Welcome to the ProPhase Labs Third Quarter 2021 Financial Results and Corporate Update Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jules Abraham with CORE IR. Please go ahead..

Thank you, Ailey, and good morning, everyone. During this call, management will be making forward-looking statements, including statements that address ProPhase’s expectations for future performance or operational results.

These include statements regarding the company’s expectations with respect to Q4 COVID-19 testing revenues, its goal to build a sizable customer base of independent pharmacies that will provide consistent and growing testing revenues for its diagnostics business, plans to provide genomics testing with faster turnaround times and lower price points and ongoing efforts to evaluate and pursue additional strategic and synergistic acquisitions to build the company’s precision medicine and genomics research capabilities.

Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

For more information about these risks, please refer to the risk factors described in ProPhase’s most recently filed annual reports on Form 10-K and quarterly report on Form 10-Q, the Form 8-K filed with the SEC today and ProPhase Labs press release that accompanies this call, particularly the cautionary statements in it.

The content of this call contains time-sensitive information that is accurate only as of today, November 12, 2021. Except as required by law, ProPhase Labs disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

It’s now my pleasure to introduce Ted Karkus, Chairman and CEO of ProPhase Labs.

Ted?.

Thank you, Jules, and thank you, Ailey, and thank you all for joining me today. I am in a particularly good move. We’ve gone through a year, and I’m just thinking about this now spontaneously back when I first launched a proxy contest 12 years ago, it was a year of health, turning around the company, restructuring firing versus everybody.

And now this past year, I could probably say the same thing, getting into a new business. I can’t tell you what’s involved in starting a new business from scratch. And I happen to think that we’re situated in a really good place right now. And I’ll get more into that. Let me start by giving you a quick background on me.

I’ll make it really brief for those of you that have heard this before, I’m the largest listed shareholder in the company. I have a history of executing on behalf of our shareholders. I’ve been investing in small-cap development stage companies for 40 years.

I turned around several companies, one of which was quite significant, a company that was ultimately sold for $1.4 billion. When I took over our company with the proxy content a little more than a decade ago, our stock bottomed at $0.60, $0.65.

I turned and we turned and our management team turned the company around, ultimately selling the Cold-EEZE brand for $50 million. Our stock now trades between $5 and $6 a share. We paid $1.80 in special stock dividend since then. We sold the Cold-EEZE Remedy brand for $50 million.

So in my mind, for those that have been long-term shareholders, they’ve been very, very well rewarded. But I think that the best is yet to come. And to be honest with you, I’m just getting started. That’s the history. More recently, we pivoted into COVID testing.

Within a short period of time, we built a substantial business with a state-of-the-art lab in Garden City, New York. We more recently have significantly diversified our customer base. We’re growing revenues in Q4 with a more stabilized customer base.

Our next step is going to be to diversify further with the Nebula genomics, which leverages our lab testing facilities and our infrastructure selling into 40,000 food, drug and mass retail stores. And then our ultimate goal is going to diversify our genomics platform into precision personalized medicine, which is the future of health care.

I will get into all of this. That’s just the quick overview. I’m not going to read the numbers. You all the ability to read the press release and the numbers for yourselves. And if you have questions at the end about the numbers, I’ll do my best to answer them. I just want to point out a couple of things.

We now are reporting adjusted EBITDA to give you a better sense of what the real earnings are. We have stock options in the company. And ultimately, they’re always restructuring. The management changes going on.

There were consultants that I hired a year ago that I no longer work with and options that we gave to them, we ended up actually canceling them. And it’s really interesting. You issue stock options, you have an expense every quarter for them. When you cancel them, you don’t reverse that expense. So we actually have these non-existing expenses.

I don’t want the SEC to get upset with me. There were, I guess, theoretical expenses at the time that we issued the stock options, but then you cancel the stock options, you don’t get to reverse that expense.

So, I thought it was important to start reporting adjusted EBITDA, which I believe gives you and everyone a better feel for what the numbers actually look like. And then the other perspective I want to give to you, we’re a small-cap growing company. We’re looking to grow into a much larger company.

I don’t know what our market cap is, it’s under $100 million. My goal is to ultimately have a market cap of $1 billion or $2 billion. In order to do that, we are constantly looking at new opportunities the same way that we pivoted into the CLIA lab testing last year, and we’ve acquired Nebula.

I understand that Nebula was the culmination of the year’s worth of work of reviewing at least 60 different acquisitions. It might have even been 100 different acquisitions. At least 20 of them, we did very serious due diligence on. This includes investment bankers. It includes attorneys, legal fees, due diligence, consultants, accountants, you name it.

There’s a significant amount of expense in reviewing acquisitions and doing the due diligence and figuring out what’s real and what has real potential versus what is just a story. And that culminated in the acquisition of Nebula, which I’m so excited about. It not only brings tremendous value to the company.

It brings tremendous upside, but it also significantly leverages the infrastructure that we already have in place. I’ll get more into that in a little while. But my point being is all of this work is expensive.

