Good day and welcome to the ProPhase Labs’ Second Quarter 2021 Financial Results and Corporate Update Conference Call. All participants will be in a listen-only mode. [Operator Instructions] I will now like to turn the conference over to Jules Abraham with CORE IR. Please go ahead..

Thank you, Cole. And good morning everyone. Welcome to the ProPhase Labs second quarter 2021 financial results and corporate update conference call.

Before we begin today, I’d like to remind everybody that the conference call will contain forward-looking statements including statements relating to the Company’s plans, expectations, future performance and future events, including with respect to the company’s new genome sequencing business, which was recently announced.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.

Additional information concerning factors that could cause results to differ materially from those forward-looking statements are contained the earnings release that was issued earlier today as well in the company’s public filings with the SEC.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

Finally, the conference call is being webcast and the web link is available on the Investor Relations section of the ProPhase Labs website. At this time, I’d like to turn the call over to ProPhase Labs’, Chief Executive Officer, Ted Karkus. Ted the floor is yours..

Thanks, Jules. Welcome everybody. Thanks so much for joining me, taking the time out of your day to listen to me talk, I love to talk. And this is I guess the one time that I am actually allowed to without feeling guilty about it. I should actually just start by highlighting that we hired CORE IR recently is our IR firm, Jules from CORE.

I can tell you that this is a phenomenal firm. They did not ask you to say this, but it just occurred to me. I’m doing weekly calls with so many people on their call and I’m really pleased.

And I think that they are actually going to help get the word out on our company to a lot more institutional investors, investment banks, and analysts, and so forth. So, I’m about to talk about some things that are transformational to our company. But by coincidence or by design I hired CORE IR, support us in these efforts as we move forward.

We announced the other day what, I believe is going to be a transformational acquisition for the company that’s Nebula Genomics. I always try and keep our shareholders up on what our company is doing.

I announced, I don’t know when a couple of months ago that we had formed two new wholly owned subsidiaries, ProPhase Global Health Care to attempt to move into other companies with diagnostic testing, COVID testing and vaccines.

We have a partnership with Sputnik vaccine, one of the leading vaccines in the world, certainly outside of the United States. So that’s ProPhase Global Health Care. I’m not going to spend a lot of time on that unless, or until we actually consummate a transaction. I just want you to know behind the scenes we are working on that division.

I also announced that we had formed ProPhase precision medicine. I don’t do these things by accident. I told everyone that we were planning for acquisitions in that division, and now we had just announced our first acquisition, Nebula Genommics. I truly believe it’s going to be transformational to our company. And I’m going to get into that.

I do think that I should review the second quarter numbers first. And then we’ll get back to that.

But also just by way of background, I also announced in addition to ProPhase precision medicine and ProPhase Global Healthcare, that we’re also planning on acquiring other laboratories to diversify outside of COVID testing and do all of the more traditional testing that you see at Clear Labs. So, I’m going to get into all that.

That’s sort of the big picture. Let’s talk about the second quarter, a little bit. Going back to December, we got into the COVID testing business very quickly, within a matter of weeks, we we’re probably doing more COVID testing than 95% of labs in the country.

The reason I pointed out that way is because I and our management team have a history of executing on behalf of the company we’re going in some new directions to the company now, and I can give you my word, I’m going to do everything I can to execute. And our management team is going to execute on these new directions.

They’re all synergistic to what we’re doing now, and I’ll explain that to you shortly. But going back to December, we got into the COVID testing world very, very quickly. By January we had ramped up, I mean, the third weekend in December, where we started testing, we were doing about a thousand tests a day based on five-days a week.

December 31, I think, we had 1500 tests that day. And then in January we had 2000 tests and by mid-January we had 2,500, we were over 2,500 by the end of the month. I think we average about 2,500 tests a day based on five days a week in January. Our numbers were exploding. It looked like they were going to go through the roof.

We built out a lab in Garden City, state-of-the-art lab, all state-of-the-art equipment. If any of you were ever in the New York or Long Island area, I welcome you to come visit our lab. It’s incredibly impressive. I don’t talk about inspections and things of that nature, we rushed, we asked New York to come inspect our lab. We wanted done quickly.

The inspector was incredibly impressed and surprised. And the reason I say that is because now that I’m in this business, I have visited a lot of other labs, labs that we’re looking to acquire. And I just can’t believe they tend to be small in nature. None of them are 25,000 square feet. They’re usually more like 1,000 to 4,000 square feet.

They don’t have state-of-the-art equipment. So, I can’t tell you how proud I am of our lab. And so, we built this out with the idea that we literally could process 50,000 tests per day. And obviously I was very bullish on the company, very bullish on revenues and earnings growth going forward.

We had one of our largest customers was testing across the State of Texas at the time in February with the bad weather. While their testing sites got shut down, they kept telling us that they were going to reopen. And I kept expecting them to, and then they didn’t. And then at the same time, the incidents of COVID just kept dropping.

Now, interestingly, at that time, I told everybody that vaccinations historically were flu vaccinations that typically only 70% of the population at most get it. In fact, they said 50% to 70%. And it’s typically 50 to 70% effective. And so even at both numbers were 70%, I mean then only 49% would be protected.

With COVID, maybe the numbers were going to be a little bit higher, but it was going to be the exact same kind of situation. Interestingly, while everybody thought that our vaccines were so effective, we now find out, I just read yesterday, that the Pfizer vaccine is only 49% effective against the new Delta variant.

And in fact, we have people in our office vaccinated for Pfizer and got COVID. So, I see it all around us. And so, it’s the case. We don’t know exactly how effective the vaccines are, but they’re clearly now looking like they’re a lot less effective than people thought just a couple of months ago.

And a part of it is a COVID comes in waves the same way that flu comes in waves. And we’re just starting, I don’t know if we’re just starting, but we haven’t even gotten to the tough cold flu season yet. We now have COVID that is ramping. So now let’s focus on the second quarter a little bit.

So here we are, we built out this tremendous lab, with this tremendous capacity, all of our customers back in March and April said that they’re about to ramp up, about to ramp up, but incidents of COVID was dropping faster than the initiatives that we were working on. So, we built up these tremendous initiatives.

