Q4 2022 Prophase Labs Inc Earnings Call

[music].

Okay.

Hello, and welcome to the profane Prophase labs financial results for the year ended December 31st 2022 Conference call.

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I would now like to turn the conference over to chairman of the board and CEO of Prophage glad Ted Carcass. Please go ahead.

Thank you Adam and thank you all for joining me today before we get started I would like to be I have to read the forward looking statements are Fortunately our attorneys gave me a shorter version, but thank God I would like to remind you of the company's safe Harbor language. During this presentation, we will make.

<unk> looking statements, including statements regarding our strategy plans and objectives and initiatives and the underlying assumptions. While we believe that these forward looking statements are reasonable as and when made forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially these resist.

These risks and uncertainties include but are not limited to our ability to obtain and maintain necessary regulatory approval 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.

Our filings with the SEC filings this call will present non-GAAP financial measures such as adjusted EBITDA reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC prior to this call and available at our website alright, now that I got.

That out of the way.

Again, I want to thank everybody for joining me today.

I don't want to re read.

The press release and quite frankly, the press release is pretty self explanatory. If you don't get what's going on from the press release said, you're wasting your time, but I don't know why youre on the call.

First and foremost and and by the way of course first of all a couple of things just mentioned one we have two fantastic investment bankers investment banking firms that we work with that's critically important when you're a small cap development stage.

It is critically important.

We have good relationships with investment banking firms and particularly high quality investment banking firms and in our case with small cap development stage companies you want investment banking firms that focus on small cap development stage companies like ours Smallcap I don't think of a company a small cap in fact, I think our companies it could be.

Large and small cap soon but in any event I'm talking about equity and H C. Wainwright. They both cover our stock they both do a great job and I. Appreciate both firms. In addition to that we work with Red Mark financial or primarily for retail investors, if you've never seen a red Mark Brooks.

Non deal Roadshow cool I do these probably every two or three weeks, if you Wanna get updated feel free to reach out to red Mark and sign up for the next one also on our website. We have two company presentations. One is on the whole company. One is just on the Biopharma Division.

The main company presentation, probably updated every couple of weeks you can go there to learn more information and so with that.

The tone of this call it simple I'm going to try and keep it brief and then go into a Q&A hopefully there are questions in the Q&A too. So I can go into more detail.

First and foremost and I've said this in the press release.

If you were investing in our company or you're investing in any small cap development stage company you have to be investing in Madison I learned that when I was the walgreen 30 or 40 years ago.

If your management doesn't it executed I don't care, what your product to start with is it's probably going to turn out to be a bad investment.

And so the one thing I can tell you is you can look at my track record and the track record of your management team and our company.

Over the past 10 years, and obviously, we've killed it alright, we added 65.

10 years ago since that time, we paid out $2 40 pence and special dividend.

And our stock is up you know however, many multiples.

You know for 165 cents.

And I'd say the majority of our shareholders of our company and probably been with me 10 years or longer and they've been well rewarded for their patients and I. Thank you for your patience.

Having said that not just over the last 10 years, but even over the last two years are our performance has been phenomenal. So we turned around and sold the cold These brands and $50 million.

And then I didn't squander, a penny of that money I did everything I do is towards building value in the company long term and I I pay attention on a per share basis, and that's why we do stock buybacks.

Think about terminal value on a per share basis, what's the value of our company divided by the number of shares outstanding what's the value of our company could be yours for now divided by the number of shares outstanding years from now that's how I think that's from my Wall Street background. Every CEO of every company you should think that way.

Anybody that doesn't like stock buybacks and stock dividends should have their head examined.

In any event I'm the largest shareholder in the company everything I do I am therefore aligned with our shareholders everything I'd do it for the shareholders and believe me I put our shareholders.

Above myself and and before myself, so having said that.

Look when we sold the cold These brand we did the stock buybacks, we paid the dividend and we waited for the right opportunity came along to come along and it came along with Covid. We quickly pivoted built out a fantastic lab in the last two years results speak for themselves.

They're pretty phenomenal tell me another company, but ways, you know and we raised $37 million.

In January two years ago.

And now we have over $40 million and net working capital.

And that's after spending tens of millions of dollars in stock buybacks tens of millions of dollars.

Stock buybacks dividends and acquiring several companies.

But we're now going to build out that hopefully my goal is is it turns this into a multibillion dollar company. That's the goal so we pivoted.

I'm afraid that we executed obviously you know look at the numbers I'll just tell you very briefly our revenues for 2020 to $122 6 million of revenues. That's an all time record in the 30 plus year history of the company 18 5 million net income all time record $38 6 million adjusted EBITDA all time record.

We still have $44 6 million net working capital.

