ProPhase Labs, Inc. (NASDAQ:PRPH) Q1 2025 Earnings Call Transcript

ProPhase Labs, Inc. (NASDAQ:PRPH) Q1 2025 Earnings Call Transcript May 20, 2025

ProPhase Labs, Inc. beats earnings expectations. Reported EPS is $-0.14, expectations were $-0.18.

Noella Alexander-Young : Hello, and good morning everyone. Welcome to today’s presentation. My name is NoellaAlexander-Young, Virtual Event Moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone for joining us today for ProPhase Labs First Quarter 2025 Results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. Presenting today is Ted Karkus, Chairman and CEO. Following the presentation is a Q&A session for which you can participate using the chat box in the top- right-hand corner of your screen. With that being said, I will now hand the floor over to Ted.

Ted Karkus: Greetings, everybody, and thank you for joining today. I’m Ted Karkus, the CEO of ProPhase Labs. I’m really pleased with where we are right now relative to where we’ve been in the last six to nine months. It has been an incredibly trying time, but we are at the turning point, I believe, in the company, where you are now going to see in second quarter all the moves and transformations, and transactions and changes that we made in the first quarter also going to start show up in the second quarter. We also have major liquidity events, which we think are coming very soon. So we are basically bridging the company. But before we get into all that — I’m excited to talk to you about all that — we really should do the forward-looking statement first.

And since this is a quarterly conference call and not simply a virtual non-deal roadshow, I’m actually going to read it. Except for the historical information contained herein, this document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our strategy, plans, objectives and initiatives, including our expectations to enter into new agreements for Nebula Genomics, our expectations regarding the future revenue growth potential of each of our subsidiaries, our expectations regarding future liquidity events, the expected timeline for commercializing our BE-Smart Esophageal Cancer Test, and our ability to enter into new domestic and international long-term contracts for Nebula Genomics business and the financial impact of any such contracts, the anticipated timing for the receipt of new equipment and installation of additional lozenges lines — that’s no longer relevant, we’ll have to update that — et cetera, et cetera, and the anticipated timing, the expected time line for the launch of Equivir capsules, management believes that these forward-looking statements are reasonable as and when made.

However, such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to obtain and maintain necessary regulatory approvals, general economic conditions, consumer demand for our products and services, challenges relating to entering into and growing new business lines, the competitive environment and the risk factors listed from time-to-time in our annual report on Form 10-K for the year ended December 31, 2023, our subsequent quarterly reports on Form 10-Q and any other filings with the SEC. These forward-looking statements are based on current expectations, estimates, forecasts and projections are not guarantees of future performance or development.

The company undertakes no obligation to update forward-looking statements, except as required by applicable securities laws. Readers are cautioned that forward-looking statements are not guarantees of future performance and are cautioned not to place undue reference on any forward-looking statements. So we have our company presentation, and then we have our earnings report. I think the question is how many people on this call are shareholders and have been following the company for a long time, how many are new shareholders. Since the number of shares outstanding grew and the stock price is so low, my sense is we have a lot of new shareholders. So I want to find a balance for the new shareholders, but really tell everybody where we are and what’s going on.

Q&A Session

Overall, we have ProPhase Biopharma, that’s our BE-Smart Esophageal Cancer Test, we have DNA completed Nebula Genomics, we have ProPhase supplements. My thought is — and look, I can tell you, I have a history, 40 years of success in executing. I turned around ID Biomedical, which was ultimately sold to GlaxoSmithKline for $1.4 billion. It was a $15 million to $25 million market cap when I got involved with that company. I don’t take credit for the sale, but I take credit for turning around a potentially bankrupt company. I did the same thing with our company, ProPhase Labs. I took over as an activist shareholder from a prior management that none of us that were shareholders were very happy with. I launched a proxy contest, won control, had to turn around a company that was nose diving.

Turned around the Cold-EEZE brand that was nose diving and sold it for $50 million. That led us to have the capital to get us into COVID testing. We had never done COVID testing, never been — I had never been a CEO before, before I took over. I had to learn the consumer product industry and turned around the Cold-EEZE brand and sold it for $50 million. I learned marketing from the bottom up, I figured it all out and killed it. Then we then did the same thing with COVID testing. Now I got to give Jason Karkus a tremendous amount of credit for building the COVID testing business. We did it together. He built the business in terms of the revenues. I built a lot of the infrastructure and provided the capital and so forth in the new lab and all those great things.

But the point is we killed it again, grew the business dramatically. The issue has been in the last year is that we did not get reimbursed for all the COVID testing that we were supposed to. In the meantime, we were branching out. We knew that COVID was going to decline. And so we looked for the future of the company. We acquired — I went through probably 300 potential acquisitions. We acquired Nebula Genomics, which we are now putting up for sale. We acquired the BE-Smart esophageal cancer test, and we acquired Equivir. And that’s what we are developing today. They all have tremendous potential. They’re all good acquisitions. We didn’t overpay for them. The issue has been the same way we built out the COVID testing business, we built a tremendous lab.

We started off buying a very small lab. Once we saw that the business was there, we built a tremendous lab in Garden City, New York, 25,000 square feet that ultimately became 30,000 square feet. At our peak, we had hundreds and hundreds of employees. We went through 800 employees while doing more tests, COVID test than 95% of the labs in the country. We went from never being in the lab business to outperforming almost every lab in the country other than the handful of the really big ones. The issue is when we went to build out Nebula Genomics, we did it with the understanding that the COVID testing cash flow was going to continue and it didn’t. It got cut-off for two reasons. One, the government ran out of money when they guaranteed testing; number two, the insurance companies stopped paying the way they were paying.

