ProPhase Labs, Inc.

Hello and good morning, everyone. Welcome to today's presentation. My name is Noella Alexander-Young, Virtual Event Moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone for joining us today for ProPhase Labs' fourth quarter and year-end 2024 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkas, Chairman and CEO. Following the presentation is a Q&A session for which you can participate using the chat box in the top right-hand corner of your screen. With that being said, I will now hand the floor over to Ted.

thank you so much noella and thank you to everyone that's joining the call today i am ted karkas ceo of prophase labs i'm actually excited for this call i got i have a lot to cover um i think that there are some misconceptions out there and hopefully i can clarify some of them so for beginners the forward-looking statement uh normally i just say i'll assume you read it but for the year end and uh reporting i think i should actually read a forward-looking statement except for the historical information contained here and 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 product company management believes that these forward-looking statements are reasonable as and when made, including today. 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 necessarily 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. The company undertakes no obligation to update forward-looking statements except as required by applicable securities laws. Readers are questioned that forward-looking statements are not guarantees of future performance and are questioned not to place undue reliance on any forward-looking statements. I'm sorry that was a mouthful, but it's obviously important that I read that. Let's get to the matters at hand. Interestingly, given the... what has transpired over the last six months, I think we have two sets of shareholders on this call and two sets of shareholders in our company. We have the shareholders that have been with me for literally 10, 20, 30 years. There are people that I've known that I've worked with. And by way of quick background, I've been an investor in small cap development stage companies for 40 years. So there are people that were investing with me literally 30, 40 years ago that became big investors in ProPhase Labs when I did long before I became CEO. I only became CEO as an activist shareholder. So in any event, on the other hand, given what's transpired over the last six to nine months, we have a new wave of investors who have become very large investors given the low price of the stock so there's two different groups here we have the group from the past and and and i'll get into that a little bit in fact maybe i should go to the timeline a little bit so just to be clear our stock when i turned around the company was 65 cents The company was virtually bankrupt. It had one business, Coldy's, Cold Remedy, with declining sales, looked like it was going out of business. I had to learn how to be a CEO, turn around the Coldy's brand, ultimately sold it for $50 million. Paid out $2.40 in cash, special dividends, and bought back a bunch of stock. Did two Dutch auctions, buying back stock. It's like a deja vu right now. We're back to being a penny stock. The difference between when I turned around the company last time and this time is that the assets... underlying our company i feel like we have three or four assets each one of which has the potential to be worth dramatically more than coldies was ever worth and yet i turned around the company i was able to pay out 2.40 in special dividends i hope the long term shareholders appreciate that i did that that would be my goal and expectation to have those kinds of activities again and literally i'm not talking about three to five years potentially within the next year that do the same kind of activities um and i have to be careful what i say from an sec point of view i don't know if i you know can say some of the things all i can say is look at what i've done in the past and you can assume if we have the liquidity events that i believe are coming you can assume that i will do the same kinds of things in the future all right so um with that said i could go more into the timeline i think i'd rather more get into the businesses i'll just i will just tell you quickly so we're all on the same page after we sold the coldies brand we got into cova testing so I had to learn how to be a CEO, had to learn the coldies business while turning around the brand, learning the consumer products industry. I did all that. Then we got into COVID testing, did the same thing, learned a new business I'd never been in. And we built it up and did hundreds of millions of dollars of revenues. Outperformed probably 95% of the labs in the country. I have a history of execution for 40 years. The only time it looks like I haven't executed is the past year. And there are very specific reasons for that. I will get into that. But by the same token, I feel like I'm at a point in time where myself and our management team, our management team has evolved. Our company has evolved. And I believe we're going to do it again right now, going forward from where we are today. OK, so we got into the COVID testing business. The business blew up