Ted Karkus - CEO Bob Cuddihy - CFO and CFO.

Analysts:.

You may begin..

Oh thank you Genicia [ph]. And thank you all for joining us at ProPhase Labs Quarterly Conference call; just so you understand the setup we are not going to review the financial numbers. Feel free obviously to read the press release and read the 10-Q that’s been filed.

We will have a Q&A at the end, Bob Cuddihy our COO and CFO is with us, so if you have any questions regarding the financials, the numbers feel free to ask him otherwise I really don’t want to spend the time on this call. You are all capable of reading the numbers on your own. I think they are pretty self explanatory.

Bob is going to read the forward-looking statements and then I’m going to get right into the primary purpose of this call which is to review our current strategy and where I see the Company going into the future. Again, we will have a Q&A so you can both ask Bob questions as well as ask me about the strategy.

So Bob, why don’t you kick it off with the forward-looking statements?.

Very good. Thank you, Ted. At this point, I will read the forward-looking statements that are contained in today’s press release and on the Investor Relations section of the Company’s website and in our 10-Q and 10-K filings with the Securities and Exchange Commission.

Except for the historical information contained therein, certain statements in our press release and on today’s call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the launch of our new Cold-EEZE Gummies Multi-Symptom Relief for cold and flu, our new line of TK Supplements and our new product Legendz XL and our engagement of Bourne Partners, a boutique investment bank.

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 include uncertainties, but not limited to, the difficulty of predicting the acceptance and demand of our products, the impact of competitive pricing and pressures, costs involved in the manufacturing and marketing of our products, the timely development and launch of new products, and the risk factors contained from time-to-time in our annual report on Form 10-K, quarterly reports on Form 10-Q, and any subsequent SEC filings.

Additionally, I would like you to advise you that the statements made during this call are made as of this date, and listeners to any replay should understand that the passage of time of itself and by itself will diminish the quality of these statements. Ted, back to you..

Thanks Bob. All right, so we’re going to get right into it. In the press release, I elected to refer to quote exploring strategic alternatives. The reason I did that was several folds. I’ll get into why we are exploring strategic alternatives, but first I want to get into why we decided to announce it in our press release.

We recently hired our investment banker, Bourne Partners and I’ll talk about them a little bit more in a minute.

We recently hired them and they put together a teaser, which is starting to go out to some potential, strategic acquirers and financial acquirers and while our name is not in the teaser, my concern or issue was that eventually our name and the name ProPhase Labs name as the brand Cold-EEZE was going to be circulated amongst at least some of the acquirers and even though they signed the FDAs my concern that it would start to get out within the industry and I have always believed in keeping our shareholders as well as our employees as in the loop and as updated as possible as the going on of our company.

And so, given that I’ve felt that there would otherwise be limited disclosure of important information out there I thought it best to get everybody up to speed at the same time. So as I mentioned, there are teasers going out that Bourne Partners has been sending and we are starting an exploration process.

To put this all in perspective, our market cap is about $26 million and yet our flagship brand, Cold-EEZE I believe is worth significantly more than that. I would also note that our Company ProPhase Labs isn’t for sale, it is not in play.

We have significantly large shareholders including myself and the board of directors, so I don’t think any hostile actions would be successful and in fact there were some hostile actions a few years ago and they realized very quickly they were wasting the time.

One of the reasons the Company is not for sale is because quite frankly an acquirer would not be interested in our entire company. Typically a strategic buyer is going to be interested in acquiring a brand to leverage their infrastructure. Same goes for our manufacturing facility.

We are not – that is also not up for sale, again, most acquirers, their strategy is actually to limit your, their infrastructure is much as possible, they like to outsource the manufacturing.

Is it possible something happens with the manufacturing facility, is it possible something happens with our company, of course I don’t have crystal ball, but I can say that the likelihood is we are exploring strategic alternatives which includes as I mentioned the potential sale of core assets which obviously means the Cold-EEZE brand, but at the same time we are also searching for acquisitions of other products, brands both within our industry as well as outside the industry and I’ll get into that a little bit more in a moment.

Just by way of overview into some of the assets of the Company and what’s going on. ProPhase does own TK Supplements. While it is a separately incorporated company, it is 100% owned by ProPhase. I didn’t mysteriously set that up as my own company, as I’ve read on the message boards, I wouldn’t do any such thing.

TK Supplements has three products, which I had mentioned before. The lead product is Legendz XL. We’ve recently completed some clinical studies which were very positive which were critically important.

While we were going through the direct response, TV testing we found that some of the claims that came out of the clinical studies were critically important to driving strong response rates. And so, as I have mentioned previously we’ve been going through a process of optimizing our TV spots.

We now have our TV spots at a point including these clinical claims, these latest clinical claims where we now have a strong response to TV spots, however not so strong that the TV spots selling directly to consumers would be profitable by itself, however, to put this in perspective, we do a lot of TV advertising for Cold-EEZE every year we spend millions of dollars, we generate billions of impressions, we sell a lot of Cold-EEZE.

We sell five, six million package of the Cold-EEZE every year. The TV spend for Cold-EEZE we do not generate a single dollar of direct response sales from the TV advertising.

So putting it in that perspective, we’ve now optimized a direct response TV spots for Legendz where if we combine it with retail distribution we can have our TV spots both generating brand awareness and driving sales within the stores as well as the added benefit of selling additional product direct to consumers.