And a part of that, I learned after the fact is because the government was subsidizing the insurance companies. And so when the government ran out of money, it cut back the insurance companies, but the insurance companies still owe us that money. So I’m going to get into that in a moment. But because of that dynamic, it put us in a situation where we were building businesses where I thought I had tens of millions of dollars coming into the company. All of a sudden, they are not there, and we had overhead as if it was there. Put me in a precarious situation I’ve never been in 40 years, made me look like all those other managements that don’t know what they’re doing. Some of you out there that are long-term shareholders probably think I don’t know what I’m doing.

I promise you I do. And so now we’ve gone through the last 6 months, did everything I could to keep the company on solid footing. Yes, we got dilution. But now we have tremendous underlying assets, we’ve restructured, we shut down the genomics laboratory, which was costing a fortune, we sold the manufacturing facility, cleaned up the balance sheet a lot when we sold the manufacturing facility. That, by the way, increased our shareholders’ equity. Our net assets roughly doubled. And now we have Nebula Genomics for sale. If and when we sell that, that’s going to significantly increase our net assets on a per share basis and our total assets as well. So we have a lot to look forward to. I wanted to go through the past; took all of 7 minutes. All right.

I want to talk about our esophageal cancer test. So we came out with an announcement today. And if you want to, I can go a little bit through the press release first. And if you don’t mind, I’m going to turn over here. I mentioned some of the highlights of it. We did sell the Pharmaloz for $23 million in January. We shut down the laboratory that was costing us over $6 million a year in February. In March, we were able to — once we shut down the lab, the following month, we were able to shut out and cut down on a number of IT services that were costing us a fortune. We also reduced our headcount dramatically. I don’t want to read the press release to all of you, but we went from 96 employees in December to we’re now currently at 25. And when we sell Nebula Genomics, if we sell it, that number will drop even further.

So when you look at our overhead going forward, it’s going to be dramatically less than what we had last year. And at the same time, with the liquidity events that we’re looking forward to, we should be in a situation similar to way I ran the company for 10 years, where our overhead was tight as a drum. We weren’t spending the money, and we had a ton of money and a ton of flexibility. And at the time, all I was thinking about was stock buybacks and stock dividends, not how am I going to raise debt capital without the company being ripped-off. So I’m looking forward to much better times. You can wait until the dust has settled and everything is clear in 3 months or 4 months. But my guess is you’re not going to be able to buy the stock at current prices.

That’s called risk and reward. That’s the way the stock market works. So I can only outline for you what I believe is going to happen. It is up to you whether you invest, whether you hold, what you do. I shouldn’t even mention the word stock price, it only plays a role if we are issuing shares. And right now, my goal is to focus on debt financing, not issuing shares because I believe there is only a period of time of a few months before the cash is going to start flowing into the company, and we are going to start paying down debt as opposed to looking to take on new debt. And the last thing I want to do, since I so believe that our management team and our directors so believe in the cash flow is going to be coming into the company and the liquidity events in the second half of this year, it makes sense to take on debt financing even if it’s incredibly high interest rates because even at an extremely high interest rate, it is significantly less dilution if we have such large amounts of money coming into the company than issuing shares right now.

For me — to raise $3 million by issuing shares, somebody is going to want a deep discount, they’re going to take 10%, 20%, 25% of the company for a few million dollars. Totally absurd. So I’m not interested in doing something like that. If I think we have $50 million, $60 million, $70 million of cash potentially coming into our company over the next — I’d like to say — the second half of the year, it doesn’t mean it’s all coming in in the second half of the year, but a substantial amount of that could. So that gives you a little background, a little of what I’m thinking about. I put in the press release, we actually did this. I’ve never even mentioned this before, but this was a decision we made months ago that myself I’ve reduced — I am deferring two-thirds of my compensation of my salary until we have a liquidity event.

We have two other senior executives, Jason Karkus and Stu Hollenshead, who agreed to the same thing. They cut theirs in half, and our directors agreed to cut in half. So we’re all on the same team here. We’re all on the same side with the shareholders. I, by the way, used to be the largest shareholder of the company. I had no idea with all the volume and all the craziness in the stock and the fact that it’s so cheap. But understand, I bought my first million shares more than a decade ago at $6 to $8 a share. I still own that stock. I’ve never sold any of that stock. I have a larger investment in our company than anybody by a long shot. And I bought a lot more shares, too. My point being, when people now report to me that they have 100,000 shares or 200,000 shares, that used to sound like a lot.

And believe me, I appreciate everybody that has 100,000 to 200,000 shares. But if you pay $0.30 for 100,000 shares, you have a $30,000 investment. I have a $10 million investment in this company, okay? Just to put that in a little bit of perspective. So believe me, everything I am doing right now is for the shareholders, everything, every move I make. And since I have a track record and a history of doing right by shareholders and running companies the right way, I know the last six months may not look like it, but I promise you what we are doing now going forward, you will see I am still fully aligned and our management team is fully aligned with the shareholders moving forward. And that’s how we’re executing by cleaning up all the overhead, making sure we get to those liquidity events then we get to clean up the balance sheet.

And then all of a sudden, we’re a very strong company and very different than the penny stock the way it’s trading right now. So I hope that answered some of your questions and some of your issues. So you know just yesterday, I know because a lot of people have this question on their mind, the NASDAQ listing qualifications is the fact that we’ve been under $1 for five months, what’s going to happen? Are we going to get delisted? I have no intention. No guarantees, I am not NASDAQ. But I spoke to NASDAQ yesterday. They went through all of their qualifications with me on the telephone. We meet or exceed every single qualification other than stock price. And what NASDAQ said to me yesterday, as long as we meet every qualification other than NASDAQ, other than stock price, we will get the 6-month extension.

