ProPhase Labs Inc.
08/13/2025 | Press release | Distributed by Public on 08/13/2025 15:08
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q ("Quarterly Report") and the audited financial statements and notes thereto as of and for the year ended December 31, 2024 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on April 1, 2025 (the "2024 Annual Report"). As used in this Quarterly Report, unless the context suggests otherwise, "we," "us," "our," or "ProPhase" refer to ProPhase Labs, Inc. and its subsidiaries, unless the context otherwise requires.
Forward-Looking Statements
This Quarterly Report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements relate to future events or our future financial performance. Forward-looking statements typically are identified by use of terms such as "anticipate", "believe", "plan", "expect", "intend", "may", "will", "should", "estimate", "predict", "potential", "continue" and similar words although some forward-looking statements are expressed differently. This Quarterly Report may also contain forward-looking statements attributable to third parties relating to their estimates regarding the growth of our markets.
You are cautioned that forward-looking statements are not guarantees of performance and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance, achievements or prospects to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. Many of these factors are beyond our ability to predict.
Such risks and uncertainties include, but are not limited to:
•our ability to generate net positive revenue;
•our ability to manage our growth successfully and to compete effectively;
•our ability to implement our growth strategies;
•potential disruptions to our supply chain, increases in the price of testing supplies, equipment and raw materials need for our businesses, or the adulteration of key testing materials and raw materials needed for our businesses;
•potential product liability claims;
•our ability to secure additional capital, when needed to support our businesses;
•our dependence on key personnel and our ability to attract, retain and motivate our key employees;
•our ability to substitute revenues from our lab diagnostic services or tests with new business segments;
•our ability to collect payment and reduce our accounts receivable for the diagnostic tests we delivered and to comply with complex billing requirements;
•our ability to successfully offer, perform and generate revenues from our personal genomics business;
•our ability to navigate privacy concerns and existing and new privacy regulations relating to our personal genomics business;
•potential disruptions in our ability to manufacture our products and those of others;
•our ability to meet the demands of our manufacturing business;
•seasonal fluctuations in demand for the products and services we provide;
•risks related to the initiation, cost, timing, progress and results of current and future research and development programs, preclinical studies and clinical trials and our ability to obtain and maintain regulatory approvals;
•our ability to successfully develop and commercialize our existing products and any new products;
•our ability to protect our proprietary rights;
•our ability to comply with complex regulatory requirements applicable to our businesses;
•our dependence on third parties to provide services critical to our businesses;
•our ability to remediate material weaknesses in our internal controls over financial reporting; and
•general and global economic conditions, including rising inflation, interest rates, and political conflicts.
These factors should not be construed as exhaustive and you should also carefully consider the "Summary of Risk Factors" in our 2024 Annual Report and other Risk Factors and statements we make in other sections of this Quarterly Report, such as Part II. Item 1A. "Risk Factors" of this Quarterly Report, and in our 2024 Annual Report, such as Part I. Item 1A. "Risk Factors" and Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2024 Annual Report, all of which are incorporated herein by reference, as well as in other documents we file from time to time with the SEC that address additional risks that could cause our actual results to differ from those set forth in any forward-looking statements. Our forward-looking statements speak only as the date of this Quarterly Report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements.
General
We are a next-generation biotech, genomics and consumer products company. We are also focused on licensing, developing and commercializing novel drugs, dietary supplements, compounds and diagnostics.
We conduct our operations through two operating segments: diagnostic services and consumer products.
Until late fiscal year 2020, we were engaged primarily in the research, development, manufacture, distribution, marketing and sale of over-the-counter ("OTC") consumer healthcare products and dietary supplements in the United States. This includes the development and marketing of dietary supplements under the TK Supplements®brand. However, commencing in December 2020, we also began offering COVID-19 and were prepared to validate other RPP Molecular tests through our diagnostic service business. In August 2021, we began offering personal genomics products and services and in July 2022 we began focusing on the licensing, development and commercialization of novel drugs, dietary supplements, compounds and diagnostics.
Our wholly owned subsidiary, ProPhase Diagnostics, Inc. ("ProPhase Diagnostics"), ceased providing diagnostic testing in May 2025. Management is currently evaluating the future direction of ProPhase Diagnostics.