big, made a lot of money, generated a lot of revenue, generated a lot of accounts receivable. We then, with that business doing so well, we made a few acquisitions, which we thought at the time were very smart acquisitions. One was Nebula Genomics. One was acquiring our esophageal cancer test, and I'm going to talk about both of those. And we also acquired Equivir. I have to be careful how I talk about it as we get closer to commercializing it. But let's just say it's an immune support product that works really well, particularly in the cold flu COVID season. All right. um and so I have all these things that I'm going to be talking about today um and what and let's see I'll just mention one more thing uh we built out formulas I know that there was some disappointed over what we sold it for but we did sell it for 23 million dollars if you go back a couple of years earlier it might have only been worth five million dollars or eight million dollars did we sell it for less than what I expected we were going to sell it for if you would ask me a year ago absolutely We built out the customer base. We added customers. We increased prices. I'm being honest with you. Our management team at FarmLabs didn't execute from a profitability standpoint. So we sold it for less than our expectations. However, we did build out that business and we did sell it for $23 million. Now, if we've taken all that in cash, our stock price would be a lot higher. But with that cash, what happened was we retired most of the debt of the company. So we really cleaned up the balance sheet of the company, didn't leave us with a lot of cash. Of course, we did the Think Equity raise at a discount, which hurt our stock price, and it's left us tight on capital ever since. All right. That's a little bit about the past. Let's talk about where we are now and going forward. So again, to be honest with you, at the end of the day, we still sold Farmlabs. We sold Coldies for $50 million. We sold Farmlabs, the manufacturing facility, for $23 million. And to be clear, when I sold the coldies brand if the buyer had said we'll only pay you 50 million dollars for coldies if you include the manufacturing facility I would have included it so it gives you an idea for us to now several years later to sell it for 23 million dollars it's still a nice win for the company all right um before I get into the specific subsidiaries I wanted to talk about several potential liquidity events, which would be game-changing for our company and presumably game-changing for our stock price. First and foremost, from our COVID testing days, we built up an enormous amount of accounts receivable. The way this all developed, it all started with the fact that we were one of the leading laboratories testing for residents of the city of New York. So just imagine, I don't know how many people, what the population is these days. I don't remember, eight, nine million people. But the bottom line is if you walk down the streets of New York City during the height of COVID, there were tents popped up all over the place. A significant percentage of those tents were sending their specimens to our lab. We started off doing 100, 200, 500 COVID tests per week, specimens coming into our lab. We got to 1,000 a week. Then it built up to a thousand a day. Imagine how many people we had to hire in order to handle one thousand specimens coming into our lab every day. So imagine the first time you go to a doctor's office. You know, for the first time at a new doctor. You're supposed to get there 15 to 30 minutes early, fill out a bunch of paperwork. They're taking a photo of your driver's license, a photo of your insurance. They're looking up your insurance to see if your insurance is accurate. They're doing all these things. Takes 15, 30 minutes. There's a physician's assistant or somebody at the front desk that's doing all of that in advance before you ever even see the doctor. So now imagine, instead, you're on the streets of New York, you're walking up to a tent to get tested, and there's a line of 10 or 15 people. Guess what? The people that were collecting your specimen, they were doing a quick swab, packaging it up, sending it out here. They were collecting the patient information very quickly. They didn't have 15 to 30 minutes. So what was happening is they're collecting all these specimens, they're getting a minimal amount of patient information, sending it to our lab, and at the same time, We had to turn around the results in 24 to 48 hours. So we had 1,000 specimens they were doing. We hired a couple hundred people. Now just imagine it's the height of Omicron. We had 10,000 specimens coming into our lab per day for a period of time. It was impossible to collect the information and process it, but we had the former government administration guaranteeing that they would reimburse us so we did all the specimens with the understanding we would collect the information and get organized after the fact but we were actually doing a service to the public we're turning around the specimens we're providing the results we were one of the best performing labs in the entire country but we built up a big accounts receivable so now fast forward to where we are today we have on our books uh right now approximately 20 