I said, “Well, can’t you give me the six-month extension now since we meet all qualifications?” And she said, no, because that’s not the way it works. We don’t give the extension until the first six months expires. So I fully anticipate late next month — I don’t remember the exact date. I think it’s around June 24, June 25, when the first 6 months expires, I am highly confident. In fact, I am virtually certain that we will get the next 6 months. Maybe I shouldn’t say the word virtually certain, forward-looking statements because I can’t guarantee, and I don’t want to be sued if something happens. But we went through all the qualifications and then one of them was the net assets or shareholders’ equity. And what’s interesting is she said that we qualified based on the December 2024 financials.

Since that time, we sold Pharmaloz manufacturing that boosted our net stockholders’ equity from about $7 million to $15 million. So we right now have about $15 million. And I think you only need $5 million. So we have tripled the shareholders, the net equity or the net assets that you need in order to qualify. So we will more than qualify a month from now. And that’s whether the stock price is over $1 or not. We clearly are going to get that extension. Again, I cannot guarantee it, but we are going to get it, okay? Like — she said we are going to get it. She said — in fact, she said there’s never been a situation like ours where you didn’t get the extension. So for those of you really worried about the extension, I wouldn’t worry about the extension.

More importantly — and this is another question that people are asking, what’s going to happen to get the stock price back above $1 in the next six months, actually in the next seven months? I think the stock price is going to take care of itself. If we have tens of millions of dollars coming into the company and we have a market cap right now — I don’t know what the market cap is today, I haven’t looked at the stock price — but if we have a market cap of $13 million, $14 million, and we have many tens of millions of dollars of cash in the company, what do you think is going to happen to the stock price? I’m really not worried about the stock price. I will also tell you — well, I don’t really want to focus on that. I am aware of people out there that really believe in the company, and they are accumulating a lot of stock and they’re telling all their friends to accumulate a lot of stock.

And I assume that’s what all the volume is. I’m not getting in the middle of it, I’m not doing any deals with anyone. Just people love to inform me of what they’re doing. There are some people that are very bullish on our company. Okay. Let’s talk about — I have ProPhase Biopharma up here. So you know what, why don’t we — let’s see how much time we have. And I did a lot of talking, which was interesting because I didn’t know how much time I was going to spend on all this. Our BE-Smart esophageal cancer diagnostic test literally has multibillion-dollar potential. And I’m not going to go through the whole thing. We don’t have time. I’m just going to go to this slide right here. Our target market is in the bottom, approximately 7 million endoscopies per year in the United States for people at high risk of esophageal cancer.

Every single person getting that endoscopy should be getting our test alongside the endoscopy. Understand there are a lot of esophageal cancer tests popping up in the market. They are all before you get the endoscopy. If you test positive on many of these tests, the next step is to get an endoscopy. It is kind of like when you used to get COVID test, you would take the quick test. If you tested positive, the next step was to get the PCR test. So this is exactly the same thing. This is the way it works. So the idea with a lot of these tests — and I sincerely apologize because I took this call from my home office. Hang on one quick second. I apologize for the interruption. This is probably unheard of. I am back. So now you know I’m a real human being, and I’m not a model or whatever.

So the bottom-line of this is if you’re at high risk of esophageal cancer and you go and you are worried, you want to get the endoscopy. That’s the standard. But if you get that endoscopy, our test makes the results of the endoscopy significantly more valuable. Right now, if you get an endoscopy, there’s a pathologist studying — and an endoscopy is where they take tissue specimens out of your esophagus and studying them under a microscope — a pathologist studying those specimens with a naked eye, there is no way that is nearly as accurate as our test. And it’s proven by the fact that if that’s the standard and almost 80% of people are dying of esophageal cancer, the reason they’re dying is because they’re getting diagnosed too late. And the reason they’re getting diagnosed too late is because the endoscopy is an inexact science.

We take an inexact science and make it much more exact. And not only do we tell you whether or not you have esophageal cancer or not, we tell you if you’re at high risk or low risk. If you’re at high risk, there’s a procedure you can get called an ablation. And GIs would love to give an ablation on everybody at risk, but the insurance companies won’t reimburse unless they definitely know they have esophageal cancer. But by then, a lot of time it’s too late. Our test tells you ahead of time. We may get reimbursed $1,000 to $2,000 per test on 7 million endoscopies. It’s a $7 billion to $14 billion market with virtually no competition because we are testing you when you get the endoscopy, it makes the endoscopy a much more accurate test. There are GIs that love this test.

I can’t wait to commercialize it. We just announced today that the Mayo Clinic, Dr. Chris Hartley from the Mayo Clinic, has submitted a paper, and this is to the same journal that Castle Biosciences submitted to. I am not going to compare our test to their test. I don’t want to be sued. But what I can tell you is our statistics are really, really good. And there are other esophageal cancer testing companies out there that are doing really, really well. There is an enormous demand for these tests. And the reason is because so many people are dying and they’re looking for more accurate diagnosis, and that’s what we give you. We also save billions of dollars. If you’re at low risk because then you don’t have to get endoscopy. It gives the patient peace of mind that they don’t have to worry.

They also don’t have to get endoscopies all time. It’s also — this is very important. We’re the most convenient. The reason we’re the most convenient is you don’t have to take the test at home, you don’t have to make a separate visit to the doctor’s office. When you’re getting the endoscopy, you’re already getting the endoscopy. That’s a decision made that has nothing to do with us. But if you’re already getting an endoscopy, we’re simply making the result significantly better. And there’s no way a computerized piece of lab equipment with AI isn’t going to give you a better diagnosis. And we have proprietary IP. We have IP on the eight key proteins that shift to hundreds, if not thousands of proteins. But there’s 8 key proteins that shift almost always, express themselves when you’re developing esophageal cancer.

