ProPhase Labs(PRPH) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements reflect a reduced net loss from discontinued operations gain and active financing efforts Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $24,571 | $30,637 | | Total Assets | $42,041 | $63,200 | | Total Current Liabilities | $25,626 | $32,134 | | Total Liabilities | $30,605 | $55,847 | | Total Stockholders' Equity | $11,436 | $7,353 | - The significant decrease in total assets and liabilities from December 2024 to June 2025 is primarily due to the reclassification and subsequent sale of the Pharmaloz Manufacturing Inc. (PMI) business, which is presented as discontinued operations[11][33] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Statement of Operations Summary (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $1,247 | $1,504 | $2,678 | $3,860 | | Gross profit (loss) | $734 | $(155) | $1,260 | $(215) | | Loss from continuing operations | $(4,472) | $(5,463) | $(9,150) | $(10,987) | | Income (loss) from discontinued operations | $0 | $(690) | $8,644 | $(1,431) | | Net income (loss) | $(4,472) | $(6,153) | $(506) | $(12,418) | | Net loss per share, basic and diluted | $(0.11) | $(0.33) | $(0.01) | $(0.67) | - The net loss for the six months ended June 30, 2025, was significantly reduced due to an $8.7 million gain from the disposal of discontinued operations (PMI and PREH)[15][182] - The company recognized $1.9 million in Employee Retention Tax Credit income during Q2 2025, which partially offset the loss from operations[15] Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $7.4 million at the beginning of 2025 to $11.4 million at June 30, 2025. This was primarily driven by the issuance of common and treasury shares for cash, which raised net proceeds of $3.6 million, offsetting the net loss for the period[19][104] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,628) | $(9,982) | | Net cash provided by investing activities | $920 | $2,559 | | Net cash provided by financing activities | $2,199 | $7,594 | | Decrease in cash and cash equivalents | $(509) | $171 | | Cash and cash equivalents at end of period | $169 | $1,780 | - Financing activities in the first six months of 2025 provided $2.2 million in cash, primarily from the issuance of common shares ($3.6 million) and new notes payable ($1.2 million), offset by repayment of other notes ($2.5 million)[22] Notes to Condensed Consolidated Financial Statements Notes detail corporate structure, $8.7 million gain from discontinued operations, complex financing, and a subsequent private placement - Discontinued Operations: On January 16, 2025, the company sold its manufacturing subsidiaries, PMI and PREH. The transaction involved cash payments, debt extinguishment, and assumption of liabilities, resulting in a recognized gain on sale of approximately $8.7 million[33][181][182] - Debt Financing: The company has multiple outstanding debt facilities, including agreements for the sale of future receipts, a collateralized loan, and loans from the CEO and an unaffiliated investor, which included the issuance of warrants[68][70][81] - Equity Financing: Through its Equity Line of Credit with Keystone Capital, the company sold 11.3 million shares of common stock for net proceeds of $3.6 million in the first six months of 2025[101][104] - Lease Termination: In March 2025, the company terminated its New York office leases, resulting in a recognized loss on lease termination of $1.4 million, which included writing off assets and a settlement payment[154][157][158] - Subsequent Event: On July 22, 2025, the company entered into a private placement for an aggregate principal cash investment of $3.0 million in senior secured convertible notes and warrants[190][191] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic shift, revenue decline, improved gross margin, reduced G&A, and tight liquidity with reliance on capital access Results of Continuing Operations Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $1,247 | $1,504 | $(257) | | Gross Profit (Loss) | $734 | $(155) | $889 | | General & Admin Expenses | $4,624 | $6,933 | $(2,309) | | Net Loss from Continuing Ops | $(4,472) | $(5,463) | $991 | Six Months 2025 vs Six Months 2024 Performance (in thousands) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $2,678 | $3,860 | $(1,182) | | Gross Profit (Loss) | $1,260 | $(215) | $1,475 | | General & Admin Expenses | $8,716 | $14,232 | $(5,516) | | Net Loss from Continuing Ops | $(9,150) | $(10,987) | $1,837 | - The improvement in gross margin was attributed to a better product mix in the consumer products segment. The decrease in G&A expenses was mainly due to lower personnel costs, overhead, and professional fees following the divestiture of PMI[214][216][223] Non-GAAP Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | GAAP loss from continuing operations | $(4,472) | $(5,463) | $(9,150) | $(10,987) | | Adjusted EBITDA from continuing operations | $(807) | $(4,829) | $(2,421) | $(9,182) | Liquidity and Capital Resources - As of June 30, 2025, the company had cash and cash equivalents of $169,000, down from $678,000 at year-end 2024. The working capital deficit was $1.1 million[232] - Management states that despite the low cash balance and ongoing losses, it estimates it has enough cash and liquidity to finance operations for at least 12 months, relying on access to existing and other financing sources like its at-the-market facility[233] - The primary sources of capital have been diagnostic services, product sales, equity offerings, and promissory notes. The company anticipates continued losses and will need additional capital to fund operations and R&D[233][235] Quantitative and Qualitative Disclosures about Market Risk The company reports no material exposure to market risks, including foreign currency, interest rates, or commodity prices - The company does not believe it has no material exposure to market risks such as interest rates, foreign currency fluctuations, or commodity prices[253][254] Controls and Procedures Management deemed disclosure controls effective, while actively remediating previously identified material internal control weaknesses - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[258] - The company is continuing to work on remediating a previously disclosed material weakness in internal controls[259] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - As of the filing date, the company is not involved in any material legal proceedings[263] Risk Factors Key risks include significant debt, potential Nasdaq delisting, and the need for shareholder approval for recent financing - Debt Service Risk: The company may not generate sufficient cash flow to service its approximately $3.3 million of outstanding indebtedness as of June 30, 2025[266] - Nasdaq Delisting Risk: The company is not in compliance with Nasdaq's minimum $1.00 bid price rule. It has been granted an extension until December 22, 2025, to regain compliance[267][270] - Financing and Shareholder Approval Risk: A recent private placement of convertible notes and warrants is subject to Nasdaq shareholder approval rules and the company's authorized share limit. Failure to obtain approval to increase authorized shares could restrict conversions and warrant exercises, potentially requiring cash settlement[273] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 1,000,000 unvested warrants to lenders in connection with secured loan agreements, exempt from registration - On June 22, 2025, the company issued two unvested warrants, each to purchase 500,000 shares, in connection with loan agreements. The warrants vest upon shareholder approval of an increase in authorized shares[274][275] Defaults Upon Senior Securities There were no defaults upon senior securities during the period Mine Safety Disclosures This item is not applicable to the company's operations Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter Exhibits This section lists exhibits filed with Form 10-Q, including various agreements and certifications