ProPhase Labs(PRPH) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited condensed consolidated financial statements and accompanying notes detail the company's financial position and performance Condensed Consolidated Balance Sheets | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | ASSETS | | | | Cash and cash equivalents | $23,959 | $8,408 | | Marketable debt securities | $3,539 | $8,779 | | Accounts receivable, net | $36,670 | $37,708 | | Total current assets | $70,275 | $61,317 | | TOTAL ASSETS | $97,947 | $89,295 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $4,445 | $7,026 | | Income tax payable | $6,787 | $1,312 | | Total current liabilities | $16,722 | $15,524 | | Unsecured convertible promissory notes, net | $7,998 | $9,996 | | Total liabilities | $29,789 | $30,667 | | Total stockholders' equity | $68,158 | $58,628 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $97,947 | $89,295 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Revenues, net | $29,092 | $9,142 | $76,623 | $24,413 | | Cost of revenues | $10,372 | $4,676 | $29,226 | $11,020 | | Gross profit | $18,720 | $4,466 | $47,397 | $13,393 | | Income (loss) from operations | $10,587 | $(1,450) | $26,733 | $(229) | | Net income (loss) | $7,446 | $(1,395) | $19,940 | $(338) | | Basic EPS | $0.48 | $(0.09) | $1.28 | $(0.02) | | Diluted EPS | $0.40 | $(0.09) | $1.07 | $(0.02) | Condensed Consolidated Statements of Stockholders' Equity | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :--------------------------- | :--------------------------- | | Common Stock Outstanding | 15,722,827 | 15,485,900 | | Additional Paid-in Capital | $106,162 | $104,552 | | Retained Earnings | $13,231 | $2,642 | | Treasury Stock | $(51,015) | $(48,407) | | Total Stockholders' Equity | $68,158 | $58,628 | - The company declared special cash dividends of $0.30 per share on February 14, 2022 ($4.6 million) and May 9, 2022 ($4.7 million)[125][126] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash provided by (used in) operating activities | $25,108 | $(3,450) | | Net cash provided by (used in) investing activities | $3,596 | $(21,778) | | Net cash (used in) provided by financing activities | $(13,403) | $36,089 | | Increase in cash, cash equivalents and restricted cash | $15,301 | $10,861 | | Cash, cash equivalents and restricted cash, at end of period | $23,959 | $17,677 | Notes to Condensed Consolidated Financial Statements Note 1 - Organization and Business - ProPhase Labs, Inc is a diversified company offering diagnostic testing (including COVID-19 and RPP molecular tests), genomics testing, and contract manufacturing of OTC consumer healthcare products and dietary supplements[21][26] - The company operates through two segments: diagnostic services (ProPhase Diagnostics, ProPhase Precision Medicine) and consumer products (Pharmaloz Manufacturing, TK Supplements®)[21][22][23][25][26] - ProPhase BioPharma, Inc was formed on June 28, 2022, for the licensing, development, and commercialization of novel drugs and compounds, including Equivir, Equivir G, and PIM kinase inhibitors Linebacker LB-1 and LB-2[24] Note 2 - Summary of Significant Accounting Policies - The company's diagnostic service business is heavily influenced by demand for COVID-19 testing, pricing, reimbursement collection, and regulatory changes[32][35] - The HRSA program, which covered COVID-19 testing for uninsured individuals, stopped accepting claims on March 22, 2022, due to insufficient funds, resulting in $16.7 million in unrecognized revenue for tests performed for uninsured individuals from March 23 to June 30, 2022[34] - The personal genomics business is influenced by demand, marketing capabilities, and regulatory compliance[37] - Consumer sales are seasonal, with higher revenues in Q1, Q3, and Q4 due to cold season, and lowest in Q2[38] | Marketable Debt Securities (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | U.S. government obligations | $984 | $667 | | Corporate obligations | $2,555 | $8,112 | | Total Fair Value | $3,539 | $8,779 | | Accounts Receivable (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------- | :------------ | :---------------- | | Trade accounts receivable | $35,793 | $18,520 | | Unbilled accounts receivable | $6,766 | $23,089 | | Less allowances | $(5,889) | $(3,901) | | Total