We have a brilliant scientist, Dr. Joe Abdo, is working very closely with us as a consultant and working very closely with Dr. Chris Hartley at Mayo Clinic, and he also has helped commercialize other tests. And so now that we’re ready to commercialize this, he’s working very closely with us Publishing this paper is a key step because that brings attention to the GIs, it brings credibility. And our hope is that this gets published in roughly the next 4 to 8 weeks. I’ll certainly give you an update when it does. I spent a lot of time — happy to do more on Q&A, but I’m really excited about this test and can’t wait for it. All right. I’m going to skip ahead, Nebula Genomics. So again, this is now a liquidity event. Here’s the bottom-line. We explored in the first quarter strategic alternatives and strategic possibilities for Nebula and DNA Complete.

We decided to sell it. One of the reasons is because of the capital structure of the company, we want to clean it up. We want to take the pressure of the stock price. We want to clean up the debt, we want to stop raising capital, we want to have excess capital. DNA Complete and Nebula Genomics can do that for us. This literally just happened, I think, in the last 48 hours. Regeneron, monster drug research development company — interestingly, I worked at the brokerage firm 30 years ago that took Regeneron public. Regeneron just acquired 23andMe for $256 million. A big part of the reason why it was the genomic database. I don’t know what else went into it, I don’t want to say that’s it. I don’t want to compare. We’re not getting acquired for anywhere near that of money in money.

I’d be happy with 10% of that. But what I can tell you, we have one of the largest genomic data sets in the world. For those of you that don’t know — and I’m just going to — and I mentioned this, our data set at 16 petabytes. For those of you who don’t know and I didn’t know, it’s an enormous amount of data. It’s one of the largest data sets in the world. And the reason is because a 23andMe or an ancestry.com or MyHeritage ancestry test, most of their tests — I won’t say they don’t do some whole genome sequencing, but mostly they used to do SNP-based test. These study less than 1% of your DNA, which is great for ancestry testing, not so good if you want to learn about deep health insights and learn about your genetic makeup, but it’s great if you just want ancestry information.

And so if they’re studying less than 1% of your DNA, we’re studying your whole DNA. That’s what it means when you say whole genome sequencing. The data that we collect is 1,000 times to 5,000 times as much. Furthermore, Nebula was founded by Dr. George Church, world renowned in the field of genomics. And by the way, he’s agreed to be an adviser if we sell it. That’s another great asset. Everybody wants to work with Dr. George Church up at Harvard. But the point is this is over 7 years that we’ve been collecting the data from over 130 countries. And so our database, those more than 60,000 whole genome sequencing tests are the equivalent in size to over 150 million ancestry tests. So just the database alone is incredible. And then as I said in the press release, Jason has restructured Nebula Genomics and DNA Complete.

So it’s a clean business now. It’s no longer losing money. It’s operating probably at about breakeven. The only reason it is not making money is two reasons. Number one, because we haven’t spent the marketing dollars because we’ve been very careful on how we spend cash right now. If we spend cash, this business will grow dramatically quickly. And number two unlike some of our competing companies, we have a subscription model where you renew the second year; and a significant percentage of those who buy it the first year renew the second year. When you renew the second year, that’s cash flow into the company. We used to do lifetime and three years and all this stuff. Jason actually figured out just have them renew and it turns that just many of the people renewed in the second year anyway.

That’s free cash flow. So for like private equity that might be looking to acquire us, they love a business model where it’s breakeven in the first year. You spend more money, you grow more, if you can just operate at breakeven. But the second year, half of those who purchased the first year renew their subscriptions at almost no cost to the company. It becomes a big growing cash flow company over time. So I think this is very attractive, both in terms of the business as well as the data set. We’ll see what happens. ThinkEquity, our investment bankers, and they have located a large number, dozens — I don’t want to say the number, I don’t know how specific I should get — dozens of potential acquirers. They’re filling out NDAs as we speak. We already did — I mean, we literally just went to market with this about a week ago.

We already did our first due diligence call. We separately have some in the industry who are interested. It’s possible within weeks we could have our first LOIs come in. Not a guarantee, don’t quote me on this. But realistically, we really could sell this in 3 to 4 months. How much we are going to sell it for? I don’t know. But — and I don’t want anybody to be disappointed, but there is the possibility we sell this for approximately the market cap of the company, right? So I would like to get into — and I don’t have a lot of time before Q&A, although we can have a shorter Q&A. We obviously have to talk about – it is written here $50 million opportunity with Crown Medical. And that’s not even — I don’t know if that’s even in our slide presentation.

So what’s going on with Crown Medical? I have to be careful what I say because when you get into litigation, you can’t talk about it. And so they warn me, don’t say too much. Crown Medical spent several months going through our entire set of specimens that we tested. I mean, it’s just an enormous amount of data. As I said, we tested more than 1 million patients. I don’t remember what the exact number was, but it was a ridiculous number. Maybe it approached 2 million — I don’t remember the exact number — hundreds of millions of dollars. They went through all of it. They didn’t just go through the testing where we didn’t get reimbursed. They went through the testing where we did get reimbursed because they’re also analyzing for those insurance companies that underpaid.

So an interesting component of this initiative is that insurance companies may have reimbursed us but paid us less than they were supposed to. A lot of insurance companies regularly did that. But as a lab, most labs just accepted whatever they got paid. We just had to calculate, okay this is what our gross margins are on average based on this is what the insurance companies are reimbursing us for. So we just accepted it. We didn’t know that we could fight it. We didn’t know how to, nor did any of the other smaller labs. What’s interesting is when Crown Medical goes after these insurance companies, for those that underpaid, the insurance company has already paid something, which means they’ve already committed to having been a valid test with a valid order for a medical doctor, a valid patient that has insurance and they pay, but they underpay and they have no defense for underpaying.

Those — what I’m told from the Head of Crown Medical, those are the easiest collections. Those settlements start happening very quickly. We have an enormous amount of dollars of underpaid. So that could be for the company. I don’t want to say it’s a lot of fund — we’re in litigation or we will be in litigation, but those could be fund dollars coming in pretty easily. In addition to that, we are getting very close to filing. And again, I don’t want to get into too many details, but within a short period of time, within a couple of months, maybe sooner, we will be able to — the Crown Medical will be able to start serving all the insurance companies. But now knowing that based on what’s going on in the courts, they can — they will be in the not-too-distant future, going to the insurance companies saying, we are going to be serving you in the next 4 weeks to 8 weeks.