We won some big RFPs, we won the Township Awards Bay’s 300,000 residents 12 labs competed for this RFP, some of the largest labs in the country. We beat them all out because we have a state-of-the-art lab, we have state-of-the-art IT. And IT is actually even more important.

I learned once your processing is the best, which actually more difficult as the IT is the collection of patient data, the reporting of results. We have fantastic IT, we have fantastic customer service.

And truth be told when we win a customer what’s interesting is we’ve had customers that do business with four or five labs, and we have found that once they do business with us, they leave the other labs and give us all their business.

So, I am really proud of our team in terms of what we built here, but I have no control over macro level issues that affect our business, and of course, COVID was dropping dramatically. And then we were extremely well positioned to do an enormous amount of business with proms, graduations and weddings and lo and behold.

Just before these were about to take place, and these were primarily in the state of New York, the Governor changed the rules and said, you don’t have to test. And there’s some interesting precedence on the timing of why they did that, but the fact is COVID testing was collapsing, rules changed.

And so the second quarter was a real disappointment from a revenue points of view, because I would have liked to have seen and expected to see even with the drop in COVID we have the potential to do a lot more revenue.

But just even that one regulatory rule change, dramatically changed by millions of dollars, the amount of business that we would have done with the proms, weddings and graduations. In any event, we had all of this overhead set up. And even with that, yet we reported a loss. But if you take out the non-cash charges, it actually would’ve been a profit.

Our cash levels, we paid out $4.5 million dividend, a special stock dividend. We paid that out of about, I don’t know, I think it was like six weeks of cash flow. I mean, the numbers were just ridiculous for a while there. So I was happy to do that. That was the $4.5 million approximate amount was what we paid in the dividend.

If you actually add that back, our cash levels actually increased by – would have increased by $4 million and our net working capital would have been I think around the same. So for quarter that I was told, there’s so many long-term shareholders that are still bullish at our company that we’ve provided a value for it.

But I had one person actually beat me up, said, my quarter was a disaster, the revenues were a disaster. Well, guess what? For a quarter that was a disaster we didn’t lose any money on a non-GAAP basis when you take out non-cash charges.

I would love to actually say that in the press release, but then I’ll get in trouble for that because I can’t talk about non-GAAP. I think I can do it on the telephone call, but Monica Brady, our CFO said, no, you can’t put it into the press release.

So in our disaster quieter, we paid out $4.5 million stock dividends, and yet our cast levels are fantastic. Our networking capital is fantastic, and we actually didn’t earn any money on a non-GAAP basis.

And those non-cash charges I should add, a good chunk of those non-cash charges are because stock options that we issued throughout the year, last year, we had – I’m sorry, we had nothing in our ESOP or Employee Stock Option Plan.

And so technically, while we awarded the options, you can’t book them until they’re actually issued, and they can’t actually be issued until the shareholders approve expanding the Employee Stock Option Plan. So what happened is in the second quarter, all the options of last year, all got expense.

While all the ones that invested upfront, all got expense in the second quarter. So our big disaster was a non-cash charge based on the timing of increasing our Employee Stock Option Plan. Now, having said that, I don’t want to make light of this.

Obviously, I’m disappointed with the second quarter revenues, but they still did, I would say, they’re up dramatically from a year ago. Also our second quarter historically in our manufacturing and dietary supplement businesses are the weakest quarter of the year.

Our dietary supplement business is actually growing nicely as I pointed out, we got a widespread distribution in our dietary supplements.

That’s actually really important now, not only for our dietary supplement business, but also for the businesses that we’re going into because our dietary supplement business is strong and growing, and we have full distribution of our food, drug and mass stores means that anything else that we introduced to the marketplace that we want to put into these same retail stores, we’re in an excellent position to do so right now.

All the major retailers are asking us, what else do we have up our sleeve? What else are we developing? We have a reputation now for developing fantastic dietary supplements because we do actual clinical studies. Our products have clinical claims on them, which other dietary supplements don’t.

And so, frankly, that’s where our lead product has done so well with very little advertising. And so they’re asking us what we have next. The retailers love – they’re reading our press releases. Our Head of Sales, Joe Brennan, who’s been in the business for more decades than – I want to let you know.

But he’s giving them more press releases and they’re very excited to hear what’s coming. So our second quarter, I’m happy to answer questions about it at the end. But if you now look forward, we’re in the exact same, it’s like déjà vu all over again. It’s like it’s December all over again.

It’s really kind of scary because we announced that we did 8,000 tests, over 8,000 tests, the first week of August last week, which even surprised me because I didn’t even know we were really ramping up yet. We significantly cut back on our overhead.

So it’s the opposite situation from the second quarter where we had tremendous overhead, a tremendous number of people working here and very little business, the business was drying up. I mean our revenues are testing, revenues were dropping almost every week in the entire quarter.

And as I said, I thought we were going to do an enormous amount of proms and weddings and graduation, then that disappeared. And then all of a sudden, the quarter is over. It was like, wow. And even having said that though, we still had a significant amounts of revenues when there was no COVID – there was very, very little COVID out there.

So now we’re in a situation where we’ve cut back our overhead significantly. I’m proud of the fact that on a non-cash basis, our – if you take out the non-cash charges that we’re really above breakeven. I think we have about $1.4 million loss. We had about $1.7 million in non-cash charges.

So that’s what the dramatic amounts of overhead that was in place for a major ramp up in COVID. We had over 80 or 100 employees in our lab. Now it’s the opposite situation. We’ve cut our overhead back dramatically, and now all of a sudden COVID is ramping up again. As I mentioned, the Pfizer vaccine is less than desired for the Delta variant.

People are getting COVID all over the place. A couple of weeks ago, I was telling people that positivity rates had gone up 4 times in the last four or five or six weeks. It’s actually the positivity rates have gone up significantly more than 4 times. The amount of COVID in this country has gone up dramatically.

And the amount of testing and inquiries is going through the roof. And understand, we have a base of customers from last December, January that are all coming back to us now. That 8,000 tests we did last week, that’s about our largest customer, hardly doing any testing at all, and our second largest customer just starting to ramp up.

