00).

●

Short-term leverage ratio equal to or less than 2.00:1:00 (original covenant: equal to or less than 1.00:1.00).

The Senior Notes are classified as long-term debt on the Group’s unaudited consolidated condensed interim balance sheets and will be classified as such until the Senior Notes are within one year of maturity.

	Currency	Range of Interest	Maturity Year		As of March 31, 2023		As of December 31, 2022
The Prudential Insurance Company Of America	USD	8.50% (Fixed)		2031	$	60,020	$	60,020
Prudential Annuities Life Assurance Corporation	USD	8.50% (Fixed)		2031		29,980		29,980
Healthspring Life & Health Insurance Company, Inc	USD	8.50% (Fixed)		2031		18,350		18,350
CIGNA Health and Life Insurance Company	USD	8.50% (Fixed)		2031		6,650		6,650
Total Senior Notes					$	115,000	$	115,000

Note 15. Provisions and contingencies

	2023			2022
Contingencies
Balance as of January 1	$	138		$	501
Effect of changes in foreign exchange rates		2			84
Provisions made		29			—
Provisions used		(6	)		(7	)
Balance as of March 31	$	162		$	578

The Group recognizes provisions for contingencies that are probable of requiring an outflow of resources due to adverse effects. The Group recognized the estimated probable losses against the company for labor, administrative and tax litigation, which are calculated based on the best estimate of the disbursement required to cancel the obligation. Such contingencies are disclosed with possible adverse effects for the entity, as follows:

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Legal provisions

Softcaps legal proceedings - The total balance of $78 (as of March 31, 2022: $534) is comprised of labor, administrative, and civil ligation. As of March 31, 2022, balance for tax litigation amounted to $411, there are no tax litigation provisions recognized as of March 31, 2023.

The remaining balance of $84 (as of March 31, 2022: $44) is for labor litigation in the following entities: Procaps, S.A., Unimed del Perú, Rymco Medical, and CDI Nicaragua.

Contingencies

Procaps SA de CV legal proceedings - The General Tax Directorate of El Salvador (DGII), determined that the company failed to declare taxable and presumed income from revenue obtained and loans made to non-domiciled companies in 2018, the proposed tax charge and sanction amounts to $1,087. Also, the DGII determined that the company incurred in the infraction of non-intentional evasion due to the incorrect filing of the “VAT” declarations for 2019. The proposed tax charge and penalty amounts to $348.

However, the Group’s external advisor indicates that it is not probable for this claim to proceed, therefore, there is no provision for the effect of this contingency.

Note 16. Warrant liabilities

	As of March 31, 2023		As of December 31, 2022
Public warrants	$	5,800	$	9,200
Private warrants¹		1,171		1,716
	$	6,971	$	10,916

Private warrants include 2,875,000 held by the former SPAC sponsors deposited in an escrow account.

Note 16.1. Public warrants

	As of March 31, 2023			As of December 31, 2022
As of January 1	$	9,200		$	16,000
Acquired public warrants		—			—
Fair value remeasurement		(3,400	)		(6,800	)
Balance as of March 31/December 31	$	5,800		$	9,200

The fair value of the Public Warrants decreased for the three months ended March 31, 2023 by $3,400 (decreased for the year ended December 31, 2022: $6,800). Refer to Note 7. Finance income, net.

Note 16.2. Private warrants

	As of March 31, 2023			As of December 31, 2022
As of January 1	$	1,716		$	7,112
Acquired private warrants		—			—
Fair value remeasurement		(545	)		(5,396	)
Balance as of March 31/December 31	$	1,171		$	1,716

The fair value of the Private Warrants decreased for the three months ended March 31, 2023 by $545 (decreased for the year ended December 31, 2022: $5,396). Refer to Note 7. Finance income, net.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 17. Shares in escrow

	As of March 31, 2023			As of December 31, 2022
As of January 1	$	40,064		$	101,859
Escrowed shares		—			—
Fair value remeasurement		(7,205	)		(61,795	)
Balance as of March 31/December 31	$	32,859		$	40,064

The fair value of the Shares in escrow decreased for the three months ended March 31, 2023 by $7,205 (decreased for the year ended December 31, 2022: $61,795). Refer to Note 7. Finance income, net.

