ProPhase Labs, Inc 10-Q for FY2026 Q2
ProPhase Labs, Inc. (PRPH)
About this 10-Q
ProPhase Labs, Inc filed this 10-Q on August 19, 2026, covering the quarter ended June 30, 2026 (FY2026 Q2).
Headline figures
Quarter ended June 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.01M
- down 18.9% from $1.25M a year earlier
- Net loss
- $3.05M
- compared with a net loss of $4.47M a year earlier
- Diluted EPS
- -$0.22
- compared with -$1.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from _____ to _____
Commission
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(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive office) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTC Markets |
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 ☐
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 during the preceding 12 months (or shorter period that the registrant was required to submit such files).
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 | ☐ |
| ☒ | 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. ☐
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding shares as of August 17, 2026 | |
| Common Stock, $ par value |
ProPhase Labs, Inc. and Subsidiaries
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ProPhase Labs, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Investment in unconsolidated affiliates | ||||||||
| Prepaid expenses, net of current portion | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable to unconsolidated affiliates | ||||||||
| Accounts payable | ||||||||
| Accrued advertising and other allowances | ||||||||
| Finance lease liabilities | ||||||||
| Short-term loan payable, net of discount of $ and $, respectively | ||||||||
| Short-term loan payable to related party, net of discount of $ | ||||||||
| Short-term loan payable, net of discount | ||||||||
| Short-term convertible notes payable, net of discount of $ | ||||||||
| Derivative liability | ||||||||
| Deferred revenue | ||||||||
| Income tax payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Due to sellers (see Note 3) | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock authorized , $ par value, shares issued and outstanding | ||||||||
| Common stock authorized , $ par value, and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, and shares, respectively (1) | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFECIT) | $ | $ | ||||||
| (1) |
See accompanying notes to these condensed consolidated financial statements
| 3 |
ProPhase Labs, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share amounts)
(Unaudited)
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Revenues, net | $ | $ | ||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administration | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Loss from investment in unconsolidated affiliates | ( | ) | ( | ) | ||||||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Debt extinguishment loss | ( | ) | ( | ) | ||||||||||||
| Income (loss) from disposal of fixed assets | ( | ) | ( | ) | ||||||||||||
| Loss on issuance of debt | ( | ) | ||||||||||||||
| Employee retention tax credit income | ||||||||||||||||
| Other expense | ( | ) | ||||||||||||||
| Loss from operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from continuing operations after income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Gain from disposal of discontinued operations | ||||||||||||||||
| Income from discontinued operations | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Unrealized gain on marketable debt securities | ||||||||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net earnings (loss) per share: | ||||||||||||||||
| Loss from continuing operations, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Income from discontinued operations, basic and diluted | $ | $ | $ | $ | ||||||||||||
| Net loss (earnings) per share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to these condensed consolidated financial statements
| 4 |
ProPhase Labs, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(Unaudited)
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||
| For the Three Months Ended June 30, 2026 | ||||||||||||||||||||||||||||
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||
| Balance as of April 1, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Subscription Receivable | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||
| For the Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||||||
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Subscription Receivable | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||
| Balance as of April 1, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock for
cash, net of offering cost of $ | - | ( | ) | |||||||||||||||||||||||||||||
| Stock-based compensation (including $ in prepaid expense) | - | |||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||
| For the Six Months Ended June 30, 2026 | ||||||||||||||||||||||||||||
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||
| Balance as of January 1, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Issuance of common stock for
cash, net of offering cost of $ | ||||||||||||||||||||||||||||
| Issuance of common stock as commitment fee for future financing | ||||||||||||||||||||||||||||
| Issuance of common shares and warrants in conjunction with debt issuance | ||||||||||||||||||||||||||||
| Issuance of common stock to convert outstanding debt | ||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| For the Six Months Ended June 30, 2025 | ||||||||||||||||||||||||||||
| Common
Stock Shares Outstanding | Par Value | Additional Paid in Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||||
| Balance as of January 1, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Issuance of common stock for
cash, net of offering cost of $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for cash, net of offering cost | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock as commitment fee for future financing | ||||||||||||||||||||||||||||
| Stock-based compensation (including $ in prepaid expense) | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Unrealized gain on marketable securities | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
See accompanying notes to these condensed consolidated financial statements
| 5 |
ProPhase Labs, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| June 30, 2026 | June 30, 2025 | |||||||
| For the six months ended | ||||||||
| June 30, 2026 | June 30, 2025 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Less: income (loss) from discontinued operations, net of tax | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Amortization on operating lease right-of-use assets | ||||||||
| Loss from investment in unconsolidated affiliates | ||||||||
| Loss on issuance of debt | ||||||||
| Loss from lease termination | ||||||||
| (Gain) loss from disposal of fixed assets | ( | ) | ||||||
| Employee retention tax credit income | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Change in fair value of derivative liability | ||||||||
| Change in fair value of warrant liability | ||||||||
| Debt extinguishment loss | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued diagnostic services | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Net cash used in operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities - discontinued operations | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds from sale of fixed assets | ||||||||
| Net cash provided by investing activities - continuing operations | ||||||||
| Net cash provided by investing activities - discontinued operations | ||||||||
| Net cash provided by investing activities | ||||||||
| 6 |
ProPhase Labs, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Continued
| For the six months ended | ||||||||
| June 30, 2026 | June 30, 2025 | |||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common shares, net | ||||||||
| Proceeds from issuance of note payable, net | ||||||||
| Proceeds from issuance of convertible notes payable | ||||||||
| Proceeds from issuance of note payable to related party | ||||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities - continuing operations | ||||||||
| Net cash used in financing activities - discontinued operations | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Interest payments | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Issuance of common stock as commitment fee for future financing | $ | $ | ||||||
| Issuance of common stock to convert outstanding debt | $ | $ | ||||||
| Issuance of liability classified warrants associated with notes payable | $ | $ | ||||||
| Net unrealized gain, investments in marketable debt securities | $ | $ | ( | ) | ||||
See accompanying notes to these condensed consolidated financial statements
| 7 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and Business
ProPhase Labs, Inc. (“ProPhase”, “we”, “us”, “our” or the “Company”) is a next-generation biotech, genomics and consumer products company. We are also focused on licensing, developing and commercializing novel drugs, dietary supplements, compounds and diagnostics.
Our
wholly-owned subsidiary, ProPhase Diagnostics, Inc., and two indirectly wholly-owned subsidiaries, ProPhase Diagnostics NY, Inc. and
ProPhase Diagnostics NJ, Inc., ceased providing COVID-19 diagnostic testing in 2024. ProPhase Diagnostics NJ, Inc. still leases the laboratory
space in Old Bridge, New Jersey. The labs were forced to cease diagnostic testing when medical insurance carriers ceased paying COVID-19
diagnostic testing claims. On September 22, 2025, the
In August 2021, the Company acquired Nebula Genomics, Inc. (“Nebula”), a privately owned personal genomics company, through our wholly-owned subsidiary, ProPhase Precision Medicine Inc. Nebula focuses on genomics sequencing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid (“DNA”). The data obtained from genomic sequencing can be used to help identify inherited disorders and tendencies, help predict disease risk, help identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. At this time, the Company is taking steps to grow its genomics businesses while also continuing to explore the potential sale of Nebula.
The Company’s wholly-owned subsidiary, DNA Complete, Inc. (“DNA Complete”), which was formed on September 24, 2024, for the offering of whole genome sequencing and related services. DNA Complete sequences specimens at Nebula as well as at other laboratories. DNA Complete focuses on genomics testing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid (“DNA”). The data obtained from genomic sequencing may help to identify inherited disorders and tendencies, predict disease risk, identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. DNA Complete currently offers DNA Complete’s whole genome sequencing products direct-to-consumers online with plans to sell in food, drug and mass retail stores and to provide testing for universities conducting genomic research.
The
Company’s wholly owned subsidiary, ProPhase BioPharma, Inc. (“PBIO”), was formed in June 2022, for the licensing, development
and commercialization of novel drugs, dietary supplements and compounds. Licensed compounds currently include Equivir (a OTC, dietary
supplement candidate) and Equivir G (prescription drug (“Rx”) candidate), two broad-based anti-virals, and Linebacker LB-1
and LB-2,
In connection with the activities of PBIO, in January 2023, the Company acquired exclusive rights to BE-Smart™ Esophageal Pre-Cancer Diagnostic Screening test and related IP assets. The BE-Smart™ test is focused on the early detection of esophageal cancer, and is intended to provide health care providers and patients with data to help determine treatment options. The development of these novel drugs and compounds is highly dependent on how each performs during the testing and development stage, the demand for these product and services once entered into the marketplace, our marketing and service capabilities and our ability to comply with applicable regulatory requirements.
The Company also owns a dietary supplements business under the TK Supplements® brand. The TK Supplements® product line includes Legendz XL®, a male sexual enhancement and Triple Edge XL®, an energy and stamina support product.
| 8 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2026, the Company had minimal cash resources and a significant working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s plans do not alleviate this substantial doubt.
Management has evaluated the significance of these conditions and has developed plans intended to improve liquidity and support operations. Management’s plans include continuing efforts to reduce operating expenditures and preserve cash resources; focusing operations on its remaining core businesses, including genomics and biotechnology activities; pursuing collection and recovery efforts related to outstanding receivables and other claims; evaluating strategic alternatives including potential asset monetization opportunities, partnerships, licensing arrangements and other financing alternatives; and continuing initiatives intended to improve operating efficiency and revenue generation.
Management’s plans are subject to numerous uncertainties, many of which are outside the Company’s control, including the timing and availability of external financing, realization of anticipated collections and recovery efforts, and achievement of projected operating results. Accordingly, management has concluded that these plans do not alleviate the substantial doubt regarding the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles accepted in the United States of America (“GAAP”) for interim financial statements and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The accompanying unaudited condensed consolidated financial statements have been prepared by management without audit and should be read in conjunction with our audited consolidated financial statements, including the notes thereto, appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position, consolidated results of operations and other comprehensive loss and consolidated cash flows, for the periods indicated, have been made. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of operating results that may be achieved over the course of the full year.
Use of Estimates
The preparation of condensed consolidated financial statements and the accompanying notes thereto, in conformity with GAAP, requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the respective reporting periods. Examples include revenue recognition and the impact of the variable consideration of diagnostic test reimbursement rates, the allowance for credit losses and billing errors, allowances, slow moving and/or dated inventory and associated provisions, the potential impairment of long-lived assets, stock based compensation valuations, income tax asset valuations and assumptions related to accrued advertising.
Our estimates and assumptions are based on historical experience, current trends and other factors that management believes to be relevant at the time the condensed consolidated financial statements are prepared. Management reviews the accounting policies, assumptions, estimates and judgments on a quarterly basis. Actual results could differ from those estimates.
| 9 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Deconsolidation of Subsidiary
A subsidiary is deconsolidated from the Company’s financial statements when the Company no longer has a controlling financial interest in the subsidiary. This generally occurs when the Company loses control through a sale, transfer, or other means, including the expiry of a contractual agreement.
Upon deconsolidation, the Company derecognizes the assets and liabilities of the subsidiary from the consolidated balance sheet at their carrying amounts at the date when control is lost. Any retained noncontrolling equity investment in the former subsidiary is remeasured to its fair value at the date control is lost. This fair value becomes the initial carrying amount of the retained investment. See Note 14 for discussion regarding the voluntary bankruptcy filing by the Company’s fully owned subsidiaries.
Discontinued Operations
The Company presents discontinued operations when there is a disposal of a component or a group of components that represents a strategic shift that will have a major effect on operations and financial results. The results of discontinued operations are reported in net income (loss) from discontinued operations in the condensed consolidated statements of operations for all periods presented, commencing in the period in which the business is either disposed of or is classified as held for sale, including any gain or loss recognized on closing or adjustment of the carrying amount to fair value less costs to sell. Assets and liabilities related to a business classified as held for sale or meets the criteria for discontinued operations are segregated in the consolidated balance sheets for the current and prior periods presented. Cash flows for continuing and discontinued operations are segregated in the consolidated statements of cash flows for the current and prior periods.