Would you like to settle now for less or would you like to get your attorneys involved? Because if you do, this is how much you owe us. We are not going to back down on the total amount and you’re going to have to pay it. And you’re going to have a lot of expenses involved or you can pay less now and settle. A lot of the insurance companies want to settle for less and pay now and not get into litigation. It just so happens, the Head of Crown Medical told me that he is working with a number of insurance companies right now, and there may be settlements coming in in the next, I don’t know, 1 to 2 months. I don’t want to guarantee it, but I think we could end up with some surprises. People have told me once they see the first $1 million come in, they know that this is real and that more is going to follow.

So it’s possible the first $1 million comes in in the next couple of months. Not a guarantee. I don’t know. I’m not managing this, all right? But then the money is going to start to flow. So that’s a little bit about Crown Medical. Again, I spoke a little bit about BE-Smart being for peer review in the Journal of Clinical Gastrointestinal Hepatology. That is a very important journal. We get published there, we go to next steps on commercialization. And by the way, I also mentioned in the press release, the FDA — and I mentioned this last year, and my team was spot on. They said there is no way, the FDA was talking about oversight on all LDTs. My team said no way that’s ever going to pass muster. They just don’t have the bandwidth, the manpower.

It’s just not going to happen. Sure enough, they’ve now backed off of that. And so for a test like ours, which is a very safe test, we should be able to fly through as an LDT, that’s a laboratory developed test, which means we can start commercialization later this year. Joe Abdo is an expert at that. And so we have to start getting the GIs involved and key opinion leaders. In order to do that, we have to get published. So this was the next step. They’ve been working on the submission for many, many months. That’s what I was waiting for. This is a big deal. So I’m really looking forward to next steps there. We are a little bit over time. I think I covered virtually everything that I wanted to cover. I know that we have a lot of questions. So why don’t we go to the questions?

I will tell you, I ask Noelle — and by the way, Noella, I don’t even know if I said how are you today. I always love having you on these calls. It’s awesome to see you. I did ask Noella if there are questions about what are your revenues, what are your earnings and the reports. First of all, I’m not going to give you projections because we don’t give projections. And number two, if it’s in the press release, the financials there, please read them for yourselves. Let’s spend time on strategy questions as opposed to the numbers. And quite frankly, the numbers in the past are irrelevant anyway. As I just described, our second and third quarters are going to be dramatically different than what we saw last year. We were losing an enormous amount of money.

Now you also have amortization, depreciation, stock comp, all these other things that go into it that are non-cash expenses, but there are real cash expenses also last year. We’ve dropped those real cash expenses dramatically going forward into the second quarter and beyond. Okay. With that, Noella, why don’t I turn it over to you for questions.

A – Noella Alexander-Young : Thank you Ted for the presentation. As you said, we’ll now take some questions. Your first question is, what’s a realistic time line we should expect to see BE-Smart commercialized? Will it be this year?

Ted Karkus : That’s a good question. So it depends on how you define commercialization. This will probably be a multi-year process. But the very first patient being tested, absolutely — on a commercial basis, I absolutely anticipate that being later this year. How many? I don’t know right now. It is totally – it’s premature. I don’t want to give estimates. I don’t want to overpromise and under-deliver. I want to do the opposite. And it may not feel like that for the last 6 months, but I under-promised and over-delivered for a decade. And I did that most of my career, and I want to get back to doing that again. So what I will tell you is we’re going to be very methodical. The question wasn’t asked and it isn’t normally raised, but I just thought of it, very important question.

We are not going to spend millions and millions of dollars. We’re not going to do what 23andMe did on drug development, spending hundreds of millions of dollars. We’re not going to do what other cancer testing companies I’ve seen where they spend an enormous amount of money and then they go bankrupt. A good friend of mine runs a company. The company is struggling because they spent on building out a big sales force. I will not do that. What I would rather do, we think we are going to have one of the best cancer tests in the world. And so we are going to go to companies that have networks of salespeople already visiting the GI’s offices or the medical — a lot of these, by the way, you don’t just have a GI in his own office. So they are going into these buildings that have dozens of medical doctors covering everything, including the GIs. And so these salespeople, we can give them our test to sell and they get a percentage on what they sell so that it’s a profit center for us as opposed to being a big expense upfront.

So I will not spend all of our money trying to build out a sales force. I don’t want to ever be in a situation again like we’ve been in the last 6 months or 9 months. So I’m really looking forward to later this year, and you’ll be — I’m sure I will be updating you. We do these Renmark presentations, by the way, once a month. Obviously, this one is for our first quarter results, but we do them the other two months out of every 3 as well. Noella, next question please.

Noella Alexander-Young : Thank you Ted. Your next question is, specifically, what vaccines or illnesses are we working on? And is anything past clinical studies? Thank you.

Ted Karkus : We’re not working on any vaccines. And we’re not spending a lot of money on anything related to FDA drug development prescription drugs. We are not doing anything of significance right now, okay? We’re developing Equivir. We are still waiting the — it’s unfortunate, our CRO is in another country, working with our consultant here, and they are going back and forth on the final results. It’s been incredibly frustrating. I expect to be able to report the final results soon. The reality is we’re looking to commercialize this for the next cough/cold season anyway. So we have a few months on that. But other than that, we have BE-Smart esophageal cancer test. We have our other dietary supplements we’re developing, and we have Nebula Genomics, which now, as I said, Nebula Genomics as an entity by itself is now operating at breakeven. We’re looking to now grow it and sell it.