million dollars in accounts receivable we have uh we hired crown medical collections and they've gone through all of our testing and if you go back over the several years there's about 150 million dollars worth of testing that we never collected on now part of that is what we build the insurance companies and um what was the appropriate amount or what they had to pay versus what we built. But at the end of the day, Crown Medical went through all of our testing, highly sophisticated software that they have. This is all they do. They have like a couple of dozen attorneys. This is all they are doing is collecting COVID testing. And they took our test and they said, okay, based on this data with the insurance companies, we believe and are confident we're going to collect about $73 million. They take their contingency fees, their percentage. They believe they're going to net us $50 million. Compare that to our market cap. There's a dramatic difference between the two. And the interesting thing is the $50 million, what a coincidence, we sold Coldies for $50 million. And that was the beginning of our stock going from $0.65. At one point, it's $16 a share. I'm not saying it's going there again, but there are some interesting similarities. So we anticipate, I can't guarantee how much we're going to collect. But I feel comfortable that it's going to be the more than roughly 20 million that's on our books and records. I actually talked to the auditors about it. They said it's not appropriate to increase that number. That's where we are as of today. So interestingly, if we collect more than $20 million, there'll be some nice quarterly gains in the coming quarters. So the goal or procedure prospect for that is The lab subsidiaries, only the lab subsidiaries doing the COVID testing. Our goal is to bankrupt those subsidiaries and then go into bankruptcy court where Crown Medical then can serve litigation on roughly 1,100 insurance companies, incredibly efficiency, all through one court with one judge. That's the goal. You do it in bankruptcy through bankruptcy court. Otherwise, you'd have to file litigation, you know, eleven hundred times, eleven hundred different courts. And, you know, that would be a nightmare. So they are incredibly efficient and successful at doing this over and over and over again. I am so excited. There was a lab one tenth our size that collected ten million dollars. Literally, they were like one-tenth of our size. That's how I first heard about them. We hired them right away. We've been working for them for the last several months. We're almost ready to go through the actual bankruptcy of the subsidiaries. This has nothing to do with ProPhase Labs, the company. We're just bankrupting dormant covid testing lab subsidiaries okay nothing to be worried about and um i'm looking forward to in the next couple of weeks filing um crown medical believes there may be some low-hanging fruit meaning there may be some insurance companies that if they contact them before we even start this process they may want to settle and at a time we may get a surprise and get some money in actually before we actually file for litigation once we file I have been told that some insurance companies want to settle very, very quickly. They don't want to bring in lawyers. They don't want to take on the expense. If they owe three, four, $500,000, they don't want to spend $100,000 or $200,000 litigating, especially when they know that they owe the money. So anyway, that's a little bit about Crown Medical. Another potential liquidity event, and I'm going to get into our subsidiaries, is the potential sale of Nebula Genomics and DNA Complete. We are exploring that. As I said in the press release, we're in the early stages. But just because we're in the early stages, if we decide to sell it to something, we could sell very quickly. We paid $14 million for it approximately. Don't quote me on the exact number. We put a lot of money into it. We've now completely overhauled the business. I'm going to get into that a little bit. I just want to first focus on these liquidity events. But it's another liquidity event that could be significant for the company. It will take all the pressure off of the stock. It will give us the working capital we need, et cetera, et cetera, et cetera. And finally, I am working on a multimillion dollar loan. The goal would be for it to be non-dilutive. It is in the works right now. I can't guarantee how it's going to come out. But the idea, all these things, Even if I just do a multi-million dollar loan, that should bridge us to some of these other potential liquidity events. And then finally, on top of all that, and this is one of the things we highlighted in the press release, we're a different company today. than we were in 2024 that's why i'm not even going to focus on the financials of 2024 that's honestly a complete waste of time we are a different completely different company we sold pmi formalized manufacturing for 23 million dollars in january so what does that have and formula has actually lost money last year so we take away all that overhead all those losses and we clean up the balance sheet and all the expense related to the payables and the interest on the debt associated uh with the debt that went