ProPhase Labs, Inc.

Hello and good afternoon, 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' second quarter 2025 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkis, Chairman and CEO. Following the presentation will be 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 it over to Ted.

Noelle, thank you as always. Let's go back to the beginning. We're on the wrong slide. There we go. Look, thank you, Redmark. Love doing these VNDRs. I am really excited about everything going on with our company and Looking forward to updating everybody today. So I will assume that you have all read the forward-looking statement. This presentation, by the way, is on our website. So after this call, you can go to the website any time, read it yourself. Of course, read the forward-looking statement, which basically says everything I say today is true as of today. I speak from the heart. I speak from the mind. I don't type out notes like most CEOs and just read off a piece of paper. I talk about the company. I live and breathe this every day. But everything I say is accurate as of today. It doesn't mean that things don't change in the future. There's no guarantee that you won't get updated if things do change in the future. That's primarily what the forward-looking statement says, but I'll assume that you have read it. And let's move on to the next slide. These are the basic Components of the company today now, this is a quarterly press release as opposed to our typical red mark presentations. This is really a combination of the 2 red mark. You may not know how they're set up, but we basically do a once a month. This month, we may actually do two, but we typically are doing one a month where we're in effect virtually in a different city and sometimes different state each month. And this is oftentimes new investors. But of course, we've also invited all of our shareholders and all the people that read our quarterly press release to come on the call as well. So it's really a combination of potential new investors, as well as people that are interested in just a quarterly update. I could care less about our earnings right now. That's not the focus of the company. The focus of the company is we're a development stage company with some operating businesses that are operating, but also we have other businesses with enormous potential that are ready to kick in and go to next steps. So we have BeSmart, I'm going, Prophase, you know, labs, BioPharma, BeSmart, that's our esophageal cancer test. We have DNA Complete and Nebula Genomics. That's where we do whole genome sequencing primarily directly to consumers. We have prophase supplements, and we have two other things. Actually, we should update this slide. This is interesting. On the left, it's not in the picture, but this is a critical component of our company is the prophases entered into initiative with Crown Medical Collections targeting over $50 million in net near-term cash recovery from COVID-19 receivables. That $50 million, given the market cap of our company today, if $50 million comes to the company, that's more than three times the entire market cap of the company. I'm highly confident in that, by the way. And that's why I actually put that as the first bullet point when you look at the ProPhase Labs, quote, verticals. There may be another vertical coming, our crypto treasury strategy initiative. And I will get into that. I'll get into that at the end of the presentation. It's not actually a slide. in our presentation today, but it wouldn't surprise me if it will be in the near future. But with that, and by the way, I'm going to touch on the crypto treasury strategy today. There are a couple of important bullet points I really want to cover. But then next week we may have a separate press release and we'll have a follow up via during two weeks specifically primarily focused on the crypto treasury strategy. It could be an enormous new opportunity for the company. So with that said, I'm not going to go too much into this slide, Most of you have seen this before. I do have a history of success. And it's not just since I took over control of our company. This goes back 40 years of success. I've gone through nine months that have not been fun with the stock price crash. We suffered dilution, all those things that I've never done in my entire career. that we had to suffer through, but now we're coming out the other end of that. I like to think of ourselves at our current stock price, around $0.35, not that different than when I took over control and turned around the company back in the day when our stock price was $0.65. I turned around the company, sold the Coldies brand for $50 million, did stock buybacks and paid out $2.40 in special dividends, and then got COVID tested. or even with COVID testing, we did $100 million a year revenues. Now, isn't it interesting? We have a 35 cent stock price, same CEO, same mentality. We're potentially going through this time, instead of selling coldies for $50 million, we may come in to $50 million from crowd medical initiatives for our prior COVID testing. And just like the opportunity that we then got into with COVID testing. We'd never been in COVID testing before, never been in the lab business before. And then we proceeded to outperform 95% of the labs in the country. Well, it's the same thing with the crypto treasury strategy. What's the most important component is to have a CEO that's smart and that can execute and