And we have a new customer that may be larger than either of our largest customers from last year, that just ramping up. We also have the township of Oyster Bay and Dutchess County with 300,000 residents. We won those. I mentioned those were huge RFPs for us. We’re going to do an enormous amount of business with them.

I mean, we should have exploded in business. And as said we got virtually no business out of either one, because it was as COVID had dropped off and just as testing stopped. Well, guess what? We still won those RFPs. They’re still there.

And there are all sorts of indications now coming each – the township of Oyster Bay and Dutchess County has 300,000 residents. And now all of a sudden they’re coming back and there’s just tremendous potential going forward.

I’m a little gun shy in terms of what I think our revenues and earnings can be for the rest of the year, but it could be explosive. And the truth of the matter is I’m not even focused on it because I’m focused on what we’re doing in longer-term. I think I did a good job of covering on the second quarter. I’m happy to talk more about it.

But to be honest with you, our focus is on the future of our company. I’ve said this on prior calls, I am an investor for over 40 years. I’ve invested in hundreds, if not thousands of companies.

And there’s one rule I live by, it’s terminal value on a per share basis, which simply means what’s our company worth today, what’s our company going to be worth at three years or five years divided by the number of shares outstanding. That value better be going up over time.

My long-term shareholders, who’ve stuck with me, these are our friends, people I’ve known for 5, 10, 15, 20 years that have been invested with me in various companies and various – and invested in our company. They stuck with me when our stock was $0.65 to $1.

Back when we had to turn around the company, I took the company that was potentially going bankrupt, turned around the [indiscernible] for $50 million. They stuck with me, bought more stocks. Guess what? Since that time we’ve now paid a total of $1.80 in dividend, based on a stock that we turned around when it was $0.65 to $1.

And we have our stocks now that trades, I don’t know where it’s trading today, $6 or whatever it is. Long-term shareholders, we have built value over the time, and I’m going to continue to do that. I’m the largest shareholder in the company. In fact, actually after that last dividend some more shares were brought in my account, ProPhase.

And the bottom line is my goal is to potentially sell the company in a few years for a lot more than where it’s trading now. So if you have a long-term perspective, the stock came down from $16 because COVID incidents all, but fell out of bed, there was no more COVID, everybody’s always gone for good. Now it’s the opposite situation.

Our stock has come all the way down. COVID is coming back. And in the meantime, over the past several months, I said that we were going to diversify and that diversification strategy is right before our very eyes. So just within COVID, I would remind you, we’re also offering antigen tests and antibody tests.

In addition to our PCR tests, we are looking to acquire other labs that do all the other types of testing pathology, blood, tox, urine, and so forth. We’ve been working on this for seven months. I should say several months. The biggest issue frankly is the fact that we’re a public company. All of these companies were private.

They typically don’t have audited financials. And it’s really frustrating, because if we do a bunch of acquisitions they don’t have audited financials, they would negate our self registration with – it would tie our hands behind our backs in the future.

And so we just have to get through what it’s before we can do additional deals, but I’ll tell you I’ve been working on these deals for months now. So you can anticipate more to come throughout the rest of this year.

So in terms of diversification of our lab, I do not intend to just be in a COVID testing company, longer-term, although our revenues and earnings are likely to explode upwards over the last five months of the year.

But I expect to build a very strong lab business that a company like a Quest or LabCorp or BioReference in two years is going to want to buy us for a lot more than what we’re worth now. That’s sort of a longer-term methodical approach to building value for our shareholders. We are in the middle of executing on that strategy.

We’ve hired some great key executives who have 20 and 30 years of experience in the lab business, founding, building, selling labs, operating labs. I have really some phenomenal people in our company. It took a while to find the best people and we have found them.

So we’re in place just on the laboratory, the clear laboratory side for your traditional types of testing. We are going to continue to build the value of that company.

And meanwhile, as I said, we have a stock that’s down from 16 to 6 and COVID testing that’s taking off right before our eyes, 8,000 tests is a lot of tests and we don’t even have our largest customer from last year. It hasn’t even started testing at their batch to at the end of the month. All the schools, we are so well-positioned with schools.

We were testing like 75, 80 schools last year. That number could be huge this year. And now it’s not a matter of whether there’s COVID or its testing. It’s a matter of whether the schools are even going to open that’s how bad it is. The schools are opening. We should do an enormous amount of school testing.

And then as I said, there’s so many other initiatives within COVID testing. I’m sorry if I’m spending too much time on it. It’s actually not what I focus most of my day on. Now let’s get to the future of the company in the Q&A, if you want to talk more about either the second quarter or COVID testing, I would be happy to.

We announced a transformational acquisition the other day Nebula. I don’t think that the market understood it. I don’t know if it be buy on rumor, sell on news, I’ve said in prior conferences, we’re going to make genomics acquisitions. Let me be perfectly clear that first of all, we acquired the business. We announced that at $14-plus million.

It came with almost $4 million of net assets. Just a little less than that. Most of that of those net assets is cash. So the net of cash, we’re talking about a $10-plus million acquisition, a portion of that was cash, a portion of it was stock. The revenues of this business could be huge. I don’t want to compare it to ancestry.com and 23andMe.

I was to look 48 – 30 years ago in the business relatives don’t make your money, but I will tell you these are exciting businesses that we’re getting into. And those relatives traded a lot more than they’re trading at 8 times revenues or more our – the internal estimates of Nebula when we acquired them it looked like they could be at a run rate.

This is non-GAAP over the next year of $8 million to $10 million in revenues. That’s based on $300 a whole genome sequencing. And let me just go back a step on this. George Church is considered the Founder of Nebula. He is also one of the founders in the whole world of genomic research.

The more I look into him, we’re building an Advisory Board right now and I am interviewing superstars in the world of genomics. And when I interviewed them, the first thing I say is George Church is could be – is the founding member of our Advisory Board. And their response is, well, I’m know, George Church. And this is from superstars in the industry.

And right now several of those superstars in the industry have indicated a sincere interest in getting involved in our company. I am not talking about figureheads. George Church wanted stock ProPhase Labs stock as several leading venture capital firms. They want to stock instead of cash.

And they sold stock at $7 and change that they can’t sell it for six months. And here our stock is trading at $6 roughly.