And I liking it to when we turned around the Cold-EEZE bread, we used to lose – I don’t know, if you go back and look at our numbers, we used to probably lose $1 million or $2 million a year building the Cold-EEZE brand. This is a brand that was potentially going out of business when I inherited it. And ultimately, we sold that for $50 million.

So losing $1 million or $2 million a year to rebuild the business, best investment I ever made. Similarly, the investments that we’re making in lawyers and investment bankers and accountants and consultants and reviewing acquisitions. In my mind, this is an investment towards building the value of the company longer term.

And as I mentioned at the outset, I and we have a history of providing value to our shareholders, and it’s been pretty significant, what we’ve been able to accomplish, and we’re going to continue along that route in the coming years.

And therefore, to look on a quarter-to-quarter basis and see a loss, the loss in the third quarter was primarily due to these lawyers and accountant fees and investment banking fees. And also, by way of example, when we acquired Nebula, there was significant investment banking fees and legal fees associated with that. That’s all expensed.

It’s not capitalized. So that hits our bottom line in the third quarter. So, when you account for all that, what’s interesting is, even without accounting for all that, we were actually profitable for the year on an adjusted EBITDA basis.

When you account for these extra expenses, which in my mind are investments, you can see our numbers are a lot better than what it might look like at first glance. So, I just want to review that to put that in a little bit perspective. Getting into the specific subsidiaries, I’ll start with the smallest ones first.

First of all, our contract manufacturing, someone actually asked me already this morning, why was there a dip this year. And so just to explain that last year was an aberration.

We had a spike in contract manufacturing sales because of COVID, as you recall, back when COVID first hit, everybody rushed out to buy toilet paper, paper towels, and guess what they got lozenges and they bought a lot of them. And our contract manufacturing primarily manufactures lozenges for about eight companies.

And so, there was enormous demand out of the blue, just an enormous charge. We could not – I mean, we were running our manufacturing lines around the clock. So, we sold a ton. It was an aberration. It was a spike.

But then in addition to that, we built up an enormous inventory or I should say, our customers built up an enormous inventory of lozenges going into this year. When this year hit, we didn’t have that aberrational demand that spike in demand that we had last year. At the same time, we had all this inventory to burn up.

So, while we had an abnormally unusually high spike in sales last year, we had an abnormally low amount of sales, relatively speaking, our contract manufacturing this year. Going into next year, inventory levels are more normalized, we’re going to get back to growth. It’s not a fast-growing business, but we are potentially adding more customers.

We’re certainly going to have a bounce back in sales in contract manufacturing. And I want to say certainly that keep in mind forward-looking statements, but my expectation is, there’s no reason why we’re not going to have a nice bounce back in contract manufacturing sales next year, and that’s without even adding any new customers.

So, we’re going to have a bounce back in sales from contract manufacturing. If we add new customers, which I hope and expect to, then we’ll grow even more. So, our contract manufacturing is going to be just lying going into next year.

With our dietary supplement business, that’s a small business, but that’s a little bit more visible to understand the revenues and growth by the distribution. If you have more distribution, it’s logical, you’re going to have more sales. As I mentioned, our dietary supplement businesses started off in Rite Aid did so well.

We got into Walgreens at the beginning of the year, we got into Walmart, CBS and all the major food, drug and mass retail stores. And so, it’s only natural just from distribution that our product, our dietary supplement business is going to grow, albeit from a small base. But that business is doing very well.

We find that our lead product because we do actual clinical studies that when we put it on the shelves, we can make claims that actually go on the package clinically shown. That is critically important to consumers. They love buying dietary supplements that have clinically shown on it.

So, our products honestly tend to sell themselves when they’re on the shelf, even without advertising. So that business is doing just fine.

What’s also nice about our dietary supplement business, even though it’s doing, let’s say, a few million dollars of business this year, it solidifies and it keeps our infrastructure and our relationships with all of our major food, drug and mass retailers strong.

It keeps our relationship with our major national broker who’s the number one national broker to food, drug and mass retail stores, keeps our relationship with them strong.

And everybody is asking us what’s next in terms of other products because our dietary supplements are doing so well, and they can see the retailers see that we’re now diversifying and we’re in the CLIA lab business that we’re doing COVID testing, diagnostic testing.

They want to know what else are we getting into and they’re interested in our next products. And I’m going to get into that. But the point of all this is that our infrastructure has never been stronger. So that covers our contract manufacturing and our dietary supplements. Moving on to our CLIA labs.

We should have more consistency in testing going forward. While in the past, we did a ton of school testing last cough called flu season. We started business in December. January was the biggest month at the time that we ever had. That was a huge percentage of that was in schools.

We are no longer relying on schools and no longer is reliant on mandates as we once were. We now have a significant amount of our CLIA lab diagnostic testing business, which comes from independent pharmacies and concierge services.

