PROPHASE LABS, INC. ANNOUNCES COMPLETION OF IMPORTANT NEXT STEP FOR CROWN MEDICAL COLLECTIONS $50 MILLION A/R INITIATIVE

Rhea-AI Summary

ProPhase Labs (NASDAQ: PRPH) announced that its three COVID-19 testing laboratory subsidiaries have filed for Chapter 11 bankruptcy reorganization. This strategic move is part of the Crown Medical Collections initiative to recover an estimated $50 million in unpaid claims from insurance companies.

The bankruptcy filing is limited to the COVID-19 lab testing units and does not affect the parent company or other subsidiaries. Crown Medical anticipates potential Q4 collections that could be multiples of the company's current market capitalization. The company continues to advance other initiatives, including the development of the BE-Smart™ esophageal cancer test, and operations at Nebula Genomics and DNA Complete subsidiaries.

Positive

• Estimated $50 million in potential collections from insurance claims, net of legal fees
• Collections could be multiples of current market capitalization
• Bankruptcy filing limited to COVID-19 lab subsidiaries, protecting parent company
• Strategic reorganization to streamline and accelerate fund recovery
• Continued progress in other business segments including cancer testing and genomics

Negative

• Three COVID-19 testing laboratory subsidiaries filed for Chapter 11 bankruptcy
• Tens of millions in outstanding payments from insurance companies
• Potential for protracted litigation with insurance companies
• Uncertainty in timing and final amount of collections

Insights

Bankruptcy Law Specialist

ProPhase's strategic Chapter 11 filing for COVID lab subsidiaries aims to recover $50M in insurance claims while protecting parent company operations.

ProPhase Labs has initiated a calculated Chapter 11 bankruptcy reorganization specifically for its three COVID-19 testing laboratory subsidiaries. This is not a liquidation but rather a strategic legal maneuver designed to recover approximately $50 million in allegedly unpaid or underpaid claims from insurance companies. The filing is exclusively limited to these laboratory units and does not impact the parent company or its other business segments.

What makes this filing particularly notable is its offensive rather than defensive nature. The company is using the bankruptcy court as a collection mechanism to potentially accelerate insurance payments that could be worth multiples of ProPhase's current market capitalization. The Crown Medical Collections initiative appears to be the driving force behind this strategy, suggesting this is a deliberate part of a pre-planned collection campaign.

From a bankruptcy procedure perspective, this represents a textbook example of using Chapter 11 as a strategic business tool rather than as a last resort for a failing business. By isolating the COVID testing units in bankruptcy while maintaining normal operations for the parent company and other subsidiaries, management is effectively compartmentalizing financial exposure while pursuing significant potential upside. The timing of this filing also suggests the company believes the bankruptcy court will provide more efficient leverage for collections than continuing standard insurance claim processes.

Financial Analyst

ProPhase's strategic bankruptcy filing could unlock significant value through $50M insurance collections while preserving core business operations.

This bankruptcy filing represents an unusual but potentially shrewd financial strategy. ProPhase Labs is using Chapter 11 reorganization for its COVID-19 testing lab subsidiaries as a specialized legal tool to recover an estimated $50 million in insurance receivables – a figure that management claims could represent multiples of the company's current market capitalization.

The filing appears to be a calculated offensive move rather than a defensive last resort. By isolating the bankruptcy to only the COVID-19 testing units, ProPhase is protecting its parent company and other business divisions while potentially accelerating significant cash recovery through the bankruptcy court's collection mechanisms.

Financially, this represents a high-reward strategy with several key implications:

• The $50 million estimate is net of all legal fees and contingency payments
• Management suggests potential collections could begin as early as Q4 2023
• The company has multiple other business lines continuing normal operations, including promising initiatives like the BE-Smart™ esophageal cancer test and genomics businesses
• This financial restructuring is strictly limited to the testing lab subsidiaries

From a balance sheet perspective, the successful collection of these receivables could dramatically improve ProPhase's cash position and potentially unlock significant shareholder value. However, investors should recognize that while management appears confident in these claims, the ultimate recovery amounts and timeline remain uncertain as with any complex bankruptcy proceeding.

COVID-19 TESTING LABORATORY SUBSIDIARIES FILE FOR BANKRUPCTY PROTECTION

UNIONDALE, NY, Sept. 23, 2025 (GLOBE NEWSWIRE) -- ProPhase Labs, Inc. (NASDAQ: PRPH) (“ProPhase” or the “Company”), a next generation biotech, genomics and consumer products company, announced that its three COVID-19 testing laboratory companies filed for reorganization under Chapter 11 in United States Bankruptcy Court for the District of New Jersey, advancing the Crown Medical Collections initiative to the key next step.

This bankruptcy action is strictly limited to the Company’s COVID-19 lab testing units, which are collectively owed tens of millions of dollars by insurance companies. Successful collections have the potential to be multiples of the Company’s current market capitalization. As a reorganization, the Company is taking the necessary steps to restore financial stability and position the laboratories for long-term viability and growth. One objective of the bankruptcy filing is to streamline and accelerate recovery of funds that the Company believes were lawfully owed for approved and completed testing services. In many instances, the insurance companies had previously approved claims but underpaid the amounts required by law. The Company is confident in the merits of these claims and intends to pursue all available avenues in bankruptcy court to collect these funds efficiently.