Certain prior period balances related to the Company’s reportable segments and discontinued operations have been reclassified to conform to the current presentation in the consolidated financial statements have been prepared by management without audit and should be read in conjunction with our audited consolidated financial statements, including the accompanying notes appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In the opinion of management, all adjustments necessary for a fair presentation of the notes to the condensed consolidated financial statements are presented on a continuing operations basis unless otherwise noted.
Reclassifications
The Company has reclassified certain amounts on the condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of cash flows to conform to current period presentation.
Fair Value of Financial Instruments
We measure assets and liabilities at fair value based on expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale date of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| ● | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| 10 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| ● | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The carrying amounts of our financial assets and liabilities, such as cash, accounts receivable, accounts payable, and unsecured note payable, approximate their fair values because of the short-term nature of these instruments.
We account for our marketable securities at fair value, with the net unrealized gains or losses of marketable debt securities reported as a component of accumulated other comprehensive income or loss and marketable equity securities change in fair value reported on the consolidated statement of operations. We measure the fair value of financial instruments, such as derivatives, on an ongoing basis.
See Note 15, “Fair Value Measurements” for more information
Goodwill
Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the underlying identifiable assets and liabilities acquired in a business combination. Goodwill and intangible assets deemed to have an indefinite life are not amortized, but instead are assessed for impairment annually. Additionally, if an event or change in circumstances occurs that would more likely than not reduce the fair value of the reporting unit below its carrying value, we would evaluate goodwill at that time.
Revenue Recognition and Accounts Receivable
The Company recognizes revenues in accordance with Financial Accounting Standards Board (“FASB”)’s Accounting Standards Codification (“ASC”) 606, Revenues from Contracts with Customers. The Company recognizes revenue that represents the transfer of promised goods or services to customers at an amount that reflects the consideration that is expected to be received in exchange for those goods or services. The Company recognizes revenue when performance obligations with our customers have been satisfied. At contract inception, we evaluate the contract to determine if revenue should be recognized using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
| 11 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company carries its accounts receivable at cost less an allowance for credit losses. Allowances for credit losses are based upon the Company’s judgment regarding collectability. On a periodic basis, the Company evaluates its receivables and establish an allowance for credit losses, based on a history of past write-offs, collections, current credit conditions or generally accepted future trends in the industry and/or local economy. Accounts are written off as uncollectible at the time we determine that collections are unlikely. The reserve is not intended to address return activity or disputed balances with ongoing customers, as this should be addressed in a reserve for credit memos with a corresponding charge to revenue.
Income Taxes
The Company recognizes deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.
The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.
The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740-10-05 (the “Subtopic”). The Subtopic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The Subtopic prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Subtopic provides guidance on the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Recently Adopted Accounting Standards
In November 2024, the FASB issued ASU 2024-04, Debt-Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This standard clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion and the application of the induced conversion guidance to a conversion debt instrument. It also clarifies that the incorporation, elimination, or modification of a daily volume-weighted average price (“VWAP”) formula does not automatically cause a settlement to be accounted for as an extinguishment. This standard will become effective on a prospective or retrospective basis for interim reporting periods and annual periods beginning after December 15, 2025. Early adoption is permitted. The Company adopted this guidance effective January 1, 2026 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.
Recently Issued Accounting Standards, Not Yet Adopted
In November 2024, the FASB issued ASU No. 2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses (DISE) which requires disaggregated disclosure of income statement expenses for public business entities. The standard requires public business entities to disclose disaggregated information about specific natural expense categories underlying certain income statement expense line items that are considered relevant. The FASB also issued ASU No. 2025-01 (“ASU 2025-01”), Clarifying the Effective Date, which clarifies the adoption date of ASU 2024-03 as annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the potential effect of this accounting standard update on its consolidated financial statements and related disclosures.
In September 2025, the FASB issued ASU No. 2025 - 06, Intangibles - Goodwill and Other - Internal - Use Software (“ASU 2025 - 06”), which amends the guidance for accounting for software costs to reflect current software development practices, including iterative and agile methodologies, by removing references to development stages. It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025 - 06 is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The amendments may be applied either prospectively, retrospectively, or utilizing a modified transition approach. The Company is currently assessing the impact of ASU 2025 - 06 on its condensed consolidated financial statements and disclosures.
| 12 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In September 2025, the FASB issued ASU 2025-07. This update clarifies the application of derivative accounting to certain contracts and refines the guidance for share-based noncash consideration received from customers. Specifically, ASU 2025-07 introduces a scope exception for contracts that are not exchange-traded and whose underlying is tied to operations or activities specific to one party. It also clarifies that share-based noncash consideration from a customer should initially be accounted for under Topic 606 until the right to receive or retain such consideration becomes unconditional, at which point financial instruments guidance may apply. The effective date for the standard is for fiscal years beginning after December 15, 2026 and interim periods within those fiscal years. Early adoption is permitted. The amendments in ASU 2025-07 should be applied either prospectively or by utilizing a modified retrospective approach. The Company is currently assessing the impact on the Company’s condensed consolidated financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. This update clarifies interim disclosure requirements and centralizes such requirements within Topic 270. Among other changes, ASU 2025-11 introduces a disclosure principle requiring entities to provide information about significant events or changes since the end of the last annual reporting period that have a material impact, clarifies when duplicative annual disclosures may be omitted from interim reports, and aligns interim reporting requirements with applicable SEC guidance for registrants. This guidance is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in ASU 2025-11 should be applied prospectively. The Company is currently assessing the impact on the Company’s condensed consolidated financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements. This update addresses shareholder suggestions on the Accounting Standards Codification and makes other incremental improvements to U.S. GAAP. The amendments make codification updates to a broad range of topics arising from technical corrections, unintended application of the codification, clarifications and other minor improvements. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within those annual periods. Early adoption is permitted and may be elected on an issue-by-issue basis. The amendments in ASU 2025-12 are to be applied prospectively. The Company is currently assessing the impact on the Company’s condensed consolidated financial statements and disclosures.
Note 3 - Asset Acquisition
Stella Diagnostics - Asset Purchase Agreement
On December 15, 2022, the Company entered into an Asset Purchase Agreement (the “Stella Purchase Agreement”), with Stella Diagnostics Inc. (“Stella”) and Stella DX, LLC (“Stella DX” and, together with Stella, the “Stella Sellers”), pursuant to which, on January 3, 2023, the Company purchased all of the assets, rights and interests of the Stella Sellers and their affiliates pertaining to the Stella Sellers’ BE-Smart Esophageal Pre-Cancer Diagnostic Screening Test and certain clinical assets, including all intellectual property rights (the “Stella Purchased Assets”).
As
consideration for the Stella Purchased Assets, at closing, the Company (i) paid to the Stella Sellers $
In
addition to the consideration paid at closing, the Company will issue shares of common stock valued at $
The
asset purchase does not qualify as a business combination under FASB ASC 805, Business Combinations, and has therefore been accounted
for as an asset acquisition. In connection with the Stella Purchased Assets, the Company incurred $
Note 4 - Intangible Assets, Net
Intangible assets as of June 30, 2026 and December 31, 2025 consisted of the following (in thousands):
Schedule of Intangible Assets
| June 30, | December 31, | Estimated Useful | ||||||||||
| 2026 | 2025 | Life (in years) | ||||||||||
| Trade names | $ | $ | ||||||||||
| Proprietary intellectual property | ||||||||||||
| Customer relationships | ||||||||||||
| Total intangible assets, gross | ||||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||||
| Total intangible assets, net | $ | $ | ||||||||||
| 13 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Amortization
expense for acquired intangible assets was $
Schedule Estimated Future Amortization Expense of Acquired Intangible Assets
| Remaining periods in 2026 | $ | |||
| Year ended December 31, 2027 | ||||
| Year ended December 31, 2028 | ||||
| Year ended December 31, 2029 | ||||
| Year ended December 31, 2030 | ||||
| Thereafter | ||||
| Total intangible assets, net | $ |
Note 5 - Outstanding Debt
2026 Convertible Notes
On
January 13, 2026, the Company entered into a securities purchase agreement (the “January Debtfund Agreement”) with Debtfund
L.P. (“Debtfund”) providing for the issuance of a
On
January 27, 2026 (the “Issue Date”), the Company entered into a securities purchase agreement (the “January Labrys
SPA”) with Labrys Fund II, LP (“Labrys”), pursuant to which the Company issued a
On
March 10, 2026 (the “Issue Date”), the Company entered into another securities purchase agreement (the “March Labrys
SPA”) with Labrys, pursuant to which the Company issued a
| 14 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
conversion option of the 2026 Convertible Notes contains variable conversion price, which fails the equity classification guidance in
ASC 815 and is thus precluded from being classified in equity. Therefore, the embedded derivatives are required to be bifurcated from
the 2026 Convertible Notes and accounted for at fair value at each reporting date. A fair value of $
2026 Short-term Loans
During
the six months ended June 30, 2026, the Company entered into several six-months promissory notes (the “Notes”)
with multiple individual investors (the “Lenders”) with an aggregate principal amount of $
2026 Future Receipts Financing Agreements
On
March 17, 2026, the Company entered into an agreement of sale of future receipts (“First 2026 Future Receipts Financing Agreement”)
with Legendary Funding Group, LLC (“Legendary”) by which Legendary purchased from the Company, its future accounts and contract
rights arising from the sale of goods or rendition of services to the Company’s customers. The purchase price was $
On
March 17, 2026, the Company entered into an agreement of sale of future receipts (“Second 2026 Future Receipts Financing Agreement”)
with Immediate Capital Solutions LLC (“Immediate Advances”) by which Immediate Advances purchased from the Company, its future
accounts and contract rights arising from the sale of goods or rendition of services to the Company’s customers. The purchase price
was $
On
June 4, 2026, the Company entered into another agreement of sale of future receipts (“Third 2026 Future Receipts Financing Agreement”)
with Legendary by which Legendary purchased from the Company, its future accounts and contract rights arising from the sale of goods
or rendition of services to the Company’s customers. The purchase price was $
2025 Loan Agreements with Warrants
On
June 22, 2025, the Company entered into
The
Company received net cash proceeds of $
| 15 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
The
Unaffiliated Investor Loan was issued as an exchange to a term note issued in 2024. No additional cash proceeds were provided. The Company
accounted for the issuance of the Unaffiliated Investor Loan as an extinguishment of the original debt of $
2025 Short-term Loans
On
August 1, 2025, the Company entered into a note agreement with an individual investor (the “Holder”) for cash proceeds
of $
On
August 14, 2025, the Company entered into a note agreement with an individual investor for cash proceeds of $
On
August 1, 2025 and September 11, 2025, the Company entered into
On
November 6, 2025, the Company entered into a note agreement ( the “November 2025 Note”) with an individual investor for
an aggregate cash proceeds of $
On
December 22, 2025, the Company entered into a note agreement ( the “First December 2025 Note”) with an individual investor
for an aggregate cash proceeds of $
On
December 26, 2025, the Company entered into a note agreement ( the “Second December 2025 Note”) with an individual investor
for an aggregate cash proceeds of $
August 2025 Future Receipts Financing Agreements
On
August 22, 2025, the Company entered into
| 16 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
The
August Future Receipts Financing Agreements require
In
connection with the issuance of the August Future Receipts Financing Agreements, the Company also issued
During
the six months ended June 30, 2026, the Company recognized an aggregate of $
September 2025 Future Receipts Financing Agreements and Settlement
On
September 29, 2025, the Company entered into an agreement of sale of future receipts (“September Future Receipts Financing Agreement”)
with Stage Advance, LLC (“Stage Advance”) by which Stage Advance purchased from the Company, its future accounts and contract
rights arising from the sale of goods or rendition of services to the Company’s customers. The purchase price was $
On
April 1, 2026 (the “Settlement Date”), the Company entered into a resolution agreement with a collection agent (the “Agent”)
to settle the outstanding balance with Stage Advance. The Company agreed to pay the Agent an aggregate amount of $
July 2025 Private Placement
On
July 22, 2025, the Company entered into
The
July 2025 Notes mature on July 22, 2026, bear interest at
| 17 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
The
Company also issued common stock purchase warrants to acquire up to
During
the six months ended June 30, 2026, the Investors converted approximately $
During
the three and six months ended June 30, 2026, the Company recognized an aggregate of $
ERC Claim and Risk Participation Agreement
In
August 2023, the Company filed for the Employee Retention Credit (“ERC”) for $
On
September 16, 2024 (“Agreement Date”), the Company, as seller, received $
The
Agreement transferred all of the Company’s rights to receive any and all payments, proceeds or distributions of any kind (without
set-off, deduction or withholding of any kind), including interest, from the United States Internal Revenue Service (the “IRS”)
in respect of the employee retention credits duly and timely claimed by Seller on account of qualified wages paid by Seller and identified
as a “Claim for Refund” under Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund for the
second (2nd), third (3rd) and fourth (4th) quarters of 2020, and the first (1st) and second (2nd) quarters of 2021 (the “Tax Refund
Claim”) in the aggregate amount of $
The
Company expects the IRS to approve or deny its claim within the
The
Company elected to account for the ERC by analogy to IAS 20 when there was reasonable assurance of receipt, which was determined to be
when the approval was received by the IRS. During the year ended December 31, 2025, the Company received approval for all refunds from
the IRS in the amount of $
Collateralized Loan Agreement
On
November 21, 2024 the Company entered into a financing agreement (the “2024 Collateralized Loan Agreement”) with CJEF Capital
Partners PTE Ltd. (“CJEF”), to provide the Company with loan funding to be secured by shares
of common stock (the “2024 Collateralized Loan”). Funding is to be provided in tranches and shall mature
On
October 14, 2025, the Company entered into a Share Financing Agreement (the “2025 Collateralized Loan Agreement”) with Oceanview
Consultant Partners Ltd. (“Oceanview”), to provide the Company with loan financing funding to be secured by Company’s
common shares (the “2025 Collateralized Loan”). Funding is to be provided in tranches and shall mature
| 18 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 6 - Stockholders’ Equity
Preferred Stock
The preferred stock authorized under our certificate of incorporation may be issued from time to time in one or more series. As of June 30, 2026 and December 31, 2025, shares of preferred stock had been issued.