These are places where people can just walk up and get a test for whatever reason without having to go to a doctor’s office. It is incredibly convenient. People are always going to need to be COVID tested for a variety of reasons, no different than people going to get a flu test. But obviously, COVID is more dangerous than flu.

So, people are going to be more motivated to get a COVID test. I can’t tell you what testing levels are going to look like next year. But what I can tell you is our customer base is significantly more diverse than it was in January. And in January, that’s when our sales peaked, and I thought that they were going to continue to grow.

And then we had a tremendous drop-off in February an even bigger drop off in March, and I kept thinking it was going to bounce back. And then in the summer, we had mandates that said you didn’t have to wear mask, you need to have to get tested. So all the testing we thought we’re going to do for graduation schools and primes all said disappeared.

So we had a situation over the summer where we had enormous amount of employees and all of a sudden very little testing.

And I would simply point out that in that environment where we had very little testing and significant number of employees and significant overhead, our numbers really weren’t that bad when you take into context the adjusted EBITDA and the expenses for acquisitions. And so that’s our worst possible quarter.

So we just got through our worst possible quarter. And yet for the year, we’re still positive on an adjusted EBITDA basis. And we’re going into a fourth quarter that honestly is exciting.

The month of October, we announced in the press release, we did more business than the entire third quarter, but also strikingly, and I may have neglected to put this in the press release, we did more business in the month of October than we did in the month of January, the biggest month in the history of the company.

So, we just had the biggest month in the history of the company and what I’m particularly enthusiastic about is that there’s no slowdown in site. And I would also say that back in January, it was based on a panic when positivity rates were unusually high and everyone was in a panic being tested. It’s a very different environment now.

Things have settled down. Positivity rates did spike a few months ago, but they settled out. And even though they’ve settled out, our business has never been stronger than it is right now. And so, I’m a little gun-shy after what happened in January. But all I can tell you is, we have a very well-diversified customer base.

We’re not relying just on schools. We won two big awards and two big counties, and we have all these concierge services and independent pharmacies and a number of independent pharmacies is growing.

And I really think that that’s the wave of the future, at least a part of it is going to be people instead of going to doctors office to get tested, you walk down to the block to your local pharmacy or you walk down the block to a concierge service or a big pop up 10. You get tested. Our results, we are one of the most efficient labs in the country.

We consistently turn around results in less than 24 hours. I’m really proud of that fact. Our customer service is as good as or better than virtually any lab in the industry. And quite frankly, the big labs can’t compete with us because they just can’t provide and turn around results with the reliability that we do.

So, I feel really good, obviously, about our testing service. You can expect, I certainly expect that we’re going to have a strong fourth quarter. And so, I’m looking forward to next steps. Let me just – I’m going to go through some notes. I don’t want to mix too much here. Let’s go on to Nebula.

So, Nebula sells whole genome sequencing direct to consumers. The beauty of this business – first of all, it’s a fantastic business because over time, people are going to be more and more interested in their health.

Traditionally, they’re interested in companies like ss3.com and 23andMe for ancestry information, where you might have come from a country, you might have come from generations ago, who are your ancestors who might have been that’s kind of interesting. You can actually get that information from studying a very small percentage of your genome.

The future of medicine, however, is in studying your whole genetic makeup and understanding how your genetic makeup leads you to be predisposed to various diseases and illnesses. Over time, people are going to be more interested in your genetic makeup, not just for ancestry but also for your health.

And it doesn’t mean one has to compete with the other, held genome sequencing, what Nebula does, does provide some basic information about your ancestry.

It can’t compete right now with an ancestry or 23andMe just in terms of their database of people that they tested where they can then link it in to figure out your accessory and give you a little bit more detail.

On the other hand, whole genome sequencing can provide as much as 1,000 to 5,000 times as much genetic information as many of these other tests out there. The reason why nobody is focused on whole genome sequencing historically is because it was so expensive. There was way too expensive.

I think I put in one of our reports, we said the first whole genome would sequence for $3 billion and more recently was thousands of dollars. And even now, the lowest provider in the US is somewhere around $600 and Nebula provides it for $300. Moving forward, we can leverage Nebula.

First of all, as I mentioned, with our food, drug and mass retail distribution, we plan and the way this works is, you can’t sell a $300 product to Walmart or Walgreens because they’re going to market up, retailers market up anywhere from 20% to 100%. So, no one’s going into Walmart to buy $400, $500 product.

However, what we can do is something called low-pass, which studies – which doesn’t give you as much information as whole genome sequencing, but we can do it for – and I don’t know what the exact number is going to be. We’re still working on it, but somewhere around $30 or $50, we can offer that to consumers.

That’s a product we can sell in food, drug and mass retail stores. So, we have a history of success in selling dietary supplements and other products and the Cold-EEZE brand and building that in marketing and distributing it to retailers and doing the advertising, doing the execution, the fulfillment and so forth.