Note 18. Financial instruments

18.1 Accounting classification and fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring fair value, the Group uses observable market data whenever possible. Fair values are categorized into different levels in a hierarchy based on the inputs used in the valuation techniques as follows:

	●	Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

	●	Level 2: inputs are observable either directly (e.g. as prices) or indirectly (e.g. derived from prices).

●

Level 3: fair value measurements incorporate significant inputs that are based on unobservable market data.

The following table shows the carrying amounts of financial assets and financial liabilities. The amortized cost basis of the financial assets and liabilities not measured at fair value approximates their fair value.

	As of March 31, 2023				As of December 31, 2022
	FVTPL¹		Amortized cost²		FVTPL¹		Amortized cost²
Financial assets not measured at fair value
Trade and other receivables, net	$	—	$	116,363	$	—	$	129,602
Amounts owed by related parties		—		2,610		—		2,474
Cash		—		23,033		—		43,003
Other financial assets		—		218		—		210
Total financial assets not measured at fair value	$	—	$	142,224	$	—	$	175,289

Financial liabilities measured at fair value
Warrant liabilities	$	6,971	$	—	$	10,916	$	—
Shares held in escrow		32,859		—		40,064		—
Total financial liabilities measured at fair value		39,830		—		50,980		—
Financial liabilities not measured at fair value
Borrowings		—		285,122		—		285,934
Trade and other payables, net		—		79,909		—		90,187
Amounts owed to related parties		—		3,320		—		2,914
Total financial liabilities not measured at fair value	$	—	$	368,351	$	—	$	379,035

The fair value of the exhibited figures as of March 31, 2023 is comprised of $5,800 level 1 (as of December 31, 2022: $9,200) and $34,030 level 3 (as of December 31, 2022: $41,780).

The fair value of the exhibited figures is similar to their amortized cost as of March 31, 2023 and December 31, 2022, respectively.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

18.2 Measurement of fair values

The following tables show the valuation techniques used in measuring Level 3 fair values for financial instruments in the Unaudited Condensed Consolidated Interim Statement of Financial Position, as well as the significant unobservable inputs used.

Type	Fair value		Valuation Technique	Significant unobservable input	Relationship between significant unobservable input to fair value	Sensitivity of significant unobservable input to fair value
							+5%		-5%
Private warrants	$	150	The fair value of the Private Warrants is estimated using the Black-Scholes option pricing formula for European calls, since the underlying stock is not expected to pay dividends over the term of the Warrants.	Volatility of 38.3% (2022: 36.6%)	The higher (lower) the volatility, the higher (lower) the fair value.	$	220	$	95
Private warrants in escrow		1,021	The fair value of the Private Warrants in escrow is estimated using Monte Carlo simulation in a risk-neutral framework assuming a Geometric Brownian Motion for the future stock price.	Volatility of 41.0% (2022: 37.5%)	The higher (lower) the volatility, the higher (lower) the fair value.		1,495		661
Shares held in escrow		32,859	The fair value of the shares to be delivered is estimated using Monte Carlo simulation in a risk-neutral framework assuming a Geometric Brownian Motion for the future stock price.	Volatility of 40.5% (2022: 36.5%)	The higher (lower) the volatility, the higher (lower) the fair value.		33,191		32,447

18.3 Financial risk management

The Group has exposure to the following risks arising from financial instruments:

	●	Credit risk

	●	Liquidity risk

●

Market risk, including currency and interest rate risk

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

18.3.1. Credit risk

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure of the Group. The carrying amount is presented net of impairment losses. None of the receivable balances as of March 31, 2023 and December 31, 2022 constitutes a significant concentration of credit risk. There are no other single customers representing more than 10% of total gross trade receivables as of March 31, 2023 and December 31, 2022.