accounts receivable | $36,670 | $37,708 | | Inventory Components (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Diagnostic services testing material | $2,122 | $2,989 | | Raw materials | $1,721 | $1,514 | | Work in process | $676 | $260 | | Finished goods | $421 | $272 | | Inventory valuation reserve | $(431) | $(435) | | Inventory, net | $4,509 | $4,600 | | Deferred Revenue by Recognition Period (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | 0-12 Months | $2,430 | $2,034 | | 13-24 Months | $699 | $530 | | Over 24 Months | $284 | $375 | | Total | $3,413 | $2,939 | | Revenue by Customer Type (in thousands) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :------------------------------ | :------ | :------ | :------ | :------ | | Diagnostic services | $26,158 | $7,536 | $71,071 | $20,274 | | Contract manufacturing | $1,759 | $1,041 | $2,913 | $2,949 | | Retail and others | $465 | $565 | $1,011 | $1,190 | | Genomic products and services | $710 | $- | $1,628 | $- | | Total revenue, net | $29,092 | $9,142 | $76,623 | $24,413 | Note 3 - Business Acquisition - On August 10, 2021, ProPhase Precision acquired Nebula Genomics, Inc for approximately $14.3 million, with a portion paid in common stock and $1.08 million held in escrow[105] | Nebula Acquisition - Assets Acquired & Liabilities Assumed (in thousands) | | :-------------------------------------- | :----- | | Short term investments | $1,800 | | Definite-lived intangible assets | $10,990 | | Total assets acquired | $13,473 | | Total liabilities assumed | $(5,245) | | Net identifiable assets acquired | $8,228 | | Goodwill | $4,446 | | Total consideration, net of cash acquired | $12,674 | | Intangible Assets from Nebula Acquisition (in thousands) | | :------------------------------ | :----- | | Trade names | $5,550 | | Proprietary intellectual property | $4,260 | | Customer relationships | $1,180 | | Total | $10,990 | Note 4 - Goodwill and Acquired Intangible Assets - There were no changes in goodwill for the six months ended June 30, 2022[112] - Amortization expense for acquired intangible assets was $1.4 million for the six months ended June 30, 2022, up from $207,000 in the prior year[115] | Intangible Assets, Net (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Trade names | $5,550 | $5,550 | | Proprietary intellectual property | $4,260 | $4,260 | | Customer relationships | $1,180 | $1,180 | | CLIA license | $1,307 | $1,307 | | Less: accumulated amortization | $(2,863) | $(1,445) | | Total intangible assets, net | $9,434 | $10,852 | Note 5 - Property, Plant and Equipment - Depreciation expense for the six months ended June 30, 2022, was $1.098 million, compared to $900,000 for the same period in 2021[116] | Property, Plant and Equipment (in thousands) | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Land | $352 | $352 | | Building improvements | $1,729 | $1,729 | | Machinery | $4,705 | $4,740 | | Lab equipment | $4,440 | $4,330 | | Computer equipment | $2,130 | $1,211 | | Furniture and fixtures | $468 | $468 | | Less: accumulated depreciation | $(7,572) | $(6,883) | | Total property, plant and equipment, net | $6,252 | $5,947 | Note 6 - Unsecured Convertible Promissory Notes Payable - One of the two September 2020 unsecured convertible promissory notes, with a principal of $2 million, was paid off on February 28, 2022[118][119] - The remaining outstanding note is due September 15, 2023, accrues 10% annual interest, and allows the lender to convert up to $3 million into common stock at $3.00 per share[120] - Interest expense related to these notes decreased to $433,000 for the six months ended June 30, 2022, from $574,000 in the prior year, due to the repayment[122][234] Note 7 - Stockholders' Equity - The company declared special cash dividends of $0.30 per share on February 14, 2022 ($4.6 million) and May 9, 2022 ($4.7 million)[125][126] - The $6.0 million stock repurchase program approved on September 8, 2021, expired on March 30, 2022, with no repurchases made during the six months ended June 30, 2022[128] - Stockholders approved the 2022 Directors' Equity Compensation Plan and the 2022 Equity Compensation Plan, increasing shares reserved for issuance by 300,000 and 1,000,000 shares, respectively[129][131] - The CEO Option exercise price under the 2018 Stock