So I think that we have a good strategy in place, the issue is that we needed these claims in order to make our product more attractive, to make our advertising more attractive there, get a higher response rate, we literally just completed these clinical studies in the last month.

We’ve now optimized our packaging to include these claims and we will now be aggressively approaching some of the major retailers that we do business with to – with the goal of getting national distribution with at least one major retailer we could potentially tag that retailer and our TV spot would make them happy to drive consumers to their stores.

Something similar to what [Indiscernible] did. They had direct response TV advertising but they combined that with offering a product to GNC and if you go back and look at some of those as it’s as available exclusively at GNC and now they spread it out a little bit more.

But at the time they said available exclusively at GNC but if you want the free sample, call her now.

So that’s the strategy and approach that we are going to take with Legendz and with their other two products in the TK Supplements division you can assume that it take six, nine, twelve months to get distribution where the product would actually show up on the shelf from the time we start meeting with them, to the time we get the distribution.

So assume we don’t, I’ve been very very conservative in terms of spending money to develop this new line of dietary supplements as it isn’t in the cough cold category to new brand and so I didn’t want to risk a lot of capital, but I did think that there was real potential here.

As I’ve mentioned before we have a great head of R&D that’s developed some really really good products. Several of us actually take these products, they are really good, they really work. Okay.

Let me get back to the strategy that we are deploying with regards to the company as a whole, why did we select Bourne Partners? I’ve been talking to working with Bourne Partners for the better part of five years. They are Boutique Investment Bank in Charlotte, North Carolina.

I haven’t liked the way they operate, I have developed relationships with larger investment banks in Manhattan and so forth.

The problem with the larger investment banks where small company call these as a small brand relatively speaking, we wouldn’t have had the attention that we were going to receive from Bourne Partners in addition that Bourne Partners have expertise specifically in consumer products and healthcare and they not only have relationships with virtually all the potential acquirers here in the U.S.

they also have significant relationships abroad. So I thought that the combination of them being a mid-sized firm it would give us the most attention, we have the attention of the most senior people, they also have tremendous contacts and I think we are going to do a lot of work. So, I’m looking forward to, we are looking forward to working with them.

As I said we are going to explore a variety of acquisitions in addition to exploring the possibility of selling the Cold-EEZE brand, our eyes are wide open, some smaller acquisitions we could probably finance right now without selling the brand other acquisitions in order to finance them appropriately we would need to sell the brands first.

So we are going to down this path and we are going to see where it takes us. The point is everything is on the table with the goal of increasing shareholder value.

I am a large shareholder, so besides the fact that I am watching out for other shareholders interest, I’m also watching out for my own, so you can believe me that I’m going to do right by the shareholders. All right, let’s get into why now? Back in 2010, we had net sales of Cold-EEZE brand that were declining rapidly.

The brand frankly wasn’t worth very much. A small and declining brand, you get a small multiple for it. The small multiple of a small base. So it wasn’t worth very much.

At the time, and I know I have reviewed this before I won’t spend a lot of time on this, but when a brand is declining, when sales are declining it becomes self fulfilling with regard to retailers say you are selling less product, we are going to give you less shelf space as you get less shelf space your sales declined further.

As I’ve mentioned when you see for all the SKUs regard to just one facing and it’s in the bottom right corner in the store, in the bottom right corner of the isle, that’s a product that our brand is best to go out of business. That was the direction of Cold-EEZE at the time. It wasn’t worth very much. We had to turn it around, we had to grow it.

Since that time, I reviewed the numbers a little bit with Bob last night, our just branded Cold-EEZE sales since that time until now have grown more than 50% and are growing currently.

We are looking forward to a really positive second half of the year, and just by way of review again some of this is repetitious but this past cold season was one of the weakest on record in terms of the incidence of upper respiratory illness, our sales as our overall [ph] cough cold product sales are highly co-related to the incidence of upper respiratory illness.

There were weeks this past winter when the incidence of upper respiratory illness is down as much as 25% or more, I believe it averaged for the season down more than 10%. Cold-EEZE sales were obviously impacted and down for the season, but we outperformed the decline in upper respiratory illness.

So on a relative basis, our sales held their own, one of the reasons for that is product, new product introductions our salesforce has actually done a really good job of getting more shelf space and looking forward to the coming cold season even if we just have an average cold season or even if we have a weak cold season, I’m confident that it’s going to bounce back at least a little bit from the season we just had.

So we have a nice driving factor in terms of the upcoming cold season but that aside more importantly we have developed some new products that we are really excited about. Last year we had a -- we introduced a multi-symptom lozenges, the lozenges short to cold and also provides multi symptom relief.

It’s the most successful product the company has ever introduced since the time that we first introduced Cherry lozenges in 1996.

In fact, in its first year of introduction, in stores which sits next to the Cherry lozenges, the sales have been almost as good and it’s possible that sales could actually surpass those Cherry lozenges this coming season and be our best selling product.

Virtually of all of the major retailers were taking it, in addition to this we have now introduced a new form of Cold-EEZE, which they call these Gummies which will also have provides multi symptom relief in addition to shortening their cold, [Indiscernible] I will have the product, I take it all the time.

I mean that’s sincerely Gummies are a very popular form of medicine in our category. And I don’t mean just a cough, cold I mean vitamins, dietary supplements and so forth. And we will have the first Gummies that shortens the cold. The retailers have responded more positively to this product that any product we have ever introduced from our company.