Expected credit losses

The average credit period on the sale of medicines is 60 to 120 days. In some cases, depending on market conditions and strategy, longer payment periods are granted. No interest surcharge is made on commercial accounts receivable.

The Group has recognized a provision for doubtful accounts. The Group evaluates the impairment of its accounts receivable for the expected credit loss model, where it determines its value based on the probability of default, the loss due to default (i.e., the extent of the loss in case of default) and the exposure, by the application of the ‘simplified method’ for trade receivables without a significant financing component. The assessment of the probability of default and the loss due to default is mainly based on historical data and adjust historical loss rates to reflect information about current conditions and reasonable and supportable forecasts of future economic conditions.

March 31, 2023	Current (not past due)			1-30 days past due			31-60 days past due			61-90 days past due			91-120 days past due			More than 120 days past due			Total
Weighted-average loss rate		0.38	%		3.47	%		2.90	%		5.12	%		8.08	%		89.50	%		15.95	%
Gross carrying amount		101,950			10,737			10,008			6,079			2,363			26,335			157,472
Impairment loss allowance		(391	)		(373	)		(290	)		(311	)		(191	)		(23,569	)		(25,125	)
	$	101,559		$	10,364		$	9,718		$	5,768		$	2,172		$	2,766		$	132,347

December 31, 2022	Current (not past due)			1-30 days past due			31-60 days past due			61-90 days past due			91-120 days past due			More than 120 days past due			Total
Weighted-average loss rate		0.39	%		3.42	%		4.50	%		14.25	%		19.89	%		83.88	%		14.07	%
Gross carrying amount		124,219			11,816			3,864			1,958			890			26,605			169,352
Impairment loss allowance		(483	)		(404	)		(174	)		(279	)		(177	)		(22,317	)		(23,834	)
	$	123,736		$	11,412		$	3,690		$	1,679		$	713		$	4,288		$	145,518

As of March 31, 2023 no impairment losses were recognized for balances in connection with related parties. However, as of March 31, 2023 and December 31, 2022, an allowance is maintained for open balances referred to goods sold to Industrias Intercaps de Venezuela C.A. and Laboratorios Vivax Pharmaceuticals C.A., due to the critical political and social situation that the location country of precedence is experiencing.

Procaps Group, S.A. and subsidiaries (The Group)

Notes to Unaudited Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2023 and 2022

(In thousands of United States Dollars, unless otherwise stated)

Note 19. Key management personnel

Transactions with directors and executive board management members

Total management compensation included in the Unaudited Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income are as follows:

	For the three months ended March 31
	2023		20221
Short-term employee benefits		752		535
Consulting fees		575		613
	$	1,327	$	1,148

The Group corrected the disclosure of short-term employee benefits and consulting fees for three months period ended March 31, 2022. The correction does not impact the results presented in the prior period.

Note 20. Events after the reporting period

Management has considered subsequent events through the date these consolidated financial statements were issued and identified the following events that require disclosure.

Waiver for Breach of Indebtedness Covenants

Refer to Note 2.1. Going concern and Note 14. Borrowings for background information on breach of Loan Covenants as of December 31, 2022. On May 2, 2023 the Group obtained a Waiver for the applicable covenant breaches under the Syndicated Loan Agreement. Under the terms of the Waiver, the lenders agreed to waive the event of default as of December 31, 2022. In addition, the Group negotiated with the lenders for an additional Waiver to adjust the covenant ratios as noted below:

Syndicated Loan Agreement

	●	Indebtedness Indicator (Indebtedness/EBITDA) must be less than or equal to 4.5 times (original covenant: less than or equal to 3.5 times). If the indicator is greater than 4.1 and less than 4.3 (original covenant: greater than 3.0 and less than 3.5), it proceeds to the extent that this value is originated by causes other than additional debt and the justification of the increase must be presented to the agent.

	●	Short-term leverage ratio less than 1.6 (original covenant: less than 1.0).