Common Stock Dividends
Common Stock
Common ATM Offering
On
December 19, 2025, the Company entered into an Sales Agreement (the “2025 Sales Agreement”) with WestPark Capital, Inc. (the
“WestPark”), pursuant to which the Company may offer and sell, from time to time through WestPark, shares of our common stock
having an aggregate offering price of up to $
During
the six months ended June 30, 2026, the Company issued shares of common stock pursuant to the 2025 Sales Agreement. The Company
received cash proceeds of $
2026 Equity Line of Credit - Generating Alpha
On
January 16, 2026, the Company entered into a Stock Purchase Agreement (“the Agreement”) with Generating Alpha Ltd. (“the
Investor”), pursuant to which the Investor committed to provide the Company with up to ten million dollars ($
The Agreement establishes an equity line facility that provides the Company with the right, but not the obligation, to sell shares of common stock to the Investor from time to time. The Company retains full discretion over its access to the facility and there is no requirement that the Company access the facility at any time.
In
connection with entering into the Agreement, the Company issued shares of common stock and a prefunded common stock purchase
warrant to acquire up to
During the six months ended June 30, 2026, the Company did t issue any shares of common stock pursuant to the Agreement.
The 2025 Directors’ Equity Compensation Plan
On September 9, 2025, the stockholders of the Company approved the 2025 Directors’ Equity Compensation Plan (the “2025 Directors’ Plan”) at the 2025 Special Meeting. The 2025 Directors’ Plan amended and restated the Company’s Amended and Restated 2022 Directors’ Equity Compensation Plan and provided for an increase in the number of shares reserved for issuance under the plan by shares.
During the six months ended June 30, 2026, stock options were issued under the 2025 Directors’ Plan.
As of June 30, 2026, the number of shares authorized for issuance under the 2025 Directors Plan was , which included the number of shares available under the 2022 Directors Plan immediately prior the stockholder approval of the 2025 Directors’ Plan as described below.
The 2022 Directors’ Equity Compensation Plan
On May 19, 2022, the stockholders of the Company approved the 2022 Directors’ Equity Compensation Plan (the “2022 Directors’ Plan”) at the 2022 Annual Meeting of Stockholders of the Company (the “2022 Annual Meeting”). The 2022 Directors’ Plan amended and restated the Company’s Amended and Restated 2010 Directors’ Equity Compensation Plan and provided for an increase in the number of shares reserved for issuance under the plan by shares and for the adjustment of the per share exercise price of stock options granted under the 2022 Plan in the event of any change in the outstanding shares of common stock of the Company as a result of, among other things, any distribution or special dividend to stockholders of shares, cash or other property (other than regular cash dividends).
| 19 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
On June 16, 2023 the stockholders of the Company approved the Amended and Restated 2022 Directors’ Equity Compensation Plan (the “Amended 2022 Directors’ Plan”) at the 2023 Annual Meeting of Stockholders of the Company. The Amended 2022 Directors’ Plan provides for an increase in the number of shares reserved for issuance under such plan by shares.
During the six months ended June 30, 2026, stock options were issued under the 2025 Directors’ Plan.
There were shares of common stock available to be issued under the 2022 Directors’ Plan immediately prior the stockholder approval of the 2025 Directors’ Plan.
The 2025 Equity Compensation Plan
On September 9, 2025, the stockholders of the Company approved the 2025 Equity Compensation Plan (the “2025 Plan”) at the 2025 Special Meeting. The 2025 Plan amended and restated the Company’s Amended and Restated 2022 Equity Compensation Plan and provided for an increase in the number of shares reserved for issuance under the plan by shares.
During the six months ended June 30, 2026, stock options were issued under the 2025 Plan.
As of June 30, 2026, the number of shares authorized for issuance under the 2025 Plan was , which included the number of shares available under the 2022 Plan immediately prior to the stockholder approval of the 2025 Plan as described below.
The 2022 Equity Compensation Plan
On May 9, 2022, the stockholders of the Company approved the 2022 Equity Compensation Plan (the “2022 Plan”) at the 2022 Annual Meeting. The 2022 Plan amended and restated the Company’s Amended and Restated 2010 Equity Compensation Plan and provided for an increase in the number of shares reserved for issuance under the plan by shares and for the adjustment of the per share exercise price of stock options granted under the 2022 Plan in the event of any change in the outstanding shares of common stock of the Company as a result of, among other things, any distribution or special dividend to stockholders of shares, cash or other property (other than regular cash dividends).
During the six months ended June 30, 2026, stock options issued under the 2025 Plan.
There were shares of common stock available to be issued under the 2022 Plan immediately prior the stockholder approval of the 2025 Plan.
Summary of all option grants
Schedule of Stock Options Activity
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Total Intrinsic Value | |||||||||||||
| Outstanding as of January 1, 2026 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited/expired | ||||||||||||||||
| Outstanding as of June 30, 2026 | $ | $ | ||||||||||||||
| Options vested and exercisable | $ | $ | ||||||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the closing stock price of $ for the Company’s common stock on June 30, 2026.
| 20 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Stock Warrants
The following table summarizes warrant activity during the six months ended June 30, 2026 (in thousands, except per share data):
Schedule of Warrant Activity
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | ||||||||||
| Outstanding as of January 1, 2026 | $ | |||||||||||
| Granted | ||||||||||||
| Outstanding as of June 30, 2026 | ||||||||||||
| Warrants vested and exercisable | $ | |||||||||||
During
the six months ended June 30, 2026, the Company granted warrants to purchase
The Company recognized approximately $ and $ of share-based compensation expense during the three months ended June 30, 2026 and 2025, respectively. The Company recognized approximately $ million and $ million of share-based compensation expense during the six months ended June 30, 2026 and 2025, respectively. The Company will recognize an aggregate of approximately $ million of remaining share-based compensation expense related to outstanding stock options over a weighted average period of years.
Note 7 - Income Taxes
We recognize tax assets and liabilities for future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss carryforwards. Management evaluated the deferred tax assets for recoverability using a consistent approach that considers the relative impact of negative and positive evidence, including historical profitability and projections of future reversals of temporary differences and future taxable income. We are required to establish a valuation allowance for deferred tax assets if management determines, based on available evidence at the time the determination is made, that it is not more likely than not that some portion or all of the deferred tax assets will be realized. As a result of historical losses from continuing operations, we have recorded a full valuation allowance against the net deferred tax assets. Judgment is required to estimate forecasted future taxable income, which may be impacted by future business developments, actual results, tax initiatives, legislative, and other economic factors. The Company will continue to monitor income levels and potential changes to its operating and tax model, and other legislative or global developments in its determination.
| 21 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 8 - Commitments and Contingencies
License Agreements
Linebacker LB1 and LB2
On July 19, 2022, the Company through its wholly-owned subsidiary ProPhase BioPharma entered into a License Agreement (the “Linebacker License Agreement”) with Global BioLife, Inc. (the “Licensor”), with an effective date of July 18, 2022 (the “Linebacker Effective Date”), pursuant to which it acquired from Licensor a worldwide exclusive right and license under certain patents identified in the Linebacker License Agreement (the “Licensed Patents”) and know-how (collectively, the “Licensed IP”) to exploit any compound covered by the Licensed Patents (the “Licensed Compound”), including Linebacker LB1 and LB2, and any product comprising or containing a Licensed Compound (“Licensed Products”) in the treatment of cancer, inflammatory diseases or symptoms, memory-related syndromes, diseases or symptoms including dementia and Alzheimer’s Disease (the “Field”). Under the terms of the Linebacker License Agreement, the Licensor reserves the right, solely for itself and for GRDG Sciences, LLC (“GRDG”) to use the Licensed Compound and Licensed IP solely for research purposes inside the Field and for any purpose outside the Field.
Subject to certain conditions set forth in the Linebacker License Agreement, the Company may grant sublicenses (including the right to grant further sublicenses) to its rights under the Linebacker License Agreement to any of its affiliates or any third party with the prior written consent of Licensor, which consent may not be unreasonably withheld. Either party to the Linebacker License Agreement may assign its rights under the Linebacker License Agreement (i) in connection with the sale or transfer of all or substantially all of its assets to a third party, (b) in the event of a merger or consolidation with a third party or (iii) to an affiliate; in each case contingent upon the assignee assuming in writing all of the obligations of its assignor under the Linebacker License Agreement.
Under
the terms of Linebacker License
Agreement, the Company is required to pay to Licensor a one-time upfront license fee of $
During
the term of the Linebacker License
Agreement, the Company is also required to pay to Licensor
In connection with the Linebacker License Agreement, the Company did not incur any expenses for the six months ended June 30, 2026 and 2025, respectively. No clinical studies have begun under this agreement.
Equivir
In March 2023, we commenced patient enrollment in a randomized, placebo-controlled clinical trial of Equivir to evaluate its effect on upper respiratory tract infections. Vedic Lifesciences, a leading clinical research organization, is contracted to conduct the combination prophylactic and therapeutic study, which will be conducted at 8 sites. We currently anticipate trial completion launching Equivir (dietary supplement) in the United States toward the end of 2025.
In connection with the license agreement relating to Equivir, the Company did not incur any expenses for the six months ended June 30, 2026 and 2025, respectively.
| 22 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
BE-Smart™ Esophageal Pre-Cancer Diagnostics Screening Test
In March 2023, in connection with the asset acquisition of Stella Diagnostics, Inc., we announced a collaboration for the continued development of our BE-Smart™ Esophageal Pre-Cancer diagnostic screening test. The BE-Smart™ test is designed to detect molecular biomarkers associated with Barrett’s Esophagus and progression to esophageal adenocarcinoma.
On June 17, 2025, we announced the successful completion of a key validation study for the BE-Smart™ molecular diagnostic test. The study demonstrated a technical success rate greater than 95% using esophageal brush cytology samples, confirming the test’s compatibility and reliability with both traditional forceps biopsy and less invasive brush biopsy techniques. Based on these results, we are continuing commercialization of BE-Smart™ as a Laboratory Developed Test (“LDT”) and Research Use Only (“RUO”) product, with steps towards commercialization planned for the third quarter of 2025 and broader insurance-backed commercialization targeted for 2026. These timelines are forward-looking statements and are subject to various risks and uncertainties, including, but not limited to, regulatory developments, payer coverage decisions, and market adoption rates.