Plan was adjusted to $0.60 per share following the special cash dividend[134] - A non-qualified stock option (CFO Option) to purchase 400,000 shares was issued to the CFO, Bill White, with an exercise price of $6.74 per share, adjusted to $6.44 after the special dividend[138] - The company recognized $0 share-based compensation expense for stock warrants during the six months ended June 30, 2022, compared to $193,000 in the prior year[144] | Stock Options Activity (in thousands, except per share) | Outstanding as of Jan 1, 2022 | Granted | Cashless exercised | Forfeited | Outstanding as of Jun 30, 2022 | | :-------------------------------------- | :---------------------------- | :------ | :----------------- | :-------- | :----------------------------- | | Number of Shares | 5,110 | 400 | (570) | (20) | 4,920 | | Weighted Average Exercise Price | $3.27 | $6.44 | $2.66 | $2.87 | $3.30 | Note 8 - Defined Contribution Plans - Company contributions to the 401(k) plan increased to $99,000 for the six months ended June 30, 2022, from $35,000 in the prior year[145] Note 9 - Income Taxes - As of June 30, 2022, the company has net deferred tax liabilities, a change from net deferred tax assets with a full valuation allowance at December 31, 2021, primarily due to the utilization of net operating losses[147] - The effective tax rate for the six months ended June 30, 2022, was 24.24%, driven by federal and state taxes and a decrease in the valuation allowance[148] Note 10 - Other Current Liabilities | Other Current Liabilities (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------- | :------------ | :---------------- | | Accrued commissions | $849 | $1,283 | | Accrued payroll | $81 | $514 | | Accrued expenses | $226 | $300 | | Accrued returns | $309 | $338 | | Accrued benefits and vacation | $52 | $60 | | Total other current liabilities | $1,517 | $2,495 | Note 11 - Commitments and Contingencies - The manufacturing agreement with Nurya Brands, Inc (for Cold-EEZE® products) is in effect until March 29, 2023, with options for four successive one-year renewals[150] - The company is not currently a party to any material litigation[153] | Future Executive Employment Obligations (in thousands) | | :----------------------------------- | :----- | | Remaining periods in 2022 | $738 | | 2023 | $1,375 | | 2024 | $1,375 | | 2025 | $1,375 | | 2026 | $1,375 | | Total | $6,238 | Note 12 - Leases - The company leases a 4,000 sq ft CLIA lab in Old Bridge, New Jersey (24-month term) and a second-floor premises in Garden City, New York (10-year, 7-month term)[154][156] - On June 10, 2022, the company entered into a new lease for approximately 4,516 sq ft on the first floor of the Garden City building to expand lab capabilities[161] | Operating Lease Information (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $408 | $408 | | Operating cash flows used in operating leases | $(387) | $(36) | | Weighted-average remaining lease term (years) | 9.0 | 9.9 | | Weighted-average discount rate | 10.00% | 10.00% | | Operating Lease Maturities (in thousands) | | :------------------------------------ | :----- | | Remaining periods in 2022 | $387 | | Year Ended December 31, 2023 | $738 | | Year Ended December 31, 2024 | $747 | | Year Ended December 31, 2025 | $768 | | Year Ended December 31, 2026 | $783 | | Thereafter | $3,876 | | Total | $7,299 | | Less present value discount | $(2,585) | | Operating lease liabilities | $4,714 | Note 13 - Consulting Agreement and Secured Promissory Note Receivable - The company loaned $3.0 million to a consultant via a secured promissory note, later increased to $3.75 million[168][172] - The consultant defaulted on the note, leading the company to file a complaint and reduce the carrying value of the note to $0 as of December 31, 2021, with a $3.75 million charge-off[175][176] Note 14 - Significant Customer Concentrations - One diagnostic services client accounted for 67.2% of revenue for Q2 2022; for H1 2022, three clients accounted for 48.9%, 15.7%, and 10.0% of revenue[177][178] - Two diagnostic services payers comprised 51.1% and 19.3% of total reimbursement receivable balances at June 30, 2022[179] - The company relies on a sole supplier for saliva collection kits used in personal genomics services, posing a supply chain risk[180] Note 15 - Segment