On August 10, 2021, we acquired Nebula Genomics, Inc., a privately owned personal genomics company, through our new wholly owned subsidiary, ProPhase Precision Medicine Inc. ("ProPhase Precision"). Subsequently in 2022, ProPhase Precision's legal name was changed to Nebula Genomics, Inc. ("Nebula"). Nebula focuses on genomics sequencing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in DNA. The data obtained from genomic sequencing can be used to help identify inherited disorders and tendencies, help predict disease risk, help identify expected drug response, and characterize genetic mutations, including those that drive cancer progression.
Our wholly owned subsidiary, ProPhase BioPharma, Inc. ("PBIO") was formed on June 28, 2022, for the licensing, development and commercialization of novel drugs, dietary supplements and compounds, beginning with Equivir and Equivir G. PBIO announced a second licensing agreement for two small molecule proviral integration site for moloney murine leukemia virus kinase inhibitors, Linebacker LB-1 and LB-2, in July 2022, with plans to pursue development and commercialization of LB-1 as a cancer co-therapy.
In January 2023, we acquired exclusive rights to the BE-Smart Esophageal Pre-Cancer Diagnostic Screening Test and related intellectual property assets.
On January 16, 2025, ProPhase Labs, Inc. (the "Company") entered into a Stock Purchase Agreement (the "Agreement") with JL Projects, Inc., a Delaware corporation ("JL Projects"), pursuant to which JL Projects purchased from the Company all of the right, title, and interest in and to all of the issued and outstanding shares of capital stock of Pharmaloz Manufacturing, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("PMI"), and Pharmaloz Real Estate Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("PREH"). The transaction closed concurrently with the execution of the Agreement on January 16, 2025. PMI is in the business of developing, manufacturing, packaging, and warehousing of non-prescription drug and dietary supplement products, including organic and natural cough drops and lozenges, at a facility located at 500 North 15th Avenue, Lebanon, Pennsylvania 17046 (the "Facility"). PREH owned the Facility prior to the consummation of the sale contemplated by the Agreement.
As part of the transaction, JL Projects provided approximately $2 million in cash payments to the Company and extinguished approximately $10 million of the Company's debt. Additionally, JL Projects assumed (i) the existing $3.3
million mortgage on PMI's manufacturing facility, (ii) nearly $2 million in capital leases, and (iii) approximately $3 million in current and accrued payables, and paid down $200,000 on an existing loan from affiliates of JL Projects. The transaction also resulted in the cancellation of approximately $300,000 in accrued interest related to the retired debt. Furthermore, the Company avoided approximately $3 million of upcoming capital expenditures that JL Projects will now be responsible for. The transaction also transferred over $600,000 in employee annual overhead from the Company to PMI. The Agreement included customary representations, warranties, and covenants by the Company and JL Projects. The foregoing summary description does not purport to be complete and is qualified in its entirety by reference to a copy of the Agreement filed as Exhibit 10.1 to this report on Form 10-Q and incorporated by reference herein.
Our wholly-owned subsidiary, DNA Complete, Inc. ("DNA Complete"), which was formed on September 24, 2024, for the offering of whole genome sequencing and related services. DNA Complete sequences specimens at multiple genomic sequencing laboratories. DNA Complete focuses on genomics testing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid ("DNA"). The data obtained from genomic sequencing may help to identify inherited disorders and tendencies, predict disease risk, identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. DNA Complete currently offers DNA Complete's whole genome sequencing products direct-to-consumers online with plans to sell in food, drug and mass retail stores and to provide testing for universities conducting genomic research. Our personal genomics business is and will continue to be impacted by demand for our genetic sequencing products and services, our marketing and service capabilities, and our ability to comply with applicable regulatory requirements.
Our personal genomics business is and will continue to be impacted by demand for our genetic sequencing products and services, our marketing and service capabilities, and our ability to comply with applicable regulatory requirements.
Our consumer sales are and will continue to be impacted by (i) the timing of acceptance of our TK Supplements®consumer products in the marketplace, and (ii) fluctuations in the timing of purchase and the ultimate level of demand for the OTC healthcare and cold remedy products, which is largely a function of the timing, length and severity of each cold season. Generally, a cold season is defined as the period from September to March when the incidence of the common cold rises as a result of the change in weather and other factors. We generally experience in the first, third and fourth quarter higher levels of net revenues from our contract manufacturing business. Revenues are generally at their lowest levels in the second quarter when customer demand generally declines.
In addition, we continue to actively pursue acquisition opportunities for other companies, technologies and products within and outside the consumer products industry.