On March 31, 2025, the U.S. District Court for the Eastern District of Texas vacated the U.S. Food and Drug Administration’s (“FDA”) Final Rule that would have expanded FDA oversight of LDTs, holding that the agency exceeded its statutory authority. The court remanded the matter to the Department of Health and Human Services for reconsideration. The FDA did not appeal within the 60-day period, which ended May 30, 2025, and, as a result, the rule is no longer in effect and compliance deadlines are not enforceable. Oversight of LDTs, including BE-Smart™, currently reverts to the existing Clinical Laboratory Improvement Amendments (“CLIA”) framework administered by the Centers for Medicare & Medicaid Services. Future legislative or regulatory action could alter this framework.
As a result certain LDTs, including BE-Smart™, are not currently subject to direct FDA oversight, allowing for a faster market entry while maintaining rigorous internal validation and quality control standards. If new requirements were imposed, we could be required to obtain pre-market clearance or approval before commercialization, which could delay our market entry, increase development and regulatory costs, and potentially require changes to the test.
Based
on published industry data and internal estimates, the U.S. market for the test is approximately
For the six months ended June 30, 2026 and 2025, we did not incur any expenses related to the BE-Smart™ license agreement.
On August 6, 2025, the United States Patent and Trademark Office issued U.S. Patent No. 12,379,378 B2, covering the BE-Smart™ Esophageal Pre-Cancer Diagnostic Screening Test. This newly issued patent further strengthens our intellectual property position for BE-Smart™ technology and supports our continued efforts to commercialize the test for early detection and risk stratification of Barrett’s esophagus and related esophageal conditions.
We continue to own the full intellectual property portfolio supporting the BE-Smart™ test, including a foundational patent family covering molecular markers of esophageal disease progression, with issued patents and pending applications expected to provide protection until 2040. We remain positioned to capitalize on favorable regulatory and clinical practice trends supporting minimally invasive screening methods, although there can be no assurance that commercialization will occur within the anticipated timeframe or that adoption will meet our expectations.
| 23 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Litigation
The Company is involved in various legal proceedings arising in the ordinary course of business, including matters relating to commercial contracts, lease obligations, accounts receivable collections, and bankruptcy-related proceedings associated with ProPhase Diagnostics, Inc. and its subsidiaries. Certain of these matters are described in Part II, Item 1, “Legal Proceedings,” of this Quarterly Report, which disclosure is incorporated herein by reference.
Management evaluates litigation contingencies on a quarterly basis in accordance with ASC 450, Contingencies. As of June 30, 2026, amounts have been accrued for matters where a loss is considered probable and reasonably estimable. For other matters, management either believes an unfavorable outcome is not probable or cannot reasonably estimate the possible loss or range of loss. Accordingly, no additional accruals have been recorded. The ultimate resolution of these matters could differ from current estimates and may have a material effect on future operating results, cash flows, or financial position.
Note 9 - Leases
Operating Leases
New Jersey Laboratory Lease
On
October 23, 2020, we completed the acquisition of CPM, which included a
As a result of the deconsolidation of PDX (see Note 14), the operating lease liability and right-of-use asset associated with the New Jersey operating lease was derecognized on the Company’s condensed consolidated balance sheet as of June 30, 2026.
New York Second Floor Lease
On December 8, 2020, the Company entered into a Lease Agreement (the “NY Second Floor Lease”) with BRG Office L.L.C. and Unit 2 Associates L.L.C. (the “Landlord”), pursuant to which the Company leases certain premises located on the second floor (the “Second Floor Leased Premises”) of 711 Stewart Avenue, Garden City, New York (the “Building”). The Second Floor Leased Premises serve as the Company’s second location and corporate headquarters, offering a wide range of laboratory testing services for diagnosis, screening and evaluation of diseases, including COVID-19 and Respiratory Pathogen Panel Molecular tests.
On June 10, 2022, the Company entered into a First Amendment to the NY Second Floor Lease (the “Second Floor Lease Amendment”). The Second Floor Lease Amendment amends the NY Second Floor Lease to provide that any uncured default by the Company or any of its affiliate under the NY First Floor Lease (defined below) will constitute a default by the Company under the NY Second Floor Lease.
On
March 1, 2025, the Company entered into a Surrender Agreement with the Landlord, pursuant to which the Company agreed to surrender the
Second Floor Leased Premises on or before May 30, 2025 (the “Surrender Date”). Under the agreement, the Company will remain
responsible for rent and other charges through the Surrender Date and will pay the Landlord a settlement amount of approximately $
New York First Floor Lease
On
June 10, 2022, the Company entered into a second Lease Agreement (the “NY First Floor Lease”) with Landlord, pursuant to
which the Company leases approximately
Finance Leases
On
April 19, 2023, the Company entered into a master lease agreement for laboratory equipment (the “First Equipment Lease”)
with a vendor. The First Equipment Lease has a
On
July 21, 2023, the Company entered into a master lease agreement for a laboratory equipment (the “Second Equipment Lease”)
with a vendor. The Second Equipment Lease has a
At
June 30, 2026 and
December 31, 2025, the Company had finance lease liabilities of approximately $
| 24 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following summarizes quantitative information about our operating leases (amounts in thousands):
Schedule of Quantitative Information about Operating and Finance Leases
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Operating leases: | ||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Total operating lease expense | $ | $ | $ | $ | ||||||||||||
| Finance leases: | ||||||||||||||||
| Interest lease cost | $ | $ | $ | $ | ||||||||||||
| Depreciation expense | ||||||||||||||||
| Total finance lease expense | $ | $ | $ | $ | ||||||||||||
Other information related to the Company’s leases is shown below (dollar amounts in thousands):
| June 30, 2026 | June 30, 2025 | |||||||
| For the six months ended | ||||||||
| June 30, 2026 | June 30, 2025 | |||||||
| Operating cash flows used in operating leases | $ | $ | ( | ) | ||||
| June 30, 2026 | December 31, 2025 | |||||||
| Weighted-average remaining lease term – operating leases (in years) | - | - | ||||||
| Weighted-average remaining lease term – finance leases (in years) | ||||||||
| Weighted-average discount rate – operating leases | N/A | N/A | ||||||
| Weighted-average discount rate – finance leases | % | % | ||||||
| Finance lease asset (1) | $ | $ |
| (1) |
Maturities of the Company’s remaining finance lease are as follows (in thousands):
Schedule of Maturities of Finance Leases
| Finance Lease | ||||
| Remaining periods in 2026 | $ | |||
| Year Ended December 31, 2027 | ||||
| Total lease payments | ||||
| Less present value discount | ( | ) | ||
| Total | $ | |||
Note 10 - Segment Information
The
Company has identified
| 25 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table is a summary of segment information for three and six months ended June 30, 2026 and 2025 (amounts in thousands):
Schedule of Segment Information
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Net revenues | ||||||||||||||||
| Diagnostic services | $ | $ | $ | $ | ||||||||||||
| Consumer products | ||||||||||||||||
| Consolidated net revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Diagnostic services | ||||||||||||||||
| Consumer products | ||||||||||||||||
| Consolidated cost of revenue | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Diagnostic services | ||||||||||||||||
| Consumer products | ||||||||||||||||
| Total Depreciation and amortization expense | ||||||||||||||||
| Operating and other expenses | - | - | ||||||||||||||
| Diagnostic services | ||||||||||||||||
| Consumer products | ||||||||||||||||
| Unallocated corporate | ||||||||||||||||
| Total operating and other expenses | ||||||||||||||||
| Income (loss) from operations, before income taxes | ||||||||||||||||
| Diagnostic services | ( | ) | ( | ) | ||||||||||||
| Consumer products | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unallocated corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total loss from operations, before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total loss from operations, after income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The following table is a summary of segment information as of June 30, 2026 and December 31, 2025 (amounts in thousands):
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Consumer products | $ | $ | ||||||
| Unallocated corporate | ||||||||
| Total assets | $ | $ | ||||||
Basic earnings (loss) per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or otherwise result in the issuance of common stock that shared in the earnings of the entity. Diluted earnings (loss) per share also utilizes the treasury stock method which prescribes a theoretical buy back of shares from the theoretical proceeds of all options outstanding during the period, and the if-converted method for convertible debt.
Schedule of Reconciliation of the Weighted Average Number of Common Shares Outstanding used in Calculating Basic and Diluted Net Loss Per Share
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Loss from continuing operations after income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income from discontinued operations, net of tax | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net earnings (loss) per share: | ||||||||||||||||
| Loss from continuing operations, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Income from discontinued operations, basic and diluted | $ | $ | $ | $ | ||||||||||||
| Net loss (earnings) per share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
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ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Schedule of Anti-dilutive Securities Excluded from the Income Per Share Computation
| Anti-dilutive securities | June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | ||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||
| Anti-dilutive securities | June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | ||||||||||||
| Common stock purchase warrants | ||||||||||||||||
| Stock options | ||||||||||||||||
| Convertible notes | ||||||||||||||||
| Anti-dilutive securities | ||||||||||||||||
Note 12 - Related Parties
The Company’s President of Nebula Genomics, Inc., is a related party to the Company’s Chairman and Chief Executive Officer. For the three months ended June 30, 2026 and 2025, there were no payments made to the Executive Vice President outside compensation and benefits for the position held at the Company.
On
February 18, 2025, the company announced that Stuart Hollenshead was appointed to serve as Chief Operating Officer of the Company, effective
on February 17, 2025. Mr. Hollenshead resigned his COO position effective July 31, 2025 and resumed his prior role with the Company in
the role as a marketing consultant. Mr. Hollenshead serves as CEO of 10PM Curfew. The Company received consulting services from 10PM
Curfew on an ongoing basis. For the three months ended June 30, 2026 and 2025, the Company did
On
June 22, 2025, the Company entered into a loan agreement with Ted Karkus, the Company’s Chief
Executive Officer and the Chairman of the Board of Directors, pursuant to which the Company issued a twelve-month non-convertible promissory
note in the principal amount of $
Note 13 - Discontinued Operations
On January 16, 2025, the Company entered into a Stock Purchase Agreement (the “Agreement”) with JL Projects, Inc., a Delaware corporation (“JL Projects”), pursuant to which JL Projects purchased from the Company all of the right, title, and interest in and to all of the issued and outstanding shares of capital stock of Pharmaloz Manufacturing, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“PMI”), and Pharmaloz Real Estate Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“PREH”). The transaction closed concurrently with the execution of the Agreement on January 16, 2025.
As
part of the transaction, JL Projects provided approximately $
The Company has reported the results of the discontinued operations as a separate component of income below the income (loss) from continuing operations in each period presented.
Note 14 - Voluntary Bankruptcy Filing and Deconsolidation
On September 22, 2025 (the “Petition Date”), the Company’s wholly-owned subsidiary, ProPhase Diagnostics, Inc., and two indirectly wholly-owned subsidiaries, ProPhase Diagnostics NY, Inc. and ProPhase Diagnostics NJ, Inc. (collectively the “PDX”) filed for a Chapter 11 reorganization in United States Bankruptcy Court for the District of New Jersey (the “Chapter 11 case”). On September 30, 2025, the Court granted the motion for joint administration. During the Chapter 11 Case, the Company is deemed to no longer control PDX as its activities are subject to review and oversight by the Bankruptcy Court. Therefore, PDX was deconsolidated from the Company’s condensed consolidated financial statements prospectively as of September 22, 2025.
Deconsolidation of Bankrupt Subsidiaries
In
order to deconsolidate PDX, the carrying values of the assets and liabilities of PDX were removed from the Company’s condensed
consolidated balance sheet as of September 22, 2025, in accordance with ASC 810, Consolidation. The net impact with removing the assets
and liabilities held at PDX resulted in the recognition of the investment in unconsolidated affiliates of $
| 27 |
ProPhase Labs, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
All post-deconsolidation activities between the Company and PDX are reported as third-party transactions recorded within the Company’s Unaudited Condensed Consolidated Statement of Operations. Since the Petition Date, there were no material transactions between the Company and PDX.