Information - The company operates in two segments: diagnostic services (COVID-19 and other diagnostic testing) and consumer products (contract manufacturing, retail, and personal genomics)[181] | Segment Net Revenues (in thousands) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :-------------------------- | :------ | :------ | :------ | :------ | | Diagnostic services | $26,158 | $7,537 | $71,071 | $20,274 | | Consumer products | $2,934 | $1,605 | $5,552 | $4,139 | | Consolidated net revenue | $29,092 | $9,142 | $76,623 | $24,413 | | Segment Income (Loss) from Operations, before income taxes (in thousands) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :-------------------------------------------------------- | :------ | :------ | :------ | :------ | | Diagnostic services | $12,872 | $1,164 | $32,898 | $4,004 | | Consumer products | $(313) | $540 | $(2,176) | $505 | | Unallocated corporate | $(2,148) | $(3,099) | $(4,401) | $(4,847) | | Total income from operations, before income taxes | $10,411 | $(1,395) | $26,321 | $(338) | | Segment Assets (in thousands) | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Diagnostic services | $49,493 | $51,150 | | Consumer products | $23,027 | $24,139 | | Unallocated corporate | $25,427 | $14,006 | | Total assets | $97,947 | $89,295 | Note 16 - Earnings Per Share | EPS Reconciliation (in thousands, except per share) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Net income - basic | $7,446 | $(1,395) | $19,940 | $(338) | | Interest on unsecured convertible promissory note | $200 | $- | $432 | $- | | Net income - diluted | $7,646 | $(1,395) | $20,372 | $(338) | | Weighted average shares outstanding - basic | 15,576 | 15,154 | 15,531 | 14,860 | | Diluted shares - Stock Options | 2,635 | $- | 2,389 | $- | | Diluted shares - Stock Warrants | 261 | $- | 244 | $- | | Unsecured convertible promissory note | 800 | $- | 800 | $- | | Weighted average shares outstanding - diluted | 19,272 | 15,154 | 18,964 | 14,860 | | Anti-dilutive Securities (in thousands) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :------------------------------ | :------ | :------ | :------ | :------ | | Common stock purchase warrants | 455 | 4,378 | 455 | 4,378 | | Stock Options | 275 | 905 | 275 | 905 | | Unsecured convertible promissory note | - | 1,000 | - | 1,000 | | Total Anti-dilutive securities | 730 | 5,283 | 730 | 5,283 | Note 17 - Related Parties - Jason Karkus, son of CEO Ted Karkus, received $110,000 in compensation for the six months ended June 30, 2022, up from $84,000 in the prior year[189] Note 18 - Subsequent Event - On July 19, 2022, ProPhase BioPharma entered into a license agreement with Global BioLife, Inc for exclusive worldwide rights to develop and commercialize Linebacker LB1 and LB2[190] - The license includes an upfront fee of $50,000, milestone payments of $900,000 (Phase 3) and $1 million (NDA approval), and 3% royalties on Net Revenue[193][194] - On July 26, 2022, the Board authorized a new stock repurchase program of up to $6 million in common stock[198] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, liquidity, and the significant impact of diagnostic services revenue Forward-Looking Statements - The report contains forward-looking statements subject to known and unknown risks, including the ability to generate revenue, collect payments, and manage growth[202][203][204] General Business Overview - ProPhase Labs is a diversified company with diagnostic services (COVID-19, RPP, genomics) and consumer products (OTC healthcare, dietary supplements, contract manufacturing)[206] - Diagnostic services revenue is highly dependent on COVID-19 testing demand, pricing, and reimbursement, while consumer sales are seasonal[211][213][215] - The company continues to pursue acquisition opportunities within and outside the consumer products industry[214] Results of Operations Three Months Ended June 30, 2022 vs. 2021 | Metric | Q2 2022 (in millions) | Q2 2021 (in millions) | Change (in millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------------------- | :------- | | Net Revenue | $29.1 | $9.1 | $20.0 | 219.8% | | Diagnostic Services Revenue | $26.2 | $7.5 | $18.7 | 249.3% | | Consumer Products Revenue | $2.9 | $1.6 | $1.3 | 81.3% | | Gross Profit | $18.7 | $4.5 | $14.2 | 315.6% | | Gross