So if you think the stock is a sale at $6, you’re betting against, leading authorities both in the investment world with the venture capitalists and one of the leading authorities in the world on genomics who have taken six months restricted stock. I don’t think technically the term is restricted, but they can’t sell it for six months.

And they were actually assistant that they want to stock. George Church is going to help us build the company. He’s going to attract additional advisors to our board. These are not going to be figureheads. He has – I don’t know 80 or a 100 students at Harvard. He was a professor.

A lot of them are entrepreneurial in nature as our two of the founders that executives of Nebula. And so basically you have to think of it there. A lot of them are working. I said, I should say those 80 or 100 students work in a large lab in Harvard. Some of them are entrepreneurial. They’re incubating new genomics related companies.

I’m going to have – I am in ProPhase Labs and ProPhase Precision Medicine is going to have a shot at some of these new upstarts that have tremendous potential. I only say that that what Google did better than anybody else. Two really smart guys. They had a platform, which is what we do have now ProPhase had a platform, but capital and stock.

And every time they saw a buddy in technology with tremendous potential, they went out and acquired it. That is my goal. And our goal at ProPhase Labs. Nebula is just the first step. So let’s talk about Nebula a little bit, and let’s talk about genomics a little bit. And let me see, I hadn’t looked at my notes once yet.

Nebula sells whole genome sequencing, unlike 23andMe and ancestry.com, the study only a very small part of the genome, whole genome sequencing, studies your entire genetic makeup so to speak in it. And I’m no scientists.

This is in layman’s terms and I’m happy maybe on a future call to put our experts our executives of Nebula on another call at a later date. But in very simple terms, whole genome sequencing provides you with a 100 or a 1,000 times as much genetic information.

Historically, the reason why other companies didn’t focus on whole genome sequencing or WGS, because it was so expensive. They say the first whole genome sequencing costs $3 billion until even just a few years ago, it was tens of thousands of dollars. And it got down to like a $1,000 right now in this country.

For the most part, we’ve gotten a couple of quotes it’s around $600 or $550. Nebula through a very special relationship with a foreign company, they are able to have their whole genome sequencing process for $300. They offer it to consumers at Quest.

They have proven the model just online with virtually no advertising and they built a very nice business where the run rate of business we believe over the next 12 months, they believe it’s around $8 million to $10 million and that’s non-GAAP, GAAP, it would be a little bit lower than that because in GAAP, you don’t recognize the revenues until you provide the service.

And if you understand the business, you’re actually that the customer is paying you up front, they’re paying us $300, but in GAAP, you actually can’t book those revenues until you provide the service, which is when the customer sends in the specimen to be processed.

So and because of that time delay, and the customer may never send it and they have, I believe six months to actually send it in until they actually send it in, you can’t recognize the revenue.

Now you why say, would they sell it a Quest? Because Nebula is also proven in the model that there are consumers out there that are actually interested in this information. They’re interested in following-up. There’s actually a library of information that Nebula provides. They provide updates every month based on your genetic makeup.

And so 50% of the people, the consumers who purchased Nebula’s product, their subscribers and I’m not going to go into the details now, but some provide a one-time, a lifetime rate, others pay annually, others pay monthly. That subscriber business is what’s generating all the profits.

So again, on a non-GAAP basis, they’re profitable on a GAAP basis, we’ll figure it out, I’ll have to talk to Monica a little bit more about that. I’m not going to get into that. But on a cash flow basis, this is a great business for us going forward.

Furthermore, that’s on $300 WGS with almost no advertising and with two entrepreneurs with very little capital, they were funded by with a minimal amount of capital from venture capitalists and from George Church, but then after that time, they did not raise additional capital. They didn’t spend, they didn’t spend on advertising.

And now all of a sudden they’d come into the fold of ProPhase, where we have a history with food, drug and mass retail stores with marketing.

We developed a entire to market go-to-market strategy from scratch for Cold-EEZE it proved hugely successful for a brand that was close to bankruptcy that everybody, many years ago, told me, it was worth $5 million or $10 million, even up until when we sold it. I was told is worth $20 million, we sold it for $50 million.

ProPhase is a homeopathic product. The 2% to 4% of the country is even interested in buying and it’s a seasonal product. You only buy it in the – mostly in the winter time and only homeopathic buyers and general buyers. It’s a very, very small limited market.

Could you imagine what we can do with whole genome sequencing, if we get the price out further, and if we market our whole genome sequencing product, the way we market Cold-EEZE. So we have this tremendous food, drug and mass distribution, we have a proprietary way that we advertise on TV and radio. That’s a fraction of what anybody else advertises.

We’re going to use that same advertising for Nebula’s products. And just to understand whole genome sequencing, what do you really learn? Well, guess what, there’s like 7,000 rare genetic mutations. It sounds rare, because you’d say, they’re rare genetic mutation, but the 7,000 of them, and a lot of people have these genetic mutations.

And actually have something typed out here that I want to read to you about Nebula. And I think it’s easier to read it than me to explain it to you. So I’m going to read a few things to you very quickly.

The main point is that high coverage, WGS or whole genome sequencing enables discovery of rare genetic mutations while DNA tests like 23andMe find only common mutations. Over the past years, it has become very clear that rare mutations sometimes unique to a single individual play a very important role in determining rates and disease risks.

They can also be used potentially to find new drug targets. And there are like 7,000 rare mutations. Nebula Genomics decodes the entire genome, which enables the identification of these rare genetic variances. In some instances, such rare genetic variance can provide insights into human biology and help identify genes that may be targeted with drugs.

For example, studies have identified rare mutations that disable certain genes, which confers beneficial traits such as a greatly reduced risk of diseases. For example, cardiovascular disease, dementia, et cetera.

The researchers learned from such discoveries that developing a drug that targets and deactivate the gene can confer similar protection from disease as the naturally occurring mutation. That whole genome sequencing of a large number of people offers a path forward rational genetics driven drug development.

Additionally, the Nebula report and this is what I was talking about, they give you a monthly report and they also provide you with a library. The Nebula report provides web-based tools for customers to search genes of interest along with annotated genetic variants.