I am really excited about the prospects for the Gummies, virtually every retailer that we do business within the country has taken Gummies and so even though the cough cold season was down, and spaces always had a premium and there is always some contractions going on and facings getting kicked off the shelf.

In our case, we have net additions in terms of facings this year. In addition to that one of our major retailers that we have struggled in terms of shelf positioning and shelf space we have, I believe we will be significantly improving our shelf positioning for this upcoming season.

So there are a number of reasons why I believe the Cold-EEZE brand is going to grow in the second half of this year and into the cold season.

There is a fair amount of visibility just in terms of the pipeline fill of shipping the Gummies, also the fact that we have net additions, also I believe this is going to be more consumer demand, because of our new products.

And, so I think we have a bright future for Cold-EEZE not just for this cold season but going into 2017 we already have new product innovations underway that we are planning on introducing at ECRM and to the retailers come January and February.

So the future for Cold-EEZE is bright, it’s going to be growing; it’s up significantly from where we turned it around.

So we have a growing brand, it’s off of a bigger base, we get a bigger multiple if we sell it now and so we are going to see what the reaction is out there but if its positive and if there is somebody willing to pay a significant price for it we will certainly be open to considering selling it. Finally, I just want to go through a few notes here.

I’d like to mention we recently completed an independent consumer survey which I’m really excited about. 250 respondents. We are -- I want to test what brand awareness looked like for Cold-EEZE and some of our competitors and also how consumers felt about our products or so our competitors.

We tested really well with consumers, I was really impressed in terms of branded awareness.

We were just below some very very large competitors like Emergen-C and Airborne we were actually slightly above or in line with our largest competitor who is several times our size and we blew away everybody else in our category of the smaller players and the homeopathic category or in the cough cold category.

And I won’t mention the names to you but it’s very clear brand awareness to Cold-EEZE is very high.

In addition to that, in terms of some of the other questions we asked like to the people who had tried Cold-EEZE would you recommend it to your friends; would you purchase it again, what’s your satisfaction In all of those categories we actually outperformed with our largest competitor, and newest competitor.

So, we have a brand where we really accomplished a lot in terms of generating awareness through our extensive TV advertising which we did extremely efficiently over the last five or six years in addition to all the other firms, media, the PR social media, I'm not going on to all that now.

I would also mention that our science, we think it's stronger than anybody else in our category. We have very strong clinical studies. We have been tested by all the Third Avenue and California class action attorneys out there. We've been able to beat them down time and time again. There are no lawsuits against our company currently.

We've one lawsuit in the past at the state level and frankly the class action attorneys who are leaving us alone because our science is so strong. In particular, in addition to the studies that you've all heard about it in the past like Cleveland Clinic Study and the Dartmouth College Study.

There was something called the -- collaboration in 2011 that did review of – I think approximately 20 years worth of clinical studies. They looked at every sound clinical study on zinc. They came to the conclusion that zinc per short in cold does work. Since that time there have been some other studies, some other reviews.

The reviews over the last five years have turned very, very positive, back when I first started it was sort of mixed.

People thought of zinc more like Vitamin C did not too really help with the cold, they are not studies were conflicting our choice, but there are studies were strong for our product, but there are others zinc products that out there, they don't work. One of the reasons, lot of them were dietary supplements.

They are digested in your system but don't really think I entered your mouth. I'm not going to go into all the science now. But the bottom line is since that time more and more studies have been done and the conclusion is clearly that zinc in the right form delivers the right way to shortage your cold.

We interestingly have completed a clinical study for Cold-EEZE lozenges for which we've recently completed the write-ups and will be submitted for publication, which we're very positive, where we gave consumers. We broke up two groups of consumers randomly. I should say consumer subjects.

Half of them took lozenges, look and felt and tasted everything like our Cold-EEZE lozenges and expected didn't have this zinc looking a proprietary formula in it. And then the other group took Cold-EEZE lozenges and they took lozenges everyday for the course of the winter and the results were very positive in our favor.

I'm not going to sit on this call, and make prophylactic claims which is not allowed to do, but I can tell you there's no question in our minds that our Cold-EEZE lozenge is a superior product, that works really well and has really strong signs.

So, the combination that we've been around for 20 years were growing, we have a long list of new products and new product innovation that I'm excited about. Our retailers are responding. We're getting more shelf space. We're getting better shelf space. We're getting better positioning. And finally the market is right. It’s a seller’s market.

There are lots of buyers out there. Interest rates are low. So you put that all together and want to do something for the shareholders. This does not mean I'm retiring. I'm not retiring. This does not mean that we're selling the ProPhase Labs Company.

We're probably not selling the Legendz and the TK Supplements, dietary supplements business probably now worth very much right now and does have potential. There is also potential out there to actually leverage our manufacture facility.

We think it potentially is worth significantly more in a year or two if we put a little more focus on that and build it. So, everything is on the table. And I'm also excited about some potential acquisitions that we're looking at. But again some of those may require selling Cold-EEZE brand before we could acquire them.

So everything is on the table, looking forward to the future. In the interest of risk management I'll say it is a possibility that we do nothing. So don't hold the guns to my head. But I'll tell you even if we will do nothing, the outlook for the Cold-EEZE brand and for company over the second half of this year and into next year is very bright.

At the same time, we've been dealing with legal battles now for seven years. Those are finally behind us. We have one arbitration which we initiated across this more than we anticipated in terms of legal fees last year and in the first half of this year. But largely those legal expenses are now behind us.