Results of Continuing Operations
Three Months Ended June 30, 2025 as Compared to the Three Months Ended June 30, 2024
For the three months ended June 30, 2025, net revenue was$1.2 millionas compared to $1.5 million for the three months ended June 30, 2024. The Company did not generate any revenues from diagnostic services for the three months ended June 30, 2025 and 2024, respectively.
Cost of revenues for the three months ended June 30, 2025 were$0.5 million, comprised of $0.1 million for diagnostic services and $0.4 millionfor consumer products. Cost of revenues for the three months ended June 30, 2024 were $1.7 million, comprised of $0.7 million for diagnostic services and $1.0 million for consumer products.
We realized a gross margin profit of $0.7 million for the three months ended June 30, 2025 as compared to a gross margin loss of $0.2 million for the three months ended June 30, 2024. The increase of $0.9 million was a result of increased consumer products with better margin product mix. For the three months ended June 30, 2025 and 2024, we realized an overall gross margin of 58.9%and (10.3)%, respectively. Gross margin for diagnostic services was zeroor not applicable due to no revenue in the 2025 and 2024 comparable periods, respectively. Gross margin for consumer products was67.8%and 36.8% in the 2025 and 2024 comparable periods, respectively. Gross margin for consumer products have historically been influenced by fluctuations in quarter-to-quarter production volume, fixed production costs and related overhead absorption, raw ingredient costs, inventory mark to market write-downs and timing of shipments to customers.
General and administration expenses for the three months ended June 30, 2025 were $4.6 millionas compared to $6.9 million for the three months ended June 30, 2024. The decrease in general and administration expenses of $2.3 million
for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 was principally related to a decrease in personnel expenses, overhead costs and professional fees and removal of costs related to the divestiture of PMI.
Research and development costs for the three months ended June 30, 2025 were$4,000as compared to $140,000 for the three months ended June 30, 2024. The decrease in research and development costs of $136,000 for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 was principally due to decreased activities related to product research and field testing as a result of refined focus and efforts.
Interest expense for the three months ended June 30, 2025 was$587,000as compared to $522,000 for the three months ended June 30, 2024. Thedecreasein interest expense of $65,000 for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 was principally due to the lower balance of our outstanding debt that bears interest and leased manufacturing equipment.
As a result of the effects described above, net loss from the continuing operations for the three months ended June 30, 2025 was $4.5 million, or $(0.11)per share, as compared $5.5 million, or $(0.29) per share, for the three months ended June 30, 2024. Diluted loss per share related to the continuing operations for the three months ended June 30, 2025 and 2024 were$(0.11)per share and $(0.29) per share, respectively.
Six Months Ended June 30, 2025 as Compared to the Six Months Ended June 30, 2024
For the six months ended June 30, 2025, net revenue was$2.7 millionas compared to $3.9 millionfor the six months ended June 30, 2024. The decreasein net revenue was the result of a $1.2 million decrease in consumer products. The Company did not generate any revenues from diagnostic services for the six months ended June 30, 2025 and 2024, respectively.
Cost of revenues for the six months ended June 30, 2025 were$1.4 million, comprised of $344,000for diagnostic services and $1.1 millionfor consumer products. Cost of revenues for the six months ended June 30, 2024 were $4.1 million, comprised of $1.4 millionfor diagnostic services and $2.6 millionfor consumer products.
We realized a gross margin profit of $1.3 million for the sixmonths ended June 30, 2025 as compared to a gross margin loss of $215,000for the sixmonths ended June 30, 2024. The increase of $1.5 million was comprised of a decrease of $1.1 million in diagnostic services gross margin loss, and an increase of $0.4 million in consumer products. For the sixmonths ended June 30, 2025 and 2024, we realized an overall gross margin of 47.1% and (5.6)%, respectively. Gross margin for diagnostic services was zeroor not applicable due to no revenue in the 2025 and 2024 comparable periods, respectively. Gross margin for consumer products was 59.9% and 31.5% in the 2025 and 2024 comparable periods, respectively. Gross margin for consumer products have historically been influenced by fluctuations in quarter-to-quarter production volume, fixed production costs and related overhead absorption, raw ingredient costs, inventory mark to market write-downs and timing of shipments to customers.
General and administration expenses for the sixmonths ended June 30, 2025 were $8.7 millionas compared to $14.2 millionfor the six months ended June 30, 2024. The decrease in general and administration expenses of $5.5 million for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 was principally related to a decrease in personnel expenses, overhead costs and professional fees.