These annotations provide links to additional information and research studies that can help customers understand the meaning of their genetic information.

Nebula’s most popular reporting tool is the Nebula library, which enables customers to browse different categories of traits, sleep, nutrition, and so forth, and identify what the latest research is saying about the genetic variance with respect to the relevant categories.

The Nebula library also provides what’s called a polygenic risk score, which summarizes the customer’s relative genetic predisposition through the trait of interest based on all the relevant barriers.

My point of all this, is that there’s no question that genetic research is the future of medicine, we call our division ProPhase Precision Medicine, or personalized medicine, the point being, if you study your genetic makeup and more and more research is developed on genetics and you correlate or tie in your genetic makeup with whether or not let’s suppose you have breast cancer or lung cancer or an eye melanoma, let’s use eye melanoma, it’s an easy one.

50% of people that have eye melanomas, cancer the eye, die from it.

Well, guess what? With research that I’m looking into, it turns out what are I should say, hypothetically, what if – we’ve more than 80% accuracy based on your genetic makeup, it would suggest to you whether you’re a part of that 50%, that’s going to live or die, taking it a step further with various cancers and diseases.

Right now, you have a certain types of cancer that suggests you should go get chemotherapy, but a lot of times chemotherapy doesn’t work and then the physician sends you further drugs and treatments.

What if based on genetic testing and genetic research that we could find out that chemotherapy isn’t the best plan of action, that 80% of people with your genetic makeup chemotherapy isn’t going to work for you. But this other drug with 80% accuracy is going to work for you, is that vitally important information.

Now, the reason why this is all new and cutting edge and why physicians aren’t really using it is because historically whole genome sequencing was incredibly expensive. And so that’s why keep coming back to the $300 price Nebula on a shoestring budget has proven that they can grow this business and that there’s interest in it.

But suppose we get that number down, because 23andMe and Ancestry.com were more like $200 or less. And Nebula has actually done a bunch of research on the price elasticity of demand, which simply means that if you drop the price, your business is going to go up dramatically. They couldn’t drop the price, because they couldn’t get it at a lower price.

But with ProPhase’s infrastructure and capital ability to build this up. We believe that we’re going to be able to get the price of whole genome sequencing down significantly from $300.

I don’t want to tell you how much, but I think we’re going to get it down significantly enough that the average person out there is going to say, oh, let me do a genetic makeup, even if just for interest. And it’s more than simply who your ancestors were. It’s your genetic makeup about your health.

More and more people care about their health and learning about their health. And this is going to become more popular in the coming years. This is why I say this is a transformational acquisition for the company.

The beauty of it is not only we are leveraging our food, drug and mass retail stores 40,000 stores, including Walmart, Walgreens, CVS, and so forth. There’s no guarantee we’re going to get in there, but the co-competitors they do have retail products in their stores. So I believe that we’re going to blow this up big with food, drug and mass stores.

But the other part of this is our ultimate goal is what’s going to do the whole genome sequencing in our lab. So we leverage our lab and our abilities and that we’re going to work on as well. If we do that, the two biggest issues with whole genome sequencing with consumers and why there are complaints out there.

And by the way, we’re going to clean up the complaints too. We’re professionals in this are complaints, but the two biggest complaints are the price. I mean, that’s really more of a hurdle in a complaint. And the other one is turnaround times, because they’re using a foreign companies and going to foreign lands and customs and all that.

That’s why, it can take six weeks to get your results, which is fine, if you’re just getting the information for out of interest. But on the other hand, if we’re going to get serious about this and physicians are going to use this, you’re going to have to turn that down dramatically.

I expect our lab to be at the cutting edge of providing fast turnaround times and great pricing. And that’s coming. And so, $8 million to $10 million of revenues in the next 12 months for Nebula, you can use that as an estimate, as you want. If we got the price under $200, I’m talking to our founders, don’t quote me on this.

But they think that just getting the price center to $200 could double or triple those revenues. And again, the model isn’t based on what you sell the whole genome sequencing for, it’s the ongoing subscription base of information.

It’s people that actually who care about their health that want to learn more and they sign up and pay either monthly or annually. And that’s at almost no cost to the company. So it’s a tremendous earnings model, longer-term. And of course, this acquisition is just the first of what I believe are going to be many.

Our goal is to do both sell direct-to-consumer, but then also think about the base of information that is being developed from all of the testing. And at the same time, what we also want to do is get more into the R&D side of working with physicians and hospitals.

And so imagine in the future, if we have another division of ProPhase Precision Medicine, that’s working more on the development side in conjunction with all of the data that we’re developing at Nebula. That’s the future of our company. All I can tell you in 40 years – 40 years of experience at work has gotten me to this point in time right now.

I want to build a multi-billion dollar company. I never knew how I was going to do it before the CLIA lab, COVID testing business took us up a level, we raised a block of money, strengthens our capital base, but now we have a real platform here. Think of us as the private equity roll-up, but as a public company.

And think of what we can do with that, think of the fact that we have world-renowned experts joining our Advisory Board that are real, that are shareholders that want to work with us and actually build our company. This only step number one, we’re going to do a lot more.

And in the backdrop of that is we have a micro-cap tremendous amount of assets, tremendous amount of value still have – in our worst quarter, our dollars or our cash to the network – net working capital didn’t budge, other than the $4.5 million dividend that we paid. And now we have a backdrop of COVID testing that looks like it doesn’t take off.

And we’re extremely well positioned. Like last year when we were new to the business. Now we have a huge customer base that continues to build that are all coming back to us because our customer service is so good and our IT support is so good. And so, we’re very well positioned. Again like déjà vu all over again. So I’m a little gun shy.

I don’t want to come out with estimates. I can only tell you 8,000 tests last week, which is a big number of tests for most small labs around the country. It’s just the tip of the iceberg of what we have the potential based on all these customers that aren’t even starting up for another three or four weeks.

So there’s a lot more to come on the numbers side. And let me just see if I missed anything before I open it up to Q&A. Again, our non-cash items were just under $1.7 million for the quarter. I think our loss is $1.4 million. Our stock option cost was – it looked like $1.5 million of that.