There’s no reason why we can’t do exactly the same thing with Nebula’s products in food, drug and mass retail stores. At the same time, Nebula only sells online. There’s no reason why we can’t use our expertise to also build sales online. In addition to that, we expect we’re negotiating right now to get the price down significantly from $300.

We think that the price elasticity of demand for this product suggests that if we can get the price down $50 or $100, that the demand is potentially going to double or triple. I don’t know what the numbers are. I can only tell you that I am confident that we’re going to be able to grow Nebula’s current business significantly.

As I mentioned when we first acquired them, that they were at a run rate of $9 million run rate over the next 12 months. So I don’t know what the numbers are going to be for this calendar year. It’s obviously going to be less than that because they’re growing. But we think that, that number, we can grow that significantly once we get the price down.

Once we fully integrate them, once we get more our company’s infrastructure and people more involved, we think we’re going to be able to grow the sales online. And then ultimately, we’re working on a low pass product. And what’s nice about the low-price products as we sell out of food drug-to-be stores.

And when consumers purchase that, and they’re going to get some really, really good information, a significant – even low past provides significantly more genetic information about your genetic makeup. But what’s nice is that peaks your interest. And then we will up-sell the whole genome sequencing to those same consumers.

At the same time, Nebula’s model has been a subscription model where they sell the sequencing at Quest and then sell a subscription, and it’s a monthly subscription. And all the profits really are generated from the monthly subscription. That monthly subscription cost virtually nothing.

It’s just a small team of scientists who have developed a library and then add to the library every month, and that information ties into your genetic makeup. It’s really interesting to get to purchase the whole genome sequencing, see what your genetic makeup is.

And then each month, you get a report telling you that based on your genetic makeup, you might have eight genes that suggest that you’re predisposed to breast cancer. And the average, a person might – the average one might have two or three, and you might have eight, and that might be on the high end.

And what’s interesting is it will give you a polygenic risk score or assessment to tell you, based on our proprietary database, and this I’m going to get into us. So Nebula has a proprietary database that they’ve been building. They’ve tested somewhere between 12,000 and 15,000 customers already. They have a database of all these people.

And then they tie it into clinical studies that are regularly coming out every month that people with a high predisposition to breast cancer have this particular genetic makeup.

So what happens when you get that report each month, it will tell you whether you’re in the 90th percentile or the 10 percentile or the 50th percentile for breast cancer based on your genetic makeup. So it’s really interesting information.

And that’s sort of at the heart of personalized medicine, ultimately, personalized medicine has more to do with actual clinical studies and diagnosis, where you go into a doctor’s office, your genetic makeup, you specifically tie that into your health care records and you come up with a diagnosis and prognosis and so forth.

It’s much more sophisticated. But at the heart of it, it all starts with a genetic test.

So we have sort of a hidden value in Nebula that I haven’t really talked about before that we’re exploring now with other companies and, in fact, other countries who are interested in our library and in particular, our software platform for Tindall together, it’s really unique. This monthly report that comes out.

It’s unique in the way that we do that. And so there’s, I believe, a head and significant value in Nebula that goes beyond simply selling products direct to consumer. So I’m really excited about the future of Nebula I just want to go through a little bit more here.

And I think that covers pretty much what I wanted to cover in the presentation that took just under 30 minutes or 25 minutes. I love to talk, but I also want to open it up to questions. The bottom line before I open it up to questions, just to be clear. I think you all know I’m pretty bullish on our company. I’m really excited.

We announced a $6 million stock buyback. We announced that we purchased -- I don’t know what the number of shares. It’s in the press release. Our stock is down from $16 in January.

We just had the biggest month in the history of the company, not only bigger than the whole third quarter, but in the history of the company was bigger than the month of January. And the difference between now and January is that our numbers are still growing. And our customer base is more diverse.

And now add to that, the Nebula business, which we can leverage has so many synergies to our company between leveraging our food, drug and mass distribution. And then ultimately, we’re working on doing sequencing in our lab, which I’m really excited about. I’m actually looking to lease more of the space to actually expand our lab capabilities.

So I’m really excited about that. Initially, we may try and move low path sequencing into our lab. And ultimately, we may do all whole genome sequencing in our lab as well. A lot of that is based on price. But I can tell you, I’m confident that we’re going to be able to get the price down from $300. I’m also confident the other issue is turnaround times.

Right now, turnaround times are the number one thing the customers complain about with whole genome sequencing, it’s just a fact that it’s difficult to turn around quickly. But I do believe that with the partners we’re working with and the time frames we’re working on, that our turnaround times are going to improve dramatically as well.

So if we get the price down and improve the turnaround times, we think we’re going to grow the whole genome sequencing business.

If we introduce low cast, which is a much lower-priced product in food, drug and mass stores, that’s going to get more consumers interested in genetic makeup, and then we can upsell both the subscription, which is where all the profit is made anyway as well as upselling whole genome sequencing to those same consumers.

