Note 1 – Organization and Business

ProPhase Labs, Inc. (“we”, “us” or the “Company”) was initially organized 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 base 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 our Cold-EEZE^® QuickMelts^® products are based on our proprietary zinc gluconate formulation in combination with certain (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. In Fiscal 2016, we expanded our Cold-EEZE^® product line further to include (i) Cold-EEZE^® Gummies Multi-Symptom Relief for Cold and Flu and (ii) Cold-EEZE^® Nighttime Multi-Symptom Relief for Cold and Flu QuickMelts^®. Shipments began for these two new products during the third quarter of Fiscal 2016.

We also perform contract manufacturing services of lozenge-based products for third parties. For the three and six months ended June 30, 2016 and 2015, our revenues from operations have come principally from our OTC health care and cold remedy products.

We use a December 31 year-end for financial reporting purposes. References herein to “Fiscal 2016” shall mean the fiscal year ended December 31, 2016 and references to other “Fiscal” years shall mean the year, which ended on December 31 of the year indicated. The term “we”, “us” or the “Company” as used herein also refer, where appropriate, to the Company, together with its subsidiaries and consolidated variable interest entities unless the context otherwise requires.