We're waiting for a conclusion and a decision by the arbitrator. We are cautiously optimistic with regards to how the arbitrator is going to find. But that aside, legal expenses were down, we're watching our marketing cost very carefully.

We're been as efficient as ever, our infrastructure overhead are under control and our brand I believe is growing, so profitability should improve into the future. So, that was a mouthful. I've said a lot. I think I've covered most of what I want to cover on this fall. I try to anticipate questions by answering them in my remarks.

However, if there are any questions out there, I would prefer that you ask them now, as suppose to calling me separately. Again, I want to try be a helping book, and I want to keep everybody on the level plain field. I don't want to get into Reg FD issues. So if you have questions, happy to answer them now.

If you have questions about the finances, Bob is also here. You can ask him. So Genelia, if you could take it away and set up our Q&A, I would appreciate..

[Operator Instructions] We have a question from a line of William [ph] Lab..

Good morning, Ted..

Good morning, Bill, good to hear from you..

Yes. Thank you.

So, Ted, when did you sign this letter with this investment banker?.

Very recently. Yes, I'm anticipating you have question about the 8-K, we did file an 8-K last night, but to be clear this was our option to announce that we hire investment bankers. There is no SEC ruling requiring us to announce this.

We choose to do this to keep all of our shareholders and our employees up to-date so that there isn't – so there's a fair balance between our shareholders, employees and a potential acquirers that will be signing NDAs and looking at our company and our brand..

Okay.

So, the 8-K filed and the agreements is probably attached to the 8-K, right?.

No. there is no – the agreement is not attached. I don't believe that's a requirement..

Okay..

Again this was our options..

So, it's voluntary, yes. Okay. Thank you. All right. Let's just go back, I want you to carry your stuff so I ask some questions and if I'm talking too long and somebody else is in the queue, I would be more than happy to step aside.

But I want to – one to your balance sheet and your current working capital is about I think 1.3 and you got a lot of current liabilities, but this was June 30. I presume a lot of the inventory that on your balance sheet with the shipments to the stores has gone down.

I mean, other words in this quarter you shift quite a bit, but you'd fulfill the shelves on the new product et cetera?.

Yes. If you look at our company seasonally this happens to us every year at this time. This is where our cash balances are at their lowest. This is where things were at their tightest and then things dramatically improve throughout the rest of the year.

It was one of the reasons why we were looking into the dietary supplement business which is the seasonal business help us at this, but that just a fact of life. The second quarter we are manufacturing a ton of product and we are uses up a ton of cash.

In order to do we build out millions and millions of dollars of inventory which is on our books at cost. We then shift….

So, you got about 4.3 million in inventory?.

Bob -- yes. So, we then shift that product. And then in 30, 60, 90 days retailers start paying us. As they start paying us our cash levels grow dramatically and our inventory shrink, but we have high gross profit margins.

So our cash levels are growing faster than our inventory level shrink, because our inventory is on our books at cost whereas when we shift it in and we're paid for we were paid at what we sell it for and there's big profit in there. So, we're at the low point right now.

We from today forward, we will see our cash levels grow dramatically for the rest of this year..

Do you expect to make a profit for the second half based on what you got in the pipeline now, because you've lost 2.8 million through six months?.

Yes. But understand there is a lot of that is legal, lot of that is….

Well, 300,000 is legal, I mean….

No, no, no. Our total legal was significantly more than 300,000..

For the six months?.

Yes..

Okay. So….

Despite our legal is dropping dramatically in second half this, unfortunately our arbitration took longer than expected was more expensive than we expected, that was a big part of the legal expense that happened in the first half of this year. Though 300,000 – maybe the Delta was 300,000, but the total was significantly more than 300,000..

Okay.

So, and answer to the question, do you expect to be profitable in the next six months?.

I haven't analyzed that question, and I'm not prepared to answer that question nor would I give a prediction like that on this call anyway. And give it all the other things that are going on. It's not a concern. We managed the company to be as efficient as possible. Grow the company in the best we can and the numbers are what the numbers are..

Yes. I understand. I'm just trying to say, how long can you go, I mean, this second half isn't profitable or you trading cash and you don't sell the brand or do something.

I'm concerned about the viability going forward? You have limited resources, you're very thinly capitalized and I think you're doing everything you can to grow the sales and make the business profitable and your margins are good.

But I'm just wondering that something you're probably thinking about if we don't hit a pretty good home run in the second half of the year where are we for next year?.

Yes. So, I agree with your concerns, they've been on my mind for every bid over the last five or six years.

We managed our capital very conservatively, its why with Legendz XL and a dietary supplement business, I think I referred to this before there was business setting, it was actually shown to us to acquire a spend over $30 million at this big line up with great resumes, all these people on the Boards of Directors and people came from big companies, they rolled that business, they got some distribution, they spend $30 million or $35 million doing and two years later they were [Indiscernible] for about $5 million or $6 million.

I didn't want to do that with the dietary supplement business for just that reason. That's why we move very slowly with it. Our Cold-EEZE brand has high profit margins. The outlook for the second half of the year is bright.

You are right, we are thinly capitalized and its one of the reasons why the combination of sellers market, our brand is growing, it’s a solid brand. We got good signs. We have strong responses from consumers. We have a great product pipeline. So, we think it’s a very valuable brand that to work the market capital of our company.

So we have the dual mixed into overhead of our company which is too high, but when I say it's too high, it's too high from the point of view. You need overhead in order to have an infrastructure that sell the brand in over 40,000 stores.

