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 $43.7 million, and a payable to unconsolidated affiliates of $27.7 million on the Company’s condensed consolidated balance sheet as of September 30, 2025. Subsequent to the deconsolidation, the Company will account for the equity interest in PDX under the equity method of accounting as the Company is deemed to still have significant influence over PDX. For the three and six months ended June 30, 2026, the Company recognized approximately $48,000 and $273,000 loss from investment in PDX, respectively.

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 $27.6 million and $27.7 million as of June 30, 2026 and December 31, 2025, respectively.

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.