Research and development costs for the six months ended June 30, 2025 were $101,000 as compared to $412,000 for the six months ended June 30, 2024. The decrease in research and development costs of $311,000 for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 was principally due to decreased activities related to product research and field testing as a result of refined focus and efforts.
Interest expense for the six months ended June 30, 2025 was$1.1 millionas compared to $963,000 for the six months ended June 30, 2024. Theincreasein interest expense of 163,000 for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 was principally due to the higher balance of our outstanding debt that bears interest and leased manufacturing equipment.
As a result of the effects described above, net loss from the continuing operations for the six months ended June 30, 2025 was $9.1 million, or $(0.24)per share, as compared $11.0 million, or $(0.59) per share, for the six months ended June 30, 2024. Diluted loss per share related to the continuing operations for the six months ended June 30, 2025 and 2024 were $(0.24) per share and $(0.59) per share, respectively.
Non-GAAP Financial Measures and Reconciliation
In an effort to provide investors with additional information regarding our results of operations as determined by accounting principles generally accepted in the United States of America ("GAAP"), we disclose certain non-GAAP financial measures. The primary non-GAAP financial measures we disclose are EBITDA and Adjusted EBITDA.
We define "EBITDA" as net income (loss) before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding acquisition costs, other non-cash items, and other unusual or non-recurring charges (as described in the table below).
Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same names and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. We compute non-GAAP financial measures using the same consistent method from quarter to quarter and year to year. We may consider whether other significant items that arise in the future should be excluded from the non-GAAP financial measures.
We use EBITDA and Adjusted EBITDA internally to evaluate and manage the Company's operations because we believe they provide useful supplemental information regarding the Company's ongoing economic performance. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results primarily because they exclude amounts that are not considered part of ongoing operating results when planning and forecasting and when assessing the performance of the organization. In addition, we believe that non-GAAP financial information is used by analysts and others in the investment community to analyze our historical results and in providing estimates of future performance and that failure to report these non-GAAP measures could result in confusion among analysts and others and create a misplaced perception that our results have underperformed or exceeded expectations.
The following table sets forth the reconciliations of EBITDA and Adjusted EBITDA excluding other costs to the most comparable GAAP financial measures (in thousands):
| For the three months ended | For the six months ended | ||||||||||||||||||||||
| June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | ||||||||||||||||||||
|
GAAP loss from continuing operations (1)
|
$ | (4,472) | $ | (5,463) | $ | (9,150) | $ | (10,987) | |||||||||||||||
| Interest, net | 587 | 522 | 1,126 | 963 | |||||||||||||||||||
| Income tax benefit | 779 | (2,287) | 779 | (4,853) | |||||||||||||||||||
| Depreciation and amortization | 1,349 | 1,536 | 2,831 | 3,141 | |||||||||||||||||||
| EBITDA | (1,757) | (5,692) | (4,414) | (11,736) | |||||||||||||||||||
| Share-based compensation expense | 508 | 796 | 1,029 | 2,385 | |||||||||||||||||||
|
Non-cash rent expense (2)
|
442 | 67 | 964 | 169 | |||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | (807) | $ | (4,829) | $ | (2,421) | $ | (9,182) | |||||||||||||||
(1)We believe that net loss from continuing operations is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA measure the Company's operating performance without regard to certain expenses. EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP and the Company's computation of EBITDA and Adjusted EBITDA may vary from others in the industry. EBITDA and Adjusted EBITDA have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Company's results as reported under GAAP.
(2)The non-cash portion of rent, which reflects the extent to which our GAAP rent expense recognized exceeds (or is less than) our cash rent payments. For newer leases, our rent expense recognized typically exceeds our cash rent payments, while for more mature leases, rent expense recognized is typically less than our cash rent payments.
Liquidity and Capital Resources
Our aggregate cash and cash equivalents as of June 30, 2025 were $169,000as compared to $678,000at December 31, 2024. Our working capital deficit was $1.1 millionand $1.5 million as of June 30, 2025 and December 31, 2024, respectively. The decrease of approximately $0.5 millionin our cash and cash equivalents for the six months ended June 30, 2025 was principally due to $4.2 million cash used in operating activities and repayment of notes payable for $2.5 million, offset by proceeds from issuance of common stock and notes payable of $4.7 million. We also received $800,000 from sale of PMI.