So, I mean, this almost stock outs your costs because we didn’t have any stock options that are in our e-stock. So that’s our numbers. I have to turn my computer back on, so that I can open this up to our Q&A. So bear with me for just one second. And Cole, if you would like to open it up to the Q&A, I would appreciate it..

[Operator Instructions] And our first question today will come from Patrick Patterson, Private Investor. Please go ahead..

Okay. Thank you very much. Ted, thank you very much. This is a great job. It’s so exciting. And just to hear you talk about it. I think you’re going to be a billion dollar company before the end of the year. I have two questions..

Pat, your lips to god’s ears. So it might take me two years. But that’s the goal..

Well, I’ll tell you this Nebula Genomics though, is really a key to getting there.

My first question is this there’s enough known about genomic sequencing already, that it’s been proven highly effective for the use in pharmacogenomics to determine what are the best medications, the best choice for a patient, for example, all the mistakes that are made on depression, people are given the wrong antidepressant medicine and the same thing with asthma, high blood pressure, high cholesterol, no conditions.

And insurance companies are, let’s say, it’s very expensive to miss prescribed these things.

And so I guess, what I’m wondering is what is your insight? What do you know about whether or not insurance companies are going to just realize how important genomic sequencing is, and insurance companies are going to adopt it as a standard and just pay for it and have all their customers now get genomic sequencing? When will insurance companies start paying?.

Sure. Yes, no, that’s a great question. There’s no question. It is inevitable. But you got to understand the price of whole genome sequencing just literally a few years ago was a fortune insurance companies didn’t want to touch it. Research moves in step with the quest to sequence. And so this will all come together.

The beauty of Nebula though, is that they’ve dropped the price dramatically lower than anyone else offers whole genome sequencing for. We’re just going to keep dropping the price further. And the beauty of that is for insurance companies to then come around is going to – there’s no question it’s going to happen.

But I think a part of it really was just how expensive it was and insurance companies they’re all about risk reward and they’re all about their tables. What is the test cost? What is the benefit of it? What is the benefit of the test? And so, years ago you couldn’t really define the benefits and the cost was so much, they weren’t having any of it.

Now it’s just the opposite with every year there’s significantly more research. I think that research is going to accelerate. There’s going to be more and more interest every year with regard to genetic research and also with regards to people being interested in their genetic makeup. We’re going to help get the word out of it.

So over time, I’m sure, but I can’t tell you if that’s one, two or three years, but in the meantime we’re getting the price so low that patients can afford this. First of all, they can afford it now on their own. And it’s going to be much more commonplace over the next several years.

And certainly, I would think over time insurance companies, it’s inevitable that they will – that they’ll be approving a lot more testing. So it’s one going in that direction. We’re just very, very early stage. Having said, that this was George Church’s dream 10 years ago, so 10 years, 15 years ago.

In fact, I remember the – what it was at HGSI I remember that was like 25 years ago. My friends of mine were investing in that company. So this has been going on for decades, but we’re right sort of at a turning point right now where the price has come down dramatically, there’s significantly more interest, there’s more research being done.

So this is all coming together. We’re right there as this business explodes. And we have the marketing cloud, we have the distribution cloud. So we have the ability to take what Nebula has started, which took them three, four years to do. I really believe we’re going to blow this up there.

And again, this is not the only acquisition that I believe that we’re going to make. We’re going to continue to make synergistic acquisitions. We’re going to build out ProPhase Precision Medicine, and while our CLIA lab business, we should be able to build $100 million or $200 million of value over the next year or two.

And I’m pleased, don’t quote me on this. And I do want to focus on the forward-looking statements I had to be very careful. This is what I believe is going to happen. I cannot guarantee it, but in my heart, I believe this. I can’t say, with our stock where it is right now, it’s under a $100 million market cap.

We have almost $50 million in net working capital, a state-of-the-art lozenge manufacturing facility, a dietary supplement business, state-of-the-art CLIA lab. It’s one of the best in the country. And just the value of our company without earnings, could almost be justified by the stock price.

And now we have COVID business about to explode, and we’re getting into ProPhase Precision Medicine, and we have our diversification strategy into other types of lab tests where we’re going to build their lab.

The reason I went through up in that tangent is because I’m committed to acquiring a couple of other labs that fully diversify our lab business and building a business. We have the management and infrastructure in place now to do that. And that’s sort of a just a methodical business. It’s interesting.

There’s so many mom and pop, and I’m sure, I’m going off on a tangible, but it’s really important. There’s so many mom and pop labs out there that just don’t have the capital or infrastructure to build. And then you have the companies like LabCorp and Quest that are just absolutely huge. They’re not going to start out new labs and new businesses.

What they do is when you build up your lab, they then acquire it, all right. And so you build up the business organically plus acquisitions, you do acquisitions around one times revenues. You build organically at no times revenues.

Once you have the licenses and insurance, you build that up and then you sell it to LabCorp or Quest, the two, they got a big enough, they’ll pay 2 or 2.2x for it. It’s a really nice business strategy.

There’s like a huge arbitrage or gap out there between building a lab and then selling the lab and what you can buy a small lab for, which is, it’s the reverse of what you would think of small lab, small labs go for somewhere between 0.8 and 1x revenue. The really large labs go for 2 or 2.2x revenues.

And it’s really interesting as I get into that world. And so our goal is to build that acquire labs and then sell them for 1.5x or 2x revenues more. So that the business, while we’re doing that, we’re going to leverage all that testing.

And what’s going to get us to $1 billion dollar mark, is this field that synergistic, leverages everything else we have in that Nebula Genomics and all the other genomics companies will be plan and acquire, and cash that we’re going to take. I hope that answered all your questions, Pat..

A second one, if you will, but Ted is, could you just give a little overview? How do you see using the 40,000 retail outlets you have along with Nebula Genomics?.

Sorry. So just really quickly, and then we’ll move on. We have a lot of questions here. Very simply Nebula, they’re new to marketing and they’re not – they haven’t done a lot of advertising. They’re only selling online. But we have distribution. We have a 25-year history of selling products into a food, drug and mass retail stores.

We have a phenomenal relationship. We have people that have been in the business for 30 years or actually longer. And so to have an exciting product like Nebula’s at just the right time to introduce it. And if we can get the price down, which I believe I’m confident, we’re going to be able to get the price down significantly from $300.