that can attract great people. And so now we have the potential to enter the crypto treasury strategy And if we have even 50 percent of the success of what we had with the covid testing and given the competition, I don't really consider them competition, but the upside could be absolutely enormous. So I'm going to get into that towards the end of the presentation. But that's sort of an overview. Let's first start with Crown Medical. So what's going on with Crown Medical? I'll try and get those of you that don't know up to date with those of you that are completely up to date. Well, nobody's completely up to date, but the bottom line is we have 1,100 insurance companies that were reimbursing us for COVID testing. The government guaranteed reimbursement. When we did the COVID testing, the government ran out of money. Interestingly, behind the scenes, the government, through their subsidiary, HRSA, which ran out of money, interestingly, HRSA was also funding some of the insurance companies. And so when HRSA ran out of the money, insurance companies also started cutting back, even though legally they weren't allowed to. So we got into a situation where legally the insurance companies owe us an enormous amount of money. And so what we're doing is we're about to sue 1,100 insurance companies. We're doing it through a company called Crown Medical Collections. They have a couple of dozen attorneys all working on contingency. We are not paying them a single penny. They've done enormous amount of work in the past several months, an enormous amount of analysis. You should see the analysis. I have a spreadsheet of literally like eleven hundred insurance companies, how much billing we did, what we got paid, what we didn't get paid. A critically important component of this is that insurance companies in many instances reimbursed us, but it reimbursed us at a lower rate than they were legally supposed to. As a general business practice, many insurance companies did this. They knew that they could do this because they could get away with it because what were the laboratories going to do? All the most or all the laboratories in the country just accepted what they got paid and figured, what are you going to do? It's the cost of doing business. At least we're getting something. We're getting more than what it costs us to process the test. And so every insurance company was paying differently and we just had to put up with it. The bottom line is if the insurance company reimbursed us, But they reimburse us for less than they were legally supposed to reimburse us. That means they've underpaid us. They do not have a defense. So what we are doing is we are bankrupting the lab subsidiaries that are not doing any business now anyway. It doesn't cost us anything to bankrupt them. We are awaiting... a court date with the judge. I anticipate that court date is going, don't count on this. I anticipate that court date is going to take place in roughly four to eight weeks, at which point Crown Medical goes hog wild. They start reaching out and say, we're now in bankruptcy court. We're now serving you with litigation. Up to this point, Crown already reached out to probably 100 of the 1100 insurance companies. But a lot of them, their response is when you actually get the court date in bankruptcy court and you're actually about to serve us, that's when we'll sit down and talk seriously with you. Now, the other part of this is the amount of underpayment. So in many cases, it was underpayment. There's no defense. So I'll just go off on a slight tangent here. Crown is not only representing us, they're representing about 40 other laboratories. In many instances, in most instances, these other laboratories are suing the same insurance companies, and they may be in different states. So imagine being in court in front of a judge suing an insurance company. They're representing five different labs suing the same insurance company. The same insurance company did the same unethical underpayment practices with five labs. It shows... a history of and a pattern of behavior that at a minimum is unethical. The insurance companies don't want the exposure. They don't want the press, the politics involved, plus they owe the money. So they settle. And so what Crown also did when they took all of our claims They discounted them for how much they know they're going to have to discount. When you're litigating with somebody and you settle out of court, you always settle for less. So they figured out what the percentage is that they're going to have to discount. They took that out of our gross total, came up with a net amount. That net amount is roughly $73 million. They take out a 30% contingency fee. We get the rest. It's roughly $50 million cash. I'd be happy, I don't want to say a number, I'd be happy with a lot less, but understand even the lot less I'd be happy with would still probably be a multiple of the entire market cap of our entire company. That's why I had to spend the first 10 minutes just on Crown Medical. The other thing is once this money starts to come in, we can be done with debt in our company. One of the biggest expenses of our company in the last year has been the interest expense on the debt. If we were a debt-free company, the biggest expense of the company would be God. We have done a phenomenal job, and I'll get into this when I talk about Nebula, and this is really Jason Karkas, the president of Nebula, that did this. He cut out an