ProPhase Labs issues $2,085,000 senior secured convertible note

ProPhase Labs, Inc. entered into a Loan Agreement dated July 31, 2026 with J.J. Astor & Co., which is the lender and the holder of the note. The terms below come from the form of note, which ProPhase filed as Exhibit 10.2 to a Form 8-K. The note is designated an original issue discount senior secured convertible installment promissory note. Its original principal amount is $2,085,000, its original issue date is July 31, 2026 and its final maturity date is July 31, 2027. The exhibit names no placement agent or financial advisor. The investment bank AGP appears only in a prepayment clause.

Funding, fees and repayment

The note shows a funding amount of $1,440,000 against original principal of $2,085,000. A drafting note in the exhibit explains the funding amount as $1,500,000 less a $60,000 origination fee to the lender under a flow of funds agreement.

ProPhase must make 15 weekly payments of $20,000 each, followed by 37 weekly payments of $48,243.24 each. The first is due August 7, 2026, and the rest fall on succeeding Fridays until the final maturity date. The exhibit gives no ordinary interest rate and does not state the conversion price, which it leaves to the loan agreement. It does not say how ProPhase will use the money.

Conversion, prepayment and default

ProPhase can pay installments in cash. Starting twelve months after the closing date, the lender may instead take them in conversion shares that are registered for resale. The lender cannot convert if that would leave it holding more than 4.99% of the common stock, a cap the lender may raise to 9.99%.

The note must be prepaid from part of the payments into the company's trust deposit account under a deposit account control agreement, from extraordinary receipts, and from the proceeds of any stock sale in which AGP or another investment bank acts as underwriter or placement agent. A change of control makes the note payable at once. The note ranks senior to ProPhase's other indebtedness and is secured by a subsidiary guarantee and a security agreement.

The covenants bar cash dividends and new liens. Events of default include a missed weekly payment not cured within two business days, with only two such grace periods allowed, late SEC reports, loss of the stock's listing or quotation, a money judgment of at least $100,000 left unpaid for 45 days, and a bankruptcy event unrelated to the pending bankruptcy case. After a default, the amount owed rises to 110% of outstanding principal, plus default interest at 19% a year, compounded daily. The cross-default clause excludes ProPhase's headquarters lease, which the note says was already in default when the agreement was signed, as disclosed in its SEC reports.

The subsidiaries in bankruptcy

The note names ProPhase Diagnostics NJ, Inc., ProPhase Diagnostics NY, Inc. and ProPhase Diagnostics, Inc., all subsidiaries of the company, as the debtors in the pending bankruptcy case. Breaching the bankruptcy court plan of reorganization or the Drexel Settlement Agreement is also an event of default. The exhibit does not describe either document. The 10-K, filed June 1, 2026, says ProPhase Diagnostics previously ran COVID-19 testing from two CLIA-certified laboratories.

The business and its losses

The 10-K calls ProPhase a growth oriented and diversified biotech, genomics and consumer products company. It offers whole genome sequencing through its subsidiary Nebula Genomics, Inc. and sells dietary supplements under the TK Supplements brand. It also holds exclusive rights to the BE-Smart esophageal pre-cancer screening test, which the 10-K says remains under development, with further clinical tests required.

The 10-K reports revenue of $4.3 million for 2025, down from $6.8 million for 2024. Research and development expense was $107,000 in 2025 and $594,000 in 2024. The company reports a net loss of $14.7 million for 2025, compared with $53.4 million for 2024. Cash used in operations was $8.3 million in 2025, down from $17.5 million in 2024. Cash and cash equivalents were $678,000 at the end of 2024.

The note gives no current cash balance, so the $1,440,000 funding amount cannot be set against what ProPhase holds.

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