Welcome to the ProPhase Labs Third Quarter 2021 Financial Results and Corporate Update Conference Call. All participants will be in listen-only mode. 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, everyone, for joining me today. I’m feeling particularly optimistic. Reflecting on my journey, back when I first launched a proxy contest 12 years ago, it was a time of health and restructuring for the company. This past year has seen us moving into a new business, which has its own challenges. Starting a new business from scratch is no easy feat, but I believe we're in a strong position right now. To give you a brief overview of my background for those who may not know me, I’m the largest shareholder of the company and have a long history of working in favor of our shareholders. Over the past 40 years, I've been involved in investing in small-cap development companies and have successfully turned around several of them, including one that sold for $1.4 billion. When I took over our company a little over a decade ago, our stock was around $0.60. Through our collective efforts, including the management team, we turned the company around and sold the Cold-EEZE brand for $50 million. Today, our stock trades between $5 and $6 per share, and we've paid a special stock dividend of $1.80. Long-term shareholders have been well compensated, but I believe the best is still to come, and I feel that we are just getting started. More recently, we made a shift into COVID testing and quickly established a significant business with a modern lab in Garden City, New York. We have broadened our customer base and are seeing revenue growth in Q4 with a more stable clientele. Our next move involves further diversification through Nebula genomics, utilizing our lab and infrastructure to serve around 40,000 retail outlets. Our ultimate aim is to expand our genomics platform into precision personalized medicine, which represents the future of healthcare. Now, I won't present the numbers in detail, as you can review those in our press release, but I do want to highlight a few key points. We're now reporting adjusted EBITDA to give a clearer picture of our actual earnings. There have been ongoing restructurings within the company, resulting in some stock options being canceled which leads to non-reversable expenses from previous reports. This is why adjusted EBITDA is crucial; it offers a more accurate understanding of our financial situation. As a small but growing company, we aspire to expand into a larger market cap, targeting $1 billion to $2 billion. We constantly seek new opportunities, much like our pivot into CLIA lab testing last year, culminating in our acquisition of Nebula after conducting a thorough review of numerous potential acquisitions. The Nebula acquisition, which I’m very excited about, will provide significant value and enhance our existing infrastructure. The cost of reviewing acquisitions adds up, but in my view, these expenses are investments in the long-term value of the company. To illustrate, we initially incurred losses while revitalizing the Cold-EEZE brand, but that investment ultimately paid off significantly. As for our contract manufacturing, we saw a dip this year primarily because last year's spike due to COVID created an inventory surge that we are now recovering from. I expect to see a rebound in contract manufacturing as inventory normalizes. Our dietary supplement business has also been expanding through partnerships with major retailers, reinforcing our infrastructure. The success of our lead product, supported by clinical studies, allows us to capitalize on increased consumer interest. Regarding our CLIA labs, we’re diversifying our diagnostic testing, moving away from relying solely on school testing and mandates. We’re now working with independent pharmacies where convenience is paramount. The customer base is more varied than before, and I can confidently say we’ve recently experienced one of our strongest months ever. Lastly, Nebula is positioned to take advantage of increased consumer interest in health and wellness. While they currently sell whole genome sequencing online, our experience with retail distribution gives us a great opportunity to expand sales through other channels. We also believe there's potential to lower prices, which could increase demand significantly. In closing, we’re actively pursuing additional acquisitions and opportunities. We are well-capitalized and optimistic about the future, looking forward to a strong ending to the year. Thank you for your support, and now I welcome any questions you may have.

