NOTE 1 – ORGANIZATION AND BUSINESS

ProPhase Labs, Inc (“we”, “us” or the “Company”) was initially organized as a corporation in Nevada in July 1989. Effective June 18, 2015, we changed our state of incorporation from the State of Nevada to the State of Delaware. We are a manufacturer, marketer and distributor of a diversified range of homeopathic and health care products that are offered to the general public. We are also engaged in the research and development of potential over-the-counter (“OTC”) drug, natural based health products along with supplement, personal care and cosmeceutical products.

Our primary business is the manufacture, distribution, marketing and sale of OTC health care and cold remedy products to consumers through national chain, regional, specialty and local retail stores. Our flagship brand is Cold-EEZE ^®and our principal product is Cold-EEZE^® cold remedy zinc gluconate lozenges, proven in clinical studies to reduce the duration and severity of symptoms of the common cold. In addition to Cold-EEZE^® cold remedy lozenges, we market and distribute non-lozenge forms of our proprietary zinc gluconate formulation, (i) Cold-EEZE^® cold remedy QuickMelts^® and (ii) Cold-EEZE^® cold remedy Oral Spray. Each of these new Cold-EEZE^® QuickMelts^® products are based on our proprietary zinc gluconate formulation in combination with certain natural (i) immune system support, (ii) energy, (iii) sleep and relaxation, and/or (iv) cold and flu symptom relieving active ingredients. In Fiscal 2015, we introduced three new Cold-EEZE^® product line extensions: (i) a Cold-EEZE^® Multi-Symptom Relief for Cold and Flu lozenge, (ii) a Cold-EEZE^® Daytime and Nighttime Multi-Symptom Relief in liquid form for each of adults and children, and (iii) Cold-EEZE^® Natural Allergy Relief caplets for indoor and outdoor allergies. Shipments for these three new Cold-EEZE^® product line extensions began in the third quarter of Fiscal 2015. We also manufacture, market and distribute organic cough drops and a Vitamin C supplement, and perform contract manufacturing services of cough drop and other OTC cold remedy products for third parties.

Cold-EEZE^® is an established product in the health care and cold remedy market. For Fiscal 2015, 2014 and 2013, our revenues have come principally from our OTC health care and cold remedy products. For Fiscal 2015, 2014 and 2013, our net sales for each period were related to markets in the United States.

Our business is subject to seasonal variations thereby impacting liquidity and working capital during the course of our fiscal year.

We use a December 31 year-end for financial reporting purposes. References herein to the fiscal year ended December 31, 2015 shall be the term “Fiscal 2015” and references to other “Fiscal” years shall mean the year, which ended on December 31 of the year indicated. The term the “we”, “us: or the “Company” as used herein also refer, where appropriate, to the Company, together with its subsidiaries unless the context otherwise requires.