enormous amount of expenses and overhead. I'll get into that when we talk about Nebula. We are a much leaner, cleaner company now. If we get rid of the debt, we barely need any capital oil. Meanwhile, we have potentially $50 million of cash coming in from Crown. That's just one of... the opportunities with our company in terms of risk reward as an investment in our company. And just one of the things that I'm excited about. All right, let's move on. Prophase Biopharma led by our esophageal cancer test. So we just came out with news that we were awarded a very important patent. Why is this patent so important? Our scientists uncovered the key proteins that are expressed virtually every time you're developing esophageal cancer. What does that mean? Esophageal cancer, and I know many of you have seen my presentations, I'll just tell you very quickly, the acid in your stomach over time, you know, that you take in acids for over time, it will start to eat away at the bottom of your esophagus, which is connected to your stomach. You'll start to develop precancerous cells. That's a condition known as Barrett's esophagus. People with Barrett's esophagus have between 1 in 50, 1 in 100 chance of developing esophageal cancer. And the reason that's so serious is because once you are diagnosed with esophageal cancer, you have a 75, 80% probability you will die of esophageal cancer. It's one of the deadliest cancers. Why is it such a deadly cancer? It's because it's diagnosed too late. So by definition, what does it mean is diagnosed too late? It's diagnosed too late because there isn't an adequate diagnostic test for diagnosing it early enough. That's where we come in. We have a test that diagnoses esophageal cancer earlier and more accurately. Not only that, it will tell you if you're at high risk or low risk. The reason why that's important is because endoscopies there's roughly 67 million endoscopies performed each year just in this country and by the way esophageal cancer is growing around the world there are other countries where it's growing a lot faster than here all right so this is a global problem but just in the united states 67 million endoscopies per year the reimbursement rate from insurance companies is three four thousand dollars per endoscopy we're talking about so many billions of dollars Just on people that are at risk of esophageal cancer, it's about 7 million endoscopies per year. That's up to $28 billion a year the insurance companies are reimbursing. This is a very serious issue and it's very serious to the insurance companies. We have a test that'll tell you if you're at high risk or low risk. Well, so the beauty of our test, our test is done in combination with the endoscopy to make the diagnosis of the endoscopy more accurate. There's nothing additional the patient or the doctor has to do. That's critically important because in the world of medicine, convenience is an important factor. In addition to the fact that obviously we have a test that when you get the endoscopy, we only need one sample. So an endoscopy, basically they stick a tube down your throat. They take out tissue specimens. They take out roughly seven or eight. Now, by the way, I don't want to say we have competition because we haven't been, we're not commercialized yet, but our competition is going to be, I don't, you know, I feel funny even mentioning the name of competition. The only real competition out there is a product that came out a couple of years ago. And the beauty is actually paved the way because they got the insurance companies paying for cash based or what's known as a laboratory developed test. And the insurance companies now pay for that. So they paved the way they didn't, In the past, they weren't fast to reimburse for these extra esophageal cancer tests. Now they're doing it. So for us to enter the market, they and a couple of other companies paved the way. They already did the hard work. It's going to be easier... for us to enter the market. And the key is with this patent, we have the eight protein biomarkers that are expressed virtually every time you're developing esophageal cancer. And depending on how much they're expressed tells you whether you're at high risk or low risk. If you're at low risk, you don't have to get endoscopies as often. That will save the insurance companies billions of dollars. If you're at high risk, there's a procedure you can get called an ablation. It destroys all the precancerous cells and literally saves your life. And if it was up to GIs, they would give anybody coming in for an endoscopy, they'd say, just to be safe, do the ablation. The problem is the ablations are relatively expensive. And so insurance companies don't want to reimburse unless you're close to death. The problem is once you're close to death, maybe too late to do the ablation. So it's sort of a chicken or egg situation. In the end, not enough people are getting ablations. We have a test that'll tell you you're at high risk. If you're at high risk, the insurance company will reimburse you. You get the ablation, it saves your life. And it saves the insurance companies the five years that it might take for you to die from the esophageal cancer and all the medical bills that they have to reimburse. So this is huge for the insurance companies. It will save them billions of dollars. At the end of the day, you know, it's sad to say, but when it comes to medicine, it's all about insurance companies and, you know, where