We will now begin the question-and-answer session. 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 the 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 a low-pass product. We are probably going to move the process of the low-pass 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. 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, 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 of demand plays a huge factor in the sales, and if you drop the price by even a little bit, it’s going to significantly boost sales. This is already a high-priced item. So they could not build a profit margin when they were selling it for $300. So they basically sold it at cost, but then they sell a subscription that goes with it. Anyone that’s going to bother to spend the money to get whole genome sequencing 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. There are new clinical studies coming out every few weeks, and Nebula is constantly updating the library. This information is critically important. You get an initial report when you order the whole genome sequencing for $300. The library and that update that comes every month is really valuable and interesting to consumers. The idea is to just get the consumer to become a customer, to get sequenced, to get their genetic makeup. Then they sign up for the subscription and have subscriptions to go anywhere from you can pay monthly to annually to a lifetime subscription. We’re doing away with the lifetime and I like the way that’s set up. Yes, all the profits in the subscription, and that’s where the game is. For people 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, a great presentation. I was wondering just covered everything. I mean, that was the best one I’ve heard. 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. Let me share some insights about our infrastructure. I've been somewhat reserved in discussing our management team, which has been a topic of interest. Our leadership has advanced, and I now have three key individuals I regard as EVPs within our lab business. This includes our Head of IT surgery, Marias, along with Alex, Leo, and my son, Jason Karkus. Alice and Jason essentially manage our entire lab operations, with Alice bringing 15 to 20 years of experience from some of the largest labs worldwide. She has played a pivotal role in organizing our lab and its operations. Over the past year, we have significantly progressed. At the start, we were just entering the business and rapidly hired 100 people within four weeks, often without extensive interviews, leading to considerable initial chaos. However, we've since streamlined our processes, particularly concerning our licenses and inspections, which have been going remarkably well. Jason oversees our customer business; he has been with me since the early days of our clear lab business. He has been instrumental in developing our client base, which includes numerous significant health care and marketing companies that collect specimens across the country. He is also working on expanding partnerships with independent pharmacies, increasing the number we sign up every month. Typically, an independent pharmacy might conduct about 10 tests a day. With an average of 150 pharmacies, that amounts to about 1,500 tests daily, translating to revenue of around $150,000 to $175,000 a day. If we expand to 300 or 500 independent pharmacies, the potential is substantial, as there are thousands available nationwide. Our previous head of sales is collaborating with Jason, focusing on larger deals with food, drug, and mass stores, and we are exploring pathways to connect with thousands of independent pharmacies. The business is thriving. In October, we achieved the highest sales in our company's history. While I won't make predictions, I can say our business declined significantly in February and March but is currently on the rise, even amid low positivity rates. I anticipate that by next year, we will be a well-diversified company, identifying ourselves as a biotech and genomics firm that utilizes our CLIA lab. We just happen to be driving significant revenues right now, and those are very profitable revenue. 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. Our employee staff and our management have evolved into an infrastructure within our company that’s much stronger. We’ve 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. They understand we can let them go. We can bring them back. There are no issues. 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 instantaneously, so that it will be more in line with the testing level. Hope that answered your question. I went on a tangent that covered a lot of information. 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. To be honest with you, the lab industry is fraught with undesirables, and it’s very difficult to find a clean lab where it actually makes sense to acquire it. I’m not going to acquire it just for the sake of acquiring it. There are opportunities 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 it again now: I’m a huge believer as an investor in terminal value on a per-share basis. That’s all I care about. What that means basically is every strategic decision I make has to increase the value of the company on a per-share basis. 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. People have come to me and said, "Oh, buy my company. Look, it’s going to spike your stock; it’s going to spike sales and spike your stock." I’m like, yes, there’s no underlying value here. I’m not going to do it. It has to be the right acquisition. In the meantime, we are diversifying by no other reason immediately into genomics by doing genetic testing in our lab. The other types of testing I will do if the right opportunity comes along. 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 looking to expand that. 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’s a good enough answer for you for now. There are lots of opportunities out there to diversify our lab business. 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. 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. Watch what we do next; it could be another lab. It could be something more in pure biotech. But it’s all going to come together very nicely, and you’re going to see that. I expect 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 indiscernible.

Ted, nice job as usual.

Greetings, 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. Is it 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. 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 buyback? 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 I have big plans for the future of the company, and I’m optimistic for the future of the company. Let’s put this in perspective: since January, while our stock came down from $20 to $16, 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 diagnostics; those stocks are down 50%, 75% since January. We’ve had – as far as I’m concerned, I don’t know if it’s a technical bear market, but for all intents purposes, there’s been a bear market for micro-cap stocks – and we are one of them. That’s going to change at some point. I can’t tell you if it’s going to change in a month or in nine months, but that’s going to change. At the same time, we are growing our business; we’re diversifying, and we have tremendous potential in many areas. We do not need capital right now. We are not raising capital right now. We had a $75 million shelf in place already. If I was looking to raise capital right now, I could just use the $75 million shelf. Obviously, I’m not raising $150 million or $200 million when our 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 a $75 million shelf, you got to believe that I believe that our market cap is going to be a lot larger one day. 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. At Bonus to do something bigger. Put that in perspective; a year ago, what were we, a $15 stock with no 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. We now 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. I believe that we’re going to build the Nebula business, and I believe we’re going to diversify further. 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. 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 we’re going to be a different market cap. We’re not going to be the mini-micro cap that we are now. Hopefully, we’ll go from like microcap to small cap depending on your definition. 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. Financially, a very strong company. It’s very difficult to find a micro-cap company our size that has the amount of capital we have, the growth characteristics that we have, that has such a small market cap and such potential. No, I’m not doing anything with the $300 million. I wanted that in place, whether we use it in three months or three years, I don’t have a crystal ball. 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 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 or need. At the right time and the right opportunity, we’ll see. It’s a great question; I’m glad you brought it up. No one has to be fearful. We’re not raising capital; 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. Actually, the revenue is counted as of the date that we acquired it. A small piece of Nebula showed up in the third quarter, not anything that’s significant to revenues or earnings. There was also a significant accounting, investment banking fees, and auditor fees for the acquisition that far outweighed any contribution from Nebula in the quarter. They’re fully integrated; they will be for the fourth quarter, now that we’ve 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 shelf because I don’t think we’re getting to $16. Whether we get there or not, that is not for me to predict. We’re in a very different period of time for microcap stocks today versus last January. 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. In the next upswing in microcap stock, I would certainly expect we will perform amongst them, since we will be growing unlike some companies that were just pure COVID plays. I’ll give you an example; there was an antibody company I was interested in acquiring, and they just wanted too much then the stock dropped. I don’t know if it will ever come back because their antibody tests were selling for $80, and now we can buy an antibody test to readout for $8, where they were selling for $80. Companies like that are going to struggle to bounce 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. 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. 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. I say to our employees, our shareholders are the owners of the company, and our shareholders will always come first. Our employees are a very close second. 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. Ailey, you can end the call now.

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