ProPhase Labs(PRPH) - 2024 Q3 - Quarterly Report

Financial Performance - For the three months ended September 30, 2024, net revenue was $3.1 million, a decrease from$8.4 million for the same period in 2023, primarily due to a $2.5 million decrease in diagnostic services and a$2.7 million decrease in consumer products[152]. - For the nine months ended September 30, 2024, net revenue was $9.3 million, down from$40.9 million for the same period in 2023, with a $24.8 million decrease in diagnostic services revenue[161]. - Net loss for the three months ended September 30, 2024, was$6.6 million, or $(0.35) per share, compared to a net loss of$5.1 million, or $(0.30) per share, for the same period in 2023[161]. - Net loss for the nine months ended September 30, 2024, was$19.0 million, or $(1.02) per share, compared to a net loss of$8.0 million, or $(0.47) per share, for the same period in 2023[170]. Diagnostic Services - Overall diagnostic testing volume decreased from 13,000 tests in the three months ended September 30, 2023, to zero tests in the same period in 2024[152]. - Overall diagnostic testing volume decreased from 259,000 tests in the nine months ended September 30, 2023, to zero tests in the same period in 2024[161]. - Diagnostic services costs for the nine months ended September 30, 2024, were zero, down from$1.9 million in the same period in 2023, due to decreased COVID-19 testing volumes[164]. - There were no diagnostic services revenue generated from the HRSA funding program for the three months ended September 30, 2024, and 2023[194]. - The expiration of the federal Public Health Emergency on May 11, 2023, led to a significant decrease in demand for COVID-19 testing services[195]. Expenses - General and administration expenses for the three months ended September 30, 2024, were $7.7 million, a decrease from$8.2 million in the same period in 2023[157]. - General and administration expenses decreased by $4.0 million to$22.5 million for the nine months ended September 30, 2024, compared to $26.5 million for the same period in 2023[165]. - Research and development costs for the three months ended September 30, 2024, were$122,000, down from $428,000 for the same period in 2023[158]. - Research and development costs decreased to$533,000 for the nine months ended September 30, 2024, down from $1.144 million in the same period in 2023, primarily due to reduced product research activities[167]. - Interest expense for the three months ended September 30, 2024, was$1.2 million, compared to $275,000 for the same period in 2023, reflecting a higher balance of outstanding debt[160]. - Interest expense increased to$2.3 million for the nine months ended September 30, 2024, compared to $781,000 for the same period in 2023, due to a higher balance of outstanding debt[169]. Cash Flow and Capital - Cash and cash equivalents decreased to$1.1 million as of September 30, 2024, down from $2.1 million at December 31, 2023, primarily due to$14.0 million used in operating activities[178]. - The company anticipates continued losses and will require additional capital to fund operations, which may be raised through public or private equity or debt financings[181]. - The company sold 1,033,500 shares of common stock, generating cash proceeds of $4.6 million during the nine months ended September 30, 2024[199]. Acquisitions and Agreements - The company continues to actively pursue acquisition opportunities for other companies, technologies, and products within and outside the consumer products industry[151]. - The company entered into a manufacturing agreement with Vespyr Brands, Inc. for the production of certain products, which is currently under negotiation for renewal[182]. - The company purchased assets related to the BE-Smart Esophageal Pre-Cancer diagnostic screening test for$3.5 million in cash and 100,000 shares of common stock[186]. - The company issued an unsecured promissory note for an aggregate principal amount of $7.6 million, accruing interest at a rate of 10$10.0 million, with an interest rate raised to 15% per annum and a new maturity date of August 15, 2027[192]. Internal Controls and Compliance - A material weakness in internal control over financial reporting was identified, affecting the accuracy of account reconciliations and revenue recognition[218][220]. - The company is currently evaluating material weaknesses in internal controls and has hired a third-party accounting consultant to assist in remediation efforts[222]. - As of December 31, 2023, the company's internal controls over financial reporting were deemed ineffective due to several identified deficiencies[218]. - There were misstatements in accounts receivable, deferred revenue, and revenue for multiple subsidiaries due to inadequate controls and reliance on manual input processes[220]. - The evaluation of disclosure controls and procedures concluded that they were effective at the reasonable assurance level as of September 30, 2024[217]. - No material changes in internal control over financial reporting occurred during the most recent quarter that would likely affect internal controls[223]. Market Conditions - The company anticipates that increased costs for contract manufacturing and retail operations will be passed on to customers, while costs related to diagnostic services will be absorbed by the company[200]. - The company is subject to normal inflationary trends, which could materially affect its business in the future[200]. - Current economic conditions may adversely affect the company's business and financial performance, including the collection of accounts receivables and realization of inventory[214]. - There have been no material changes to market risk exposures since December 31, 2023[215]. - The company does not expect material losses related to its investment portfolio or excessive exposure to market risks associated with interest rates[213].