Treatment of Intercompany Balances
The
Company had total payables to PDX of approximately $
Original Joint Plan of Reorganization
On June 29, 2026, PDX filed their Original Joint Plan of Reorganization (the “Plan”) with the Bankruptcy Court. The Plan provides for the restructuring and payment of all allowed claims, including administrative expenses, priority tax claims, secured claims, and general unsecured claims. The Plan is funded by revenues from ongoing operations and the collection of receivables. Upon confirmation and effectiveness of the Plan, PDX will continue to operate as reorganized entities, with current management, including the Company’s CEO Ted Karkus, remaining in place.
Note 15 - Fair Value Measurements
The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025 (in thousands):
Schedule of Fair Value of the Company’s Financial Liabilities that are Measured at Fair Value on a Recurring Basis
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| As of June 30, 2026 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| As of December 31, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2026.
The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2026. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).
Schedule of Changes in Fair Value
| Derivative liability | ||||
| Balance at January 1, 2026 | $ | |||
| Issuance of convertible debt | ||||
| Debt amendment | ||||
| Redemptions | ( | ) | ||
| Change in fair value | ||||
| Balance at June 30, 2026 | $ | |||
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in the Black-Scholes option pricing model and Monte-Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of June 30, 2026 and December 31, 2025:
Schedule of Fair Value Measurement Inputs and Valuation Techniques
| As of June 30, 2026 | As of December 31, 2025 | |||||||
| Exercise price | $ | $ | ||||||
| Expected term (years) | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free rate of interest | % | % | ||||||
| Expected dividend yield (per share) | % | % | ||||||
| Warrants outstanding measurement input | % | % | ||||||
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Note 16 - Subsequent Events
On
July 1, 2026, the Company entered into several six-months promissory notes (the “Notes”) with multiple individual
investors (the “Lenders”) with an aggregate principal amount of $
On
July 8, 2026 (the “Issue Date”), the Company entered into a securities purchase agreement (the “July Labrys SPA”)
with Labrys, pursuant to which the Company issued a
On
July 24, 2026 (the “Issue Date”), the Company entered into another securities purchase agreement (the “Second July
Labrys SPA”) with Labrys, pursuant to which the Company issued a
On
July 14, 2026, the Company entered into a securities purchase agreement (the “July Debtfund Agreement”) with Debtfund providing
for the issuance of a
On
July 21, 2026, the Company issued a
On
July 31, 2026, the Company entered into a Loan Agreement (the “Agreement”) with J.J. Astor & Co. (“JJ Astor”)
for a secured convertible loan in the principal amount of $
Between
July 1, 2026 and August 17, 2026, certain investors converted approximately $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q/A (“Quarterly Report”) and the audited financial statements and notes thereto as of and for the year ended December 31, 2025 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 1, 2026 (the “2025 Annual Report”). As used in this Quarterly Report, unless the context suggests otherwise, “we,” “us,” “our,” or “ProPhase” refer to ProPhase Labs, Inc. and its subsidiaries, unless the context otherwise requires.
Forward-Looking Statements
This Quarterly Report (including any documents incorporated by reference herein) contains statements with respect to us which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and reflect our plans, estimates and beliefs, can generally be identified by the use of forward-looking terms such as “anticipates,” “believes,” “plan,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “anticipates” or other comparable terms. These forward-looking statements include, but are not limited to, statements concerning future events, our future financial performance, business strategy, product development strategy, and plans and objectives of management for future operations. Our actual results could differ materially from those discussed in the forward-looking statements. This Quarterly Report may also contain forward-looking statements attributable to third parties relating to their estimates regarding the growth of our markets.
We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in company expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
You should read this Quarterly Report and the documents that we incorporate by reference herein and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report is accurate as of the date on the cover of this Quarterly Report only. Our business, financial condition, results of operations and prospects may change. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information. We qualify all of the information presented in this report, and particularly our forward-looking statements, by these cautionary statements.
You are cautioned that forward-looking statements are not guarantees of performance and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance, achievements or prospects to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. Many of these factors are beyond our ability to predict.
These factors should not be construed as exhaustive and you should also carefully consider the “Summary of Risk Factors” in our 2025 Annual Report and other Risk Factors and statements we make in other sections of this Quarterly Report, such as Part II. Item 1A. “Risk Factors” of this Quarterly Report, and in our 2025 Annual Report, such as Part I. Item 1A. “Risk Factors” and Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Annual Report, all of which are incorporated herein by reference, as well as in other documents we file from time to time with the SEC that address additional risks that could cause our actual results to differ from those set forth in any forward-looking statements. Our forward-looking statements speak only as the date of this Quarterly Report. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements.
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General
We are a next-generation biotech, genomics and consumer products company. We are also focused on licensing, developing and commercializing novel drugs, dietary supplements, compounds and diagnostics.
Our wholly-owned subsidiary, ProPhase Diagnostics, Inc., and two indirectly wholly-owned subsidiaries, ProPhase Diagnostics NY, Inc. and ProPhase Diagnostics NJ, Inc. (collectively, the “Debtors”), ceased providing COVID-19 diagnostic testing in 2024. ProPhase Diagnostics NJ, Inc. continues to lease laboratory space in Old Bridge, New Jersey. On September 22, 2025, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). On September 30, 2025, the Bankruptcy Court entered an order directing joint administration of the cases. On November 13, 2025, the Bankruptcy Court entered an order authorizing the Debtors to retain Crown Medical Collections, LLC as special counsel for the collection of accounts receivable arising from prior COVID-19 diagnostic testing services. The Debtors are pursuing reorganization under Chapter 11 with the objective of restoring solvency through (i) the orderly collection of accounts receivable owed to the Debtors, prosecuted by their court-appointed special counsel, and (ii) the operational reorganization of the Debtors’ CLIA-certified laboratory infrastructure to support additional diagnostic and testing opportunities once the cases progress and resources permit. The Debtors’ plan development is ongoing and any plan will be subject to Bankruptcy Court approval. As a result of the Chapter 11 filings, the Company is deemed to no longer control the Debtors and has deconsolidated the Debtors from its consolidated financial statements as of September 22, 2025. See Note 14.
In August 2021, we acquired Nebula Genomics, Inc., (“Nebula”), a privately owned personal genomics company, through our new wholly owned subsidiary, ProPhase Precision Medicine Inc. (“ProPhase Precision”). Nebula focuses on genomics sequencing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid (“DNA”). The data obtained from genomic sequencing can be used to help identify inherited disorders and tendencies, help predict disease risk, help identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. At this time, the Company is taking steps to grow its genomics businesses while also continuing to explore the potential sale of Nebula.
Our wholly-owned subsidiary, DNA Complete, Inc. (“DNA Complete”), which was formed on September 24, 2024, for the offering of whole genome sequencing and related services. DNA Complete focuses on genomics testing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid (“DNA”). The data obtained from genomic sequencing may help to identify inherited disorders and tendencies, predict disease risk, identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. DNA Complete currently offers DNA Complete’s whole genome sequencing products direct-to-consumers online with plans to sell in food, drug and mass retail stores and to provide testing for universities conducting genomic research.
Our wholly owned subsidiary, ProPhase BioPharma, Inc. (“PBIO”) was formed in June 2022, for the licensing, development and commercialization of novel drugs, dietary supplements and compounds. Licensed compounds currently include Equivir (an OTC, dietary supplement candidate) and Equivir G (prescription drug (“Rx”) candidate), two broad-based anti-virals, and Linebacker LB-1 and LB-2, two small molecule proviral integration site for moloney murine leukemia virus (“PIM”) kinase inhibitors. The Company also owns the exclusive rights to the BE-Smart™ Esophageal Pre-Cancer Diagnostic Screening test and related intellectual property (“IP”) assets.
In connection with the activities of PBIO, in January 2023, we acquired exclusive rights to the BE-Smart™ Esophageal Pre-Cancer Diagnostic Screening test and related IP assets. The BE-Smart™ test is focused on the early detection of esophageal cancer, and is intended to provide health care providers and patients with data to help determine treatment options. The development of these novel drugs and compounds is highly dependent on how each performs during the testing and development stage, the demand for these product and services once entered into the marketplace, our marketing and service capabilities and our ability to comply with applicable regulatory requirements.
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We also own a dietary supplements business under the TK Supplements® brand. The TK Supplements® product line includes Legendz XL®, a male sexual enhancement and Triple Edge XL®, an energy and stamina support product.
BE-Smart™ Esophageal Pre-Cancer Diagnostics Screening Test
In March 2023, in connection with the asset acquisition of Stella Diagnostics, Inc., we announced a collaboration for the continued development of our BE-Smart™ Esophageal Pre-Cancer diagnostic screening test. The BE-Smart™ test is designed to detect molecular biomarkers associated with Barrett’s Esophagus and progression to esophageal adenocarcinoma.
On June 17, 2025, we announced the successful completion of a key validation study for the BE-Smart™ molecular diagnostic test. The study demonstrated a technical success rate greater than 95% using esophageal brush cytology samples, confirming the test’s compatibility and reliability with both traditional forceps biopsy and less invasive brush biopsy techniques. Based on these results, we are continuing commercialization of BE-Smart™ as a Laboratory Developed Test (“LDT”) and Research Use Only (“RUO”) product, with steps towards commercialization and broader insurance-backed commercialization targeted for the third quarter of 2026.These timelines are forward-looking statements and are subject to various risks and uncertainties, including, but not limited to, regulatory developments, payer coverage decisions, and market adoption rates.
On August 6, 2025, the United States Patent and Trademark Office issued U.S. Patent No. 12,379,378 B2, covering the BE-Smart™ Esophageal Pre-Cancer Diagnostic Screening Test. This newly issued patent further strengthens our intellectual property position for BE-Smart™ technology and supports our continued efforts to commercialize the test for early detection and risk stratification of Barrett’s esophagus and related esophageal conditions.
We continue to own the full intellectual property portfolio supporting the BE-Smart™ test, including a foundational patent family covering molecular markers of esophageal disease progression, with issued patents and pending applications expected to provide protection until 2040. We remain positioned to capitalize on favorable regulatory and clinical practice trends supporting minimally invasive screening methods, although there can be no assurance that commercialization will occur within the anticipated timeframe or that adoption will meet our expectations.
Nebula Genomics and DNA Complete
Nebula focuses on genomics testing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid (“DNA”). The data obtained from genomic sequencing may help to identify inherited disorders and tendencies, help predict disease risk, help identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. We currently offer Nebula whole genome sequencing products direct-to-consumers online with plans to sell in food, drug and mass (“FDM”) retail stores and to provide testing for universities conducting genomic research.
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Nebula provides consumers access to affordable and secure whole genome sequencing. It also provides customers with access to over 300 personalized reports based on their genomic profile. These reports are created utilizing the latest scientific research and provide individual genetic commentary on a broad range of traits and characteristics. Customers can access their reports via Nebula’s secure online portal. As new scientific discoveries are made, customers receive new reports, as well as regular updates to their existing reports, through Nebula’s subscription model. In addition to the personalized reports, Nebula provides customers with access to a suite of exploration tools including a gene browser and a gene analysis tool. These tools allow customers to browse their data, search for genetic variants, and analyze their genes.
DNA Complete focuses on genomics testing technologies, a comprehensive method for analyzing entire genomes, including the genes and chromosomes in deoxyribonucleic acid (“DNA”). The data obtained from genomic sequencing may help to identify inherited disorders and tendencies, predict disease risk, identify expected drug response, and characterize genetic mutations, including those that drive cancer progression. We currently offer DNA Complete’s whole genome sequencing products direct-to-consumers online with plans to sell in food, drug and mass (“FDM”) retail stores and to provide testing for universities conducting genomic research. DNA Complete offers three tiers of DNA testing, Essential, Pro, and Elite, which differ in the amount of DNA analyzed (1x whole genome sequencing (“WGS”), 30x WGS, and 100x WGS, respectively), the level of accuracy, the number of reports per month that consumers would receive, and the total of personalized health reports included (more than 175 reports, more than 250 reports, and more than 350 reports, respectively). The DNA Complete tests include the first year of membership. The DNA Complete platform offers both ancestry and personalized health reports covering a number of health dispositions, such as longevity, mental health, cancer, and more. In addition, DNA Complete offers subscription services to ensure ongoing customer engagement by providing regular updates and new insights.