And that's after all the acquisitions that are going to transform our company. So we were primarily a COVID-19 testing company, you know COVID-19 and flu upper respiratory company for two years.

We are now a well diversified company. It has been transformed moving forward as Covid slows and I know, that's why the stock pulled back and blah blah blah, but I've explained this AD nauseum over the last couple of months for anybody that wants a run Mark V N D R.

We're not transforming our company, where the underlying value from the other assets in our company are growing rapidly and the growth in value of these other asset is going to more than make up.

Or the decline in value of our Covid testing, but the truth of the matter is we never got a multiple under Covid testing business anyway, so quite quite frankly, it's apples and oranges. It almost doesn't matter and so you have to look at the some of the pieces and there's a lot of value in the pieces of our company.

Al mentioned very briefly.

Manufacturing facility and you can go back to our last roughly six press releases like giving updates on most of our subsidiary our manufacturing is growing like wildfire.

The license business is a growth industry right now combined with the fact that our largest competitor was acquired by private equity a couple of years ago, and they've really screwed up the business or they're unreliable and several of the largest licensed brands in the world are all coming to watch they all want us to be.

Their primary manufacturer of their licenses are willing to sign long term contracts they want us to build out.

You know the equipment at our and build out our capacity some of them are even willing to invest in.

In the equipment necessary to build our capacity that's how much. They are impressed by how we do business. They were impressed with our customer service are impressed with our reliability and frankly, it's almost like they're desperate we have one company from another country.

Household name I don't even want to mention the breath alright.

The biggest brands in this category there are actually based in another country. They they not only want us to do the manufacturing for them in this country, they potentially want us to do their license manufacturing globally.

Our lives inch manufacturing business is going to explode I'm.

I'm not guessing about that of course, there's no guarantees, but it's it's basically as fast as we can build the capacity that business is going to grow so just imagine a.

A year from now.

We're doing you know and I put this in our press release I believe we were targeting to do about 25 million of revenues in 'twenty 'twenty four and our manufacturing.

So with the type of growth.

[noise] about what that business could be worth, but I I don't know it could be worth 60 $75 million.

That does not alone, there's one business and nobody pays attention to what I said about working capital could be worth.

The whole market cap of our company how ridiculous is that okay. Now we get into the Nebula genomics. There are startup companies with 50 and $100 million valuations that are probably three years behind us. They don't have the relationships that we have they don't have the infrastructure. We have they don't have the business or the business model there is their store.

Stocks.

And yet they have 50 $800 million valuation, so I'm not going to tell you what nebula is worth but nebula is actually.

Potentially growing even faster.

Center manufacturing facility. We are our goal is to be the low cost provider in the country for whole genome sequencing I am not quite explain with whole genome sequencing is but I can tell you. It is at the heart of the future of something called personalized precision medicine whole genome sequencing studies your whole genome.

As opposed to competing companies, whose products only studying very small percentage of your genome, which is getting great brand first three information it's awful for health related information, if you want high level health information and the whole country is going to.

Going towards trying to be more healthy and all of.

The research is all about starting with a whole genome sequencing testing and figuring out how your genetic makeup plays a role in your health and so this is all in the first and this is like where the Internet was 20 years ago and we are so perfectly positioned we are world renowned George.

Charged who's the founder who has got our advisory Board, who is a shareholder of our company, we have rough waltman equally equally well known out of Stanford University. There on our advisory Board, we're working with them regularly and building our company. They are introducing some of the largest companies in the world.

Before we are working not only in this country, but we are in Abu Dhabi.

And in the UAE and working with some of the largest our little company is working with some of the largest companies in the world.

On our Nabila genomics initiatives, a lot more to come enormous potential.

And then our sofitel cancer test I can't tell you how excited I am.

We're going to help so many people say so many lives and make our shareholders an enormous amount of money. That's the goal and all I can tell you is since we took over a number of scientists and people that Ive got involved and with this have only further increase my enthusiasm and cause.

And our ability to develop or esophageal cancer tests, if people want to run the Q&A I can go into more detail explaining at the bottom line is we have ongoing studies, there's a real possibility that we will.

Commercialize these tests.

Towards the end of this year in this country as a research use only test for cash pay our goal ultimately is to get the insurance companies be behind us at backing up.

With a C. P T code would that CPT code.

We believe we will be reimbursed 1000 to $2000 per test in our initial target is 2 million people, who are barratts esophagus, who get endoscopies once per year, a 2 million test times, a thousand or $2000 is it $2 billion to $4 billion market in this country.

And we believe we could get the CPT codes as early as the beginning of next year, we're working with key opinion leaders.