“Filing the lab subsidiaries in bankruptcy court was the critically important next step that we have all been waiting for, said Ted Karkus, CEO and Chairman of ProPhase Labs, Inc. “The Crown Medical Collections group of attorneys will now directly approach these insurance companies with litigation and the potential for early settlements.”

Mr. Karkus continued, “Crown Medical continues to estimate $50 million or more cash collections for the company net of all legal and contingency fees. Crown Medical’s $50 million net estimate also includes Crown Medical’s estimate for negotiations with the insurance companies for expedited settlements instead of protracted litigations. We may potentially enjoy significant collections during Q4 of this year, that could be multiples of the entire current market capitalization of the company.”

Importantly, this process does not involve or impact ProPhase Labs, Inc., the parent company, or its other initiatives. The Company continues to advance significant projects, including the development of a groundbreaking esophageal cancer test, the BE-Smart™ esophageal test, that holds the promise of saving thousands of lives and may reduce healthcare costs by billions of dollars annually. The Company looks forward to positive updates on next steps in the commercialization of this vital test shortly. In addition, the company’s Nebula Genomics and DNA Complete subsidiaries continue to make strong progress with innovative genomic and DNA-based testing.

Finally, the parent company’s exploration of a crypto treasury strategy is entirely unrelated to the bankruptcy proceeding involving the lab subsidiaries.

The Company remains focused on innovation and growth in key areas of health technology, and this legal action is a necessary step to ensure that funds lawfully owed are collected and can be invested in our continuing mission.

About ProPhase Labs Inc.

ProPhase Labs Inc. (Nasdaq: PRPH) (“ProPhase”) is a next-generation biotech, genomics and consumer products company. Our mission is to build a healthier world through bold innovation and actionable insight. We’re revolutionizing healthcare with industry-leading Whole Genome Sequencing solutions, groundbreaking diagnostic development, such as our potentially life-saving test for the early detection of esophageal cancer, and a world class direct-to-consumer marketing platform for cutting edge OTC dietary supplements. We develop, manufacture, and commercialize health and wellness solutions to enable people to live their best lives. We are committed to executional excellence, smart diversification, and a synergistic, omni-channel approach. ProPhase Labs’ valuable subsidiaries, their synergies, and significant growth underscore our potential for long-term value. www.ProPhaseLabs.com

Forward-Looking Statements

Except for the historical information contained herein, this document contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our strategy, plans, objectives and initiatives, including our expectations regarding the future revenue growth potential of each of our subsidiaries, our expected timeline for commercializing our BE-Smart Esophageal Cancer Test, our expectations regarding future liquidity events, the success of our efforts to collect accounts receivables and anticipated timeline for any payments relating thereto, and our ability to successfully transition into a consumer products company. Management believes that these forward-looking statements are reasonable as and when made. However, such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include but are not limited to our ability to obtain and maintain necessary regulatory approvals, general economic conditions, consumer demand for our products and services, challenges relating to entering into and growing new business lines, the competitive environment, and the risk factors listed from time to time in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any other SEC filings. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially. Details about these risks and uncertainties can be found in our filings with the SEC. The Company undertakes no obligation to update forward-looking statements except as required by applicable securities laws. Readers are cautioned that forward-looking statements are not guarantees of future performance and are cautioned not to place undue reliance on any forward-looking statements.

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities.

Media Relations and Institutional Investor Contact:
ProPhase Labs, Inc.
investorrelations@prophaselabs.com

Retail Investor Relations Contact:
Renmark Financial Communications
John Boidman: jboidman@renmarkfinancial.com
Tel.: (416) 644-2020 or (212) 812-7680
www.renmarkfinancial.com

FAQ

Why did ProPhase Labs' COVID-19 testing subsidiaries file for bankruptcy in 2025?

The subsidiaries filed for Chapter 11 reorganization to streamline and accelerate the recovery of an estimated $50 million in unpaid claims from insurance companies who had previously approved but underpaid for COVID-19 testing services.

How much money does ProPhase Labs (PRPH) expect to collect from insurance companies?

Crown Medical Collections estimates $50 million or more in net cash collections after legal and contingency fees, with potential collections during Q4 that could be multiples of the company's current market capitalization.

Will ProPhase Labs' bankruptcy filing affect its other business operations?

No, the bankruptcy filing is strictly limited to the COVID-19 testing laboratory subsidiaries. The parent company and other initiatives, including BE-Smart™ esophageal cancer test development and Nebula Genomics operations, are not affected.

What is ProPhase Labs' BE-Smart™ esophageal test?

The BE-Smart™ is a groundbreaking esophageal cancer test under development that could potentially save thousands of lives and reduce healthcare costs by billions of dollars annually.

How will the Chapter 11 reorganization benefit PRPH shareholders?

The reorganization aims to efficiently recover substantial funds owed by insurance companies, with potential collections that could be multiples of the company's current market capitalization, potentially benefiting shareholder value.