To date the principal sources of capital to fund our operations have been from diagnostic services, genomics sequencing, product sales, net proceeds from the offering of equity securities, and issuances of promissory notes. Based on management's current business plans, the Company estimates it will have enough cash and liquidity to finance its operating requirements for at least 12 months from the date of filing these unaudited condensed consolidated financial statements. However, due to the nature of early-stage ventures and accounts receivables collections, there are inherent uncertainties associated with managements' business plan and cash flow projections, particularly if the Company is unable to grow its business lines, including replacing the revenues from our lab diagnostic services or tests with new business lines, or collect on its accounts receivables in a timely manner or at all. If we were to experience a cash shortfall, we believe our access to existing and other financing sources, including our at-the-market facility, and the established relationships with our investment banks will enable us to continue to meet our obligations and fund ongoing operations.
We may also use our cash to explore and/or acquire new product technologies, applications, product line extensions, new contract manufacturing applications and other new product opportunities. In the event that our available cash is insufficient to support such initiatives, we may need to incur indebtedness or issue common stock or other securities to finance our plans for growth. Volatility in the credit markets and the liquidity of major financial institutions, including as a result of inflation and/or the wars in Ukraine and the Gaza Strip and measures taken in response thereto, may have an adverse impact on our ability to fund our business strategy through future borrowings, under either existing or newly created instruments in the public or private markets on terms that we believe to be reasonable, if at all.
We anticipate that we will continue to incur losses for foreseeable future. We expect to continue to incur research and development costs and general and administrative expenses, as well as expenses related to potential commercialization of our product candidates, consistent with costs associated with research and development at companies of our size and stage of development, and, as a result, we will need additional capital to fund our operations, which we may raise through public or private equity or debt financings, strategic collaborations, or other sources.
Contractual Obligation and Commitments
Equivir License Agreement
Under the terms of our Equivir License Agreement with Global BioLife for the worldwide exclusive right and license to Equivir and Equivir G, we are required to pay to Global BioLife a royalty of 5.5% after the date of first commercial sale and during the royalty term. In the event that no valid claim of Equivir Licensed Patents cover a Equivir Licensed Product in a particular jurisdiction, the royalty rate for such Equivir Licensed Product will be reduced by 50%.
Linebacker License Agreement
Under the terms of our License Agreement entered into by and between PBIO and Global BioLife, Inc. ("Global BioLife") on July 19, 2022 (the "Linebacker License Agreement") for the worldwide exclusive right and license to Linebacker (LB-1 and LB-2), we must pay Global BioLife $900,000 following the achievement of a first Phase 3 study which may be required by the United States Food and Drug Administration for the first product comprising or containing any compound covered by certain patents identified in the Linebacker License Agreement (a "Linebacker Licensed Product") and an additional $1 million upon the receipt of regulatory approval of a New Drug Application for the first Linebacker Licensed Product. During the term of the Linebacker License Agreement, we are also required to pay to Global BioLife 3% royalties on Net Revenue (as defined in the Linebacker License Agreement) of each Linebacker Licensed Product, but no less than the minimum royalty of $250,000 of Net Revenue per year minus any royalty payments for any required third party licenses.
Stella Asset Purchase Agreement
On December 15, 2022, we entered into an Asset Purchase Agreement (the "Stella Purchase Agreement") with Stella Diagnostics Inc. ("Stella") and Stella DX, LLC ("Stella DX" and, together with Stella, the "Stella Sellers"), pursuant to which, on January 3, 2023, we purchased all of the assets, rights and interests of the Stella Sellers and their affiliates pertaining to the Stella Sellers' BE-Smart Esophageal Pre-Cancer diagnostic screening test and certain clinical assets, including all intellectual property rights (the "Stella Purchased Assets"). As consideration for the Stella Purchased Assets, we (i) paid to the Stella Sellers $3.5 million in cash, minus (a) the Secured Note Amount of $0.5 million, (b) the Liability Payoff Amount of $0.4 million and (c) the Promissory Note Payoff Amounts of $0.4 million (each as defined in the Stella Purchase Agreement) in 2022, and (ii) issued to Stella DX 100,000 shares of our common stock.
We are required to pay to the Stella Sellers for each of the seven calendar years (each, an "Annual Period") during the seven year period commencing on the first day of the calendar year following the date of the Commercialization Event (as defined in the Stella Purchase Agreement), a non-refundable, non-creditable royalty of 5% of the Adjusted Gross Margin (as defined in the Stella Purchase Agreement) for such Annual Period.