Margin | 64.3% | 48.9% | 15.4 pp | - | | Net Income (Loss) | $7.4 | $(1.4) | $8.8 | - | | Basic EPS | $0.48 | $(0.09) | $0.57 | - | | Diluted EPS | $0.40 | $(0.09) | $0.49 | - | - Diagnostic services revenue increased due to higher COVID-19 testing volumes (144,000 tests in Q2 2022 vs 56,000 in Q2 2021) and a higher average variable consideration per adjudicated test[216] - Diagnostic services gross margin improved to 67.9% (from 53.8%) due to increased lab processing efficiencies and lower costs[219] Six Months Ended June 30, 2022 vs. 2021 | Metric | H1 2022 (in millions) | H1 2021 (in millions) | Change (in millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------------------- | :------- | | Net Revenue | $76.6 | $24.4 | $52.2 | 213.9% | | Diagnostic Services Revenue | $71.1 | $20.3 | $50.8 | 250.2% | | Consumer Products Revenue | $5.5 | $4.1 | $1.4 | 34.1% | | Gross Profit | $47.4 | $13.4 | $34.0 | 253.7% | | Gross Margin | 61.9% | 54.9% | 7.0 pp | - | | Net Income (Loss) | $19.9 | $(0.3) | $20.2 | - | | Basic EPS | $1.28 | $(0.02) | $1.30 | - | | Diluted EPS | $1.07 | $(0.02) | $1.09 | - | - Diagnostic services revenue increased due to higher COVID-19 testing volumes (521,000 tests in H1 2022 vs 169,000 in H1 2021) and a higher average variable consideration per adjudicated test[226] - Diagnostic services gross margin improved to 64.7% (from 61.4%) due to increased lab processing efficiencies and lower costs[229] Non-GAAP Financial Measure and Reconciliation - The company uses non-GAAP measures EBITDA and Adjusted EBITDA to evaluate ongoing economic performance[237][239] | Metric | Q2 2022 (in thousands) | Q2 2021 (in thousands) | H1 2022 (in thousands) | H1 2021 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | GAAP net income | $7,446 | $(1,395) | $19,940 | $(338) | | EBITDA | $11,854 | $(783) | $29,174 | $895 | | Adjusted EBITDA | $12,393 | $479 | $30,455 | $2,771 | Liquidity and Capital Resources - Cash, cash equivalents, and restricted cash increased to $24.0 million at June 30, 2022, from $8.7 million at December 31, 2021[243] - Net cash provided by operating activities was $25.1 million for the six months ended June 30, 2022[243] - The company estimates sufficient cash and liquidity for at least 12 months, but future needs depend on business diversification[244] - The HRSA uninsured program suspension resulted in $16.7 million in unrecognized revenue for COVID-19 testing from March 23 to June 30, 2022[248] - The company has an At-the-Market facility to sell up to $100 million in common stock, but no shares have been sold as of June 30, 2022[249][252] Impact of Inflation - Inflation has not had a material effect on the business; increased costs are expected to be passed on to customers or absorbed by the company[254] Critical Accounting Policies and Estimates - Critical accounting policies involve significant management judgment, including revenue recognition, allowances for receivables, and impairment of assets[256][257][259][261][262][264] Recently Adopted Accounting Standards - The company adopted ASU 2020-06 and ASU 2021-04 on January 1, 2022, neither of which had a material impact on the financial statements[265][266] Recently Issued Accounting Standards, Not Yet Adopted - The company is assessing the impact of ASU 2016-13 (CECL model) and ASU 2022-03 (Fair Value Measurement) on its financial statements[267][268] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure is primarily related to interest rates and credit, with no material changes reported - The company is exposed to market risk from changes in interest rates but does not use derivative financial instruments[269][270] - A one percentage point change in short-term interest rates is not expected to materially impact future earnings, fair value, or cash flows[270] - Current economic conditions, including the COVID-19 pandemic, could adversely affect business and financial performance[271][272] Item 4. Controls and Procedures Disclosure controls are deemed ineffective due to a material weakness in diagnostic billing, with remediation efforts underway - As of June 30, 2022, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[274] - The material weakness relates to a lack of appropriate procedures and controls for diagnostic billing and revenue[276] - Management is