The next step is getting into the food, drug and mass retail stores, TV and radio advertising, and make it more common play. Nebula already proved the model. They’re already building their revenues, your revenues grow, they are grown every year. There’s more and more people interested. Their LIBOR rate is growing, their subscriber base is growing.

The number of people that are interacting with them is growing, their database is growing. We’re going to accelerate that growth with and we’re going to leverage it with the food, drug and mass stores. We’re going to leverage it with the fact that we have the capital to do the advertising that’s necessary.

This is just like a little drop, what they’ve done so far compared to what I believe we could do with this business over the next one to three years. Thank you, Pat. I’m sorry. We should really move on because there’s so many other questions. But I really appreciate your continued support. All right, thank you.

Next question?.

And our next one, the question will come from Fred MacDonald, Private Investor. Please go ahead..

Hey, Ted, great job. I’m kind of mixed sort of apples and oranges here, but there are two companies that are publicly traded 23andMe and us and doing the DNAing ancestry work. If I look at 23andMe, they’ve got $3 billion with a market cap, $400 million [indiscernible] this year and then there’s us selling as liquidation value.

Can you comment on that?.

The only thing I can – look, here’s what I’m going to tell you in a nutshell, all right, throughout the time I’ve been the CEO, my number one focus build the value of the company and the stock price will take care of itself. We have plenty of capital right now.

I don’t have to worry about the stock price right now, psychologically, to be honest with you, the only reason I’ve cared about the stock price this year is we did a capital raise at $12.50 and for the long-term shareholders who kept the stock, I feel badly. However, what I can do is continue to build the value of the company.

So the $12.50 a year from now, actually it looks like a great investment. For the people who traded the stock, I could care less.

I mean, this sincerely, I don’t care about the trader and a good percentage of the people that bought the stock back in January, flipped it when COVID, it’s pretty obvious where stock went from $16 to under $5, which is ridiculous. And it was all just because every week the incidents of COVID dropped.

And so every week stocks are sold, but guess what, if COVID goes away entirely, we still have a strong base of businesses, a strong base of assets, and now we’re growing.

Nebula has nothing to do with COVID all the other types of CLIA lab testing that we’re getting into, have nothing to do with COVID granted we’re not there yet, but I also understand I’ve spent the last six months working on a diversification strategy for a lab business.

So you can bet that you’re going to see initiatives developed and announced and the not too distant future, let’s just say over the course of the rest of this year, we’re going to be a full diversified lab business. We have a dietary supplement business is growing, Nebula, I think we’re going to grow it dramatically.

So beyond that, if people want to sell a stock now, because there’s no COVID around or as they want to look backwards and say, okay, your second quarter, you didn’t earn any money.

Or they didn’t listen to this conference call and they don’t understand that the losses are actually – because it was non-cash stock option and that’s in our worst quarter and now all of a sudden our COVID businesses ramping up in a big way and our Nebula business going to ramp up. So you can either look backwards to look forwards.

So I don’t know if that answers your question. If you’re a long-term investor and you have capital, and you buy more here, I think you could be very happy over time. If you’re a trader, I don’t know what to tell you. I wouldn’t even want to give advice to trader anyway, and I know you’re a long-term investor. So I thank you for your support..

Good. I got my full cash dividends, so looking for more down the line. Thank you very much..

Have a great day. Next question, please..

And our next question will come from Dennis Waldman, Private Investor. Please go ahead..

Hi, Ted. Despite the market reaction, I’m very excited and bullish on the acquisition of Nebula. This is going to allow ProPhase to partake in the exploding market of genetic medicine. So I’m a subscriber of Ancestry.com, 23andMe and Family Tree DNA each, you probably wondering why three, but they each have their own advantage.

At 23andMe is also providing health information which I also subscribed to. So when I heard about the Nebula acquisition I quickly went to this site and they allow you to download from 23andMe, the DNA test that was done through there.

And from doing this, I was able to look at what they offer a free analysis of your health, which I think is a subset of what you’d have to pay for. And what I see, and I’ve looked at competitors and there’s nobody that is offering what Nebula does for the consumer.

I mean, this was not even close compared to 23andMe, which is very minimalistic when it comes to the health profiles with what Nebula’s offering is the Rolls Royce and 23andMe is….

Okay, go ahead. So get to the question. I’ll answer it..

The question is, is there an opportunity for Nebula to be working with companies like 23andMe to provide a better service?.

Yes. Well, listen, I don’t know, 23andMe may want to acquire in six months or a year. I mean, when you look at their market cap, they’d be crazy not to follow, the analogy, the Google story that I said earlier in this call, they’d be crazy not to use that market cap and valuation to acquire, cutting edge budding genomics companies like ours.

I don’t know that we’re going to be for sale though. But to work with them with it actually was really interesting is people who purchase those services are coming over to Nebula because they want more information.

And the biggest difference in my mind between 23andMe and a Nebula is that historically whole genome sequencing cost multiples of what 23andMe cost that’s number one. And number two, historically 23andMe and Ancestry.com did good job advertising. So, but now it’s the reverse whole genome sequencing through Nebula. We’re going to drop that price.

Our goal is to drop it significantly from here, and we’re going to bump up the advertising.

And I don’t listen – this may be naïve, but I think we can – I want to say beat them at their own game, but I’ll tell you what the CLIA lab business, and everyone said, how can you compete with quest and LabCorp? It turns out they couldn’t compete with us, because they didn’t have well, the infrastructure of the state of a core – state-of-art equipment that we had, because we just bought, we were, no, they didn’t have our turnaround times.

They were providing for seven days to get your COVID results at the peak where we were doing it 24 hours. It’s the same thing now with Nebula. We’re coming out with what I believe is a significantly better product. So, hurdles were price. And then the other one is turnaround times. I want to get our turnaround times down dramatically.

I want to improve our customer service, all those things that our company has done historically. So, we’re going to take Nebula to the next level and we’ll see. But again, we don’t need to compete with 23andMe and Ancestry.com. Well, they did is they proved that there’s a monster market caps out there and monster business out there.