DNA Complete also offers DNA Expand, a platform that allows consumers to upload their DNA data from previous DNA tests obtained from other service providers to discover 50x more data points derived from over 35 million genetic variants, and to obtain in-depth health and wellness reports that are based on the latest scientific discoveries. DNA Expand’s database was created from WGS tests that were obtained from 130 countries and are equivalent to roughly 150 million ancestry single nucleotide polymorphisms based tests.
DNA Complete is not rated by the Better Business Bureau and Nebula Genomics is accredited by the Better Business Bureau (BBB) with a current “B” rating in the DNA Testing / Genetic Testing category. A number of customer inquiries and complaints relating to order fulfillment, billing, and access to results have been reported. Due to a change in sequencing lab, the companies fell behind in sequencing. A new lab has been engaged and the delayed results are in the process of being resolved. DNA Complete continues to strengthen its operations, data security, and customer-service processes to enhance reliability and consumer confidence as it expands its presence in the growing personal genomics market.
In October 2024, a putative class action lawsuit, Portillo v. Nebula Genomics, Inc., was filed in the U.S. District Court for the Northern District of Illinois under Illinois’s Genetic Information Privacy Act (“GIPA”) alleging that Nebula improperly shared customers’ genetic information with third parties without written consent. The action named Nebula along with Meta Platforms, Google and Microsoft. The dispute was later transferred to the U.S. District Court for the District of Massachusetts in accordance with Nebula’s Terms of Use, which mandated that claims be brought in Massachusetts. The complaint remains at the pleading stage. In addition to the motion to change venue, Nebula filed a motion to dismiss. While the allegations raise reputational and legal risks, no judgment or settlement has been entered and potential liability is not reasonably estimable at this time. Accordingly, management does not consider this litigation to be material to the consolidated financial statements as of the date of this report.
ProPhase BioPharma
We formed PBIO in June 2022 to assist in the licensing, development and commercialization of novel drugs, dietary supplements and compounds. Licensed compounds under development currently include Equivir (a dietary supplement candidate) and Equivir G (prescription drug (“Rx”) candidate), and two broad-based candidates. We also own the exclusive rights to the BE-Smart Esophageal Pre-Cancer Diagnostic Screening test, which is in development as described above, and related intellectual property (“IP”) assets.
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Equivir (dietary supplement candidate) and Equivir G (Rx candidate)
We have exclusive worldwide rights to develop and commercialize Equivir (a dietary supplement candidate) and Equivir G (a Rx drug candidate) pursuant to a license agreement with Global BioLife, Inc. (“Global BioLife”).
Equivir is a blend of polyphenols, which are substances found in many nuts, vegetables and berries. The composition is projected to come in capsule form and be taken daily like a multivitamin. The composition is believed to support the human body’s immune function, and improve the quality of lives for users. We plan to commercialize Equivir as a dietary supplement, leveraging our distribution in over 40,000 FDM retail stores and online direct to consumers.
In March 2023, we commenced patient enrollment in a randomized, placebo-controlled clinical trial of Equivir to evaluate its effect in supporting immune system functions. Vedic Lifesciences, a leading clinical research organization, was contracted to run the multi-arm trial. Vedic produced interim results in February of 2024 which showed enough data to continue the trial to completion.
TK Supplements
Our TK Supplements® product line is dedicated to supporting better health, energy and sexual vitality. Each of our herbal supplements is researched to determine the optimum blend of ingredients to ensure our customers receive premium quality products. To achieve this, we formulate with the highest quality ingredients derived from nature and ingredients enhanced by science. Our TK Supplements® product line includes Legendz XL®, a sexual health formula product intended for men, and Triple Edge XL®, an energy and stamina support product.
ProPhase Diagnostics
Our wholly-owned subsidiary, ProPhase Diagnostics, Inc., and two indirectly wholly-owned subsidiaries, ProPhase Diagnostics NY, Inc. and ProPhase Diagnostics NJ, Inc., ceased providing COVID-19 diagnostic testing in 2024. ProPhase Diagnostics NJ, Inc. still leases the laboratory space in Old Bridge, New Jersey. The labs were forced to cease diagnostic testing when the medical insurance carriers ceased paying COVID-19 diagnostic testing claims. On September 22, 2025, the three lab entities filed for a Chapter 11 reorganization in United States Bankruptcy Court for the District of New Jersey. On September 30, 2025, the Court granted the motion for joint administration. The bankruptcy filing is the next step in the Company’s legal advisor, Crown Medical Collections, strategic initiative to collect what the Company believes could be tens of millions of dollars in unpaid insurance claims. The Company believes one objective of the bankruptcy filing is to streamline and accelerate recovery of the unpaid insurance claims the Company believes were lawfully owed for approved and completed testing services.
Results of Continuing Operations
Three Months Ended June 30, 2026 as Compared to the Three Months Ended June 30, 2025
For the three months ended June 30, 2026, net revenue was $1.0 million as compared to $1.2 million for the three months ended June 30, 2025. The decrease in revenues was mainly attributable to a decrease in revenues from the sale of supplements. The Company did not generate any revenues from diagnostic services for the three months ended June 30, 2026 and 2025, respectively.
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Cost of revenues for the three months ended June 30, 2026 were $0.8 million, which was mainly related to our consumer products. Cost of revenues for the three months ended June 30, 2025 were $0.5 million, comprised of $0.1 million for diagnostic services and $0.4 million for consumer products.
We realized a gross margin of $0.2 million and $0.7 million for the three months ended June 30, 2026 and 2025, respectively. For the three months ended June 30, 2026 and 2025, we realized an overall gross margin of 22.4% and 58.9%, respectively. Gross margin for diagnostic services was zero or not applicable due to no revenue in the 2026 and 2025 comparable periods, respectively. Gross margin for consumer products have historically been influenced by fluctuations in quarter-to-quarter and year-to-year production volume, fixed production costs and related overhead absorption, raw ingredient costs, inventory mark to market write-downs and timing of shipments to customers.
General and administration expenses for the three months ended June 30, 2026 were $2.9 million as compared to $4.6 million for the three months ended June 30, 2025. The decrease in general and administration expenses of $1.7 million for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was principally related to a decrease in personnel expenses, overhead costs and professional fees.
Research and development costs for the three months ended June 30, 2026 were zero as compared to $4,000 for the three months ended June 30, 2025. The decrease in research and development costs of $4,000 for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was principally due to decreased activities related to product research and field testing as a result of refined focus and efforts.
Interest expense for the three months ended June 30, 2026 was approximately $791,000, compared to $587,000 for the three months ended June 30, 2025. The increase of approximately $204,000 was principally due to the increase of debt discount amortization recognized during the 2026.
As a result of the effects described above, net loss from the continuing operations for the three months ended June 30, 2026 was $3.0 million, or $(0.22) per share, as compared to $4.5 million, or $(1.08) per share, for the three months ended June 30, 2025. Diluted loss per share related to the continuing operations for the three months ended June 30, 2026 and 2025 were $(0.22) per share and $(1.08) per share, respectively.
Six Months Ended June 30, 2026 as Compared to the Six Months Ended June 30, 2025
For the six months ended June 30, 2026, net revenue was $2.2 million as compared to $2.7 million for the six months ended June 30, 2025. The decrease in revenues was mainly attributable to a decrease in revenues from the sale of consumer products. The Company did not generate any revenues from diagnostic services for the six months ended June 30, 2026 and 2025, respectively.
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Cost of revenues for the six months ended June 30, 2026 were $1.7 million, which was mainly related to our consumer products. Cost of revenues for the six months ended June 30, 2025 were $1.4 million, comprised of $0.3 million for diagnostic services and $1.1 million for consumer products.
We realized a gross margin of $0.5 million and $1.3 million for the six months ended June 30, 2026 and 2025, respectively. The decrease of $0.8 million was a result of consumer products with different margin product mix. For the six months ended June 30, 2026 and 2025, we realized an overall gross margin of 23.9% and 47.1%, respectively. Gross margin for diagnostic services was zero or not applicable due to no revenue in the 2026 and 2025 comparable periods, respectively. Gross margin for consumer products have historically been influenced by fluctuations in quarter-to-quarter and year-to-year production volume, fixed production costs and related overhead absorption, raw ingredient costs, inventory mark to market write-downs and timing of shipments to customers.
General and administration expenses for the six months ended June 30, 2026 were $5.6 million as compared to $8.7 million for the six months ended June 30, 2025. The decrease in general and administration expenses of $3.1 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was principally related to a decrease in personnel expenses, overhead costs and professional fees.
Research and development costs for the six months ended June 30, 2026 were zero as compared to $101,000 for the six months ended June 30, 2025. The decrease in research and development costs of $101,000 for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 was principally due to decreased activities related to product research and field testing as a result of refined focus and efforts.
Interest expense for the six months ended June 30, 2026 was approximately $1.4 million, compared to $1.1 million for the six months ended June 30, 2025. The increase in interest expense was principally due to more debt discount amortization recognized during the 2026 period.
As a result of the effects described above, net loss from the continuing operations for the six months ended June 30, 2026 was $8.2 million, or $(0.62) per share, as compared to $9.2 million, or $(2.38) per share, for the six months ended June 30, 2025. Diluted loss per share related to the continuing operations for the six months ended June 30, 2026 and 2025 were $(0.62) per share and $(2.38) per share, respectively.
Non-GAAP Financial Measures and Reconciliation
In an effort to provide investors with additional information regarding our results of operations as determined by accounting principles generally accepted in the United States of America (“GAAP”), we disclose certain non-GAAP financial measures. The primary non-GAAP financial measures we disclose are EBITDA and Adjusted EBITDA.
We define “EBITDA” as net income (loss) before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding acquisition costs, other non-cash items, and other unusual or non-recurring charges (as described in the table below).
Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same names and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. We compute non-GAAP financial measures using the same consistent method from quarter to quarter and year to year. We may consider whether other significant items that arise in the future should be excluded from the non-GAAP financial measures.
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We use EBITDA and Adjusted EBITDA internally to evaluate and manage the Company’s operations because we believe they provide useful supplemental information regarding the Company’s ongoing economic performance. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results primarily because they exclude amounts that are not considered part of ongoing operating results when planning and forecasting and when assessing the performance of the organization. In addition, we believe that non-GAAP financial information is used by analysts and others in the investment community to analyze our historical results and in providing estimates of future performance and that failure to report these non-GAAP measures could result in confusion among analysts and others and create a misplaced perception that our results have underperformed or exceeded expectations.
The following table sets forth the reconciliations of EBITDA and Adjusted EBITDA excluding other costs to the most comparable GAAP financial measures (in thousands):
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| GAAP loss from continuing operations (1) | $ | (3,051 | ) | $ | (4,472 | ) | $ | (8,226 | ) | $ | (9,150 | ) | ||||
| Interest, net | 791 | 587 | 1,442 | 1,126 | ||||||||||||
| Income tax benefit | 12 | 779 | 1,386 | 779 | ||||||||||||
| Depreciation and amortization | 963 | 1,349 | 1,925 | 2,831 | ||||||||||||
| EBITDA | (1,285 | ) | (1,757 | ) | (3,473 | ) | (4,414 | ) | ||||||||
| Share-based compensation expense | 375 | 508 | 765 | 1,029 | ||||||||||||
| Non-cash rent expense (2) | 349 | 442 | 703 | 964 | ||||||||||||
| Adjusted EBITDA from continuing operations | $ | (561 | ) | $ | (807 | ) | $ | (2,005 | ) | $ | (2,421 | ) | ||||
| (1) | We believe that net loss from continuing operations is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA measure the Company’s operating performance without regard to certain expenses. EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP and the Company’s computation of EBITDA and Adjusted EBITDA may vary from others in the industry. EBITDA and Adjusted EBITDA have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Company’s results as reported under GAAP. |
| (2) | The non-cash portion of rent, which reflects the extent to which our GAAP rent expense recognized exceeds (or is less than) our cash rent payments. For newer leases, our rent expense recognized typically exceeds our cash rent payments, while for more mature leases, rent expense recognized is typically less than our cash rent payments. |
Going Concern
As of June 30, 2026 and through the date of this filing, the Company has experienced significant liquidity constraints and operating challenges. As of June 30, 2026, the Company had cash on hand of approximately $20,000. The Company has also experienced a significant decline in revenue from its diagnostic services business, has ceased diagnostic testing operations in 2024, and no longer has access to certain historical sources of capital, including at-the-market offerings or equity line of credit facilities. In addition, the Company’s common stock is no longer listed on The Nasdaq Capital Market and is currently quoted on the OTC Markets, which may further limit access to capital.
