10-Q 1 rxmd20240630_10q.htm FORM 10-Q rxmd20240630_10q.htm
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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

FORM 10-Q

 


 

(Mark One)

  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024.

 
   
 

or

 
   

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

 

 

Commission File Number: 000-52684

 


 

Progressive Care Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

32-0186005

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

400 Ansin Blvd., Suite A, Hallandale Beach, FL

33009

(Address of principal executive offices)

(Zip Code)

 

(305) 760-2053

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☒

 

The number of shares of the registrant’s common stock outstanding as of August 9, 2024 was 6,392,358.



 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

INDEX

 

   

Page

PART I.

FINANCIAL INFORMATION

 
     

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

F-1

     
 

Condensed Consolidated Balance Sheets

F-1

     
 

Condensed Consolidated Statements of Operations

F-2

     
 

Condensed Consolidated Statements of Stockholders Equity

F-3

     
 

Condensed Consolidated Statements of Cash Flows

F-4

     
 

Notes to the Condensed Consolidated Financial Statements

F-5

     

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

4

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

11

     

Item 4.

Controls and Procedures

11

     

PART II.

OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

12

     

Item 1A.

Risk Factors

12

     

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

12

     

Item 3.

Defaults Upon Senior Securities

12

     

Item 4.

Mine Safety Disclosures

12

     

Item 5.

Other Information

12

     

Item 6.

Exhibits

13

     
 

Signatures

14

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. Statements that are not historical facts are forward-looking statements, including forward-looking information concerning pharmacy sales trends, prescription margins, number and location of new store openings, outcomes of litigation, the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, acquisition synergies, regulatory approvals, and competitive strengths. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “sustain,” “on track,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on April 11, 2024 (“2023 Form 10-K”), this quarterly report on Form 10-Q for the three and six months ended June 30, 2024, and our other reports that we file or furnish with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except shares and par data)

(Unaudited)

 Successor 
 

June 30, 2024

  

December 31, 2023

 

Assets

       

Current Assets

       

Cash

$8,537  $7,895 

Accounts receivable – trade, net

 9,391   8,339 

Receivables - other, net

 1,013   1,846 

Inventory, net

 2,343   3,069 

Prepaid expenses

 139   334 

Total Current Assets

 21,423   21,483 

Property and equipment, net

 3,157   3,284 

Other Assets

       

Goodwill

    731 

Intangible assets, net

 3,977   14,398 

Operating right-of-use assets, net

 213   427 

Finance right-of-use assets, net

 18   22 

Deposits

 39   39 

Total Other Assets

 4,247   15,617 

Total Assets

$28,827  $40,384 

Liabilities and Stockholders’ Equity

       

Current Liabilities

       

Accounts payable and accrued liabilities

$10,329  $12,158 

Notes payable

 142   145 

Operating lease liabilities

 193   170 

Finance lease liabilities

 13   18 

Total Current Liabilities

 10,677   12,491 

Long-term Liabilities

       

Notes payable, net of current portion

 1,052   1,110 

Operating lease liabilities, net of current portion

 117   214 

Finance lease liabilities, net of current portion

    5 

Total Liabilities

 11,846   13,820 
        

Commitments and Contingencies

       
        

Stockholders’ Equity

       

Preferred Stock, Series A ($0.001 par value, 51 shares authorized and designated; 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively)

     

Preferred Stock, Series B ($0.0001 par value, 100,000 shares authorized and designated; 3,000 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively)

     

Common stock ($0.0001 par value, 100,000,000 shares authorized; 6,240,731 and 6,222,781 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively)

 67   67 

Additional paid-in capital

 60,951   60,886 

Accumulated deficit

 (44,037)  (34,389)

Total Stockholders’ Equity

 16,981   26,564 

Total Liabilities and Stockholders’ Equity

$28,827  $40,384 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

   

Successor

   

Predecessor

   

Successor

   

Predecessor

 
   

Three Months Ended June 30, 2024

   

Three Months Ended June 30, 2023

   

Six Months Ended June 30, 2024

   

Six Months Ended June 30, 2023

 

Sales of products, net

  $ 10,518     $ 9,399     $ 21,773     $ 19,193  

Revenues from services

    2,959       2,157       6,332       3,755  

Revenues, net

    13,477       11,556       28,105       22,948  
                                 

Costs of products

    8,719       7,937       19,279       16,132  

Costs of services

    63       60       126       110  

Costs of revenue

    8,782       7,997       19,405       16,242  
                                 

Gross profit

    4,695       3,559       8,700       6,706  
                                 

Operating expenses

                               

Salaries and wages

    2,166       1,701       4,282       3,300  

Professional fees

    384       274       862       1,048  

Depreciation and amortization

    757       72       1,533       137  

Selling, general, and administrative

    895       888       1,795       1,583  

Impairment loss

    9,792             9,924        

Total operating expenses

    13,994       2,935       18,396       6,068  
                                 

(Loss) income from operations

    (9,299 )     624       (9,696 )     638  
                                 

Other income (expense):

                               

Debt conversion expense

          (5,206 )           (5,206 )

Gain on sale or disposal of property and equipment

          3       1       3  

Interest income

    40       7       80       12  

Interest expense

    (17 )     (65 )     (33 )     (214 )

Total other income (expense)

    23       (5,261 )     48       (5,405 )

Loss before income taxes

    (9,276 )     (4,637 )     (9,648 )     (4,767 )

Provision for income taxes

                       

Net loss attributable to common shareholders

  $ (9,276 )   $ (4,637 )   $ (9,648 )   $ (4,767 )
                                 

Basic and diluted weighted average loss per common share

  $ (1.49 )   $ (1.05 )   $ (1.55 )   $ (1.22 )
                                 

Weighted average number of common shares outstanding during the period – basic and diluted

    6,241       4,427       6,240       3,896  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders Equity

(In thousands)

(Unaudited)

 

   

Preferred Stock, Series A

   

Preferred Stock, Series B

   

Common Stock

   

Additional

           

Total

 
   

$0.001 Par Value

   

$0.0001 Par Value

   

$0.0001 Par Value

   

Paid-in

   

Accumulated

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at December 31, 2023 (Successor)

        $       3     $       6,223     $ 67     $ 60,886     $ (34,389 )   $ 26,564  

Stock-based compensation

                            18             65             65  

Net loss for the three months ended March 31, 2024

                                              (372 )     (372 )

Balance at March 31, 2024 (Successor)

                3             6,241       67       60,951       (34,761 )     26,257  

Net loss for the three months ended June 30, 2024

                                              (9,276 )     (9,276 )

Balance at June 30, 2024 (Successor)

        $       3     $       6,241     $ 67     $ 60,951     $ (44,037 )   $ 16,981  

 

 

   

Preferred Stock, Series A

   

Preferred Stock, Series B

   

Common Stock

   

Additional

           

Total

 
   

$0.001 Par Value

   

$0.0001 Par Value

   

$0.0001 Par Value

   

Paid-in

   

Accumulated

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Equity

 

Balance at December 31, 2022 (Predecessor)

        $       3     $       3,347     $ 67     $ 22,525     $ (14,974 )   $ 7,618  

Stock-based compensation

                            11             50             50  

Net loss for the three months ended March 31, 2023

                                              (130 )     (130 )

Balance at March 31, 2023 (Predecessor)

                3             3,358       67       22,575       (15,104 )     7,538  

Stock-based compensation

                            63             200             200  

Issuance of common stock for PIPE transaction

                            455             1,000             1,000  

Cost associated with issuance of common stock for PIPE transaction

                                        (120 )           (120 )

Issuance of common stock and common stock purchase warrants for debt conversion

                            1,312             6,400             6,400  

Net loss for the three months ended June 30, 2023

                                              (4,637 )     (4,637 )

Balance at June 30, 2023 (Predecessor)

        $       3     $       5,188     $ 67     $ 30,055     $ (19,741 )   $ 10,381  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 PROGRESSIVE CARE INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

Successor

   

Predecessor

 
   

Six Months Ended June 30, 2024

   

Six Months Ended June 30, 2023

 

Cash flows from operating activities:

               

Net loss

    (9,648 )   $ (4,767 )
                 

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation

    160       96  

Change in provision for doubtful accounts

    (54 )     21  

Amortization of debt issuance costs and debt discounts

    -       128  

Stock-based compensation

    65       250  

Debt conversion expense

    -       5,206  

Amortization of right-of-use assets - finance leases

    13       17  

Amortization of right-of-use assets - operating leases

    73       78  

Change in accrued interest on notes payable

    -       47  

Amortization of intangible assets

    1,360       24  

Gain on sale or disposal of property and equipment

    (1 )     (3 )

Impairment loss

    9,924        

Changes in operating assets and liabilities:

               

Accounts receivable

    (165 )     (1,100 )

Grant receivable

    -       277  

Inventory

    726       (918 )

Prepaid expenses

    195       26  

Deposits

    -       (1 )

Accounts payable and accrued liabilities

    (1,769 )     850  

Operating lease liabilities

    (71 )     (81 )

Net cash provided by operating activities

    808       150  
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (63 )     (234 )

Proceeds from sale or disposal of property and equipment

    1       3  

Net cash used in investing activities

    (62 )     (231 )
                 

Cash flows from financing activities:

               

Payments on notes payable

    (91 )     (173 )

Payments on finance lease liabilities

    (13 )     (17 )

Issuance of common stock for PIPE transaction

          1,000  

Payment of stock issuance costs

          (120 )

Net cash (used in) provided by financing activities

    (104 )     690  
                 

Increase in cash

    642       609  

Cash at beginning of period

    7,895       6,743  

Cash at end of period

  $ 8,537     $ 7,352  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ 17     $ 37  

Cash paid for income taxes

  $     $  
                 

Supplemental schedule of non-cash investing and financing activities:

               

Debt conversion of long-term notes payable and accrued interest, net of unamortized debt discount and debt issuance costs

  $     $ 1,195  

Issuance of common stock and common stock purchase warrants for debt conversion

  $     $ 6,400  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

PROGRESSIVE CARE INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “our Company,” or “our business” refer to Progressive Care Inc. and its subsidiaries.