●

EBITDA ratio / financial expenses greater than or equal to 1.8 (original covenant: greater than or equal to 3.0).

Settlement Agreement

Effective June 1, 2023, the company reached a legal settlement with a third party to recover costs incurred relating to a business opportunity with such third party. The amount, counter party and any further details can’t be disclosed due to contractual restrictions within the settlement agreement.

Exhibit 99.2

First Quarter 2023 Financial Results

Net Revenues

Net revenues totaled $84.2 million in 1Q23, compared to net revenues of $85.6 million for 1Q22, a decrease of 1.7% year-over-year. On a constant currency basis, net revenues increased 10.5% from 1Q22 to 1Q23, in line with previous preliminary results.

The slight decrease is mainly driven by the impact of the devaluation of some local currencies, particularly in Colombia of approximately $10.5 million, as well as increased prices in raw materials, supplier delivery delays which have led to backorders and a decrease in sales of the anesthetic’s portfolio.

Net revenue by strategic business segment is shown below:

U$ million	1Q23		%NR			1Q23*		1Q22		%NR			Δ%			Δ%*
CAN		9.6		11.4	%		9.6		11.3		13.2	%		-15.1	%		-14.4	%
CASAND		16.0		19.0	%		16.4		12.6		14.7	%		27.5	%		30.2	%
Diabetrics		4.1		4.8	%		4.9		4.6		5.4	%		-11.9	%		6.3	%
Nextgel		25.0		29.7	%		27.8		25.3		29.6	%		-1.5	%		9.6	%
Procaps Colombia		29.6		35.1	%		36.0		31.9		37.2	%		-7.2	%		12.8	%
Total Net Revenues		84.2		100.0	%		94.6		85.6		100.0	%		-1.7	%		10.5	%

Constant currency basis

Central America North (CAN)

Net revenues for the CAN business segment were $9.6 million in 1Q23, a decrease of 15.1% versus 1Q22, impacted mainly by a decrease in the OTC VitalCare in El Salvador. We reinforced our sales force in El Salvador, focusing on opening new distributors for the OTC market. On a constant currency basis, net revenues decreased 14.4% in the period.

The RX Clinical Specialties portfolio grew approximately 27% in 1Q23.

Central America South and Andean Region (CASAND)

Net revenues for the CASAND business segment totaled $ 16.0 million in 1Q23, an increase of 27.5% when compared to 1Q22, mainly due to the positive performance of new products launched in the regionand sales increase in the existing product portfolio. On a constant currency basis, net revenues increased by 30.2% in the quarter.

RX Farma portfolio grew 24%, RX Clinical Specialties grew 23%. OTC portfolio grew 24%.

Diabetrics

Diabetrics net revenues totaled $4.1 million, a decrease of 11.9% when compared with 1Q22, mainly impacted by currency devaluation of approximately $0.8 million.

On a constant currency basis, net revenues increased by 6.3%.

We have launched in El Salvador and Ecuador, and we recently received approval in Mexico to launch diabetrics products, which we expect to launch in 2023.

Nextgel

Net revenues for the Nextgel business segment were $25.0 million in 1Q23, a slight decrease of 1.5% versus 1Q22, impacted mainly by currency devaluation of approximately $2.8 million. On a constant currency basis, net revenues increased by 9.6%.

The constant currency quarter increase is mainly due to: (i) an increase in product development services with the commencement of operations of the West Palm Beach facility and the sales of certain product registrations, (ii) the increase in sales of gummy products, (iii) an increase of sales from products with current partners, offset by the change of manufacturing site of dronabinol, the ongoing bioequivalence test for progesterone, and order phasing from some of our US clients that will have a positive effect in the second half of the year.

Procaps Colombia

Net revenues for the Procaps Colombia segment totaled $29.6 million in 1Q23, a decrease of 7.2% versus 1Q22, impacted by the currency devaluation of approximately $6.4 million, and the slower pace of sales of the most relevant Clinical Specialties products for the ICU, due to higher than usual inventory cycles in the distributors resulting from less severe hospitalizations from Covid.