away when we sold pmi so all that our our balance sheet today is very different than it was then so that that's that that's you know obviously we're a different company the second thing we did was We shut down our Nebula Genomics Laboratory. And again, when I talk about Nebula in a few minutes, I'll talk a little bit more about that. Enormous overhead associated with the lab. Major mistake that we ever built it. Now, when we built it, we built it with the idea that we had all this COVID testing, revenues coming in, but the revenues slowed down. Ultimately, we ended up with a big accounts receivable and we ended up with enormous overhead, leased equipment, and at the same time, a B2B business that my former management, led me to believe was going to be a big business, which it wasn't. We could not support the lab with a B2B business. It just did not make sense. So finally, we shut it down. It was enormous amount of overhead that's gone. The overhead with formulas is gone. A lot of the debt is gone. And in addition to all that, we completely streamlined operations and cut headcount dramatically. And I said that you can look at the press release. I don't have it in front of me what the exact numbers are. My point being, when I first took over control of this company, the first thing I did, I took our headcount from 27 people down to, within six months, I took it down to about four or five people. And then I added a few more. We ran the company more efficiently, more successfully with seven, eight, nine people than we had 27. That's just in our headquarters. Had nothing to do with our manufacturing facility or elsewhere. I basically have done the same thing. And I did that in conjunction with Jason Karkas and Stu Hollinshead, who think the same way that I do. And now that the three of us are running the company together, we completely cut out an enormous amount of our rent so we're a different company even now than we were in the first quarter again because we sold formalized in january i think we shut down the laboratory approximately in january february we cut head count in february march and so the second quarter is going to be dramatically different from the first quarter in terms of um our overhead employee count the efficiency of our company i do not ever want to run the company any differently than the way we have now gotten it to a point of being significantly more efficient. My focus and our management's focus now is on building revenues and working towards profitability. Okay, so with that, ProPhase Biopharma, led by our esophageal cancer test. This is an incredibly exciting test. Now, interestingly, I wouldn't normally start with this, but somebody asked me, they're concerned They read the press release and asked me. I said, I'll address it on the call. They're concerned that we're now going to spend a lot of money to commercialize this test. It couldn't be further from what I plan to do, as I just outlined. And to be clear, we have this great early stage therapeutic called linebacker. I don't even talk about it. The reason I talk about it is it's a It received phenomenal preclinical results. I'm not spending millions of dollars to develop it. I just won't. So I haven't even been talking about it in the presentation. If we can partner it, great. If we can't partner it, I'm probably not going to develop it, but I'm certainly not going to spend millions of dollars to develop it. The same thing with our esophageal cancer test. I am not going to spend... significant amounts of money that would hurt the company and dilute the company. Our stock, in my personal opinion, is at a ridiculously low price. The last thing I'm going to do is take on new overhead on a new initiative. We have so many great assets in the company. We have so much potential liquidity coming into the company. Why do I want to destroy all that to spend an enormous amount of money to commercialize anything? I won't do it. We have some great businesses to develop here and we can do them methodically the same way I did with the coldies business where I might have lost a million dollars a year on coldies, but that's when I was building the brand and then sold it for $50 million. So could I do that with Nebula Genomics? Could I do that with their dietary supplements? I don't even know that I'll have to. i actually believe that some of those business nebula genomics we may have gotten to a point where actually break even to profitable now going forward we can actually grow that business now last thing i'm going to do is blow up our company um after our stock price is so low so i do want to get into this though because i think that this is really exciting but i promise you the goal here is to develop this to take it a few steps there are some very large diagnostic cancer companies who are interested in this that we will work with. Ultimately, the goal is to partner this for a lot of money. But you have to go through the steps to prove it to them. So, for example, we have competitors. We have a we believe we have a better test than what they have. but they may have already had some success in commercialization. They may already have the distribution. So this is smaller companies. There are smaller companies, tens of millions of dollars, hundreds of