 

Note 1. Organization and Nature of Operations

 

Progressive Care Inc. (“Progressive”) was incorporated under the laws of the state of Delaware on October 31, 2006.

 

Progressive, through its wholly-owned subsidiaries, Pharmco, LLC (“Pharmco 901”), Touchpoint RX, LLC doing business as Pharmco Rx 1002, LLC (“Pharmco 1002”), Family Physicians RX, Inc. doing business as PharmcoRx 1103 and PharmcoRx 1204 (“FPRX” or “Pharmco 1103” and “Pharmco 1204”) (pharmacy subsidiaries collectively referred to as “Pharmco”), and ClearMetrX Inc. (“ClearMetrX”) is a personalized healthcare services company that provides prescription pharmaceuticals and risk and data management services to healthcare organizations and providers.

 

Pharmco 901 was formed on November 29, 2005 as a Florida Limited Liability Company and is a 100% owned subsidiary of Progressive. Pharmco 901 was acquired by Progressive on October 21, 2010. We currently deliver prescriptions to Florida’s diverse population and ship medications to patients in states where we hold non-resident pharmacy licenses as well. We currently hold Florida Community Pharmacy Permits at all Florida pharmacy locations and our Pharmco 901 location is licensed as a non-resident pharmacy in the following states: Arizona, Colorado, Connecticut, Georgia, Illinois, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, and Utah. We are able to dispense to patients in the state of Massachusetts without a non-resident pharmacy license because Massachusetts does not require such a license for these activities.

 

Pharmco 1103 is a pharmacy with locations in North Miami Beach and Orlando, Florida that provides Pharmco’s pharmacy services to Miami-Dade County, Broward County, the Orlando/Tampa corridor, and the Treasure Coast of Florida. Progressive acquired all the ownership interests in Pharmco 1103 in a purchase agreement entered into on June 1, 2019.

 

Pharmco 1002 is a pharmacy located in Palm Springs, Florida that provides Pharmco’s pharmacy services to Palm Beach, St. Lucie and Martin Counties, Florida. Progressive acquired all the ownership interests in Pharmco 1002 in a purchase agreement entered into on July 1, 2018.

 

ClearMetrX was formed on June 10, 2020 and provides third-party administration (“TPA”) services to 340B covered entities. ClearMetrX also provides data analytics and reporting services to support and improve care management for health care organizations.

 

RXMD Therapeutics was formed on October 1, 2019. RXMD Therapeutics has had no operating activity to date.

 

We have organized our operations into two reportable segments: Pharmacy Operations and TPA. See “Note 15. Reportable Segments.”

 

On June 30, 2023, NextPlat Corp (“NextPlat”), Charles M. Fernandez, Chairman and Chief Executive Officer of the Company, and Rodney Barreto, Vice-Chairman of the Company, entered into a voting agreement whereby at any annual or special shareholders meeting of the Company’s stockholders Messrs. Fernandez and Barreto agreed to vote all of the common stock shares that they own in the same manner that NextPlat votes its Common Stock and equivalents. On July 1, 2023, NextPlat and Messrs. Fernandez and Barreto exercised common stock purchase warrants and were issued 632,269, 211,470, and 130,571 common stock shares, respectively, by the Company. After the exercise of the common stock purchase warrants, NextPlat and Messrs. Fernandez and Barreto collectively owned 53% of the Company’s voting common stock. Collectively, the exercise of the common stock purchase warrants and the entry into the voting agreement constituted a change in control in Progressive Care. As a result of the change in control, NextPlat was deemed the accounting acquirer in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations and elected to apply push-down accounting. The application of push-down accounting created a new basis of accounting for all assets and liabilities based on their fair value at the date of acquisition, with few exceptions permissible under GAAP. As a result, the Company’s financial position, results of operations, and cash flows subsequent to the acquisition on July 1, 2023 have been segregated to indicate pre-acquisition and post-acquisition periods. The pre-acquisition period through June 30, 2023 is referred to as the “Predecessor Company”. The post-acquisition period, July 1, 2023 and forward, includes the impact of push-down accounting and is referred to as the “Successor Company”.

 

On April 12, 2024, the Company entered into a Merger Agreement and Plan of Reorganization (the “Merger Agreement”) with NextPlat (“Parent”) and Progressive Care LLC, a direct, wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Parent and the Company will enter into a business combination transaction pursuant to which the Company will merge with and into Merger Sub (the “Merger”) at the effective time of the Merger (the “Effective Time”), with Merger Sub being the surviving entity of the Merger.

 

The Merger Agreement and the transactions contemplated thereby were negotiated and approved by a Special Committee comprised of three of the Company’s independent directors. The Merger Agreement was also approved by a special committee of Parent’s board of directors, which was affirmed by the entirety of Parent’s board of directors, as well as the sole member of Merger Sub.

 

The Company’s shareholders will consider a proposal to approve the Merger at the Company’s annual meeting which is set to occur on September 13, 2024. Shareholders on record on July 29, 2024 will be entitled to vote at the Company’s annual meeting.

 

F- 5

 
 

Note 2. Basis of Presentation and Principles of Consolidation

 

The accompanying Unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) on a basis consistent with reporting interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The year-end balance sheet data presented for comparative purposes was derived from audited consolidated financial statements.

 

Interim results are not necessarily indicative of the results that may be expected for the full year. Accordingly, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2023 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of stockholders’ equity and statements of cash flows for such interim periods presented.

 

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Certain 2023 financial information has been reclassified to conform to the 2024 presentation. Such reclassifications do not impact the Company’s previously reported financial position or net income (loss). On the Condensed Consolidated Statements of Operations, Revenues, net, Costs of revenue, and Operating expenses have been disaggregated for the three and six months ended June 30, 2023. Additionally. operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.

 

 

Note 3. Summary of Significant Accounting Policies

 

The significant accounting policies of the Company were described in Note 3 to the Audited Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the Company’s significant accounting policies for the six months ended June 30, 2024

 

Cash

 

The Company maintains its cash in bank deposit accounts at several financial institutions, which are insured by the Federal Deposit Insurance Corporation (“FDIC”) and at times may exceed federally insured limits of $250,000. The Company had approximately $3.5 million that was uninsured as of  June 30, 2024. In July 2023, the Company entered into a deposit placement agreement for Insured Cash Sweep Services (“ICS”). This service is a secure and convenient way to access FDIC protection on large deposits, earn a return, and enjoy flexibility. The Company believes that the ICS agreement will mitigate its credit risk as it relates to uninsured FDIC amounts in excess of $250,000.

 

Concentrations

 

Suppliers:

 

The Company had significant concentrations with one vendor. The purchases from this significant vendor were 98% and 97% of total vendor purchases for the six months ended June 30, 2024 (Successor period) and the six months ended June 30, 2023 (Predecessor period), respectively.

 

F- 6

 

Customers:

 

The Company derives a significant portion of sales from prescription drug sales reimbursed through prescription drug plans administered by pharmacy benefit managers (“PBM”) companies. Prescription reimbursements from our three most significant PBMs were as follows:

 

  

Successor

  

Predecessor

 
  

Six Months Ended June 30, 2024

  

Six Months Ended June 30, 2023

 

A

  32%  28%

B

  22%  1%

C

  18%  38%

 

Direct and Indirect Remuneration (“DIR”) Fees

 

DIR fees are fees charged by PBMs to pharmacies for network participation as well as periodic reimbursement reconciliations. The Company accrues an estimate of PBM fees, including DIR fees, which are assessed or expected to be assessed by payers at some point after adjudication of a claim, as a reduction of prescription revenue at the time revenue is recognized. Changes in the estimate of such fees are recorded as an adjustment to revenue when the change becomes known. Through December 31, 2023, for some PBMs, DIR fees were charged at the time of the settlement of a pharmacy claim. Other PBMs do not determine DIR fees at the claim settlement date, and therefore DIR fees are collected from pharmacies after claim settlement, often as clawbacks of reimbursements based on factors that vary from plan to plan. For example, two PBMs calculate DIR fees on a trimester basis and charge the Company for these fees as reductions of reimbursements paid to the Company two to three months after the end of the trimester (e.g., DIR fees for September – December 2023 claims were clawed back by these PBMs in May – June 2024). As of December 31, 2023, DIR fees that were not collected at the time of claim settlement, the Company recorded an accrued liability for estimated DIR fees that were fully collected by the PBMs by the end of the second quarter of 2024. Effective January 1, 2024, all PBMs began charging DIR fees at the time of the settlement of a pharmacy claim.