So there’s tremendous potential with Nebula. And then the last thing I’ll leave you with is that I’m not stopping there. We are working diligently on many other acquisitions. We’re looking to diversify, leverage, continue to leverage our infrastructure and continue to grow the company. We’re just starting out. We’re well capitalized. We’re growing.

We’re going to have what I believe is going to be a very strong fourth quarter. Our outlook is bright, and I’m looking forward to the future, and I appreciate your support. And with that, Ailey, I would like to turn it over to questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Yi Chen with H. C. Wainwright..

Hey, how is it going? Thank you for that wonderful overview. This is Jake on behalf of Yi. Just a quick question on Nebula. I know you spoke about low-pass product to be introduced first. Is that similar or different to the basic product that’s being administered right now by Nebula? The Nebula has three different products on its website.

So, are you referring to the basic product? Or is it different?.

That’s an excellent question. So the low-pass product is a product – yes, they do offer low pass product. We are probably going to move the process of the low product into our lab. We’re going to significantly improve the turnaround times Also, we’re going to position that product very differently than the way it’s positioned right now.

Right now, I guess people go to the Nebula website. And they’re like, Oh, if I’m going to do this, I’m going to spend the $300 plus $200 to $500 for the subscription. They don’t really think about it in terms of $30 or $50. The $30 is more – that could be an impulse item that sells in food, drug and mass stores.

So it’s – yes, it’s similar, but we’re going to do the processing ourselves. We’re going to get the price down, and we’re going to position it very differently..

Thank you so much. And lastly from me and pardon me for my imbalance.

But how do you look at subscriptions in this segment? Do you – is there a lot of interest from consumers when it comes to a subscription model? Or is that the norm across all your competitors?.

Yes, sure. So the way the subscriptions work with Nebula. Nebula does not make any money on selling the whole genome sequencing. They’re basically selling it at cost. As I mentioned, price elasticity demand plays a huge factor in the sales and you drop the price by even a little bit, it’s going to significantly boost sales.

And this is already a high-priced item. So they could not build a profit margin and when they were selling it for $300. So they basically sold it at cost, but then they sell a subscription that goes with it.

And anybody that’s going to bother to get – spend the money to get hold genome sequence is going to want to know that information on a monthly basis as it gets updated, so you can learn more and more about your own genetic makeup, particularly how it’s tied into new clinical studies as they evolve.

And there’s new clinical studies coming out every few weeks, and so Nebula is constantly updating the library. So that information is critically important. So you get an initial report when you order the whole genome sequencing to $300.

But that library and that update that additional information that comes every month is really valuable and really interesting to consumers. So the idea is to just get the consumer to become a customer to get sequenced to get their genetic makeup.

And then they sign up for the subscription and they have subscriptions to go anywhere from you can pay monthly to annually to a lifetime subscription. We’re doing away with a lifetime and I like the way that’s set up. But – so yes, all the profits in the subscription, and that’s where the game is.

And for people that are actually interested in their genetic makeup, who take this seriously, particularly the container or their health, they’re going to want the subscription.

I can’t speak to the other companies that are providing ancestry once you have your ancestry, why I’m not sure why you would sign up for a subscription for some update on your ancestry. So I don’t study those companies. I don’t really care.

There’s definitely room for Nebula to grow significantly as more and more people become interested in their genetic makeup from the point of view of health care and not just ancestry. I hope that answers your question..

Absolutely. Thank you so much for the answer, and congrats on all the amazing work..

I appreciate it.

And just to clarify, you’re working with Yi Chen at HC Wainwright?.

Exactly..

Okay. Thank you so much for your questions and your interest. Ailey, next question please..

Our next question comes from Patrick Patterson, Private Investor..

Hello, Ted.

Can you hear me okay?.

Greetings, sir. Absolutely..

Well, at a great presentation. I was wondering just covered everything. I mean that was the best one I’ve heard. So our interest was captured when you talked about these independent pharmacies.

Can you just go over how big is the market for independent pharmacies? And how do you go about recruiting them to be customers?.

Sure. Okay. So let me tell you a little bit about our infrastructure. I’ve kind of been low key about this. And I really haven’t talked about management, and this really is been a question about management. But our management has evolved. And we have basically 3 people who I consider to be EVPs within our lab business.

It’s our Head of IT surgery or Marias. And then as Alex Leo and Jason Cartus, who happens to be my son.

Alice and Jason basically oversee the entire lab business from the point of view of Alice has been – he’s been in the business, I don’t know, 15, 20 years at some of the biggest labs in the world, and she’s just unbelievable at what she has done in organizing our lab and our lab operations, we’ve really evolved over the course of the year.

I can’t tell you – and I’m going off on some tangents, but I promise sure, I’m going to tie it back in my mind is still strong in up. I can tie back in at the beginning of the year, we have just gotten into the business. We hired people so quickly. We hired 100 people in four weeks. I barely interview with any of them.