It’s nothing we can do to really cut the overhead much further and so that's we're exploring strategic alternatives. But bottom line, our cash levels are going to be growing rest of the year. Whatever your concern is I'd be more concern one year from today, if we've done nothing and we're back to the lowest level again.

I would also point out that we set up a $3 million credit facility where we drew down about $1.5 million of it. I don't know those maybe six months ago, we could have taken down the other $1.5 million. I choose not to do it. We also have an equity line which we set up a couple of years ago.

I virtually never drew down on any of that certainly and I don't think we wish you to share stock in last year..

Yes. We've been very good about, not diluting it..

Yes. So we've been very careful about not diluting our shareholders, not raising cash, not using debt, so we have $1.5 million setup which is to me around in our scheme of things to what companies were.

And I'm going to and we are going to continue to be extremely conservative going forward because I absolutely acknowledge exactly what your concerns are and we're managing the company accordingly. But again we're going to spend very little money, I won't say, no money.

We're going to spend very little money on Legendz and so we get retail store distribution. Obviously, if we're sitting on tens of million dollars of cash and shareholders not like being more aggressive, we could start doing TV advertising with Legendz right now without getting store distribution.

I just think that that's not prudent given your precise concerns. And Bill, what I'd like to do is there are couple of other callers with questions. Let them ask their question..

You want to come back to me then..

Yes, yes. And then if you have another question let's see who else has questions, we'll come back to you..

Okay. I have more to come. Okay. Go ahead..

All right. No problem, we'll come back to you. Let's give everybody else a chance. If no one else has questions, we'll come to you and spend as much as time as you like. Alright, thank you, Bill..

Your next question comes from the line of Brad Leonard..

Hi, Ted. Thanks for taking my questions..

So, greetings, Brad. Good to hear from you. Glad to have a question..

So, just to confirm on the Gummi, are we're going to see those in the drug and/or the mass market retailers this season?.

Yes..

Okay..

We had broad acceptance. I'm really excited about this product. I think it’s going to be a big selling product and we got broad acceptance of it. And it kept us ahead of the curve while the category shrinks a little bit every year. We've been able to maintain shelf space.

And as I've said, one of our biggest retailers, our shelf positioning is improving dramatically this season. So, I'm actually really excited about the prospects for Cold-EEZE for the second half of the year going forward..

That’s great.

And then secondly on the liquid that we introduced last year, were you able to expand the channels for that or is it just going back into the food?.

I'm so happy that you ask that question. Our liquid -- our Cold-EEZE liquid just a – really great opportunity there. We have a low cost manufacture in the world of our liquid. We can sell them to retailers for a less than the major brands, be that Mucinex, [Indiscernible] they are liquids. We can sell them to retailers for less.

The retailers can sell them to consumers for a less, while still selling a branded product. The problem is we don't have the class that a largest strategic player might have and so while we've been able to get the distribution in food and fact for this year we have – we will now have liquids in additional one of our largest food retailer.

So in food we're doing really well. If somebody with some clout were to acquire the Cold-EEZE brand, they could potential make liquid business bigger than our lozenge business.

But unfortunately we don't have the cloud with our one brand to force drug and mass to take our liquids even though it would actually be smart for them to do so, there are politics and there competitive issues with larger brands and there are other issues in play.

If it was simple a matter of dollars and cents, our Cold-EEZE liquids would be in every store around the country right now. So we're making nice – we've made great inroads in food. There is also some other dollar channels where we make inroads. But in terms as specifically drug and mass which obviously a huge for us.

We haven't been able to break in there yet, but that would be a great opportunity for potential acquirer..

Okay. That's good to hear.

And then on the Legendz XL, it sounds like you switch the strategy slightly on a go forward basis and you did a nice job of laying that up, is that – am I correct understanding that, that previously you're going to do Direct Response TV until you got reasonable level of demand for the product and then you're going to take it retail to make sure that it was successful retail.

And so now it sounds like you were able to generate enough sales to do the – to offset the cost of the Direct Response TV and so now you're kind of do this dual track of retail and Direct Response at the same time?.

Yes. That's your perspective is correct. You instincts are correct. We did have to slightly change strategy simply because we did go through the process of optimizing our TV spot and we were able to – going through this process the response rate doubled from where we started.

So we have a really great TV spot now and it also thought us in terms of what claims are necessary for consumers to respond and that in conjunction giving us time to do our clinical studies. We put that all together. We now have what we believe is a great package and we needed that package.

We needed the claims that came from clinical studies because we won't getting strong enough response rate from TV until our clinical claims came into play which of course couldn't come into play till we complete our clinical study.

But having said all that we now have a TV spot to get a very strong response rate, but is not quite strong enough to generate sales that not only cover the cost of TV but actually generate a profit. And so I don't want to ramp-up and spend a lot of dollars as Lab pointed out. We are thinly capitalized at the moment.

I don't want to tag the equity market and issue shares if we don't have to. I don’t' want to raise more debt and have additional interest expense if we don't have to. And so, I think that the conservative thing to do rather than trying ramp the TV and start spending millions of dollars and hope that it takes swap.

I'd rather be more conservative get the retail distribution not only we optimize the TV spot, we can certainly show that to the retailers. Our goal is to have one national retailer, major retailer taking our product.

We would tag the TV spot with that retailer, it would give the retailer a significant incentive to take our product on and display it appropriately. And then I think that's the combination of at retailer we're selling Direct Response, we could ramp up our TV media and actually generate a nice profit from that.