millions of dollars, and then larger companies in the many billions of dollars, eight, $10 billion. There's the whole range. I can't tell you who we're going to partner with, who we're going to do a deal with. But what I can tell you is there is no test like our Be Smart Esophageal Cancer Test in the world. And I'm going to get into that a little bit right now. All right. So first of all, just very quickly, and I know I'm going to run over time, but there's just so much to talk about here. And I think that's more important. I will get to the Q&A, but there's just too much to talk about right now. Very, very quickly, for those of you who don't know, I'm hoping most of you do. Esophageal cancer, it starts with GERD in your stomach, gastroesophageal reflux disease. That acid in your stomach eats away at the bottom of your esophagus, which is connected to your stomach. Over time, it develops precancerous cells. That's a condition known as Barrett's esophagus. People with Barrett's esophagus, between 1 in 50 and 1 in 100 will develop esophageal cancer. The reason why that's so terrible is because roughly 80% of people diagnosed with esophageal cancer will die of it. The big problem in this industry of esophageal cancer is that people are being diagnosed too late. Right now the standard of care is to go to your GI and get an endoscopy where they remove tissue specimens from your esophagus, and then a pathologist studies them under a microscope. The problem is two pathologists will look at the same specimen, same microscope. One will tell you that you have esophageal cancer. One will tell you you don't. It's an inexact science. It's proven by the fact that 80% of people that are diagnosed are dying because they're being diagnosed too late. Okay. There are other tests out there. So just to go through those, a couple of those tests to be clear, there are blood tests. Some of those blood tests out there, you have to understand esophageal cancer grows in the tissue of the esophagus. It doesn't grow in the blood. It takes time for it to seep into the blood because you have so much blood it gets diluted. It takes time before a test will pick it up. You're going to have highly inaccurate results. More importantly, there's some blood tests that may become that are becoming more popular. That's fine. But the next step, if you test positive, is to go get an endoscopy anyway. Our test right now is planned for people who are getting endoscopies. Then we're taking one or two of those specimens. Right now, really just one of those specimens, we run it through a mass spec machine. There's no naked eye even through a microscope that can come close to the AI associated with mass spectrometry machine. That's just a fact. In addition to that, um so the bottom line is blood test if a blood test is successful it leads to endoscopy it's only going to grow the number of endoscopies to actually grow our Target Market it's not the blood tests really aren't competition all right we're working with some great consultants this is really the slide I wanted to get to on this these eight markers these are proteins there are thousands of proteins in the body that you can that you can analyze we the scientists that co-developed this, Joe Abdu, who we just hired to work with our other consultants, he spent years and I believe he spent years studying this and came across the four proteins or markers that are virtually always prevalent when you're developing esophageal cancer. And we have the IP on these markers. Look, a lot of these other markers by some of our competing testing companies, they're testing markers that are not always prevalent, and they might be testing hundreds of proteins. In order to test and search for those proteins or markers, sometimes they need many, many specimens or tissue samples. We only need one or two at the most. Sometimes they even need you doing a second endoscopy. It becomes very difficult to Given the number of specimens they have to look for and also the number of specimens, the protein markers that are looking for don't always exhibit. They're not always expressed when you're developing esophageal cancer. It's not as accurate. Some of these other tests simply are not as accurate. They're not as efficient, but they have the distribution that we don't have yet because they've already started commercialization. So imagine we have a test that's a breakthrough with protein markers that no one else has the IP for. Marry that with a company that has a distribution. This could be a huge success. Huge. So what we're doing is we're going to the next step. The next step is the manuscript. I'm conservative on the timelines, four to eight weeks. I'm hoping it's a lot sooner than that. That then gets published. It then is one step closer to commercialization. At the same time, we can look into commercialization, but not in a way where we would lose money or invest a lot of money. So for example, there are sales forces out there. They're already selling product services and tests into GI's office and doctor's offices. They could take on our test and sell it and we pay them on a per test basis. We just pay them a fee for selling the test as opposed to paying them monthly and taking on overhead. So there are efficient ways that