 

Recently Adopted Accounting Standards

 

None.

 

Accounting Pronouncements Issued but not yet Adopted

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. ASU 2023-07 is required to be adopted for annual periods beginning after December 15, 2023, and interim period within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will adopt the standard in its interim reporting beginning with Q1-2025, and the Company will adopt the standard in its annual reporting for the year ending December 31, 2024. The Company expects that the adoption of the standard will not have a material impact on our consolidated financial statements but will enhance our current disclosures.

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740)—Improvements to Income Tax Disclosure” (“ASU 2023-09”), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. ASU 2023-09 is required to be adopted for annual periods beginning after December 15, 2024, with early adoption permitted. The Company will adopt this accounting standard update effective January 1, 2025. The Company expects that the adoption of the standard will not have a material impact on our consolidated financial statements.

 

Subsequent Events

 

The Company has evaluated subsequent events through August 13, 2024, the date the unaudited condensed consolidated financial statements were available to be issued.

 

F- 7

  
 

Note 4. Fair Value Measurements

 

Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

 

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

 

 

Cash, accounts receivable, and accounts payable and accrued liabilities: The amounts reported in the accompanying Condensed Consolidated Balance Sheets approximate fair value due to their short-term nature.

 

 

Notes payable and lease liabilities: The carrying amount of notes payable approximated fair value due to variable interest rates at customary terms and rates the Company could obtain in current financing. The carrying value of lease liabilities approximated fair value due to the implicit rate in the lease in relation to the Company’s borrowing rate and the duration of the leases (Level 2 inputs).

 

Fair Value Measurement on a Nonrecurring Basis

 

Common Stock Purchase Warrants

 

As of June 30, 2024, the Company had common stock purchase warrants classified as Level 3 equity instruments. The fair value of the common stock purchase warrants on the date of issuance was approximately $4.6 million. The Company used the Monte Carlo simulation model for valuation of the common stock purchase warrants. Key inputs into the Monte Carlo simulation model were as follows at the valuation date: risk-free interest rate: 3.5%-3.7%; expected term: 3-5.6 years; expected volatility: 93%-102%; exercise price: $2.20. For additional information on the initial issuance and subsequent exercise of the common stock purchase warrants, see also “Note 13. Stockholder’s Equity, Common Stock and Common Stock Purchase Warrants.”

 

F- 8

 
 

Note 5. Revenue

 

The following table disaggregates net revenues by categories (in thousands):

 

  Successor  Predecessor 
  Three Months Ended June 30, 2024  Three Months Ended June 30, 2023 

Sales of products, net

        

Prescription revenue, net of PBM fees

 $10,521  $9,448 

COVID-19 testing revenue

     8 

Other revenue

     6 

Subtotal

  10,521   9,462 

Revenues from services:

        

340B contract revenue

  2,956   2,094 

Revenues, net

 $13,477  $11,556 

 

  

Successor

  

Predecessor

 
  

Six Months Ended June 30, 2024

  

Six Months Ended June 30, 2023

 

Sales of products, net

        

Prescription revenue, net of PBM fees

 $21,845  $19,219 

COVID-19 testing revenue

     54 

Other revenue

     5 

Subtotal

  21,845   19,278 

Revenues from services:

        

340B contract revenue

  6,260   3,670 

Revenues, net

 $28,105  $22,948 

 

F- 9

 
 

Note 6. Earnings (Loss) per Share

 

Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share gives effect to all potentially dilutive shares of common stock outstanding during the period including common stock purchase warrants and stock options, using the treasury stock method, and convertible debt, using the if converted method. Diluted earnings per share excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

 

The components of basic and diluted EPS were as follows (in thousands, except per share data). For all periods presented, the Company incurred a net loss causing inclusion of any potentially dilutive securities to have an anti-dilutive effect, resulting in diluted loss per common share and basic loss per common share being equivalent.

 

  Successor  Predecessor 
  Three Months Ended June 30, 2024  Three Months Ended June 30, 2023 

Net loss attributable to common shareholders

 $(9,276) $(4,637)
         

Basic weighted average common shares outstanding

  6,241   4,427 

Potentially dilutive common shares

      

Diluted weighted average common shares outstanding

  6,241   4,427 
         

Basic weighted average loss per common share

 $(1.49) $(1.05)

Diluted weighted average loss per common share

 $(1.49) $(1.05)
         

Potentially dilutive common shares excluded from the calculation of diluted weighted average loss per common share:

        

Common stock purchase warrants

  2,367   2,774 

Stock options

  323   156 
   2,690   2,930 

 

  

Successor

  

Predecessor

 
  

Six Months Ended June 30, 2024

  

Six Months Ended June 30, 2023

 

Net loss attributable to common shareholders

 $(9,648) $(4,767)
         

Basic weighted average common shares outstanding

  6,240   3,896 

Potentially dilutive common shares

      

Diluted weighted average common shares outstanding

  6,240   3,896 
         

Basic weighted average loss per common share

 $(1.55) $(1.22)

Diluted weighted average loss per common share

 $(1.55) $(1.22)
         

Potentially dilutive common shares excluded from the calculation of diluted weighted average loss per common share:

        

Common stock purchase warrants

  1,910   1,155 

Stock options

  57   176 
   1,967   1,331 

 

F- 10

 
 

Note 7. Accounts Receivable Trade, net

 

Accounts receivable consisted of the following (in thousands):

  Successor 
  

June 30, 2024

  

December 31, 2023

 

Gross accounts receivable – trade

 $9,609  $8,611 

Less: allowance for credit losses

  (218)  (272)

Accounts receivable – trade, net

 $9,391  $8,339 

 

The Successor Company decreased the allowance for credit losses in the amount of approximately $56,000 and $54,000 for the three and six months ended June 30, 2024, respectively. The Predecessor Company increased the allowance of credit losses in the amount of approximately $12,000 and $21,000 for the three and six months ended June 30, 2023, respectively.

 

Accounts receivable – trade, net for the Predecessor Company as of January 1, 2023 and  June 30, 2023 were approximately $3.7 million and $5.0 million, respectively.

 

Note 8. Receivables – Other, net

 

Receivables – Other, net consisted of the following (in thousands):

  

Successor

 
  

June 30, 2024

  

December 31, 2023

 

Performance bonuses

 $792  $1,602 

Customers

  188   192 

Other

  33   52 
  $1,013  $1,846 

 

Performance bonuses, paid annually by PBMs, are estimated (accrued monthly) based on historical pharmacy performance and prior payments received. Other receivables are comprised of vendor credits and loans to employees.

 

Note 9. Property and Equipment, net

 

Property and equipment, net consisted of the following (in thousands):

      

Successor

 
  

Estimated Useful Life

  

June 30, 2024

  

December 31, 2023

 

Building

 

40 years

  $2,116  $2,116 

Vehicles

 

3 - 5 years

   603   595 

Furniture and equipment

 

5 years

   388   388 

Land

  ---   184   184 

Leasehold improvements and fixtures

 

Lesser of estimated useful life or life of lease

   119   76 

Computer equipment

 

3 years

   39   39 

Construction in progress

  ---      22 

Total

      3,449   3,420 

Less: accumulated depreciation

      (292)  (136)

Property and equipment, net

     $3,157  $3,284 

 

Depreciation expense for the Successor Company was approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2024, respectively. Depreciation expense for the Predecessor Company was approximately $0.1 million for both the three and six months ended June 30, 2023.

 

F- 11

 
 

Note 10. Goodwill and Intangible Assets

 

Goodwill

 

During the three months ended June 30, 2024, the Company concluded that the carrying amount of the TPA reporting unit exceeded its fair value, resulting in the recognition of a non-cash goodwill impairment charge of approximately $0.7 million. An interim impairment assessment was considered necessary as a result of the sustained decline in the Company’s stock price and related market capitalization. The goodwill impairment charge is reflected in “Impairment loss” in the Company’s unaudited condensed consolidated statements of operations.

 

With the assistance of a third-party valuation firm, the fair value of the TPA reporting unit was determined using an income approach whereby the fair value was calculated utilizing discounted estimated future cash flows (level 3 nonrecurring fair value measurement). The income approach requires several assumptions including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur, and determination of the weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit. The long-term growth rate used in the impairment was 3.0% and the weighted average cost of capital used in the impairment was 13.5%.

 

The changes in the carrying amount of goodwill by reporting segment during the six months ended June 30, 2024 were as follows (in thousands):

 

  

Pharmacy Operations

  

Third-Party Administration

  

Total

 

Balance at December 31, 2023

 $  $731  $731 

Goodwill impairment loss

     (731)  (731)

Balance at June 30, 2024

 $  $  $ 

 

Intangible Assets

 

During the three months ended June 30, 2024, the Company performed an impairment assessment of long-lived assets due to the decline in future projected revenues and cash flows. As a result, the Company completed a recoverability test by reporting unit and concluded that the asset groups were not fully recoverable as the undiscounted expected future cash flows did not exceed their carrying amounts. The Company, with the assistance of a third-party valuation firm, determined the fair value of the asset groups using an income approach utilizing undiscounted estimated future cash flows (level 3 nonrecurring fair value measurement). The income approach requires several assumptions including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, and estimation of the useful life over which cash flows will occur. The carrying amount of certain assets in the asset group exceeded the fair value, resulting in the recognition of a non-cash impairment charge to intangible assets of approximately $9.1 million for the three months ended June 30, 2024 (reflected in “Impairment loss” in the Company’s unaudited condensed consolidated statements of operations), of which approximately $6.6 million was recorded in the Pharmacy Operations reporting unit and approximately $2.5 million was recorded in the TPA reporting unit. Furthermore, the Company reevaluated the useful lives of intangible assets and determined that the useful life of the trade names intangible asset decreased from 10 years to 5 years, while the pharmacy records remained at a 5-year useful life. After impairment, the Pharmacy Operations reporting unit had approximately $4.0 million of intangible assets that will be amortized over the remaining useful lives of four years. After impairment, there were no remaining intangible assets for the TPA reporting unit.