And so, the bottom line is we now have to go through the process of protein retailers and again we couldn't do that until we had an optimize package that has the best clinical claims. We now think our package stands out versus all the competition. So now we're just going through the next steps and we're going to do this.

I'm actually going to keep overhead to a minimum for the second half of the year with regards to our dietary supplements while we go through the retailer process and that retailer process we can do – we can leverage our current infrastructure with our current sales force. We don't have to hire additional people.

We don't have to – there's no additional overhead and so over the six months while we're exploring strategic alternative with Cold-EEZE at the same time we can be working on Legendz and our other two dietary supplement products, see if we can take some traction there. And we'll see what happen, but it's going to be a very low risk..

Sure.

So, you're not going to advertise in until you get a retail distribution?.

We made little more TV advertising just if we want to do further work in optimizing our TV.

We're continuing with our relationship with our Direct Response company and continue to work them on a weekly basis in terms of discussing strategy for the TV spot and how to optimizing, how to change it, so we might do – continue to do some testing, but we do a test it’s a $10,000, $15000 to do a test.

We're not spending hundreds of thousands of dollars to do TV testing..

Okay. And then lastly on the strategic review and appreciate all the comments you made this, because lot of times company announces and then they don't say anything and you did a nice job of kind of laying it out and I think it’s a right thing to do for a company your sizes struggles to turn a profit and be a publicly traded company.

But I guess I'm surprised, I mean, you have so many good things going on with the Cold-EEZE business probably for the first time in a while that you're kind of doing this now. And I thought on the last call you had mentioned and it was like a six months ago that you mentioned that you weren't interested in selling it now.

And that the goal was to leverage distribution platform and infrastructure. So, if we sell the Cold-EEZE brand that leaves the contract manufacturing business may you would manufacture the Cold-EEZE for the acquirer I'm not sure. And then you would have the TK Supplements.

And so I guess you kind of back just where you want, you would have a bunch of cash and you would have this -- the same problem of how do you leverage the distribution in the infrastructure.

And so I guess that my only concern on the go forward basis of what would be left and how do you envision that playing out?.

Sure. So, first of all, I wasn't interested in selling six months ago and you're correct and the reason I wasn't interested among other reasons was that six months ago we were having a down season, our sales weren't growing. We wouldn't have gotten the value that Cold-EEZE is clearly worth, that has changed now. We're back to Cold-EEZE growing.

I can't envision the incidents of upper respiratory on this, this cold season being less than last season, given the last season it was one of the lowest in a decade. And even if were flat for last season we have another season that's just as bad ourselves we'll still this year, so we are growing brand, it's very valuable.

It has a bright future and it’s a seller’s market and I think we get a lot of money for and if we can't, we won't sell it.

If we are in a situation where we sell it and we have a lot of cash and did the manufacturing business and the dietary supplement business, than two things will play that by year, one, we think there is ways to leverage our manufacturing.

You're correct that if we don't sell the manufacturing facility than clearly we're going to be manufacturing Cold-EEZE for whoever acquires it for a period of time. We're also – Bob done a really nice job of building out our contract manufacturing.

His prospects continue to grow that and it's possible in a year or two our manufacturing facility will be worth significantly more than it’s worth now. Again that something that we just have to explore down the road, we'll see as we go through this process.

The interest levels and manufacturing facility, I will tell you there are players out there that have been interested in acquiring manufacturing facility in the past wouldn't surprise if they come back, but we'll just have to play that by year.

What I can assure you and honestly there are some acquisitions out there that I think we should acquire a great price, that have tremendous potential. Some relate to manufacturing, some relate to consumer products and then some are completely different industry group.

And if there is -- but I would tell you is while you'd be concern about where we are in six months.

If hypothetically we were to sell Cold-EEZE brand, it wouldn't be a bad position to be in, if we have more cash than the current capital of our company, combined we're still having two properties, one in Doylestown where headquarter is the property, in Lebanon, Pennsylvania were manufacturing facilities and Legendz brand.

And no doubt we have the $1.5 million of debt that we have payout but other than that we'd have a large block of cash that's worth more than the current stock price.

It wouldn't in a bad position and again I'm a very large shareholder of the company, so I'm not going to wind with the cash and if anybody disagrees with where we are at six months and what our strategy is for 2017.

It wouldn't surprise me if there was a liquidity event for anybody that wants to sell their stock and that would probably at higher prices than today's prices. So, the point is what I can't tell you what's going to happen six months from now.

I can't tell you that your concern is one where we'd be n a position with more cash than the current stock price and it wouldn't be such bad position in.

And then shareholders can decided at that time whether they want to continue with us or they want to sell their stock and I'd make every effort for anybody they want to sell their stock to create liquidity so they can do so..

No.

I agree, I think you'd be in a better position, but I case on a go forward basis, let's say you sold the cold, I know this is hypothetical because you don't know how this is going to play out, but since you're so open in discussing in if I ask, hypothetical sale of the Cold-EEZE and let's say you go buy another product and its consumer product company, I mean, all we can left with the diminish distribution and you have the same overhead in their to sell these products and then you're – we have a lot more cash, so we might have $3 share in cash or whatever its going to be.

And – but we still have a sort of money losing product line that might be not as powerful to Cold-EEZE brand and how do you kind of then wrap this up.