On a constant currency basis, net revenues increased by 12.8% from 2021 to 2022 due to the positive performance of RX Farma Procaps and OTC VitalCare business units, offset by the decrease in sales of the Clinical Specialties portfolio.

The RX Farma Procaps grew approximately 25% in sales in 1Q23 and the OTC VitalCare business unit grew approximately 23% in sales, primarily due to the demand increase of its leading brands in the market as well as the positive roll out of new products.

Gross Profit

Gross profit decreased 2.3%, to $46.1 million in 1Q23, compared to $47.1 million in 1Q22. On a constant currency basis, gross profit increased by 10.7%.

U$ million	1Q23			1Q22			Δ%
Net Revenues		84.2			85.6			-1.7	%
COGS		(38.1	)		(38.5	)		-1.1	%
Gross Profit		46.1			47.1			-2.3	%
Gross Margin		54.7	%		55.0	%		-30.0 bps

Gross profit is negatively impacted by currency devaluation.

Gross margin was 54.7% in 1Q23 and gross margin for 2022 was 55.0%, a decrease of 30.0 bps compared to 1Q22, impacted mainly by lower net revenues.

Operating Expenses

Operating expenses totaled $38.8 million in 1Q23, a decrease of 1.9% versus 1Q22, mainly due to the decrease in administrative expenses benefitted by the roll out of the value creation initiatives.

SG&A totaled $42.8 million in 1Q23, a decrease of 4.3% versus 4Q21, representing 50.8% of total net revenues. On a constant currency basis, SG&A increased 6.4% in the quarter.

U$ million	1Q23			%NR			1Q22			%NR			Δ%
Sales and marketing expenses		(20.7	)		24.6	%		(20.2	)		23.5	%		2.5	%
Administrative expenses		(22.1	)		26.3	%		(24.6	)		28.7	%		-9.9	%
Other expenses		4.0			-4.7	%		5.1			-6.0	%		-22.8	%
Total Operational Expenses		(38.8	)		46.1	%		(39.6	)		46.2	%		-1.9	%

Sales and marketing expenses totaled $20.7 million in 1Q23, an increase of 2.5% versus 1Q22, mainly due to the return of events and commercial efforts COVID-19 pandemic continue to lessen, the efforts in CASAND to support top line growth, and the pre-operative expenses related to the West Palm Beach plant.

Administrative expenses totaled $22.1 million in 1Q23, a decrease of 9.9% versus 1Q22, mainly driven by the execution of the Value Creation Initiatives implemented from February 2023 onwards.

Other expenses are related mainly to the impact of exchange rate differences and the non-recurring severance payment related to the Value Creation Initiatives.

Financial Expenses

Net financial expenses totaled an income of $1.6 million in 1Q23, impacted by the net fair value gain of the Procaps ordinary shares held in escrow and warrants liabilities, which is a non-cash item. Excluding this effect, net financial expenses totaled $9.5 million, mostly impacted by interest expense ($8.8 million in 2022).

U$ million	1Q23			1Q22			Δ%
Banking expenses and fees		(0.4	)		(0.4	)		1.4	%
Others financial expenses		(0.3	)		(0.1	)		98.7	%
Net fair value gain of warrants liabilities		3.9			1.7			128.3	%
Net fair value gain of shares held in escrow		7.2			18.5			-61.1	%
Interest expenses		(8.8	)		(5.1	)		72.6	%
Net Financial Expenses		1.6			14.6			-88.7	%

Net Income

Procaps reported net income of $11.1 million for 1Q23 and $16.4 million for 1Q22. Non-cash items totaled $11.2 million in 1Q23 compared to $20.2 million in 1Q22.