Noella Alexander-Young : Thank you Ted. Next, I believe you touched on this in the presentation, but if you were to ask, what steps are being taken to meet NASDAQ compliance? Will you need to file for an extension?

Ted Karkus : Yes. So I went through that in great detail already. And the bottom-line is I already filed for the extension. They just don’t answer the extension request until the end of the 6-month period at the end of next month. But of course, I already stated, I fully believe it was indicated to me that we will get the 6-month extension. There are no issues. So to be honest, there is nothing to talk about other than the fact that I’m not allowed to say we got the extension today, which is incredibly frustrating because we meet all the criteria. And she said to me yesterday, if you meet all the criteria, you automatically get the extension. So we’re going to get the extension. But for some reason, I’m not allowed to say that today.

So we are going to get the extension. But for those listening to this call, don’t assume me if we don’t get it. But as far as I’m aware, we’re getting the extension. And that’s it. And as I said, the only variable, I believe, would be that they would check our shareholders’ equity, which actually increased since we went over yesterday. So with the 10-Q coming out today, our shareholders’ equity virtually doubled. We went from like 7-point something [million to over $15 million] (ph). What’s next?

Noella Alexander-Young : Thank you. The next question is, has the DNA Complete division started generating revenues?

Ted Karkus : Yes. So that was. So I know for some people, it might be a little confusing between Nebula Genomics and DNA Complete. They are part of the same company. DNA Complete has developed into a more sophisticated direct-to-consumer product. It is more consumer-friendly. And so the combination is doing I don’t know about $5 million a year right now in revenues, maybe a little bit more than that. If we spent the money on marketing, we can get to $10 million very quickly. Unfortunately, we’ve just been tight on capital. So depending on when we sell it, I mean, if we get a liquidity event earlier rather than later we spend some money — obviously, we have a world-class marketing team. And we perfected the marketing, we perfected the platform, the website, et cetera, the upside is enormous. But we can certainly also spell that out to anybody that potentially is going to acquire it. And as I said, the database also is hugely valuable in a potential sale.

Noella Alexander-Young : Thank you Ted. The next question is, are we still looking at June/July for COVID testing payments?

Ted Karkus : So let us see, we’re in the middle of May. June is next month. So I had to go by when Crown Medical was ready to go into the court system. So I think I gave the accurate statement. It is possible we will get our first payments actually in the month of June. The time frame for when we went into court took longer than I expected. But on the other hand, we could get a surprise sooner than I expected. So it’s possible we are still on track. I don’t know. What I can tell you is I am confident a significant amount of capital is going to come into our company in the second half of this year. When it starts exactly is hard to time. I can tell you that the Head of Crown Medical is very confident, number one, in the amount that’s going to come in.

And number two, that once it starts to flow, it is going to flow significantly. And it’s in the not-too-distant future, by the not-too-distant future in the next few months. And I really don’t know if that’s one months to two months or three to four months. I’m sure if you ask him, he’s going to give you the more optimistic time frame. I’m just afraid to do that on this call right now. I don’t think we are far away. But by far away, it could be three months. But that’s life-changing, game-changing for our company once that happens. And I said, you can buy the stock now or you can buy it after the money starts to come in. I’d be shocked — if the money starts to come in, I’d be shocked if the stock is at the same price, shocked. But we’ll see.

People do silly things when it comes to the stock market. What’s next, please?

Noella Alexander-Young : Thank you for the clarity on that, Ted. Next is you announced an agreement with a global private equity group for debt financing. Have you accessed the line of credit yet?

Ted Karkus : Yes. So we did take in a small amount of capital and then we moved on from that. And we did put up shares of stock as collateral. And by the way, when we pay back the debt, we are supposed to get those shares back. So it’s possible we’ll have a significant reduction in share count down the road. I don’t want to get more into that now. But the bottom-line is I’m looking at other sources of debt financing currently to continue to bridge the gap between where we are now and the liquidity events, the combination of Crown Medical Collections and selling Nebula Genomics, either one of which we could have a material amount of cash flow could come into our company from either one of those initiatives in the next — and I just don’t know if it’s going to be 2 months, 3 months, 4 months. And that’s both for the sale of Nebula and for collections to start.

Noella Alexander-Young : Thank you for that Ted. Next is, what are the milestone items shareholders should be aware of for the balance of 2025?

Ted Karkus : So those are two big ones, and then following the development of our esophageal cancer test and then ultimately rolling out Equivir and building our dietary supplement business. I am not looking to diversify into more businesses, by the way. When we come into a lot of cash, I want to sit on that cash, figure out how to earn a decent interest rate. I mean it is amazing what we’re paying in interest to borrow money right now. I know there are tremendous opportunities when that cash comes in to loan at a higher interest rate. And if you are sophisticated in how you do it, even though you get some defaults, the overall total return is tremendous. I’m not saying we are even going to do that. It’s just amazing to me what we’re paying in interest rates for debt financing right now. It’s so frustrating. I can’t wait for the cash to come in. I will never take that cash for granted.

Noella Alexander-Young : Thanks Ted. The next question is, does the company still have a high degree of confidence in collecting the $25 million of uncollected AR?

Ted Karkus : So on our books, we have about $20 million of uncollected AR. We believe that’s conservative. The auditors said that technically, you are not supposed to increase when you have an accounts receivable outstanding for a while, you’re not supposed to then just increase the estimates on it. We’re — it’s not a guarantee. We are anticipating that the amount we actually collect could be a lot more than $20 million. So the answer — I’ve already gone through this in a lot of detail over the last 45 minutes. So the answer is yes. We are confident we’re going to collect what’s on the books, and we are hopeful that it’s going to be significantly more than that. But to be honest with you, if we just collected what was on the books plus we sold Nebula, we’re home free.