Furthermore, on September 22, 2025, certain of the Company’s diagnostic subsidiaries (the “Debtors”) filed for relief under Chapter 11 of the United States Bankruptcy Code. The Debtors are pursuing reorganization under Chapter 11, with the objectives of (i) the orderly collection of accounts receivable through their court-appointed special counsel and (ii) the operational reorganization of the Debtors’ CLIA-certified laboratory infrastructure to support additional diagnostic and testing opportunities as resources permit. The Debtors’ plan of reorganization is under development and any plan will be subject to Bankruptcy Court approval. The outcome, timing, and amount of any recovery from the receivables collection program and the operational reorganization are uncertain and subject to factors outside the Company’s control, including Bankruptcy Court approval, payor responses to claims, the development and confirmation of a plan, and the priority scheme of the Bankruptcy Code.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.
The Company’s ability to continue as a going concern is dependent upon its ability to generate sufficient cash flows from operations, obtain additional financing, and/or execute strategic transactions. Management is actively evaluating various alternatives to improve liquidity and support ongoing operations, including, but not limited to, raising additional capital through equity or debt financings, pursuing strategic partnerships, and reducing operating expenses. However, there can be no assurance that such plans will be successfully implemented or that sufficient funding will be available on terms acceptable to the Company, if at all.
The condensed consolidated financial statements included in this quarterly report have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Liquidity and Capital Resources
Our aggregate cash and cash equivalents as of June 30, 2026 were approximately $20,000 as compared to $90,000 at December 31, 2025. Our working capital deficit was $55.3 million and $49.9 million as of June 30, 2026 and December 31, 2025, respectively. The decrease of approximately $70,000 in our cash and cash equivalents for the six months ended June 30, 2026 was principally due to $826,000 cash used in operating activities and repayment of note payable of $182,000, and offset by proceeds from issuance of common stock, notes payable and convertible notes of $926,000.
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To date the principal sources of capital to fund our operations have been from diagnostic services, genomics sequencing, product sales, net proceeds from the offering of equity securities, and issuances of promissory notes. Based on management’s current business plans, the Company estimates it will have enough cash and liquidity to finance its operating requirements for at least 12 months from the date of filing these unaudited condensed consolidated financial statements. However, due to the nature of early-stage ventures and accounts receivables collections, there are inherent uncertainties associated with management’s business plan and cash flow projections, particularly if the Company is unable to grow its business lines, including replacing the revenues from our lab diagnostic services or tests with new business lines, or collect on its accounts receivables in a timely manner or at all. If we were to experience a cash shortfall, we believe our access to existing and other financing sources, including our at-the-market facility, and the established relationships with our investment banks will enable us to continue to meet our obligations and fund ongoing operations.
We may also use our cash to explore and/or acquire new product technologies, applications, product line extensions, new contract manufacturing applications and other new product opportunities. In the event that our available cash is insufficient to support such initiatives, we may need to incur indebtedness or issue common stock or other securities to finance our plans for growth. Volatility in the credit markets and the liquidity of major financial institutions, including as a result of inflation and/or the wars in Ukraine and the Gaza Strip and measures taken in response thereto, may have an adverse impact on our ability to fund our business strategy through future borrowings, under either existing or newly created instruments in the public or private markets on terms that we believe to be reasonable, if at all.
We anticipate that we will continue to incur losses for the foreseeable future. We expect to continue to incur research and development costs and general and administrative expenses, as well as expenses related to potential commercialization of our product candidates, consistent with costs associated with research and development at companies of our size and stage of development, and, as a result, we will need additional capital to fund our operations, which we may raise through public or private equity or debt financings, strategic collaborations, or other sources.
Contractual Obligation and Commitments
At-the-Market Sales Agreement with WestPark Capital, Inc.
On October 9, 2025, ProPhase Labs, Inc. (the “Company”) entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with WestPark Capital, Inc. (“Agent”), pursuant to which the Company may offer and sell shares of its common stock, par value $0.0005 per share (“Common Stock”) from time to time through the Agent as the Company’s sales agent. The Agent is entitled to compensation of 3.0% of the gross proceeds from the sales of any Shares pursuant to the Sales Agreement and will be reimbursed for certain expenses.
The Sales Agreement contains customary representations, warranties, and covenants of the Company and the Agent, indemnification and contribution provisions, and conditions precedent to the sale of the Shares pursuant to the Sales Agreement. The Company may terminate the Sales Agreement at any time upon notice to the Agent.
The Company is not obligated to sell any Shares under the Sales Agreement and may at any time suspend sales pursuant to the Sales Agreement upon notice to the Agent and subject to the terms of the Sales Agreement. The Sales Agreement may be terminated by either party at any time upon notice to the other party. The Company and the Agent have made customary representations, warranties and covenants in the Sales Agreement concerning the Company, the Registration Statement and the offering of the Shares.
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Strategic Advisory and Private Placement Agreement with ThinkEquity LLC
On September 12, 2025, ProPhase Labs, Inc. (the “Company”) entered into a Strategic Advisory and Private Placement Agreement (the “Agreement”) with ThinkEquity LLC (“ThinkEquity”), pursuant to which ThinkEquity will serve as the exclusive strategic advisor, placement agent and investment banker (the “Services”) to the Company in connection with the Company’s digital asset treasury strategy and a proposed private placement of approximately $6,000,000 of the Company’s securities (the “Offering”) to be conducted on a best efforts basis. The terms of the Offering and the Securities shall be mutually agreed upon by the Company and the investors, and nothing in the Agreement implies that ThinkEquity would have the power or authority to bind the Company, or obligates the Company to issue any Securities or complete the Offering.
As compensation for the Services, the Company agreed to pay ThinkEquity a cash placement agent fee (the “Placement Agent’s Fee”) equal to 8% of the aggregate purchase price paid by each purchaser of Securities placed in the Offering, payable at the closing of the Offering (the “Closing”) from the gross proceeds. As additional compensation for the Services, the Company will issue to ThinkEquity or its designees: (i) warrants (the “PA Warrants”) to purchase shares of the Company’s common stock (“Shares”) equal to 8% of the number of Shares placed in the Offering, plus any Shares underlying any convertible Securities placed in the Offering to such purchasers; and (ii) additional warrants (the “Advisory Warrants”) consisting of 1,250,000 warrants upon the Closing, an additional 1,250,000 warrants upon the Company accumulating $50,000,000 in crypto, and an additional 1,000,000 warrants upon the Company accumulating $100,000,000 in crypto. All warrants will have a five-year exercise period and include registration rights equivalent to those granted with respect to the Securities.
The Agreement also provides for the Company’s engagement of ThinkEquity to perform certain advisory and placement services in connection with the Offering, establishes the parties’ respective obligations and limitations regarding authority, and grants ThinkEquity the right to appoint one member to the Company’s Board of Directors (the “Board Designee”), upon the Company’s accumulating $50,000,000 of crypto.
Equivir License Agreement
Under the terms of our Equivir License Agreement with Global BioLife for the worldwide exclusive right and license to Equivir and Equivir G, we are required to pay to Global BioLife a royalty of 5.5% after the date of first commercial sale and during the royalty term. In the event that no valid claim of Equivir Licensed Patents cover a Equivir Licensed Product in a particular jurisdiction, the royalty rate for such Equivir Licensed Product will be reduced by 50%.
Linebacker License Agreement
Under the terms of our License Agreement entered into by and between PBIO and Global BioLife, Inc. (“Global BioLife”) on July 19, 2022 (the “Linebacker License Agreement”) for the worldwide exclusive right and license to Linebacker (LB-1 and LB-2), we must pay Global BioLife $900,000 following the achievement of a first Phase 3 study which may be required by the United States Food and Drug Administration for the first product comprising or containing any compound covered by certain patents identified in the Linebacker License Agreement (a “Linebacker Licensed Product”) and an additional $1 million upon the receipt of regulatory approval of a New Drug Application for the first Linebacker Licensed Product. During the term of the Linebacker License Agreement, we are also required to pay to Global BioLife 3% royalties on Net Revenue (as defined in the Linebacker License Agreement) of each Linebacker Licensed Product, but no less than the minimum royalty of $250,000 of Net Revenue per year minus any royalty payments for any required third party licenses.
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Stella Asset Purchase Agreement
On December 15, 2022, we entered into an Asset Purchase Agreement (the “Stella Purchase Agreement”) with Stella Diagnostics Inc. (“Stella”) and Stella DX, LLC (“Stella DX” and, together with Stella, the “Stella Sellers”), pursuant to which, on January 3, 2023, we purchased all of the assets, rights and interests of the Stella Sellers and their affiliates pertaining to the Stella Sellers’ BE-Smart Esophageal Pre-Cancer diagnostic screening test and certain clinical assets, including all intellectual property rights (the “Stella Purchased Assets”). As consideration for the Stella Purchased Assets, we (i) paid to the Stella Sellers $3.5 million in cash, minus (a) the Secured Note Amount of $0.5 million, (b) the Liability Payoff Amount of $0.4 million and (c) the Promissory Note Payoff Amounts of $0.4 million (each as defined in the Stella Purchase Agreement) in 2022, and (ii) issued to Stella DX 100,000 shares of our common stock.
We are required to pay to the Stella Sellers for each of the seven calendar years (each, an “Annual Period”) during the seven year period commencing on the first day of the calendar year following the date of the Commercialization Event (as defined in the Stella Purchase Agreement), a non-refundable, non-creditable royalty of 5% of the Adjusted Gross Margin (as defined in the Stella Purchase Agreement) for such Annual Period.
In addition to the consideration paid at closing, the Company will issue shares of common stock valued at $2.0 million (the “Milestone Stock”) to the Stella Sellers upon a Commercialization Event (as defined in the Stella Purchase Agreement). The Milestone Stock was recorded at closing as a non-current liability at its fair value of $2.0 million. Also, the Company is required to pay to the Stella Sellers for each of the seven calendar years during the seven years period commencing on the first day of the calendar year following the date of the Commercialization Event, a non-refundable, non-creditable royalty of 5% of the Adjusted Gross Margin for such Annual Period. As of June 30, 2026, the Commercialization Event had not occurred.
Contractual Obligations under Debt Arrangement
The Company has contractual obligations under various debt arrangement. See Note 5 in our financial statement included in this Quarterly Report for more information relating to our outstanding debt obligations.
HRSA Funding
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, providing for reimbursement to healthcare providers for COVID-19 tests provided to uninsured individuals, subject to continued available funding. There were no diagnostic services revenue for the three months ended June 30, 2026 and 2025, respectively, that was generated from this program for the uninsured. On March 22, 2022, the Health Resources & Services Administration’s uninsured program stopped accepting claims for COVID-19 testing and treatment due to lack of sufficient funds. Despite requests from the Acting Director of the Office of Management and Budget and the White House Coordinator for COVID-19 Response for additional emergency funding for the uninsured program, additional emergency funding were not allocated to the Health Resources & Services Administration’s uninsured program.
On January 30, 2023, the Administration announced that effective May 11, 2023, the federal Public Health Emergency would expire related to the COVID-19 pandemic. This expiration changes regulatory guidelines around COVID-19 testing including billing codes and reimbursement rates of in and out of network laboratories. As a result of the Public Health Emergency ending and the significant decrease in demand of COVID-19 testing, we have not performed any diagnostic testing services during the three months ended June 30, 2026.