 

F- 12

 

The following table provides the gross carrying amount, accumulated amortization, and net book value for each major class of intangible assets (in thousands):

 

  

Successor

 
  

June 30, 2024

  

December 31, 2023

 
  

Gross amount

 

Accumulated amortization

  

Net Amount

  

Gross amount

 

Accumulated amortization

  

Net Amount

 

Pharmacy records

 $2,447 $  $2,447  $8,130 $(807) $7,323 

Tradenames

  1,530     1,530   4,700  (224)  4,476 

Developed technology

          2,880  (281)  2,599 

Total intangible assets

 $3,977 $  $3,977  $15,710 $(1,312) $14,398 

 

A summary of the changes to the gross carrying amount, accumulated amortization, and net book value of total intangible assets by reporting unit during the six months ended June 30, 2024 were as follows:

 

  

Pharmacy Operations

  

Third-Party Administration

  

Total

 

Balances at December 31, 2023:

            

Gross amount

 $12,650  $3,060  $15,710 

Accumulated amortization

  (1,023)  (289)  (1,312)

Net amount

  11,627   2,771   14,398 
             

Changes during the six months ended June 30, 2024:

            

Accumulated amortization expense

  (1,055)  (305)  (1,360)

Impairment - gross amount

  (8,673)  (3,060)  (11,733)

Impairment - accumulated amortization

  2,078   594   2,672 

Net amount

  (7,650)  (2,771)  (10,421)
             

Balances at June 30, 2024:

            

Gross amount

  3,977      3,977 

Accumulated amortization

         

Net amount

 $3,977  $  $3,977 

 

Amortization expense of intangible assets for the Successor Company was approximately $0.7 million and $1.4 million for the three and six months ended June 30, 2024, respectively. Amortization of intangible assets for the Predecessor Company was approximately $12,000 and $24,000 for the three and six months ended June 30, 2023, respectively.

 

F- 13

 

The following table represents the total estimated future amortization of intangible assets for the five succeeding years and thereafter as of June 30, 2024 (in thousands):

 

  Successor 

Year

 

Amount

 

2024 (remaining six months)

 $497 

2025

  994 

2026

  994 

2027

  994 

2028

  498 

Thereafter

   

Total

 $3,977 
 

 

Note 11. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consisted of the following (in thousands):

 

  Successor 
  

June 30, 2024

  

December 31, 2023

 

Accounts payable – trade

 $10,046  $11,256 

Accrued payroll and payroll taxes

  181   167 

Accrued PBM fees

     571 

Other accrued liabilities

  102   164 

Total

 $10,329  $12,158 

 

 

 

F- 14

 

Note 12. Notes Payable

 

Notes payable consisted of the following (in thousands):

 

  Successor 
  

June 30, 2024

  

December 31, 2023

 

A. Mortgage note payable - commercial bank - collateralized

 $1,096  $1,140 

B. Note payable - uncollateralized

  25   25 

C. Notes payable - collateralized

  73   90 

Subtotal

  1,194   1,255 

Less: current portion of notes payable

  (142)  (145)

Long-term portion of notes payable

 $1,052  $1,110 

 

The corresponding notes payable above are more fully discussed below:

 

(A) Mortgage Note Payable – collateralized

 

In 2018, Pharmco 901 closed on the purchase of land and building located at 400 Ansin Boulevard, Hallandale Beach, Florida. The purchase price was financed in part through a mortgage note and security agreement entered into with a commercial lender in the amount of $1,530,000. The promissory note is collateralized by the land and building, bears interest at a fixed rate of 4.75% per annum, matures on December 14, 2028 and is subject to a prepayment penalty. Principal and interest will be repaid through 119 regular payments of $11,901 that began in January 2019, with the final payment of all principal and accrued interest not yet paid on December 14, 2028. Note repayment is guaranteed by Progressive Care Inc.

 

(B) Note Payable – Uncollateralized

 

As of June 30, 2024 and December 31, 2023, the uncollateralized note payable represents a noninterest-bearing loan that is due on demand from an investor.

 

(C) Notes Payable – Collateralized

 

In April 2021, the Predecessor Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of approximately $30,000. During September 2021, pharmacy equipment was returned since the installation was cancelled and the note was amended. The amended promissory note payable requires 46 monthly payments of $331, including interest at 6.9%. The balance outstanding as of June 30, 2024 and December 31, 2023 on the note payable was approximately $4,000 and $6,000, respectively.

 

F- 15

 

In July 2022, the Predecessor Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase pharmacy equipment in the amount of approximately $90,000. The terms of the promissory note payable require 60 monthly payments of $1,859, including interest at 8.78% starting January 2023. The balance outstanding on the note payable was approximately $66,000 and $74,000 as of June 30, 2024 and December 31, 2023, respectively. The promissory note is secured by equipment with a net book value of approximately $65,000 and $71,000 as of June 30, 2024 and December 31, 2023, respectively.

 

In September 2022, the Predecessor Company entered into a note obligation with a commercial lender, the proceeds from which were used to purchase a vehicle in the amount of approximately $25,000. The terms of the promissory note payable require 24 monthly payments of $1,143, including interest at 8.29% starting October 2022. The balance outstanding on the note payable was approximately $3,000 and $10,000 as of June 30, 2024 and December 31, 2023, respectively. The promissory note is secured by the vehicle with a net book value of approximately $16,000 and $18,000 as of June 30, 2024 and December 31, 2023, respectively.

 

Principal outstanding as of June 30, 2024, is expected to be repayable as follows (in thousands):

 

  Successor 

Year

 

Amount

 

2024 (remaining six months)

 $84 

2025

  114 

2026

  119 

2027

  124 

2028

  753 

Total

 $1,194 

 

Interest expense on these notes payable for the Successor Company was approximately $14,000 and $28,000 for the three and six months ended June 30, 2024, respectively. Interest expense on notes payable, exclusive of debt discount and debt issue cost amortization, for the Predecessor Company was approximately $31,000 and $82,000 for the three and six months ended June 30, 2023, respectively.

 

Note 13. Stockholders Equity

 

Preferred Stock

 

The Company has 10,000,000 shares of preferred stock authorized. As of June 30, 2024 and December 31, 2023, 51 shares are designated as Series A Preferred Stock, par value $0.001 per share, 100,000 shares are designated as Series B Preferred Stock, par value $0.0001 per share, and 9,899,949 shares are undesignated preferred shares, par value $0.0001 per share.

 

Series A Preferred Stock - Predecessor Company

 

The Series A preferred stock is a non-dividend producing instrument that ranks superior to the Company’s common stock. Each one (1) share of the Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding common stock and Preferred Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.

 

With respect to all matters upon which stockholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of Series A Preferred Stock shall vote together with the holders of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws.

 

In July 2014, the board of directors approved the issuance of 51 shares of the Company’s Series A Preferred Stock to a certain employee of the Company, which is equal to 50.99% of the total voting power of all issued and outstanding voting capital of the Company in satisfaction of $20,000 in past due debt. In October 2020, the preferred shares were transferred to a trust whose beneficiary is related to the employee. In August 2022, the Company entered into a Share Exchange Agreement with the trust in which the 51 shares of the Company’s Series A Preferred Stock were acquired from the trust and cancelled in exchange for the issuance of 127,564 shares of the Company’s common stock.

 

F- 16

 

Series B Convertible Preferred Stock - Predecessor Company

 

On August 30, 2022, the Company entered into a Securities Purchase Agreement with NextPlat wherein the Company sold 3,000 units, generating gross proceeds of $6.0 million. Each unit is made up of one share of Series B Convertible Preferred Stock, $0.0001 par value, and Investor Warrants. Each warrant entitles the holder to purchase one share of Series B Convertible Preferred Stock at an exercise price of $2,000. The Investor Warrants may also be exercised, in whole or in part, by means of a cashless exercise. The Series B Convertible Preferred Stock has a stated value of $2,000 per share and each Preferred Stock share has the equivalent voting rights of 500 common stock shares. Each share of Series B Convertible Preferred Stock is convertible at any time at the option of the holder into shares of the Company’s common stock determined by dividing the stated value by the conversion price which is $4.00. The Company incurred offering costs associated with the transaction of approximately $1.0 million.

 

The Series B Convertible Preferred Stock ranks senior to our common stock as to distribution of assets upon liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary. The shares of Series B Convertible Preferred Stock shall have a liquidation preference to all other classes of stock of the Company in the amount of $2,000 per share. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series B Convertible Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company (i) $2,000 per share plus (ii) the same amount that a holder of common stock would receive if the Series B Convertible Preferred Stock were fully converted to common stock which amounts shall be paid pari passu with all holders of common stock.