We’re going to be a great company. Our esophageal cancer test by itself, we had nothing else. The industry for esophageal cancer test, if you look into it, it is a hot market. And again, the reason is because the endoscopy by itself is an inexact science. And the industry, patients need a better test. So all these new tests coming out, the doctors are just buying, they’re just selling. Some of these tests, as I said, by the way, if you test positive, the next step is you are directed to go get an endoscopy. Our test is for those getting an endoscopy. And again, we test eight specific proteins, but it’s the proteins that are almost always expressed when you’re developing esophageal cancer. There is another test out there that tests 400 proteins, but it’s not testing the eight, which we think are the most important.

And then there are other tests. I don’t want to get into the science. I’m not a scientist. It’s complicated. Personally, based on spending a couple of years with this and talking to multiple scientists about this, I truly believe in my heart, this is the best esophageal cancer test on the market by far and that there will be enormous demand from the GIs as soon as they hear about it, word is going to spread very quickly. This thing is going to go — so if we get to a position later this year where we’re sitting in a large block of cash, and we only have to spend a small amount of money to develop this and the market understands that we don’t have to do dilutive financings to finance the commercialization of our BE-Smart esophageal cancer test, the market value of that alone could be enormous.

It could easily be 10 times the current market cap, our entire market cap right now. And that’s without all the cash coming in, which I anticipate is going to be significantly more than the whole market cap of our company. So there are interesting dynamics at play here, but obviously, I’m very excited and bullish on the future.

Noella Alexander-Young : Thanks for the Ted. Next a viewer says, not a question, but a preference. If and when we receive payment for past due COVID testing, think smaller dividend and more cash in the bank. I hold position of nearly 200,000 shares.

Ted Karkus : Right. So I have no idea when you bought your 200,000 shares. Thank you for being a shareholder. If you bought those shares at $0.30 a share, what is that a $60,000 investment. Those same 200,000 shares that I probably paid $8 for, I paid $1.6 million. You paid $60,000. And I’m not saying it to belittle the investment. I’m more just sitting here in amazement of what’s happened. And I’m obviously — well, I don’t seem upset right now. I’m not upset because I’m really looking forward to the future, but it is kind of frustrating. But the answer is I totally agree with you. There is no way I will ever allow our company to get into the position it’s been in over the last 6, 9 months. Now — and to be clear, I still have to get through the next three months, and I still have to do debt financings.

So we’re not out of the woods yet. But we’re getting very, very close. Once we’re completely out of the woods and the coast is clear, I doubt the stock to be trading where it’s trading right now. Again, but that is not for me to decide, that’s for the market to decide. That’s one of the reasons the market is here because obviously, we’re tight on cash. That’s not hard to figure out. By the same token, I anticipate some new debt financing deals very shortly, and then we’ll be home free because I’m really just looking for a bridge to when the liquidity events start. Also, by the way, in the not-too-distant future, there’s also the possibility, but not a guarantee, that we’ll be able to do debtor-in-possession financing where they get the money back, we don’t have to ever pay that back.

They get that back directly from the court system when the insurance companies start to pay. It goes into a lockbox and they get paid first. So I may — I don’t — we don’t have access to that, but I think we could have access to that in the not-too-distant future which would then take the pressure off of me having to do other types of debt financing. However, to be honest, it is a little premature, but I just want you to know there are potential other options. I don’t know. I haven’t gone into detail. That is one of the things I’m going to be working on over the next two weeks or three weeks, as we progress with the Crown Medical initiative in the court system.

Noella Alexander-Young : Thank you for the insight on that, Ted. Next is, how do you plan to bring up the stock price?

Ted Karkus : Great question. I don’t think I’m going to have to do anything. I think it is going to take care of itself. Now depending on how much cash flow comes in and when it comes in — I don’t think I’m allowed to discuss in advance what I might do. But if you look at my past in the last 10 years, when we sold the Cold-EEZE brand for $50 million, I did two Dutch auctions. I had one shareholder that was adversarial to the company, he owned 14.9% of the shares outstanding. I did a Dutch auction, took him out of virtually all of his stock. The Dutch auction was oversubscribed. So we did a second Dutch auction, specifically because I wanted that kind guy, all right? But by doing the two Dutch auctions, took out everybody that ever wanted to sell.

And the stock proceeded — in a few years after the stock went up 10 times after because it was one of the tightest held stocks in all of NASDAQ. And so I’d love to have the opportunity to do something like that again. I can’t talk about that I’m going to do that now. We’ll see where the stock price is. But as I said, I expect that we’re going to get the 6-month extension. By the way, this is really important. We are not — in our upcoming Annual General Meeting in the proxy, we have to file that, I’m not sure, probably within the next month. We are not intending to even put a reverse split. We are not looking for authorization for a reverse split even in our proxy. Now there is a requirement if in the second six months the stock is not above $1, that we’ll agree to reverse stock split — reverse split the stock.

Of course, we would have to or we would get delisted, I don’t want to get delisted. But if we even get a portion of the liquidity events I think we’re going to, I don’t think that’s going to be an issue at all. And that’s without me considering stock buybacks. But that’s not something I’m considering today. We don’t have any cash — we’re clearly not doing stock buybacks and dividends. The last thing I’m thinking about is dividends right now, right? And even when the cash comes in, the last thing I’m thinking about is dividends, all right? But if you can look at my history, I’m shareholder-friendly. I think like a shareholder, I was an investor for 40 years. I was an investor for 30 years before I became CEO of this company. And so you better believe I’m not spending that money.

I want the shareholders to — the shareholders that have stuck with me, I want them to benefit. So that is the way I’m thinking. We’ll see what happens. Again, we are jumping the gun now because we have to wait for one of the major liquidity events. But you can bet — if the past is any indication of the future, you can bet I will be shareholder-friendly again in the future. Thank you for that question. Noella, what’s next?

Noella Alexander-Young : Thanks, Ted. The next question is, can you tell us what you are going to do with the funds you get in from Crown Medical or possibly selling Nebula?