Do you think you'd stay a publicly traded company or would you go private, I mean, you certainly would shed a little bit of cost if you're private and so I guess I'm just kind of thinking through the options that would roll forward if you were to sell the our Cold-EEZE brand.

I know this is hard for you to get behind this plan?.

So, first I'm going to take the $3 a share of cash off the table. I don't know want to talk about what the numbers are. If it’s less than $3 I don't want shareholders to be upset and I don't wanted to be quoted and I don't want you're being quoted. I don't know what the number is.

You could say its $10 a share or cash, you could say the $50 of cash, I'm not telling you what the numbers are. I am not even indicating it. I could you tell you our Cold-EEZE brand is growing.

Its valuable and it’s a seller’s market, so I think that we can – I do think we can get more than the current market cap of the company just for the Cold-EEZE brand. How much more? I don't know. I don't want to give any indications. So I'll be very clear about that.

Second of all, in terms of hypothetically acquiring a another consumer product I wouldn't do unless we got it at a great price and it really made sense and what I'm not going to do sell the Cold-EEZE brand just to flip it for some other brand six months from now. That I won't do.

And again, if I was to do something stupid like that, I'll make sure that shareholders who want to get out, can get out if they don't believe what I'm doing. But what I'm not interested in doing. Frankly, I didn't listen. I'm CEO of this company I get paid very well. I could sit back.

I can run this company with my eye closed and my hands tied behind my back. For the size of the company what we're doing. How long are we've been doing? I know this business pretty well and I know the retailers well. I know the marketing well. Our legal, I'm top of all that. Bob does a great job and all his stuff that I don't do.

And between us it's not difficult. It requires a lot of work but it’s not difficult, it’s not – frankly it's not that challenging. I want to do more than this. I think that we can – I can do with ProPhase Labs. I got to figure out how to do it. What I'm not going to do is retire.

And I'm not going flip this brand for another brand and I don’t' want to sit back and just collect my salary. I don't think that's great to shareholders. And honestly I could do that very easily become the Cold-EEZE brand can be around for long time. It's proven it's got like, it's been around 20 years. We got a lot of product innovations.

It's going to be around the next 20 years. So I could sit back and do that. I honestly don't it’s great to shareholders. But I wanted to do more. I think I can do with ProPhase Labs. I think I can make this a significantly larger company and so I'm going to over the six months try and figure out how to do that. So everything is on the table.

Don't jump to conclusions in terms of what we will or will not do. I really don't know. We literally are the beginning stages of the process with Bourne Partners and with exploring strategic alternatives. I know in most companies they announced that they are exploring strategic alternatives the day before they announced the deal.

I’m actually doing just the opposite. I don’t think they were far along in this process we really are the beginning but I did want to update shareholders. I do have a company meeting right after this where I’m going to inform all of our employees and I really want everybody to be on the same page. So this is to be played out.

I will continue to update shareholders and employees as much as possible. I have two constraints, one is legal and the other are competitors. I got to be very careful what we say with regards to competitors, they love to listen to these calls, they love to copy or advertising, they love the carbon copy or initiatives it’s amazing.

Anything that we do in the market place a year or two later our competitors seem to be happy enough, even the larger ones that have all the brand managers.

So I got to be careful in terms of the competition and I have to be careful in terms of legal issues, but those two constraints besides you can be rest assured I will do my best to keep up the shareholders and our employees going forward. I hope that answers your questions. I really don’t want to speculate on it more because it really is premature..

No, I appreciate it. Thanks Ted..

All right, thanks a lot Brad. Are there other questions other than from Mr. Lab, if not, Mr. Lab, feel free to come back in..

[Operator Instructions] We have a follow up question from the line of Mr. William Lab..

Thanks, Ted.

Ted what’s the arbitration about?.

Oh the arbitration that was related to the Phusion joint venture which we entered into with Phosphagenics a number of years ago. The funny thing is when we entered into it was a 50:50 joint venture and about a year after we entered into it and we started to have some issues a year or two, whatever the time frame was.

Actually remember the Director [ph] saying, yes we want factored into a 50:50 and they just don’t seem to work and this just didn’t seem to work.

And I really don’t want to comment on it, simply because the arbitrator has not rolled yet, but I can say that things are pretty much positive there, and we are looking to re-group some of our investment and we are going to see if the arbitrator agrees with us.

I am optimistic that some dollars will be awarded to us, legal expenses as I said we’ve already litigated this in front of the arbitrator.

It was much more thorough, much more intense, hundreds of thousands of document it was ridiculous, it never should have gone through arbitration, but the other side wasn’t willing to settle on any reasonable terms and -- listen its frustrating when you have people not making smart business decisions.

And there wasn’t much we could do and it literally was our only choice. But at this point I -- you see that neutral [ph] is going to be positive in the next six months and in my opinion. And again, that’s just my opinion; I don’t want my lawyers calling me a passive calling the [Indiscernible].

So I got to be careful what I say, but most of – virtually all of the legal expense are behind us now and it’s just a matter of how the arbitrator rules and I’m cautiously optimistic that he will rule in our favor..

Okay, I don’t want to believe that but I presume you are not at liberty, it’s confidential hearing and arbitrage....

No, I really don’t want to talk about that any further. It’s.... [Indiscernible]. Okay, -- move on...

Right. So let me ask you what did they call these brands to for the entire year last year. I mean if you took all the.....

We actually haven’t broken out the numbers and I don’t want to do that on this call. We’ve never broken out the numbers and given that we are going to process right now, I’d rather not get into the specific numbers.