they're making money or losing money. And in this case, we would save the insurance companies billions of dollars if we can isolate the people at high risk. And on the other hand, the people at low risk, they don't have to worry about getting esophageal cancer. They don't have to get endoscopies as often. They'll save the insurance companies billions of dollars as well. And nobody has these eight proteins. Critically important. Now, there's more to come. I anticipate in the coming weeks at least one or two more press releases. positive developments towards commercialization for b smart esophageal cancer test so i'll leave it at that for now but suffice it to say this is very exciting our just i mean i don't even know how to say this without it sounding ridiculous we have i don't know 13 14 15 million dollar market cap it's nuts our this test could be worth hundreds of millions of dollars in one year it just gives you and that's an addition to 50 million potentially coming in from crown medical Just gives you an idea of the potential of our company. Let's move on. I can talk more in the Q&A about it, but it gives you a really, really good idea. We happen to have started to build a really nice advisory board with Dr. Joe Abdu, who actually is one of the scientists that invented this. And again, I'm going to have more to talk about about commercialization. I'd like to do that when the next press releases come out. But suffice it to say, we have the patents. We have players interested. There's a lot more to talk about. I don't want to do it today, but a key, I will just say for the path to commercialization, a key factor is getting published in journals, getting key opinion leaders involved, et cetera, et cetera, because then the GIs will start ordering the test. All of that is coming. It's all in the pipeline. I'm really looking forward to next steps with our test. Okay. Let's move on. Nebula Genomics. Are we on time? We're pretty good. Quick sip of water. All right. Nebula Genomics. So we hire ThinkEquity to pursue strategic alternatives for Nebula Genomics. But there's a couple of different ways I want you to think about Nebula and also within the context of our whole company. One, as I mentioned, Jason Kark has completely restructured this business. I wish he had taken over sooner. We shut down the lab. We never should have built the lab in the first place. He was not a part of that, right? Shut down the lab, cut out an enormous amount of IT, which we had to absorb when we had the lab, cut out an enormous number of people, also restructured the whole go-to-market strategy for selling Nebula so that we now get subscription renewals each year from everyone. Anybody who wants to renew, there's none of this lifetime stuff where you just get it for the rest of your life and you don't pay for it. Every year you have to renew. So even if we operate this as a break-even business, the following year, there will be profits from anybody that renews and a high percentage of people renew. The reason they renew? So I'm not really going to go into the whole explanation of what nebula genomics is. We don't have time, and that's not the purpose of this specific call. But to be clear, what we do is we do direct-to-consumer, and this is our DNA complete direct-to-consumer business. We do whole genome sequencing, which studies your whole genome. It studies your whole DNA compared to 23andMe or Ancestry.com that studies less than 1%. If you want accurate ancestry information, you'll do one of those tests. It'll be fine. It'll link you up to all the other people in the world based on that 1% of your DNA. If you want accurate health information, though, you want to study your whole DNA. It's more expensive. That's where we come in. We do it very efficiently. but critically important for us. We have eight years of doing this. We've developed a database of roughly 60,000 people that have been whole genome sequenced. That's the equivalent of over 150 or 160 million ancestry tests in terms of the entire amount of data. The real point is a whole genome sequencing test provides you 1,000 to 5,000 times more data than an ancestry test. So just imagine how much more accurate the health-related information is going to be. And that's why if you want health-related information, you've got to get whole genome sequenced. And so it's an extra couple hundred dollars. And there are various levels of whole genome sequencing, 1X, 30X, 100X. I'm not going to go into it. The more you want it analyzed, even 1X gives you a much more significant amount of data than an ancestry test of 30x. It's how many times it studies the DNA in the sequencing. In any event, I went to probably more detail than I had to. The bottom line is this has been completely restructured and cleaned up now. So we could sell it now, but now that it's been cleaned up, if we get money in from our Crown Medical Initiative, then it may not be necessary to sell Nebula Genomics now because Nebula could be worth, you know, two, three, four, five times as much, literally just nine to 12 months from now. So I have to, this is all strategy. There's no definitive answer. So while we're working with Think Equity to potentially sell the business, we're also working, led by Jason, on building the business now that it's been cleaned up. With a little bit of capital and some advertising, this business will take off really nicely. All right, that's enough about Nebula for now. Again, we