So just imagine the chaos that was involved a year ago and look at how we have evolved. So [inaudible] is completely organized us in terms of our licenses, our CLIA licenses, our DOH inspections, which have gone incredibly well as of late, overseeing our validation work as well as overseeing the whole lab processing.

And Jason oversees our entire customer business. He has been with me since before we were in the clear lab business, he found the first lab with me back in New Jersey last year. In fact, we were meeting – we were flying out to Utah to meet with Spectrum Solutions before we were going to get into the CLIA lab business.

He has overseen and now built the entire customer business. So he oversees, I don’t know, a dozen different large companies that – many of which are, in effect, health care companies or marketing companies or a combination of the two. And these health care companies and marketing companies, they go out and they collect specimens.

How do they do that? So he oversees one company that primarily tested schools. This is a tremendous marketing organization that is in the health care field that has registered nurses and other specimen collection professionals working for them. They have a huge network. They’re testing schools around the country.

And then he’s also overseeing the build-out of other companies, one of which is marketing to independent pharmacies. And so the number of independent pharmacies we sign up each month grows. Those – an average independent pharmacy might only do 10 specimens a day.

Think about it, you have a pharmacy down the block, 10 people a day walk in to get tested for whatever reason. They need a report to get on an airplane. They have a little cost. They’re like, "Oh, my God, could this be covet? Let me go get tested. And it’s all free. It’s all insurance covers this.

And so if we have 150 – I don’t know, to be honest with you, I haven’t set the number recently. I think the last time I gave an update, we had like 150 pharmacies. But we just had 150 independent pharmacies at an average of 10 people a day, that’s 1,500 tests a day. That’s a tremendous amount of business.

I can’t tell you how much this is 1,500 tests a day is $150,000 a day or $175,000 a day of revenues. Just from those 150 pharma independent part, let’s suppose that builds the 300 independent pharmacies or 500 independent pharmacies. There are thousands of independent pharmacies around the country.

We now have our prior head of sales working with Jason, who works with the food drug and mass stores, who worked on coldish worked on their dietary supplement. And he’s talking to our national broker, and we’re talking about potentially a plan to work with connections to 1,000 or 2,000 independent pharmacies. Now where that all goes, I can’t tell you.

I can just tell you that, that business grows. Then Jason also oversees another marketing organization that’s setting up Concierge services. They’re setting up tents where you can walk up and get tested and these are popping up all over the state of New York. This business is growing literally every week. It’s scary, the potential of it.

So we have these different businesses. Unlike last year, last January, we had two core customers. One was testing over the – across the state of Texas and the other was testing schools. And then Texas, their testing sites shut down never reopened. And the schools, after we got through the first quarter, they started closing, they stopped testing.

And all sense like our two biggest customers were testing, and we were scrambling, – now we’re in a situation where we have a well-diversified base of customers that’s growing. So our customer base – first of all, our marketing partners, our partners are growing and their businesses are growing. And so our distribution is growing.

And so it’s a more diversified distribution of customers. It’s a much steadier business. And so all I can tell you is, like I said, the month of October, we did more business – we did the most business in the history of the company. And I don’t want to give predictions.

I can only tell you that our business dropped off significantly in February and in March. And right now, our business is a dropping off is still growing, and that’s with relatively low positivity rates relative to the peak a few months ago. So it’s not just based on positivity rates any longer. So it’s an interesting business.

But again, I expect to be a well-diversified company next year. We now describe ourselves as a biotech and genomics company that leverages our CLIA lab. That’s the way I want to think about it. We just happen to be driving significant revenues right now, and those are very profitable revenue.

So unlike the summer months, where we had an enormous amount of employees and a low level of business, we then had to clean house. We probably let 50 people go, restructure the whole company over the summer. Now we’re in a situation where we’ve been hiring, but we’ve been taking our time hiring the right people, the right way.

So our employee staff and our management has evolved into an infrastructure within our company that’s much stronger. And what’s nice is we’ve also supplemented with temps with temporary employees. These are people that you hire, you pay a little bit more for them on an hourly basis.

It’s understood that their tests, whether they work for you for a day, a week, a month or six months. And they understand we can let them go. We can bring them back. There are no issues.

And so we have a nice balance between full-time employees and temps, so that if our business flows, unlike the summer when it slowed, we’ll be able to cut our overhead like instantaneously, so that it will be more in line with the level of testing so that hopefully, even in the slow months, we’ll still be profitable.

And again, I expect as we move forward, look, testing levels overall in the country may drop, positivity rates may drop, although they already have and our business is growing despite that. But I expect a steady level of business. I don’t know what that is.

But if we have a steady level of business, it’s even a third of what we’re doing right now, we’ll be very profitable and very happy. I hope that answered your question. I went on a bunch of tangent that covered a lot of information. So thank you for asking..

Thank you very much..

All right. Have a great day, Pat. Ailey, next question, please..

Our next question comes from Fred MacDonald, Private Investor..

Hi, Ted.