 

With respect to all matters upon which stockholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of Preferred Stock shall vote together with the holders of common stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation or By-laws. 

 

Common Stock and Common Stock Purchase Warrants

 

On May 5, 2023, the Predecessor Company entered into a Securities Purchase Agreement with NextPlat, pursuant to which NextPlat agreed to purchase 455,000 newly issued units of securities from the Predecessor Company (the “Units”) at a price per Unit of $2.20 for an aggregate purchase price of $1.0 million (the “Unit Purchase”). Each Unit consists of one share of common stock, par value $0.0001 per share, of Progressive Care (“Common Stock”) and one common stock purchase warrant to purchase a share of Common Stock (the “PIPE Warrants”). The PIPE Warrants have a three-year term and will be immediately exercisable. Each PIPE Warrant is exercisable at $2.20 per share of Common Stock. The Predecessor Company received cash proceeds of $880,000, net of placement agent commission of $70,000 and legal fees of $50,000. The Company accounted for the PIPE Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the PIPE Warrants was approximately $1.0 million. On July 1, 2023, NextPlat exercised the PIPE Warrants on a cashless basis and was issued 230,056 common stock shares.

 

Also on May 5, 2023, the Predecessor Company entered into a Debt Conversion Agreement (“DCA”) with NextPlat and the other Holders of that certain Amended and Restated Secured Convertible Promissory Note, dated as of September 2, 2022, made by the Predecessor Company in the original face amount of approximately $2.8 million (the “Note”). Pursuant to the DCA, NextPlat and the other Holders agreed to modify and convert the total approximately $2.9 million of outstanding principal and accrued and unpaid interest to common stock at a conversion price of $2.20 per share (the “Debt Conversion”). Of the total 1,312,379 shares of common stock issued upon conversion of the Note pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez, the Company’s Chairman and Chief Executive Officer, received 228,240 shares, and Rodney Barreto, the Company’s Vice-Chairman of the Board of Directors, received 228,240 shares. In addition, each of the Holders also received a common stock purchase warrant to purchase one share of common stock for each share of common stock they received upon conversion of the Note (the “Conversion Warrants”). The Conversion Warrants have a three-year term and will be immediately exercisable. Each Conversion Warrant is exercisable at $2.20 per share of Common Stock. The Company accounted for the Conversion Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the Conversion Warrants was approximately $2.7 million. On July 1, 2023, NextPlat and Messrs. Fernandez and Barreto exercised the Conversion Warrants. NextPlat exercised 230,000 Conversion Warrants on a cash basis and paid consideration in the amount of $506,000 and was issued 230,000 common stock shares. NextPlat exercised the remaining 340,599 Conversion Warrants on a cashless basis and was issued 172,213 common stock shares. Messrs. Fernandez and Barreto exercised the Conversion Warrants on a cashless basis and were each issued 115,402 common stock shares. As of June 30, 2024, the fair value of the remaining Conversion Warrants was approximately $0.6 million.

 

F- 17

 

At the same time as the SPA and DCA, the Predecessor Company and NextPlat entered into the Debenture Purchase Agreement. Under the Debenture Purchase Agreement, the Predecessor Company agreed to issue, and NextPlat agreed to purchase, from time to time during the three-year term of the Debenture Purchase Agreement, up to an aggregate of $10.0 million of Debentures to NextPlat. Pursuant to the Amendment, NextPlat and the Predecessor Company agreed to amend the Debenture Purchase Agreement and the form of Debenture to have a conversion price of $2.20 per share. As of June 30, 2024no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement.

 

Dawson James Securities, Inc. (the “Placement Agent”) served as placement agent for the Unit Purchase. In consideration for the Placement Agent’s services, the Predecessor Company issued to the Placement Agent and its affiliates warrants to purchase 91,000 shares of Common Stock (the “Placement Agent Warrants”). The Placement Agent Warrants have a five-year term and will be exercisable in December 2023. Each Placement Agent Warrant is exercisable at $2.20 per share of Common Stock. The Company accounted for the Placement Agent Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the Placement Agent Warrants was approximately $0.2 million.

 

In addition, the Predecessor Company issued 330,000 warrants to certain existing Progressive Care investors to induce them to approve the transaction contemplated by the SPA (the “Inducement Warrants”). Charles M. Fernandez and Rodney Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. The Inducement Warrants have a three-year term and will be immediately exercisable. Each Inducement Warrant is exercisable at $2.20 per share of Common Stock. The Company accounted for the Inducement Warrants in accordance with the guidance contained in ASC 480 and were classified as equity instruments. On the date of issuance, the fair value of the Inducement Warrants was approximately $0.7 million. On July 1, 2023, Messrs. Fernandez and Barreto exercised the Inducement Warrants on a cashless basis and were issued 96,068 and 15,169 common stock shares, respectively. As of June 30, 2024, the fair value of the remaining Inducement Warrants was approximately $0.2 million.

 

Note 14. Stock-Based Compensation

 

Stock-based compensation is recorded in selling, general, and administrative expenses in the Unaudited Condensed Consolidated Statement of Operations. The Successor Company recorded total stock-based compensation expense of approximately $65,000 for the six months ended June 30, 2024; there was no stock-based compensation expense during the three months ended June 30, 2024. The Predecessor Company recorded total stock-based compensation expense of approximately $0.2 million and $0.3 million for the three and six months ended June 30, 2023. There were no income tax benefits recognized from stock-based compensation during the respective periods due to cumulative losses and valuation allowances.

 

F- 18

 
 

Note 15. Reportable Segments

 

The Company has two reportable segments: (i) Pharmacy Operations, which provides prescription pharmaceuticals, compounded medications, tele-pharmacy services, COVID-19 related diagnostics and vaccinations, anti-retroviral medications, medication therapy management, the supply of prescription medications to long-term care facilities, medication adherence packaging, and contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program and (ii) Third-Party Administration, which provides data management and reporting services to support health care organizations. Operating expenses are reflected in the segment in which the costs are incurred.

 

Corporate includes certain assets and expenses related to corporate functions that are not specifically attributable to an individual reportable segment, such as legal, public company expenses, tax compliance and senior executive staff. 

 

The Company evaluates the performance of each of the segments based on income (loss) from operations. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies.

 

The accounting policies used to determine the results of the operating segments are the same as those utilized for the Consolidated Financial Statements as a whole. There are no inter-segment sales or transfers.

 

The following tables present a summary of net income (loss) of the reportable segments (in thousands):

 

  

Successor

 
  

Three Months Ended June 30, 2024

 
  

Pharmacy Operations

  

Third-Party Administration

  

Corporate

  

Total Consolidated

 

Sales of products, net

 $10,518  $  $  $10,518 

Revenues from services

  2,649   310      2,959 

Revenues, net

  13,167   310      13,477 
                 

Costs of products

  8,719         8,719 

Costs of services

     63      63 

Costs of revenue

  8,719   63      8,782 
                 

Gross profit

  4,448   247      4,695 
                 

Operating expenses:

                

Salaries and wages

  1,958   34   174   2,166 

Professional fees

  25   45   314   384 

Depreciation and amortization

  604   149   4   757 

Selling, general, and administrative

  747   5   143   895 

Impairment loss

  6,595   3,197      9,792 

Total operating expenses

  9,929   3,430   635   13,994 

Loss from operations

  (5,481)  (3,183)  (635)  (9,299)

Other (expense) income

  (15)     38   23 

Loss before income taxes

  (5,496)  (3,183)  (597)  (9,276)

Provision for income taxes

            

Net loss

 $(5,496) $(3,183) $(597) $(9,276)

 

F- 19

 
  

Predecessor

 
  

Three Months Ended June 30, 2023

 
  

Pharmacy Operations

  

Third-Party Administration

  

Corporate

  

Total Consolidated

 

Sales of products, net

 $9,399  $  $  $9,399 

Revenues from services

  1,477   680      2,157 

Revenues, net

  10,876   680      11,556 
                 

Costs of products

  7,937         7,937 

Costs of services

     60      60 

Costs of revenue

  7,937   60      7,997 
                 

Gross profit

  2,939   620      3,559 
                 

Operating expenses:

                

Salaries and wages

  1,527   20   154   1,701 

Professional fees

  6   60   208   274 

Depreciation and amortization

  63   4   5   72 

Selling, general, and administrative

  638   4   246   888 

Total operating expenses

  2,234   88   613   2,935 

Loss from operations

  705   532   (613)  624 

Other expense

  (15)     (5,246)  (5,261)

Income (loss) before income taxes

  690   532   (5,859)  (4,637)

Provision for income taxes

            

Net income (loss)

 $690  $532  $(5,859) $(4,637)

 

F- 20

 
  

Successor

 
  

Six Months Ended June 30, 2024

 
  

Pharmacy Operations

  

Third-Party Administration

  

Corporate

  

Total Consolidated

 

Sales of products, net

 $21,773  $  $  $21,773 

Revenues from services

  5,489   843      6,332 

Revenues, net

  27,262   843      28,105 
                 

Costs of products

  19,279         19,279 

Costs of services

     126      126 

Costs of revenue

  19,279   126      19,405 
                 

Gross profit

  7,983   717      8,700 
                 

Operating expenses:

                

Salaries and wages

  3,859   67   356   4,282 

Professional fees

  29   126   707   862 

Depreciation and amortization

  1,219   305   9   1,533 

Selling, general, and administrative

  1,517   12   266   1,795 

Impairment loss

  6,727   3,197      9,924 

Total operating expenses

  13,351   3,707   1,338   18,396 

Loss from operations

  (5,368)  (2,990)  (1,338)  (9,696)

Other (expense) income

  (30)     78   48 

Loss before income taxes

  (5,398)  (2,990)  (1,260)  (9,648)

Provision for income taxes

            

Net loss

 $(5,398) $(2,990) $(1,260) $(9,648)

 

F- 21

 
  

Predecessor

 
  

Six Months Ended June 30, 2023

 
  

Pharmacy Operations

  

Third-Party Administration

  

Corporate

  

Total Consolidated

 

Sales of products, net

 $19,193  $  $  $19,193 

Revenues from services

  2,558   1,197      3,755 

Revenues, net

  21,751   1,197      22,948 
                 

Costs of products

  16,132         16,132 

Costs of services

     110      110 

Costs of revenue

  16,132   110      16,242 
                 

Gross profit

  5,619   1,087      6,706 
                 

Operating expenses:

                

Salaries and wages

  2,972   52   276   3,300 

Professional fees

  389   156   503   1,048 

Depreciation and amortization

  123   9   5   137 

Selling, general, and administrative

  1,226   8   349   1,583 

Total operating expenses

  4,710   225   1,133   6,068 

Income (loss) from operations

  909   862   (1,133)  638 

Other expense

  (27)     (5,378)  (5,405)

Income (loss) before income taxes

  882   862   (6,511)  (4,767)

Provision for income taxes

            

Net income (loss)

 $882  $862  $(6,511) $(4,767)

 

  

Pharmacy Operations

  

Third-Party Administration

  

Corporate

  

Eliminations (1)

  

Total Consolidated

 

Total Assets as of June 30, 2024 (Successor)

 $29,900  $1,701  $  $(2,774) $28,827 

Total Assets as of December 31, 2023 (Successor)

 $38,516  $4,573  $69  $(2,774) $40,384 

(1) Eliminations consist of investments in subsidiaries between the Pharmacy Operations segment and Corporate.

 

Capital expenditures for the Pharmacy Operations reporting segment were approximately $18,000 and $0.1 million for the three and six months ended June 30, 2024, respectively (Successor period). Capital expenditures for the Pharmacy Operations reporting segment were approximately $0.2 million for both the three and six months ended June 30, 2023 (Predecessor period). There were no capital expenditures for the TPA reporting segment during the three and six months ended June 30, 2024 (Successor period) and the three and six months ended June 30, 2023 (Predecessor period).

 

 

 

Note 16. Related Party Transactions

 

Successor Company

 

During the three and six months ended June 30, 2024, the Successor Company paid $60,000 and $120,000 to NextPlat as management fees in accordance with the amended Management Services Agreement (the “Management Agreement”) dated May 1, 2023.

 

Predecessor Company

 

On May 5, 2023, the Company entered into an SPA with NextPlat, pursuant to which NextPlat agreed to purchase 455,000 newly issued Units of securities from the Company at a price per Unit of $2.20 for an aggregate purchase price of $1.0 million (the “Unit Purchase”). Each Unit consists of one share of common stock, par value $0.0001 per share, Common Stock and one common stock purchase warrant to purchase a share of Common Stock (the “PIPE Warrants”).

 

On May 9, 2023, pursuant to the DCA, NextPlat received 570,599 shares, Charles M. Fernandez received 228,240 shares, and Rodney Barreto received 228,240 shares. To induce the approval of the debt conversion pursuant to the DCA, Messrs. Fernandez and Barreto received Inducement Warrants to purchase 190,000 and 30,000 shares of Common Stock, respectively. In addition, NextPlat and Messrs. Fernandez and Barreto also received a common stock purchase warrant to purchase one share of Common Stock for each share of Common Stock they received upon conversion of the Note.

 

On February 1, 2023, the Company entered into a Management Services Agreement (the “Management Agreement”) with NextPlat Corp to provide certain management and administrative services to the Company for $25,000 per month fee. On May 1, 2023, the Management Agreement was amended to update the fee to $20,000 per month. During the three and six months ended June 30, 2023, the Company paid $65,000 and $115,000, respectively, to NextPlat as management fees.

 

 

Note 17. Commitments and Contingencies

 

On June 17, 2024, the Company was notified of a potential claim that a former employee allegedly suffered a loss due to a breach by the Company of an employment contract with the former employee. Management believes, based on discussions with its legal counsel, that the Company has meritorious defenses against the potential claim. The Company will vigorously defend this matter if such claim is ultimately litigated or brought before an arbitrator. The Company cannot reasonably estimate the amount of the loss.

 

F- 23

 

 

 
 

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item I of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs, including potential impacts on our business, results of operations and financial condition. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this report.

 

Note on Financial Presentation

 

In connection with the change in control on July 1, 2023, the application of push-down accounting created a new basis of accounting for all assets and liabilities based on their fair value at the date of acquisition. As a result, our financial position, results of operations, and cash flows subsequent to the acquisition on July 1, 2023 have been segregated to indicate pre-acquisition and post-acquisition periods. The pre-acquisition period through June 30, 2023 is referred to as the “Predecessor”. The post-acquisition period, July 1, 2023 and forward, includes the impact of push-down accounting and is referred to as the “Successor”.

 

The information contained below should be read in conjunction with our historical condensed consolidated financial statements and the related notes.

 

Overview

 

Progressive Care Inc. was incorporated under the laws of the state of Delaware on October 31, 2006 under the name Progressive Training, Inc. We changed our name to Progressive Care Inc. in connection with a merger with Progressive Care Inc. on November 23, 2010. We are a personalized healthcare services and technology company which provides prescription pharmaceutical and risk and data management services to healthcare organizations and providers.

 

We currently own and operate five pharmacies, which generate most of our pharmacy revenues, which is derived from dispensing medications to our patients. We also provide patient health risk reviews and free same-day delivery.

 

We provide TPA, data management, COVID-19 related diagnostics and vaccinations, prescription pharmaceuticals, compounded medications, telepharmacy services, anti-retroviral medications, medication therapy management, the supply of prescription medications to long-term care facilities, medication adherence packaging, contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program, and health practice risk management. We are focused on improving the lives of patients with complex chronic diseases through a patient and provider engagement and our partnerships with payors, pharmaceutical manufacturers, and distributors. We offer a broad range of solutions to address the dispensing, delivery, dosing, and reimbursement of clinically intensive, high-cost drugs.

 

Pharmco provides contracted pharmacy services for 340B covered entities under the 340B Drug Discount Pricing Program. Under the terms of these agreements, we act as a pass-through for reimbursements on prescription claims adjudicated on behalf of the 340B covered entities in exchange for a dispensing fee per prescription. These fees vary by the covered entity and the level of service provided by us.

 

 

Our focus is on complex chronic diseases that generally require multiyear or lifelong therapy, which drives recurring revenue and sustainable growth. Our pharmacy services revenue growth is from expanding our services, new drugs coming to market, new indications for existing drugs, volume growth with current clients, and addition of new customers due to our focus on higher patient engagement, benefit of free delivery to the patient, and clinical expertise. We also expanded revenue growth through the signing of new contract pharmacy service and data management contracts with 340B covered entities.

 

ClearMetrX includes data management and TPA services for 340B covered entities, pharmacy analytics, and programs to manage HEDIS Quality Measures including Medication Adherence. These offerings cater to the need for frontline providers to understand best practices, patient behaviors, care management processes, and the financial mechanisms behind these decisions. We provide data access, and actionable insights that providers and support organizations can use to improve their practice and patient care. The Company’s TPA services include management of wholesale accounts, patient eligibility with regard to the 340B drug program, development and review of 340B policies and procedures, and management of receivables.

 

Our 340MetrX platform provides 340B covered entities with data insights to effectively operate and maximize the benefits of the 340B program. The platform allows program administrators to manage, in real time, data related to revenue, virtual inventories, drug replenishment and reconciliation, detailed prescription history analysis, customized ordering data with major wholesalers, patient information, drug prescribing trends, and customized financial breakdowns. The 340MetrX software enhances services currently provided to 340B covered entities by complementing in-house 340B experts with a reporting platform aiming to maximize the limited resources in the 340B space through identification and validation of claims. 340MetrX allows our data analytics processes to be more efficient, giving our team the ability to seamlessly manage data for a much greater number of 340B covered entities in Florida, with potential to be scaled nationwide.