In addition to the consideration paid at closing, the Company will issue shares of common stock valued at $2.0 million (the "Milestone Stock") to the Stella Sellers upon a Commercialization Event (as defined in the Stella Purchase Agreement). The Milestone Stock was recorded at closing as a non-current liability at its fair value of $2.0 million. Also, the Company is required to pay to the Stella Sellers for each of the seven calendar years during the seven years period commencing on the first day of the calendar year following the date of the Commercialization Event, a non-refundable, non-creditable royalty of 5% of the Adjusted Gross Margin for such Annual Period. As of June 30, 2025, the Commercialization Event had not occurred.
Contractual Obligations under Debt Arrangement
The Company has contractual obligations under various debt arrangement. See Note 6 in our financial statement included in this Quarterly Report for more information relating to our outstanding debt obligations.
HRSA Funding
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, providing for reimbursement to healthcare providers for COVID-19 tests provided to uninsured individuals, subject to continued available funding. There were no diagnostic services revenue for the three months ended June 30, 2025 and 2024, respectively, that was generated from this program for the uninsured. On March 22, 2022, the Health Resources & Services Administration's uninsured program stopped accepting claims for COVID-19 testing and treatment due to lack of sufficient funds. Despite requests from the Acting Director of the Office of Management and Budget and the White House Coordinator for COVID-19 Response for additional emergency funding for the uninsured program, additional emergency funding were not allocated to the Health Resources & Services Administration's uninsured program.
On January 30, 2023, the Administration announced that effective May 11, 2023, the federal Public Health Emergency would expire related to the COVID-19 pandemic. This expiration changes regulatory guidelines around COVID-19 testing including billing codes and reimbursement rates of in and out of network laboratories. As a result of the Public Health Emergency ending and the significant decrease in demand of COVID-19 testing, we have not performed any diagnostic testing services during the three months ended June 30, 2025.
At-the-Market Facility
On December 28, 2021, we entered into a Sales Agreement (the "Sales Agreement") with ThinkEquity LLC (the "Sales Agent"), pursuant to which we may offer and sell, from time to time through the Sales Agent, shares of our common stock having an aggregate offering price of up to $100,000,000, subject to the terms and conditions of the Sales Agreement. We are not obligated to make any sales of shares under the Sales Agreement.
We will pay the Sales Agent a fixed commission rate of 2.0% of the aggregate gross proceeds from the sale of any shares pursuant to the Sales Agreement and have agreed to provide the Sales Agent with customary indemnification and contribution rights. We also agreed to reimburse the actual out-of-pocket accountable expenses of the Sales Agent up to $60,000 (of which a $25,000 advance was paid on December 7, 2021), which amount includes the fees and expenses of legal counsel to the Sales Agent up to $50,000, and to pay the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, in an amount not to exceed $3,000.
In April 2024, the Company sold 1,033,500 shares of common stock pursuant to the Sales Agreement. The Company received cash proceeds of $4.6 million, which is net of $94,000 offering cost incurred by the Sales Agent.
On November 12, 2024 ("Closing Date"), the Company closed on an underwritten firm commitment public offering under the at-the-market facility, whereby the Company sold 4,795,000 shares of common stock, including 625,000 shares of common stock sold upon full exercise of the underwriters' option to purchase additional shares (the "Offering"). Each share of common stock was sold at a public offering price of $0.72 per share for aggregate gross proceeds of $3.5 million. The Company received net cash proceeds of $3.0 million, which is net of $0.5 million offering cost. Upon closing of the Offering, the Company issued the Representative warrants (the "Representative's Warrants") as compensation to purchase up to 239,750 shares of common stock, which is equal to 5.0% of the aggregate number of shares of common stock sold in the Offering. The Representative's Warrants will be exercisable at a per share exercise price of $0.90.
Impact of Inflation
We are subject to normal inflationary trends and anticipate that any increased costs for our retail operations would be passed on to our customers; however, any increased costs related to diagnostic services would be absorbed by the Company. Inflation could have a material effect on our business in the future.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a discussion of our critical accounting estimates, see the Management's Discussion and Analysis of the Results of Operations in the Company's Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission ("SEC") on April 1, 2025 (the "2024 Form 10-K"). There were no material changes in our critical accounting estimates or accounting policies from December 31, 2024.
Recent Accounting Pronouncements
See Note 2, "Significant Accounting Policies", to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
ProPhase Labs Inc. published this content on August 13, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on August 13, 2025 at 21:08 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]