can go do it in the Q&A. I'll just tell you very quickly, this is our historical business. I'm less interested in this right now, and I do want to talk about the crypto, and we don't have a lot of time to do it. So we're led by Legends XL, which we've been selling for many years. It's a small brand. It keeps a direct-to-consumer business open for us. It's probably the least important of everything I'm going to talk about. Equivir, I know a lot of you still want to know what's going on with Equivir. complicated to say the least. The preliminary studies were fantastic. The final studies gave us some good stuff, not as good as the preliminary. And I'm waiting for a final report. Our consultant goes back and forth. The problem is the CRA, the CRO, the Clinical Research Organization is in another country. Every time our consultant asks five questions, it takes a week or two to get the responses. They're literally finalizing it right now. The one thing I learned from building the Cold Ease brand The claims on the package are critically important. The claims on the package are based on the clinical studies that back those claims. If you don't have clinical studies to back the claims, either the FDA will shut you down or more than likely class action attorneys will sue you and put you out of business anyway. That's why we can't move forward with this without the final clinical study results. Okay. Moving on, you know, that's our management team, our investment highlights. I really want to talk about our crypto treasury strategy a little bit and our upcoming, we have a new proxy coming up, which are critically important, right? Again, we can go through this completely restructured and transitioned to significantly leaner company during the first half of 2025. Again, we sold formalized manufacturing in January for $23 million. We shut down the Nebula Genomics Laboratory later in the first quarter. We dramatically reduced headcount and IT and related overhead in the end of the first quarter and throughout the second quarter. The third quarter, we will now look like a much cleaner company. A lot of the savings are really just now coming. It will be coming into the third quarter. All right. I reviewed the Crown Medical Collections with you in the Q&A. I can discuss more with that. I talked about the Smart Esophageal Cancer Test. Be on the lookout in the coming weeks for some more positive developments towards commercialization. I told you some of the things that are very important with a new test. You need acceptance from your peers. That happens in the form of getting published, of having a clinical study and getting it published, and getting the key opinion leaders involved, and then reaching out to the GIs Find a network of GIs that are interested in using your test. You start there, you get good results. It builds from there. We have some great partners in Mayo Clinic and MPRO. We have some great players. The lead scientist at Mayo Clinic loves this test. All right. And of course, our chief science guy that created it, who's on our advisory board, Joe Abdu, you know, he's worked and developed and commercialized other LDTs. And he thinks that this was going to be absolutely huge. I could go on with this. I want to talk about a crypto strategy where we're on this last slide anyway. So this is really important. And I need to give you a little perspective before we get into the Q&A. We had an ATM. which stands for at the market. It's where you sell shares in the marketplace. When the stock's trading, you just sell shares that the company issues and you take in money. We had an ATM for, I don't know, a half a dozen years and never used it a single time. Just because you have an ATM doesn't mean you're going to use it. Same thing with authorized shares. We had tens of millions of shares authorized that we never used. Now, we got into a difficult situation the first half of this year where we did, and that's why the share count grew. But we stopped doing that a while ago. We had something called an ELOC. We're not going to be using. We haven't used the ELOC in months, and we're not using it anymore. I don't even know if I want to say this, but we're going to be canceling the ELOC. Now, we have a proxy coming out. that you have to vote for no later than August 29th. We have two weeks to vote. One of the things in the proxy, one of the items, is to vote on increasing our authorized shares to 1 billion shares. Now, why 1 billion? Frankly, it's an arbitrary number. I could have done 100 million instead of 1 billion. I could have done 200 million. Whatever it is, it doesn't matter. We're not dumping hundreds of millions of shares of stock on the marketplace. That's not the purpose of it. The purpose of it is if we initiate the right crypto treasury strategy, understand if I get into this business, I'm going to go into it the same way we went into the COVID testing. The reason we got into COVID testing, we were investing with some of the money from the sale of coldies. We invested in another public company that already had a laboratory, was already one of the first validated for COVID testing with the saliva test for COVID testing. It was like, wow, this can be great business. Let's invest in your company. They went bankrupt and we generated hundreds of millions of dollars.

So just because we're not the first in with a crypto treasury strategy doesn't mean we're I'm not going to be successful. I think we're going to be alone.