 

Critical Accounting Policies and Estimates

 

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation included in our 2023 Form 10-K. The most recently adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 3 in the Notes to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

 

Results of Operations

 

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

 

The following table summarizes our results of operations (in thousands):

 

   

Successor

   

Predecessor

                 
   

Three Months Ended June 30, 2024

   

Three Months Ended June 30, 2023

   

$ Change

   

% Change

 

Total revenues, net

  $ 13,477     $ 11,556     $ 1,921       17 %

Total cost of revenue

    8,782       7,997       785       10 %

Total gross profit

    4,695       3,559       1,136       32 %

Operating expenses

    13,994       2,935       11,059       377 %

(Loss) income from operations

    (9,299 )     624       (9,923 )     nm  

Other income (expense)

    23       (5,261 )     5,284       (100 )%

Loss before income taxes

    (9,276 )     (4,637 )     (4,639 )     100 %

Provision for income taxes

                       

Net loss attributable to common shareholders

  $ (9,276 )   $ (4,637 )   $ (4,639 )     100 %

nm = not meaningful

 

For the second quarter of 2024, we recognized overall revenue from operations of approximately $13.5 million, compared to approximately $11.6 million during the prior year period, an overall increase of approximately $1.9 million, or 17%. The increase in revenue was primarily attributable to an increase in prescription revenue, net of PBM fees, of approximately $1.1 million and an increase in 340B contract revenue of approximately $0.8 million, when compared to the prior year period.

 

 

Overall gross profit margins increased from 31% for the three months ended June 30, 2023 to 35% for the three months ended June 30, 2024. The increase in gross profit of approximately $1.1 million was primarily attributable to (i) a favorable change in reimbursement rates per prescription of approximately $0.1 million; (ii) a favorable change in pharmacy prescription volume of approximately $0.1 million; and (iii) a favorable change in 340B contract revenue of approximately $0.9 million.

 

Loss from operations was approximately $9.3 million for the three months ended June 30, 2024, compared to an income from operations of approximately $0.6 million for the three months ended June 30, 2023. The decrease in income from operations was primarily attributable to impairment losses recognized during the second quarter of 2024. See further explanation below.

 

Revenue

 

Our revenues were as follows (in thousands):

 

   

Successor

   

Predecessor

               
    Three Months Ended June 30, 2024     Three Months Ended June 30, 2023                
   

Dollars

 

% of Revenue

   

Dollars

 

% of Revenue

   

$ Change

 

% Change

 

Sales of products, net

                                     

Prescription revenue, net of PBM fees

  $ 10,521   78 %   $ 9,448   82 %   $ 1,073     11 %

COVID-19 testing revenue

      %     8   %     (8 )   (100 )%

Other revenue

      %     6   %     (6 )   (100 )%

Subtotal

    10,521   78 %     9,462   82 %     1,059     11 %

Revenues from services:

                                     

340B contract revenue

    2,956   22 %     2,094   18 %     862     41 %

Revenues, net

  $ 13,477   100 %   $ 11,556   100 %   $ 1,921     17 %

 

Prescription revenue, net of PBM fees increased by approximately $1.1 million during the second quarter of 2024 compared to the same period in 2023. The favorable impact on prescription revenue, net of PBM fees, was mainly attributable to a favorable change in reimbursement rates per prescription of approximately $0.2 million, and a favorable change in pharmacy prescription volume of approximately $0.9 million.

 

We filled approximately 133,000 and 118,000 prescriptions during the three months ended June 30, 2024 and 2023, respectively, a 10% period over period increase.

 

Dispensing fees and TPA revenue earned on our 340B contracts for the three months ended June 30, 2024 and 2023 were approximately $3.0 million and $2.1 million, respectively, an increase of approximately $0.9 million, or 41%. The increase in 340B contract revenue was primarily attributable to an increase in new 340B contracts that began towards the end of 2023.

 

Operating Expenses

 

Our operating expenses increased by approximately $11.1 million for the three months ended June 30, 2024, when compared to the prior year period. The increase was primarily attributable to the following:

 

  approximately $9.8 million of impairment losses related to goodwill and long-lived assets impairments (see further explanations below);
 

approximately $0.7 million increase in the amortization of newly identifiable intangible assets as a result of the push-down accounting;

 

approximately $0.5 million increase in salaries and wages due to a combination of performance-based salary adjustments and additional headcount, net of attrition due to normal employee turnover; and

  approximately $0.1 million increase in franchise taxes.

 

A goodwill impairment test was performed during the three months ended June 30, 2024 and it was determined that the carrying amount of goodwill at June 30, 2024 exceeded its fair value resulting in the Company recording a non-cash impairment charge of approximately $0.7 million during the period, recorded to the TPA reporting segment. As of June 30, 2024, there was no remaining goodwill. Refer to Note 10. Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements.

 

 

A long-lived assets impairment test was performed during the three months ended June 30, 2024 and it was determined that the carrying amount of the asset group at June 30, 2024 exceeded its fair value resulting in the Company recording a non-cash impairment charge to certain long-lived assets, primarily intangible assets, of approximately $9.1 million during the period, of which approximately $6.6 million was recorded to the Pharmacy Operations reporting segment and approximately $2.5 million was recorded to the TPA reporting segment. As of June 30, 2024, intangible assets for the Pharmacy Operations reporting segment had a gross amount of approximately $4.0 million to be amortized over the next four years. There were no remaining intangible assets to be amortized for the TPA reporting segment as of June 30, 2024. Refer to Note 10. Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, inputs used in the fair value measurements, and the changes in intangible assets for the period.

 

Other Income (Expense)

 

Other income (expense) increased by approximately $5.3 million for the three months ended June 30, 2024, as compared to the prior year period, primarily attributable to the recognition of debt conversion expense in the amount of approximately $5.2 million in the prior year period.

 

Net Loss

 

Net loss was approximately $9.3 million and $4.6 million during the three months ended June 30, 2024 and 2023, respectively. The change in net loss was primarily attributable to the impairment losses recorded in the current year period, partially offset by the debt conversion expense recorded in the prior year period.

 

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

 

The following table summarizes our results of operations (in thousands):

 

   

Successor

   

Predecessor

                 
   

Six Months Ended June 30, 2024

   

Six Months Ended June 30, 2023

   

$ Change

   

% Change

 

Total revenues, net

  $ 28,105     $ 22,948     $ 5,157       22 %

Total cost of revenue

    19,405       16,242       3,163       19 %

Total gross profit

    8,700       6,706       1,994       30 %

Operating expenses

    18,396       6,068       12,328       203 %

(Loss) income from operations

    (9,696 )     638       (10,334 )     nm  

Other income (expense)

    48       (5,405 )     5,453       (101 )%

Loss before income taxes

    (9,648 )     (4,767 )     (4,881 )     102 %

Provision for income taxes

                       

Net loss attributable to common shareholders

  $ (9,648 )   $ (4,767 )   $ (4,881 )     102 %

nm = not meaningful

 

During the first half of 2024, we recognized overall revenue from operations of approximately $28.1 million, compared to approximately $23.0 million during the prior year period, an overall increase of approximately $5.2 million, or 22%. The increase in revenue was primarily attributable to an increase in prescription revenue, net of PBM fees, of approximately $2.6 million and an increase in 340B contract revenue of approximately $2.6 million, when compared to the prior year period.

 

Overall gross profit margins increased from 29% for the six months ended June 30, 2023 to 31% for the six months ended June 30, 2024. The increase in gross profit of approximately $2.0 million was primarily attributable to (i) a favorable change in reimbursement rates per prescription of approximately $1.1 million; (ii) a favorable change in pharmacy prescription volume of approximately $0.2 million; and (iii) a favorable change in 340B contract revenue of approximately $2.6 million; offset by (iv) an unfavorable change in drug cost per prescription of approximately $1.9 million.

 

Loss from operations was approximately $9.7 million for the six months ended June 30, 2024, compared to an income from operations of approximately $0.6 million for the six months ended June 30, 2023. The decrease in income from operations was primarily attributable to impairment losses recognized during the first half of 2024; see further explanation below.

 

 

Revenue

 

Our revenues were as follows (in thousands):

 

   

Successor

   

Predecessor

               
   

Six Months Ended June 30, 2024

   

Six Months Ended June 30, 2023

               
   

Dollars

 

% of Revenue

   

Dollars

 

% of Revenue

   

$ Change

 

% Change

 

Sales of products, net

                                     

Prescription revenue, net of PBM fees

  $ 21,845   78 %   $ 19,219   84 %   $ 2,626     14 %

COVID-19 testing revenue

      %     54   %     (54 )   (100 )%

Other revenue

      %     5   %     (5 )   (100 )%

Subtotal

    21,845   78 %     19,278   84 %     2,567     13 %

Revenues from services:

                                     

340B contract revenue

    6,260   22 %     3,670   16 %     2,590     71 %

Revenues, net

  $ 28,105   100 %   $ 22,948   100 %   $ 5,157     22 %

 

Prescription revenue, net of PBM fees increased by approximately $2.6 million during the first half of 2024 compared to the same period in 2023. The favorable impact on prescription revenue, net of PBM fees, was mainly attributable to a favorable change in reimbursement rates per prescription of approximately $1.1 million, and a favorable change in pharmacy prescription volume of approximately $1.5 million.

 

We filled approximately 266,000 and 238,000 prescriptions during the six months ended June 30, 2024 and 2023, respectively, an 8% year over year increase.

 

Dispensing fees and TPA revenue earned on our 340B contracts for the six months ended June 30, 2024 and 2023 were approximately $6.2 million and $3.7 million, respectively, an increase of approximately $2.6 million, or 71%. The increase in 340B contract revenue was attributable to an increase in our existing 340B contracts of approximately $1.0 million and an increase in new 340B contract revenue of approximately $1.6 million.