Nebula proved that whole genome sequencing is a business model that works. They prove that consumers are interested in it. We’re now going to take what they built, and they started and we’re going to do it with our public company, infrastructure and capital. We’re going to blow it up and take it to the next level.

And I see, I have one more question Dennis, so if you don’t mind, I really appreciate your support and your question and call if we could get the last question please..

Sure. Certainly. And our next question will come from George Jane Kens, Private Investor. Please go ahead..

Yes. Thank you very much. Hey Ted. It’s George.

How are you?.

Good. Thank you. We’re over time. So, I apologize. And there’s another question I don’t like to miss questions if I don’t have to, if we could make it quick, I appreciate it..

I’ll make it very quick. There are – are there any plans to strike a deal with the city or California for that matter where they have a mass vaccine mandate or weekly testing.

Okay. Yes, yes, yes. That’s listen. So you got to understand what’s going on in California, is going on around the country. There is so much COVID testing that and it caught everybody by surprise. Because we just went through a couple of months where there was no COVID. Everybody felt that they were safe because of the vaccine.

And I – it didn’t matter what I said, only 50% of the company of the country got vaccinated. So, how is it that the country is protected? And I was saying at the beginning of the year, there’s no way in hell 90% of the country is getting back to it. It was a joke. Only 50% are vaccinated. And it turns out the 50% that are vaccinated.

We find out now that Pfizer against the Delta variant is less than 50% effective. So, what’s the real protection of vaccinations? What’s really going on is we have, and it’s at a time where nobody’s wearing masks anymore. So, we’re in the midst of a new wave of COVID with a new variant.

There are other various, there are more and more variants to keep coming. Anybody thinks that COVID is going away. And I’m sorry, I don’t mean to be pessimistic about it. COVID is not going away anytime soon. So it’s ramping up. Our customer base is ramping up. Whether we specifically do something in California or not.

The point is there are schools all across the country. If they want to open up, they’re going to want to do testing. We’re getting inquiries all over the place. I don’t know where this all goes.

I’m gun shy, because of what happened in January, we had this huge boom and then every week and every month our testing drops right now it’s the opposite is happening. I can only tell you that there are enormous numbers of inquiries and interest, and people will want to test with us the new customers. This is starting to happen.

To be honest with you, the 8,000 tests in the first week, actually quite by surprise, I had no idea it was that much. I don’t walk into the lab every day. And I was like, wow, our business really ramp it up. And so right now, so that everybody knows we’re hiring in every department in our lab. That’s how, that’s how well we are doing.

And that’s, that’s what we anticipate. So, I was always – you want to see where their company is doing well or poorly. Go see if their advertising. We’re advertising every department in our lab right now, those our business has taken away. I hope that answers your question. Let’s just go. I believe we have one more question call, if you don’t mind.

Thank you, George. I appreciate it..

Our next question, come from John [indiscernible]. Please go ahead..

Congratulations on being the overnight success on Broadway after spending 10 years off probably..

Thank you, John. Is there a question in there? I appreciate the compliment and your support..

Look here’s the question. Peter Lynch [ph] is always says, a lot of reasons for inside us to sell the stock, but there’s only one winner an inside of buy stock because he thinks the price is going to rise. And I understand it’s, for years, the last few years you’ve been taking the discount on your salary and taking in options.

I was very impressed that all the directors, nobody has been selling, and I read this and force and all that. No one’s selling any stock.

And then when I was very surprised that you bought stock in June it vital, what happens if, what happens when the options come?.

Yes, yes. Thank you so much. So, first of all, this is interesting. I actually got into it with, I don’t know if I’m supposed to talk about this or not, but all the directors want stock or stock options instead of cash compensation. The problem is – we have the employee stock option pool that’s for employees.

We have a separate one for the directors and that was running low. And to be honest with you, it’s I have to figure out what’s best for the company at all times, because the directors all want stock options now. All right. That’s how bullish they are. All right. And so they actually two of the three, so all stock options for the next year one.

So cash has stock options. Honestly, that was more because he’s our newest director. And the pool’s stock options is running low, and I don’t want to keep going back to the shareholders to re-up.

So, I’m trying to be very careful again, I care about terminal value on a per share basis, if we issue too many stock options ultimately that that would dilute shareholders. It would at least dilute their upside. Okay. And just to be clear, most of the stock options that have been issued in the past year are at higher prices than current stock prices.

So, even though we get bangs with these non-cash charges every quarter, it’s actually for stock options that are out of the money. And that also drives me a little crazy, but yes, obviously based on the actions I and the directors are all very bullish on the future of the company. That was kind of a softball question, but I do appreciate it.

And I think Carl that’s it for questions. That was a good question to end on. Yes, our management team, me, obviously our directors are all very bullish. I’d say did buy stock, it actually was off the dividend. And I decided to keep that stock.

I decided whether to keep it or not, and I kept the stock and look, I’m really excited what I’m doing with Nebula. All I can tell you, is this a transformational acquisition for the company.

If people don’t understand it, now they’ll understand it three months, six months, 12 months, and then they’ll look back and they’ll say, oh my God, this company went in a new direction. What’s interesting about the new direction. It’s not entirely new. It’s leveraging our company. It’s leveraging our CLIA Lab.

It’s leveraging our food drug and mass distribution, which is almost by pure coincidence, really scary. And so look, I’m excited for the future. I’m sorry. I don’t, am I supposed to be sorry that the incidence of COVID dropped in the second quarter. We did less testing. I don’t know, I’m sorry.

We didn’t have more revenues in our names, even though our revenues were up huge year-over-year, our business is growing every month, every quarter, every year, we’re growing the value of our company every quarter.

So, if you want me to be apologetic for the second quarter, you know, I’ll be apologetic, but all I can tell you is I’m building the company. We are very well positioned for COVID. We’re very well positioned to leverage our CLIA business with additional acquisitions. And we’re very well leveraged.

I mean, we’re very well situated now going into the field of genomics, which is going to leverage all the assets we have at synergistic, everything we’re doing, and I’m excited for the future. And I thank you all for spending the time. We were a little bit over an hour. I hope that it was useful for everybody and Carl you can end the call now..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time..