U$ million	1Q23			%NR			1Q22			%NR			Δ%
EBIT		7.2			8.6	%		7.5			8.8	%		-4.0	%
Net Financial Expenses		1.6			2.0	%		14.6			17.0	%		-88.7	%
EBT		8.9			10.6	%		22.1			25.8	%		-59.8	%
Income Tax		(2.3	)		-2.7	%		(5.7	)		-6.6	%		n.a.
Net Income		6.6			7.9	%		16.4			19.2	%		-59.7	%

Indebtedness

As of March 31, 2023, our total gross debt was $285.1 million, compared to $285.9 million as of December 31, 2022.

Gross debt consisted mainly of Senior Notes in the amount of $115.0 million; other loans in the amount of $95.7 million and a syndicated loan in the amount of $38.6 million. Total gross debt is carried at an average cost of 8.5%.

Cash totaled $23.0 million as of March 31, 2023, impacted mainly by the increase in working capital to mitigate supply chain challenges, increased expenses for being a listed public company, and financing and M&A projects and expansion CAPEX to support future growth.

Total net debt as of March 31, 2023, totaled $262.1 million, of which approximately 47% consisted of short-term obligations. As of December 31, 2022, the Company was in breach of certain of the covenants included under its note purchase agreement, its syndicated loan agreement and an additional credit agreement. Although none of the lenders declared an event of default under the applicable agreements, these breaches could have resulted in the lenders requiring immediate repayment of the applicable indebtedness and as a result, the Company has classified the respective indebtedness to current liabilities as of March 31, 2023.

U$ million	1Q23		2022		1Q22
Short Term		135.1		257.5		99.7
Long Term		150.0		28.4		168.6
Gross Debt		285.1		285.9		268.3
Cash and cash equiv.		23.0		43.0		65.6
Net Debt		262.1		242.9		202.7

Capital Expenditures (“CAPEX”)

As of March 31, 2023, CAPEX totaled $4.9 million, comprised of $3.3 million of property, plant & equipment (“PP&E”) (3.9 % of net revenues) and $ 1.6 million of intangible CAPEX (1.9 % of net revenues).

PP&E CAPEX refers mainly to the construction of the new Miramar site for Funtrition, the increase of installed capacity in our plants and the expansion of analytical lab capacity.

Intangible CAPEX refers mainly to investments in the development of new products and product sanitary registration fees.

These investments are aligned with our strategic growth plan to increase production capacity, facilities improvements and increase capacity to develop new products.

U$ million	1Q23%		NR			1Q22%		NR			Δ%
Intangible CAPEX		1.6		1.9	%		1.8		2.1	%		-13.4	%
PP&E CAPEX		3.3		3.9	%		2.2		2.6	%		49.4	%
Total CAPEX		4.9		5.8	%		4.0		4.7	%		20.9	%

Cash Flow

Cash flow from operating activities during 2022 was $6.1 million, mainly impacted by changes in working capital particularly due to the increase in inventories, CAPEX and R&D investments.

U$ million	1Q23			1Q22			Δ%
Net Income		6.6			16.4			-59.7	%
D&A		3.7			3.5			5.9	%
Income Tax expenses		2.3			5.7			-60.2	%
Finance expenses		(1.6	)		(14.6	)		-88.7	%
Other adjustments		4.6			1.0			345.2	%
Changes in working capital		(9.5	)		(4.3	)		122.1	%
Cash from operations		6.1			7.8			-21.9	%
Interest paid		(0.9	)		(0.4	)		108.5	%
Income tax paid		(2.1	)		(1.0	)		99.7	%
Operating Cash Flow		3.1			6.3			-50.9	%
CAPEX and R&D investments		(5.0	)		(4.2	)		20.8	%
Free Cash Flow		(1.9	)		2.2			n.a.
Financing Cash Flow		(18.6	)		(10.2	)		20.8	%
Increase (Decrease) in Cash		-20.5			-8.0			20.8	%

Cash conversion cycle was 120 days ($135.6 million).