At-the-Market Facility
On December 28, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with ThinkEquity LLC (the “Sales Agent”), pursuant to which we may offer and sell, from time to time through the Sales Agent, shares of our common stock having an aggregate offering price of up to $100,000,000, subject to the terms and conditions of the Sales Agreement. We are not obligated to make any sales of shares under the Sales Agreement.
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We will pay the Sales Agent a fixed commission rate of 2.0% of the aggregate gross proceeds from the sale of any shares pursuant to the Sales Agreement and have agreed to provide the Sales Agent with customary indemnification and contribution rights. We also agreed to reimburse the actual out-of-pocket accountable expenses of the Sales Agent up to $60,000 (of which a $25,000 advance was paid on December 7, 2021), which amount includes the fees and expenses of legal counsel to the Sales Agent up to $50,000, and to pay the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, in an amount not to exceed $3,000.
In April 2024, the Company sold 103,350 shares of common stock pursuant to the Sales Agreement. The Company received cash proceeds of $4.6 million, which is net of $94,000 offering cost incurred by the Sales Agent.
On November 12, 2024 (“Closing Date”), the Company closed on an underwritten firm commitment public offering under the at-the-market facility, whereby the Company sold 479,500 shares of common stock, including 62,500 shares of common stock sold upon full exercise of the underwriters’ option to purchase additional shares (the “Offering”). Each share of common stock was sold at a public offering price of $7.20 per share for aggregate gross proceeds of $3.5 million. The Company received net cash proceeds of $3.0 million, which is net of $0.5 million offering cost. Upon closing of the Offering, the Company issued the Representative warrants (the “Representative’s Warrants”) as compensation to purchase up to 23,975 shares of common stock, which is equal to 5.0% of the aggregate number of shares of common stock sold in the Offering. The Representative’s Warrants will be exercisable at a per share exercise price of $9.00.
Impact of Inflation
We are subject to normal inflationary trends and anticipate that any increased costs for our retail operations would be passed on to our customers; however, any increased costs related to diagnostic services would be absorbed by the Company. Inflation could have a material effect on our business in the future.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a discussion of our critical accounting estimates, see the Management’s Discussion and Analysis of the Results of Operations in the Company’s Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on June 1, 2026 (the “2025 Form 10-K”). There were no material changes in our critical accounting estimates or accounting policies from December 31, 2025.
Recent Accounting Pronouncements
See Note 2, “Significant Accounting Policies”, to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Like virtually all commercial enterprises, we can be exposed to the risk (“market risk”) that the cash flows to be received or paid relating to certain financial instruments could change as a result of changes in interest rate, exchange rates, commodity prices, equity prices and other market changes.
Our operations are not subject to risks of material foreign currency fluctuations, nor do we use derivative financial instruments in our investment practices. We place our marketable investments in instruments that meet high credit quality standards. We do not expect material losses with respect to our investment portfolio or excessive exposure to market risks associated with interest rates. The impact on our results of one percentage point change in short-term interest rates would not have a material impact on our future earnings, fair value, or cash flows related to investments in cash equivalents or interest-earning marketable securities.
Current economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance including the collection of accounts receivables, notes receivable, realization of inventory and recoverability of assets. In addition, our business and financial performance may be adversely affected by current and future economic conditions, including a reduction in the availability of credit, financial market volatility and recession.
There have been no material changes to our market risk exposures since December 31, 2025.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial and accounting officer, to allow timely decisions regarding required disclosure.
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2026. This evaluation was carried out under the supervision and with the participation of our principal executive officer and principal financial and accounting officer. Based on that review, our management, including our principal executive officer and principal financial and accounting officer, concluded that our disclosure controls and procedures were ineffective at the reasonable assurance level as of June 30, 2026.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of business. Other than as described below, we are not presently a party to any material litigation.
A qui tam complaint was filed under seal in the United States District Court alleging violations of the federal False Claims Act relating to certain laboratory testing activities of the Company’s diagnostic subsidiaries. Under the False Claims Act, the United States Department of Justice and relevant state authorities are afforded an opportunity to investigate the allegations and determine whether to intervene and take over prosecution of the action. After reviewing the allegations and conducting their investigation, the United States Department of Justice and the relevant state authorities declined to intervene in the action. The matter was thereafter unsealed and the case remains pending. The named defendant diagnostic subsidiaries are the same entities that, on September 22, 2025, filed voluntary petitions under Chapter 11 of the Bankruptcy Code (see Note 14).
The Company and the Debtors believe the allegations are without merit and intend to defend the matter vigorously. The Company is not aware of any ongoing government investigation relating to the allegations described above.
The Company is a party to a pending arbitration proceeding commenced by Turnpoint Capital, LLC (“Turnpoint”) relating to a senior secured convertible note issued in July 2025. Turnpoint alleges certain events of default under the note and seeks monetary damages and other relief. The Company disputes the allegations, believes it has substantial defenses and affirmative claims relating to the matter, and intends to vigorously defend and prosecute the proceeding. The arbitration is in its early stages, and the Company cannot currently estimate the outcome, timing, or amount of any potential loss or recovery associated with the matter.
First Financial Holdings LLC filed a civil complaint in New York State court against ProPhase Labs, Inc. relating to certain equipment lease and financing arrangements associated with the Company’s former Pharmaloz business. The Company disputes the claims asserted in the complaint and has moved to dismiss the action based on an arbitration provision contained in the applicable agreements. The Company believes it has substantial defenses and intends to vigorously defend the matter.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on June 1, 2026. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on June 1, 2026, except as otherwise disclosed below. However, we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
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Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. As of June 30, 2026, we had approximately $5.7 million of outstanding indebtedness, net of discounts and approximately $20,000 in cash and cash equivalents. Our business may not generate cash flow from operations in the future sufficient to service our debt obligations and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Risks Related to Legal Proceedings
From time to time, we are, and may in the future be, subject to class action or other litigation arising in the ordinary course of our business. One of our subsidiaries, Nebula Genomics, Inc., is currently involved in a class action lawsuit that, based on our review of the facts and circumstances, we believe is not material to our financial condition or operations. However, litigation is inherently unpredictable, and the outcome of any such action is subject to significant uncertainties. An adverse judgment, settlement, or protracted legal proceedings could result in substantial costs, require significant management attention, or negatively impact our reputation, regardless of the ultimate outcome or our current assessment of materiality. There is no assurance that this matter or other litigation that may arise will not have a material adverse effect on our business, results of operations, or financial condition in the future.
In October 2024, a putative class action lawsuit, Portillo v. Nebula Genomics, Inc., was filed in the U.S. District Court for the Northern District of Illinois under Illinois’s Genetic Information Privacy Act (“GIPA”) alleging that Nebula improperly shared customers’ genetic information with third parties without written consent. The action named Nebula along with Meta Platforms, Google and Microsoft. The dispute was later transferred to the U.S. District Court for the District of Massachusetts in accordance with Nebula’s Terms of Use, which mandated that claims be brought in Massachusetts. The complaint remains at the pleading stage. In addition to the motion to change venue, Nebula filed a motion to dismiss. While the allegations raise reputational and legal risks, no judgment or settlement has been entered and potential liability is not reasonably estimable at this time. Accordingly, management does not consider this litigation to be material to the consolidated financial statements as of the date of this report.
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Risks Related to Consumer Complaints
DNA Complete is not rated by the Better Business Bureau and Nebula Genomics is accredited by the Better Business Bureau (BBB) with a current “B” rating in the DNA Testing / Genetic Testing category. A number of customer inquiries and complaints relating to order fulfillment, billing, and access to results have been reported. Due to a change in sequencing lab, the companies fell behind in sequencing. A new lab has been engaged and the delayed results are in the process of being resolved. DNA Complete continues to strengthen its operations, data security, and customer-service processes to enhance reliability and consumer confidence as it expands its presence in the growing personal genomics market. Although we believe most such matters have been addressed or resolved, any recurrence of consumer complaints, deterioration of our BBB rating, or negative media or social-media coverage could harm public perception of our products, reduce demand for our genetic-testing services, and expose us to regulatory scrutiny, increased customer-service costs, or potential liability. Because our genetic-testing activities involve health-related data and consumer trust is a significant factor in purchasing decisions, reputational damage in this segment could materially and adversely affect our brand value, business operations, financial condition, and results of operations.
Risks Related to Our Potential Involvement with a Crypto Treasury Strategy
Our potential involvement with cryptocurrencies and digital assets could expose us to substantial volatility and financial losses.
If we allocate a portion of our corporate treasury to cryptocurrencies or related digital assets, we will be subject to extreme price volatility and potential illiquidity in the digital asset markets. The trading prices of cryptocurrencies have historically experienced wide fluctuations in response to global economic conditions, market sentiment, regulatory developments, technology changes, and other factors beyond our control. As a result, the value of any digital assets we may hold could decline rapidly and unpredictably, and we could incur significant losses. There can be no assurance that the value of such assets will recover after any downturn.
The regulatory environment for cryptocurrencies remains uncertain and is developing and could increase our compliance costs or restrict our activities.
The regulatory framework governing cryptocurrencies and digital assets is rapidly evolving and subject to significant uncertainty at the federal, state, and international levels. Future legislative, regulatory, or policy changes may adversely affect our ability to acquire, hold, safeguard, or use cryptocurrencies. These changes could impose new or heightened compliance, reporting, accounting, or tax obligations, and we may face enforcement actions, examinations, or investigations relating to our digital asset activities. Any such developments could result in significant costs, consume management resources, and adversely affect our operations and financial performance.
Digital asset holdings may be subject to loss, theft, or compromise due to cybersecurity incidents or operational failures.
Cryptocurrencies and other digital assets are susceptible to risks of hacking, theft, fraud, and technological vulnerabilities. Whether held directly or through third-party custodians, such assets may be irretrievably lost in the event of a cyber-attack, security breach, systems failure, or human error. Unlike traditional financial assets, digital assets are often not insured, and remedies may be limited or unavailable. A loss of some or all of our digital assets could materially harm our financial condition and damage our reputation.
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Managing a digital asset treasury strategy may divert resources and require specialized expertise.
Participation in digital asset markets may require technical capabilities, compliance procedures, and risk management practices that differ from our core operations. Implementing and overseeing such a strategy could divert management’s attention from other priorities and require the engagement of personnel or third-party service providers with specialized knowledge. If we are unable to effectively manage these demands, we could be exposed to operational inefficiencies, financial risks, and other adverse consequences.
Our stock price may experience increased volatility as a result of crypto-related activities.
Public companies that engage in digital asset activities have often experienced greater stock price volatility unrelated to their underlying business performance. Investor perceptions, positive or negative, regarding our involvement with cryptocurrencies could contribute to significant fluctuations in the trading price of our common stock. Even limited or preliminary crypto-related initiatives could amplify volatility, potentially leading to declines in market value and shareholder returns.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
Item 5. Other Information.
During
the quarter ended June 30, 2026, none of our directors or officers (as defined in Rule 16a-1(f)
under the Securities Exchange Act of 1934, as amended)
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Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q. Exhibits identified below as previously filed are incorporated herein by reference.
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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.
| ProPhase Labs, Inc. | ||
| By: | /s/ Ted Karkus | |
| Ted Karkus | ||
| Chairman of the Board and Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
| Date: August 19, 2026 | ||
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EXHIBIT 31.1
OFFICER’S CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
I, Ted Karkus, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of ProPhase Labs, Inc.; | |
| 2. | Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; | |
| 4. | The registrant’s other certifying officers(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 19, 2026 | By: | /s/ Ted Karkus |
| Ted Karkus | ||
| Chairman of the Board and Chief Executive Officer | ||
| (Principal Executive Officer and Principal Financial Officer ) |
EXHIBIT 32.1
PROPHASE LABS, INC. CERTIFICATION
PURSUANT TO RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ted Karkus, Chief Executive Officer of ProPhase Labs, Inc., a Delaware corporation (the “Registrant”), in connection with the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2026, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), do hereby represent, warrant and certify, in compliance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| /s/ Ted Karkus | |
| Ted Karkus | |
| Chairman of the Board and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) | |
| Date: August 19, 2026 |