Hey, Ted, how are we making progress on becoming the full-service lab?.

That’s an excellent question. I probably – I don’t know, I probably looked at two dozen labs to acquire. And to be honest with you, the lab industry is brought with undesirables and it’s very difficult to find a clean lab where it actually makes sense to acquire it. And I’m not going to acquire it just for the sake of acquiring it.

There are opportunities which we are still studying and I’m on the fence on a few, but I can’t guarantee – I’m only going to do – the best way to answer the question is, and I’ve said this on most calls, I didn’t say it on this one, but I’ll say again now, I’m a huge believer as an investor in terminal value on a per share basis.

That’s all I care about. And all that – what that means basically is every strategic decision I make has to increase the value of the company on a per share basis. So I’m not going to acquire a lab just because it sounds good or because we’re going to get a spike in the stock. I can’t tell you, people have come to me and said, "Oh, by my company.

Look, it’s going to spike your stock. It’s going to spike sales and spike your stock. And I’m like, yes, but there’s no underlying value here. I’m not going to do it. So it has to be the right acquisition.

And in the meantime, we are diversifying by no other reason immediately into genomics by doing genetic testing, which we’re going to be doing in our lab. And then the other types of testing I will do if the right opportunity comes along. But as I just said, we’re also looking to rent out additional space.

We already have 25,000 square feet in Garden City. We’re actually looking to expand that. So we’re looking to expand our testing. I’ll get more into that in the next quarter. I hope – I don’t want to speak out of line. So I hope that, that’s a good enough answer for you for now. There are lots of opportunities out there to diversify our lab business.

But what’s more important to me is how to build the value of our company and how to diversify and grow our entire company, not just our lab business. I don’t want to be viewed as a lab, and I don’t want to be dependent on just lab testing.

I think that the other businesses that we’re diversifying into like the genomics are exciting and have multi-hundred million dollar, if not billion-dollar potential.

And so follow our Nebula platform, there’s enormous underlying value to Nebula and what we’re going to do with that next and with the synergies between our lab and our food, drug and mass distribution. And then watch what we do next, it could be another lab. It could be something more in the field of pure biotech.

But it’s all going to come together very nicely, and you’re going to see. I expect that our company is going to be a lot more valuable in 3, 6, 9 and 12 months from now. I hope that answers your question without answering it directly..

Good answer. Thank you, Ted..

You’re quite welcome. Ailey, next question, please..

Our next question comes from [inaudible]..

Ted, nice job as usual..

Greeting, sir..

Appreciate it..

Thank you..

One of the things about ProPhase is only 17 million shares fully diluted, 23andMe 100 million shares and all that. I got a little concerned when I saw the other day, you did a $300 million shelf. You don’t plan on raising anything down here. Do is it’s one thing to do 50 million shares to $6 or another thing to do $10 million shares at $20..

Great question, and I’m glad you asked it. So let’s put this in perspective. First of all, we’re in the middle of the stock buyback. Would we be raising capital if we’re doing the stock on my back. Obviously, no. That’s number one. Number two, we actually had a $75 million shelf outstanding previously. In fact, that’s what we used back in January.

We added 75 million shelf. I didn’t have to do any, I could have left that alone. The reason I did this is because, frankly, I have big plans for the future of the company, and I’m optimistic for the future of the company.

And to put this in a little perspective, since January, while our stock came down from 2016, I could list literally 100 other micro cap and small cap companies in the life sciences, whether it’s biotech or genomics or anything related to COVID or anything related to diagnostic, all those stocks are down 50%, 75% since January.

I mean we have – as far as I’m concerned, I don’t know if it’s a technical bar market, but for all intents purposes, been a bear market for all these microcap stock stars is one of them. That’s going to change at some point. I can tell you if it’s going to change in a month or in nine months, but that’s going to change at some point.

At the same time, we are growing our business, we’re diversifying, and we have tremendous potential in so many areas. Obviously, we do not need capital right now. We are not raising capital right now. We had a 75 million shelves in place already. So if I was looking to raise capital right now, I could just use the $75 million shelf.

And obviously, I’m not raising $150 million or $200 million when our home market cap isn’t even $100 million. So you can read between the lines. If I decided that I wanted a $300 million shelf, which is good for three years instead of $75 million shelf, you got to believe that I believe that our market cash going to be a lot larger one day.

And if we have a $20 or $30 stock, and I can raise $100 million or $200 million, that would be the time to raise the capital and only if it’s needed. And at Bonus to do something bigger. And so to put that in perspective, a year ago, what were we were, we were $15 stock without any direction.

We had our contract manufacturing business and a small dietary supplement business, which is going to do whatever it’s going to do. There’s no reason to raise any capital for any of that. Look at where we are now. Our platform is multiples of the size of what it was just a year ago. And so now we have significantly more capital.

We have significantly stronger revenue base. I’m very confident we’re going to be profitable for the year and that we’re going to have a huge fourth quarter would be very profitable. And I believe that we’re going to build the Nebula business, and I believe we’re going to diversify further.