(days)	4Q21		1Q22		2Q22		3Q22		4Q22		1Q23
Acounts receivables (DSO)		103		96		100		107		114		103
Inventories (DIO)		70		85		83		83.1		85.0		87.4
Accounts payable - suppliers (DPO)		75		78		76		78.8		79.2		70.4
Working Capital		98		103		107		111		120		120

About Procaps Group

Procaps Group, S.A. (“Procaps”) (NASDAQ: PROC) is a developer of pharmaceutical and nutraceutical solutions, medicines, and hospital supplies that reach more than 50 countries in all five continents. Procaps has a direct presence in 13 countries in the Americas and more than 5,500 employees working under a sustainable model. Procaps develops, manufactures, and markets over the counter (OTC) pharmaceutical products and prescription pharmaceutical drugs (Rx), nutritional supplements and high-potency clinical solutions. For more information, visit www.procapsgroup.com or Procaps Group’s investor relations website investor.procapsgroup.com.

APPENDIX

Portfolio Overview

Procaps’ portfolio is comprised by 5 business lines: Nextgel, Diabetrics, Farma Procaps, Clinical Specialties, and Vital Care.

Nextgel

Nextgel is the iCDMO (integral contract development and manufacturing organization) arm of Procaps. We develop and manufacture proprietary Softgel technology, such as Unigel, Versagel, Chewgel, G-tabs and specialized gummies. We export to over 50 countries and partner with global and regional pharmas. This is exclusively a B2B channel.

Diabetrics

Diabetrics is a health solution for diabetes patients. It is a patient-centric solution, offering a comprehensive portfolio of products and differentiated services. This solution is offered in Colombia, and we expect to launch in Central America and Mexico beginning in 2023.

Farma Procaps

Farma Procaps formulates, manufactures and markets branded prescription drugs. It represents a high-growth portfolio that focuses on nine therapeutic areas: feminine care products, pain relief, skin care, digestive health, growth and development, cardiology, vision care, central nervous system and respiratory.

Clinical Specialties

Clinical Specialties business line develops, manufactures, and markets high-complexity drugs for hospitals and clinics, such as antibiotics, blood clots, immunosuppressants, oncology, and analgesics products.

VitalCare

VitalCare business line develops, manufactures, and markets OTC consumer healthcare products through an extensive portfolio focused on high-prevalence therapeutic areas, including gastrointestinal, skin care, cough, and cold, analgesics, urological, and vitamins, minerals, and supplements.

Our Farma Procaps, VitalCare and Clinical Specialties business units are part of three business segments: CAN, CASAND, and Procaps Colombia.

Procaps Colombia primarily serves the Colombian market; CAN primarily serves the Honduras, Nicaragua, El Salvador, United States, and Guatemala markets; and CASAND primarily serves the Panama, Costa Rica, Ecuador, Dominican Republic, Peru, and Bolivia markets.

Use of Non-IFRS Financial Measures

Our management uses and discloses certain metrics on a constant currency basis, which are non-IFRS financial information to assess our operating performance across periods and for business planning purposes. We believe the presentation of these non-IFRS financial measures is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. These non-IFRS measures are not meant to be considered in isolation or as a substitute for financial information presented in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board and should be viewed as supplemental and in addition to our financial information presented in accordance with IFRS.

Use of Constant Currency

As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of certain financial metrics and results on a constant currency basis in addition to the IFRS reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information is non-IFRS financial information that compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. We currently present net revenue on a constant currency basis. We calculate constant currency by calculating three month-end period for the three months ended March 31, 2023 using prior-period (three months ended March 31, 2022) foreign currency exchange rates. The functional foreign currencies for the primary regional markets where we operate, such as the Colombian Peso and the Brazilian Real, were adjusted on a constant currency basis at the exchange rates of COP $3,913.49 per U.S. $1.00 and R$5.22990 per U.S. $1.00, respectively, for the three months ended March 31, 2022. We generally refer to such amounts calculated on a constant currency basis as excluding the impact of foreign exchange. These results should be considered in addition to, not as a substitute for, results reported in accordance with IFRS. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with IFRS.