I can just tell you that the Cold-EEZE brand we are confident that it’s going to grow the second half of this year and has bright prospects into 2017..

Okay, I just said hypothetically can I ask you this question you may or may not, have you met with your investment bankers, they have sold these brands, is that going to be on a profits stream, they are going to spy or to sell? I mean that somebody is going to buy the brand, but what kind of multiple range you don’t have to give me that they would be looking at if they like the brand what are they pay in time sales?.

That’s great. Well typically actually they don’t purchase it on a multiple of sales. And the reason is there are a couple of very significant factors that go into evaluating the brand. And if you brought it and a multiple of sales it wouldn’t take those factors into consideration.

One is the gross profit margins and in our case call these as gross profit margins in the 60s which is very high in the industry, acquire is low, gross profit margin its’ one of the things that we have led to maintain even when we introduced all of our premium higher priced products.

We maintain those higher gross profit margins and I think that we are going to get a payback in space for that because of that strategy that we deployed three, four or five years ago.

Second of all they look at marketing expense and so what you basically do is you take your gross profit and you subtract your marketing expense and you get something called contribution margin and that’s what most acquirers look at it is the contribution margin. We have a significant contribution margin.

And like I said we’ve been managing our company very efficiently, growing the brand and again this is just for branded sales. We also have a private label business that likely would not be included and my team might not be.

And again we have a private label business and we’ll have to see strategically what a potential acquirer wanted to do about us selling a private label that would compete with a brand and maybe they would acquire the private label.

But just [Indiscernible] of these branded we have high profit margins, our marketing expense is now in line with industry standards, so we have a high contribution margin and we should enjoy a significant multiple there.

What the number is, I’ve indicated, all I’m going to indicate which is we are going to have to wait and see the investment bankers could make guesses, I could make guesses, and honestly it’s not appropriate to do on this call but I will tell you that I am highly confident that just the Cold-EEZE brand is worth significantly more than the entire market capital of the company, and I’ll leave it at that.

If somebody hasn’t bid significantly more, I’m not going to sell it but I’m confident that somebody is going to bid significantly more than the current market capital company..

Without saying there is no -- I mean there is no general like three times or five times a.....

Yes, but the range is huge. First of all on a multiple sales -- [Indiscernible] expense on the size of the brand, how long the brand has been around, we’re relatively small, we are going to – we’re a relatively small brand that works against us, that puts us a little more towards the lower end of the range but we have high profit margins.

We are growing, we have high contribution margins and so that could push it up a little bit.

And that combined with the fact that we have this great consumer survey and we have this strong signs, a lot of the major companies have they aren’t even interested in a brand that lets its strong clinical science behind it and we think we have struggled clinical science, certainly than anybody in the homeopathic category.

We have really strong signs behind our brand and that I think it could make a big difference to a lot of potential acquirers. But again, -- a lot of variables and that the range is too large.

Even if I gave you the range, I gave you the numbers, honestly it’s irrelevant because we could be at the bottom of the range, we could be at the top of the range. So I’d rather....

If you have a tax -- you have a tax loss carried forward, okay.

How much is your tax loss carried forward?.

What our NOL is [Indiscernible]? It’s in the 30 million. It’s in the -- I don’t know what the exact number is, but it’s in the 30, it’s in the 30 range....

So you wouldn’t pay any tax on the sale, which is good..

There would be some tax but it would be relatively minimal. So it would put us in a very strong cash position. We -- I believe if we were to sell the Cold-EEZE brand we’ll end up with cash per share that’s more than the current market capital company.

And that’s assuming we sell it, and I’m not guaranteeing we are going to sell, but we are going to.....

No, no we are just exploring it..

All right..

But I mean if you got an offer for the whole company you wouldn’t turn it down if it’s a right number, if they wanted the whole [Indiscernible]?.

Of course. I just don’t -- I am now exploring the strategic alternatives in that direction if in the process of going through.

In going through this process if somebody say’s hey, I’d rather acquire the whole company and not just the brand because they really like to manufacture facility in and it’s a foreign company that actually want the infrastructure and so forth, am I opposed to it, no I’ve never opposed, at the end of the day I’m a large shareholder for us not CEO first..

Okay. Ted, I don’t want to take any more time. Thanks for the good job you are doing..

Thank you. Hey, that’s a great way. That’s a nice way to finish the call. I thought this was a very constructive call. It’s gone on more than an hour; Bob is there something that you want to add before we conclude it. No, we are good..

So I’d like to conclude the call. I appreciate everybody taking the time. Excellent questions today, looking forward to the future. The last point I will leave all of you with which I think I just mentioned.

First and foremost I’m a large shareholder, I do care deeply about the employees, but I’ve also always told them at the end of the day I have to do what’s best for the business. I’ll work this through with the employees; I now actually have a company employee meeting following this.

But rest assured at the end of the day, because I’m a shareholder first I have the best interest of all the other shareholders in mind. That comes first and foremost. I’m looking forward to the future, I’m actually really excited about it and we’ll just see what happens over the next six months. But I’m excited about a lot that’s going on here.

Rejuvenated, -- whatever the word is. I’m excited, I’m optimistic, you can hear it and we’ll see what happens. I expect to have good news for the shareholders over the next three to six months. Again, I appreciate all your time. Thank you very much. Operator, you can conclude the call..

This concludes today’s call. You may now disconnect..