Ted Karkus : I think I just answered those questions in the last question. No need to repeat myself. Look, we will see what happens. Obviously I care about stock price. I care about NASDAQ listing and all those good things, and we’ll just play it by ear. I can just tell you my background is on Wall Street. So I want to make the right decisions that are best for shareholders certainly going forward. We were in a stressful time in the last 6 months or 9 months of things that we did that I wish in a million years I never had to do. And I absolutely, this cash comes in, I can virtually guarantee you I will never do again. But the things that I do like doing are all shareholder-friendly, and we’ll just see when the time comes. But I’m really excited, among other things, commercializing our BE-Smart esophageal cancer test and not spending a lot of money doing it.

Also, I didn’t even mention this. There is a very real possibility that as we gather a little more momentum later this year, somebody is going to want to acquire our esophageal cancer test for a lot of money or partnering it. Partnering it would be great because then you just make a lot of money. You have somebody else that already has a huge distribution network. It becomes an overnight success, you get a significant — you get milestones and a significant royalty. Not a bad business to be in to have monster cash coming into the company every year. I mean, I would love a business — I think I could retire on that. All right. What’s the next question?

Noella Alexander-Young : So your next question is, what happened to Equivir?

Ted Karkus : So Equivir, the only reason I’m not talking a lot about it is I’m frustrated like everybody else. I’m just waiting for our consultants and the CROs to get on the same page and finalize the results. We have some time because this is a product for the cough/cold season, and we are initially going to introduce this online anyway. So we have a little bit of time, but it is a little bit — it is a little frustrating. And I’m waiting like everybody else. So we have phenomenal preliminary results, and I’m just waiting for the actual final results that we can both publish and also use to make claims on the packaging. Although as an over-the-counter dietary supplement, you can’t make any of the claims that you can make with the drug anyway.

So I’m not sure how much is going to even affect the claims you can make on the package other than basic claims, but it would be nice where we have — if and where we have statistical significance, it would be nice to be able to say that. So I’m frustrated like everybody else to be honest with you. But again, we have much bigger fish to fry and much bigger things to look forward to at the moment, although Equivir could be a very big product. We have some things that are front and center right now that could be very big. And it is one thing to generate $25 million of revenues and make a few million dollars. It is another thing to generate $25 million of cash with no overhead. And again, when we talk about the $50 million coming in from Crown Medical, that’s net.

We are not paying them anything. By the way, they have dozens of attorneys working on this. We’re not paying them a single penny. They would not be doing that if they were not highly confident that they were going to collect a lot of money. It is all contingency fees, all based on collecting the money. They take out their percentage, we get the rest. They believe that we’re going to net after their contingency fees up to $50 million. And they said — and it’s possible it is more, but it could be some kind of big number like that. So even if it’s $25 million, that’s game changing for the company. And that’s not revenue — it is revenues, but it’s revenues without costs associated with it. We expensed the cost of this when we did the COVID testing 2 years and 3 years ago.

Noella, do we have more? We have time for one or two more.

Noella Alexander-Young : Yes. So we’re coming to the end of the presentation, but I think we have time for one more question here. The question is, what is the forward-looking prospectus from here?

Ted Karkus : Boy, so that sort of like sets me up to just give my summary. So why don’t we just move this to summary since that’s the last question, and we are out of time. I want to thank everybody for joining us. I think I covered virtually everything that everybody would want to know on this call. Obviously, if you can’t tell, I’m very bullish on the future of the company. We have a few months of debt financing that we have to get through. I am optimistic, actually based on some recent conversations I’m having that we are going to have some solid debt financing very, very shortly. And then following that I may have an opportunity to do the debtor in possession financing. If I can do that, we are home free because now we don’t have to pay — we never have to pay that back, that comes out of the collections.

So we’ll see. And then at that point, then the liquidity events start. And again Crown Medical, we could have a — the first liquidity event for Crown Medical could surprise us. I hate saying that in case it doesn’t. But the first liquidity event for Crown Medical could be upon us within the next two months. And to be honest with you, it could be sooner than that. I don’t want to commit to it because I don’t want anybody to say that I misled them or it didn’t happen. But I think there’s a good chance we’re going to be pleased within the next couple of months on the Crown Medical. And on the Nebula front, given that Regeneron just paid $256 million for 23andMe — and again, I don’t want to compare the two. We are not getting $50 million or $100 million for Nebula okay?

And I don’t want to tell you what kind of numbers we think we are going to get because we specifically made the decision, let’s see what the market is interested in. So what I can tell you is the number is kind of all over the place. But what’s interesting is the fact that we’re a breakeven business, it’s actually a good thing with a huge data set and a business that, number one, we can grow very quickly; number two, we can grow it efficiently; and number three, it creates positive cash flow and earnings the following year with the subscription renewals. It makes us a very interesting business as an investment to be acquired by private equity. And then, of course potentially, you have your drug development companies that want to acquire the business because you get the data set that goes along with it.

And again, there are all sorts of issues with privacy, with sharing data. We don’t share our data with anyone. But if you buy the whole company, obviously the data set comes with it. So there are some interesting dynamics. We’ll see how it plays out. As I said, NDAs are going out, LOIs may be coming back short-term. We’ll see how it plays out. I do these Renmark calls once a month. Stay tuned. I hope to have some nice positive updates by the time that we do our next Renmark virtual non-deal roadshow. Many thanks, Noella. Have a great day. I think that concludes – you are supposed to say, I think that concludes the call. Go forward.

Noella Alexander-Young : Thank you, Ted. And that concludes our Q&A. Thank you to everyone for joining us today for ProPhase Labs first quarter 2025 results. ProPhase is trading on the NASDAQ under the ticker symbol PRPH. The playback will be available on our website 24 to 48 hours after this presentation under the VNDR Library tab. Please stay tuned for other presentations in your area and see you next time.