 

Operating Expenses

 

Our operating expenses increased by approximately $12.3 million for the six months ended June 30, 2024, when compared to the prior year period. The increase was primarily attributable to the following:

 

  approximately $9.8 million of impairment losses related to goodwill and long-lived assets impairments (see further explanations below);
 

approximately $1.4 million increase in the amortization of newly identifiable intangible assets as a result of the push-down accounting, as well as depreciation;

 

approximately $1.0 million increase in salaries and wages due to a combination of performance-based salary adjustments and additional headcount, net of attrition due to normal employee turnover;

 

approximately $0.2 million increase in general and administrative expenses, primarily made up of computer expenses, franchise taxes, and shared-based compensation;
  approximately $0.1 million of impairment loss related to the write-down of a right-of-use asset as a result of taking the leased equipment out of service and not returning to service in the future; and
  approximately $0.2 decrease in professional fees.

 

A goodwill impairment test was performed during the six months ended June 30, 2024 and it was determined that the carrying amount of goodwill at June 30, 2024 exceeded its fair value resulting in the Company recording a non-cash impairment charge of approximately $0.7 million during the period, recorded to the TPA reporting segment. As of June 30, 2024, there was no remaining goodwill. Refer to Note 10. Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements.

 

 

A long-lived assets impairment test was performed during the six months ended June 30, 2024 and it was determined that the carrying amount of the asset group at June 30, 2024 exceeded its fair value resulting in the Company recording a non-cash impairment charge to certain long-lived assets, primarily intangible assets, of approximately $9.1 million during the period, of which approximately $6.6 million was recorded to the Pharmacy Operations reporting segment and approximately $2.5 million was recorded to the TPA reporting segment. As of June 30, 2024, intangible assets for the Pharmacy Operations reporting segment had a gross amount of approximately $4.0 million to be amortized over the next four years. There were no remaining intangible assets to be amortized for the TPA reporting segment as of June 30, 2024. Refer to Note 10. Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, inputs used in the fair value measurements, and the changes in intangible assets for the period.

 

Other Income (Expense)

 

Other income (expense) increased by approximately $5.5 million for the six months ended June 30, 2024, as compared to the prior year period, primarily attributable to the decrease in interest expense, due to decreased notes payable balances, as well as the recognition of debt conversion expense in the amount of approximately $5.2 million in the prior year period.

 

Net Loss

 

We had a net loss of approximately $9.6 million and $4.8 million for the six months ended June 30, 2024 and 2023, respectively. The change in net loss was primarily attributable to the impairment losses recorded in the current year, partially offset by the debt conversion expense recorded in the prior year.

 

Liquidity and Capital Resources

 

Cash Flows

 

The following table summarizes our cash flows:

 

   

Successor

   

Predecessor

 
   

Six Months Ended June 30, 2024

   

Six Months Ended June 30, 2023

 

Net change in cash from:

               

Operating activities

  $ 808     $ 150  

Investing activities

    (62 )     (231 )

Financing activities

    (104 )     690  

Change in cash

    642       609  

Cash at end of period

  $ 8,537     $ 7,352  

 

Net cash provided by operating activities totaled approximately $0.8 million for the six months ended June 30, 2024, compared to $0.2 million for the same period in 2023. The favorable change of approximately $0.7 million was primarily attributable to the following:

 

 

decrease in net income of approximately $4.9 million;
  increase in non-cash impairment losses of approximately $9.9 million;
 

net decrease in non-cash items of approximately $4.1 million, which include stock-based compensation, amortization, and debt conversion expense;

 

increase in operating assets of approximately $2.7 million, which primarily include increases in accounts receivable and inventories due to the increase in prescription volume; and

 

decrease in accounts payable of approximately $2.9 million, due to the timing of vendor payables.

 

 

Net cash used in investing activities was approximately $0.1 million and $0.2 million for the six months ended June 30, 2024 and 2023, respectively. The cash outflow in 2024 was attributable to the purchase of two new cars for our fleet and leasehold improvements. The cash outflow in 2023 was attributable to investment in our fleet.

 

Net cash used in financing activities was approximately $0.1 million for the six months ended June 30, 2024, compared to net cash provided by financing activities of approximately $0.7 million for the same period in 2023. The use of cash during 2024 was for payments on notes payable and finance lease liabilities. The cash inflow during 2023 was attributable to the $0.9 million net cash proceeds from the May 2023 PIPE transaction.

 

Liquidity and Capital Resources

 

We have an accumulated deficit of approximately $44.0 million and $34.4 million as of June 30, 2024 and December 31, 2023, respectively. We have spent, and expect to continue to spend, additional amounts in connection with implementing our business strategy.

 

For the six months ended June 30, 2024, we had a net loss of approximately $9.6 million, loss from operations of approximately $9.7 million, and net cash provided by operating activities of approximately $0.8 million. The Company’s cash position was approximately $8.5 million as of June 30, 2024. During the six months ended June 30, 2024, we recorded non-cash impairment losses of approximately $9.9 million unfavorably affecting the loss from operations but had no effect on our cash flows or cash position during the period; see cash flows above and results from operations.

 

On May 5, 2023, the Company and NextPlat entered into a First Amendment (the “Amendment”) to that certain Securities Purchase Agreement dated November 16, 2022 (the “Debenture Purchase Agreement”). Under the Debenture Purchase Agreement, we agreed to issue, and NextPlat agreed to purchase, from time to time during the three-year term of the Debenture Purchase Agreement, up to an aggregate of $10 million of secured convertible debentures from NextPlat (the “Debentures”). Pursuant to the Amendment, NextPlat and the Company agreed to amend the Debenture Purchase Agreement and the form of Debenture attached as an exhibit thereto to have a conversion price of $2.20 per share. As of the date these consolidated financial statements were issued, no Debentures have been purchased by NextPlat under the Debenture Purchase Agreement.

 

Management believes that the above transaction, along with our present cash position and the cash we expect to continue to generate from operating activities, will allow us to operate and meet our obligations for at least 12 months from the issuance date of these consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2024, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

 

Recent Accounting Pronouncements

 

The most recently adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 3 in the Notes to our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this Item.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures. Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), were not effective due to the material weakness described below to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Inherent Limitations on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

 

Previously Reported Material Weakness in Internal Controls Over Financial Reporting

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. As disclosed in Part II Item 9A. “Controls and Procedures” in our annual report on Form 10-K for the year ended December 31, 2023, during fiscal year 2023 we identified a material weakness in our internal control over financial reporting. The material weakness is related to the improper accounting for the change in deferred tax valuation allowances resulting from the July 1, 2023 business combination without transfer of consideration. This material weakness also arises from our lack of personnel with an appropriate level of knowledge and experience in accounting for complex or non-routine transactions. Subsequent to the identification of this material weakness, we conducted additional procedures and determined that there was no material misstatement in our consolidated financial statements for the year ended December 31, 2023.

 

Remediation of Previously Reported Material Weakness

 

During the six months ended June 30, 2024, we took the following measures as part of our previously disclosed remediation plan: a.) providing education and training to senior accounting staff as it relates to complex and non-routine transactions; and b.) consulting with accounting and tax experts to provide appropriate guidance with the accounting for complex and non-routine transactions.

 

We are committed to ensuring that our internal control over financial reporting is designed and operating effectively. We are continuing to test the design of the new and enhanced controls related to the previously reported material weakness over the review of complex or non-routine transactions. We believe that these new and enhanced controls will be fully implemented and validated by the end of the third quarter of 2024. However, the material weakness will not be considered remediated until the new and enhanced controls have been operating effectively for a sufficient period of time.

 

(c) Changes in internal controls over financial reporting. Other than as discussed above, there has been no change in our internal control over financial reporting during our fiscal quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

 

PART II OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

On June 17, 2024, the Company was notified of a potential claim that a former employee allegedly suffered a loss due to a breach by the Company of an employment contract with the former employee. Management believes, based on discussions with its legal counsel, that the Company has meritorious defenses against the potential claim. The Company will vigorously defend this matter if such claim is ultimately litigated or brought before an arbitrator. The Company cannot reasonably estimate the amount of the loss.

 

ITEM 1A.

RISK FACTORS

 

Investors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our 2023 Form 10-K, and our other filings with the SEC. These risks are not the only ones facing the Company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition, and results of operations. The trading price of our common stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors from those discussed in our 2023 Form 10-K. 

 

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

None.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

ITEM 5.

OTHER INFORMATION

 

Rule 10b5-1 Trading Arrangement

 

During the three months ended June 30, 2024, no director or officer of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

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ITEM 6.

EXHIBITS

 

2.1* Merger Agreement and Plan of Reorganization by and among NextPlat Corp., Progressive Care LLC, and Progressive Care Inc., dated April 12, 2024 (Incorporated by reference to Exhibit 2.1 to Form 8-K filed on April 17, 2024).

31.1

Certification of Chairman and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document.

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


*  Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplementary copies of any of the omitted schedules and other similar attachments upon request by the SEC.

 

 

SIGNATURES

 

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.

 

 

Progressive Care Inc.

     

Date: August 13, 2024

By:

/s/ Charles M. Fernandez

   

Charles M. Fernandez

Chief Executive Officer

   

(Principal Executive Officer)

     

Date: August 13, 2024

By:

/s/ Cecile Munnik

   

Cecile Munnik

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

14