we could do this that we're looking into. We're looking at all angles. But at the end of the day, my first choice would be to potentially partner this joint venture with a very, very large company who would give us a big block of money upfront. all right that that's enough during the q a i can answer more questions about this so suffice it to say you can go to the slide presentation it's on the website you can go through the bullet points the next step as it says here is submit the manuscript uh and so on and so forth but i'm really looking forward to next steps i promise you i'm not going to bankrupt the company developing this test and commercializing it that would be silly i'm doing just the opposite we cut all the overhead to work towards being a profitable company So we will weigh alternatives on next step. I'm just excited that we have this great test with this great IP. It's needed. This is a sorely needed test to save lives. It's that simple. As Joe Abdo and the other scientists working on this, he's working very closely with Dr. Christopher Hartley at the Mayo Clinic. And we're working with M-Probe and others. And everybody's like, we have to get this to the patients to save patients' lives. Of course, me as the CEO of a public company and you as investors want to hear. We also want to get it out there because we want to make money. But it's a win win. You can help people. You can save lives. We can reduce insurance costs by billions of dollars. And so it could be a win win win. All right. A DNA complete. Very simply, we shut down. Laboratory. We built this incredibly efficient laboratory, but it took too long to build it. And the B2B business wasn't there. We're building a D2C business now. We hired Stu Holland said he is a world class marketer. All right. One of the top marketing experts in the country. He helped build up Barstool Sports. He was the COO and head of business for Barstool Sports, built it up into business results for hundreds of millions of dollars. He worked very closely. Obviously, he was partnered with Dave Portnoy. He would not have joined our company if he didn't believe in our company and where we are, number one. And number two, so you have Jason Karkas, who completely restructured the business. We're now focused on D2C. we shut down the laboratory he developed relationships with multiple labs now who are competing with each other so we're getting great pricing and so we're in great shape now and a key part of all this is we're selling a subscription when it gets renewed in year two that's pure profit to us so this is a business we build it out this year next year we're gonna it's gonna be a profit machine from all the business that we generate through even if we broke even on generating sales this year That would imply that it's going to make a lot of money next year, even if we don't do anything. So I'm really excited about the business. Of course, Dr. George Church is still an advisor to our company. He's a founder, and he's world-renowned in the field of genomics over the last 20 years. ProPhase supplements, I'll just go through this very, very quickly. These products are already at CVS and Walgreens. We have great infrastructure. We now want to ramp it up. The place to be selling these is online. That's where Stu comes in. We built this whole marketing machine online. Stu is connected to world-class influencers. His reach, I don't know how many tens of millions of people he has reached to, you know, consumers. We get to leverage all of that by Stu being our COO. So we get to leverage it both with DNA Complete. We get great pricing because of Stu. All right. Low CPMs cost per thousand. That's what it costs to advertise. And we get to leverage, leverage our products. Equivir is coming soon. I'm really frustrated by waiting for the final clinical study results. We can't launch this until that happens. It's not cold season now anyway. But I am looking forward to this for next season. We are packaging it. We're doing a lot of things with it right now. Of course, I've run way over time already. And look, we can go through the investment highlights. I pretty much, before we get to the Q&A, I just wanna make sure, I also just want to mention to you that we have a couple of telehealth companies that reached out to us. They built all the infrastructure. They have the medical doctors in each state. They have all the infrastructure in place. What are they all missing? The key to almost any business being successful It's the marketing. It's the reach. That's where we come in. I think that we could potentially acquire one of these telehealth companies on the cheap, not for a lot of money. We're not breaking the bank on anything. And we could, forget everything, we could build that enormous telehealth business just leveraging the marketing expertise and the marketing reach of Stu Holland's head. So we have a lot to look forward to in the company. And I just want to be sure. I'd like to go to the Q&A now. And Noella, I'll turn it over to you. Thankfully, I had a lot to say, but I didn't run over by too much.

Thank you so much, Chad, for the presentation. We'll now begin the Q&A. Your first question is, what is the projected timeline for securing CPT coding approval for the B-SMART test?