committed to remediating the material weakness through process improvements, system enhancements, and comprehensive reviews[277] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not presently a party to any material litigation[282] Item 1A. Risk Factors Key risks include managing growth, diagnostic service payment collection, biopharmaceutical development, and IP protection Our failure to manage our growth successfully could harm our growth and operating results. - The company has expanded into new businesses since 2020 and incurs significant expenses, with no assurance that these new lines will achieve profitability[286][287] Our ability to achieve or sustain profitability depends on our collection of payment for the tests we deliver, which we may not be able to do successfully. - Approximately 48% of diagnostic services revenue for H1 2022 was from the HRSA uninsured program, which stopped accepting claims on March 22, 2022, leading to $16.7 million in unrecognized revenue[288] - Inability to maintain past payment collection levels due to healthcare policy changes could adversely affect revenue and profitability[289] Risks Related to Our Biopharmaceutical Development Operations - ProPhase BioPharma (PBIO) is in early development stages, with no commercialized products expected for several years, if ever[290] - Product candidates may have adverse side effects, fail to demonstrate safety/efficacy, or fail to receive regulatory approval[290] - Delays or difficulties in patient enrollment for clinical trials could hinder development and regulatory approval[295][297] - Clinical trials are expensive, time-consuming, and uncertain, with potential for suspension or termination[298][300][302] - Failure to adequately demonstrate safety and efficacy in clinical trials could delay or prevent regulatory approval and commercialization[303] - Serious adverse events or undesirable side effects from product candidates could delay or prevent regulatory approval[306][308] - The regulatory approval process is expensive, lengthy, and uncertain, with no guarantee of obtaining necessary approvals[313][314][315] - PBIO's ability to generate product revenue depends on establishing effective marketing and sales capabilities[316][318] - Market acceptance of product candidates by physicians, patients, and the medical community is crucial for commercial success[319][320][322] - Market opportunities for product candidates may be smaller than anticipated, potentially limiting profitability[323] - Products may be subject to unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform initiatives[324][325][327][328] - Intense competition from other biotechnology and pharmaceutical companies with greater resources could render product candidates non-competitive[331] Risks Related to Our Intellectual Property - Failure to obtain and maintain effective patent or license rights could impair the company's ability to compete effectively[333][336][337] - The patent position in the biotechnology and pharmaceutical industries is highly uncertain[336] - Limited patent lifespans may reduce the period of market exclusivity and expose products to generic competition[338] - Third-party claims of intellectual property infringement could lead to substantial liability or prevent development[339][340] - Reliance on third parties requires sharing trade secrets, increasing the risk of misappropriation or unauthorized disclosure[341] - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may offer less protection[342] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds occurred during the period[345] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities occurred during the period[346] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[347] Item 5. Other Information There is no other information to report - No other information to report[347] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q - Exhibits include equity compensation plans, lease agreements, a license agreement with Global BioLife, Inc, and certifications by the CEO and CFO[347] SIGNATURES Signatures This section contains the duly authorized signatures certifying the report - The report is signed by Ted Karkus, Chairman of the Board and Chief Executive Officer, and Bill White, Chief Financial Officer, on August 12, 2022[351]