And so I believe that there are exciting opportunities for our company. I don’t even know all the opportunities that may come to us a year from now or six months from now.

I can tell you, our platform has gone up three levels from where it was a year ago, and I want that platform to be three levels greater a year from now, which means that we’re going to be a different market cap. We’re going to be – we’re not going to be the mini micro cap that we are now.

And hopefully, we’ll go from like microcap to small cap depending on your definition. And so this is really planning for the future. It has nothing to do with raising capital now. Clearly not raising capital of $5 or $6 or $7 a share, that’s just silly. That’s not even in the realm of possibility that I would consider.

We don’t need capital for anything that we’re doing right now. In fact, as I said, I expect us to earn money in the fourth quarter. We’re buying back stock now. So our company is well capitalized.

It’s financially very strong companies I think it’s very difficult to find a microcap company our size that actually has the amount of capital that we have, that is the growth characteristics that we have that has such a small market cap and such potential. So no, I’m not doing anything with the $300 million.

I wanted that in place, whether that’s – whether we use it in three months or three years, I don’t have a crystal ball. But if we do half the things that I think we’re going to do over the next year, there might be a time when our stock price is significantly higher.

I want the shelf already in place, so that if we want to raise capital, we’ll be able to do so. We have some fantastic investment banking relationships. ThinkEquity did a phenomenal job in raising capital for us in January. We have a great relationship with ThinkEquity. And I’m confident they can raise any amount of capital.

We would ever want them to or need them to. They’re a big believer in our company. And so at the right time and the right opportunity, we’ll see. So it’s a great question. I’m glad you brought it up. No one has to be fearful.

We’re not raising capital and not even considering right now and certainly wouldn’t be doing it while we’re in the middle of the stock buyback, obviously. I hope that completely answered your question.

Do you have another one? Or are we good?.

No, I appreciate your visibility that you always provide. Thank you..

Thank you, John.

We have one more question, Ailey?.

Our next question comes from George Gianakos, Private Investor..

Hey, Ted, it’s George..

Good. Thank you, George. Thanks for joining us today..

Yeah, of course. Thanks for all the information, as always. Two quick questions for you.

When do you guys expect Nebula to be fully integrated and revenue counted towards the quarters?.

Okay. So actually, the revenue is counted as of the date that we acquired it. So there was a small piece of Nebula that showed up in the third quarter, not anything that’s significant to revenues or earnings. So – but there was a small amount of revenues in there.

But I understand there was also a significant accounting and investment banking fees and auditors fees for the acquisition that’s far outweighed any contribution from Nebula in the quarter. So I mean, they’re fully integrated.

From a financial standpoint, now for the fourth quarter, now they’ll be fully integrated into the company because we will have owned them for the entire quarter..

Got it. Thank you. And the second one is easy.

Are we going to see $16 a share again sometime soon?.

That’s the easy question. I’m not going to – the way I’m going to answer that question is go back to my answer to Mr. Ligham’s in the previous question. I didn’t file a $300 million chole because I don’t think we’re getting to $16. Whether we get there or not, that is not for me to predict.

It is a very – we’re in a very different period of time for microcap stocks today versus last January. So I can’t compare it to January. Back then, there were stocks running for a variety of reasons. What I can tell you is we’re building the underlying value.

And in the next upswing in microcap stock, I would certainly expect that we will perform amongst them since we will be growing unlike some companies that were just pure COVID plays I’ll give you example.

Andy, there was an antibody company I was interested in acquiring, and they just wanted too much and then the stock drop, and I don’t know if it will ever come back because their antibody test, they were selling for $80 and now we can buy an antibody test to readout for $8, where they were selling for $80.

So companies like that are going to struggle to have bounced back. But companies like ours that are growing, that have underlying growth not only in revenues but earnings, even in our toughest times, we’re still profitable for the year in the fourth quarter, we should be very profitable.

We’re going to be growing and diversifying, and we have exciting times ahead. So what happens to our stock, that’s up to the shareholders. I don’t care. I just want to keep building the underlying value.

And if I do, I know that in the long run, the stock price will take care of itself the same way it has rewarded our long-term shareholders over the last 5 to 10 years..

Understood. Thank you very much, Ted. Appreciate it. Thank you..

Have a great day. Thank you, George. Ailey, back to you. I don’t believe there are any further questions. So I just want to say thank you all. You know I like to talk, but we were able to keep this under an hour. I sincerely appreciate the support of all our shareholders.

I always say to our employees, I’m very loyal to employees, especially the ones that are loyal to the company and loyal to doing a good job. But I always say to our employees, our shareholders are the owners of the company and our shareholders will always come first. Our employees are very close second.

So to our shareholders who are the owners of our company, I really appreciate your loyalty. I will do my best not to let you down, and thank you all for joining us on the call today. Ale, you can end the call now..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..