Major cancer institutions, who are all getting more and more involved in this and this is going to I believe look more and more of like a reality as the year goes on and look at our market cap.

Just how much of that is reflected in our market cap right.

Right now given the potential and and given how real this is and given the time frame for commercialization and then finally, we're working on.

Linebacker a cancer compound, we were not going to break the back and spend a lot of money on it it has enormous potential but that's longer term.

But our goal really is just a license that's a major pharma.

Sometime next year after we complete our phase one study you know sometime maybe late next year.

So we won't spend a lot of money on it but but it's possible we could do a licensing deal. After the phase one study that's worth the entire more cap of our company right now that's something low risk to us because we're not quite at spend a lot of money enormous reward and it's sort of I've seen on the <unk>.

K to everything else, we're working on and then of course, we have an equity or a blood based assay viral.

That we will be potentially introducing to the marketplace and commercializing later this year. Initially we would sell it online and then ultimately the goal is to get into the retail stores we are experts.

And selling Antivirals OTC.

Similar to what we did with cold DS and I personally was involved in the turnaround and sale of the cold. These brands and we still have some of the same we still have the same senior salesman, Joe Brennan who's been in this business for decades. He tells that he has relationships with a number one national broker that we work with.

And with every major retailer and so there was so much going on there well with our current dietary supplements with lessons XL and triple edge, which is actually gaining momentum as we speak and then once he has equity are introduced in the marketplace and then in addition to that that'd be like genomics, we can introduce a.

Test a whole genome sequencing tests that were working on introducing our stores and that could build into a whole range of health test, we could actually be the leaders in providing health tests and retail stores. So there is so much in so many directions and theres a lot of overlap there are a lot of synergies between our various subsidiaries.

So I'm really excited about the future of the company anybody that's focused on the Covid testing company, you're completely missing the boat that's going to be the least important part of our company down the road and certainly in terms of the value right.

Testing, obviously has the revenues, but we never got a multiple of those revenues anyway. So now we have other businesses toppings, you'll catch it doesn't go to zero revenue this year and yeah by the end of this year.

Who knows what the value of that test can be and then the kicker is.

We're working globally, we have global initiatives that we are working on to commercialize to develop and commercialize our softwood youll cashew tests and other parts of the world.

Think about everybody that gets esophageal cancer in this country guess, what they've got in every other country to it all starts with GERD gastro esophageal reflux disease that asset in your stomach and.

And so many people get a huge percentage of the population every patrick that skirt.

And then sometimes it develops into barrick the topic is and one out of 50 or one on 100 people that get parasiticide, because it turns into cancer and right now in fact, we just met with one of the five since last night.

He is a searching and he operates on people all the time, where the stoppage of cancer and he was telling me how excited he is for our tests and how desperate desperate.

The industry is for tests like this.

And it's just sad right now when you get diagnosed with esophageal cancer.

It's about a 73% to 80% of I've seen various numbers I'm, sorry, 79% of between 80% I've seen as high as 90% of people diagnosed with esophageal cancer diode soft tissue cancer, that's because they're diagnosed to wait.

Our test let.

I'll, let you know.

Well in advance so you have a chance to do an ablation procedure to kill the precancerous cells before they become cancerous and it's too late it's going to we believe it's going to stay at a lot of lives.

All these things going on with the company I'm really excited about the future of the company I want to cover a few a couple of housekeeping items related to the numbers, but those of you that are focused.

On the numbers so Q4.

Reporting our Q4 it was complicated because we had a 5.9 million dollar accounts receivable write off the write off was related to testing we did in the first half of the year.

So which.

Is the government funded.

Entity that was actually paying for all of the patients being tested that did not have insurance and understand people walking out on the streets of New York most of them didn't have insurance.

With them whatever the case may be the bottom line is if we couldn't collect the in short from insurance companies do we can collect the insurance everybody's at first it was paid.

All of a sudden that funding stop they gave US one weeks notice and then there was the promise that hurt there was going to be funded again, we continue to test. This went on for many months and so there was.

The real possibility that we were going to collect on these patients and then in addition to that when her so I only became clear it wasn't going to be funded we looked into potentially.

Tracking down the information on these patients to see if they had insurance even if we didn't collect it initially the complicated matter, we're talking about tens of thousands of tests and ultimately we have a new senior finance team, we hired three fantastic senior level.

Executives and our finance team they all have decades of it you know.

10 years or more of experience.

Probably any one of the three could be our CFO right now Robert Morris heads our department.

But heather and Greg are equally fantastic. So we have a very strong finance team and they recommended to be conservative and to be prudent that we take the $5 $9 million right what makes it complicated.

Is that we're right in the swap at year end and even though it's related to testing activity in the first half of the year. When you know frankly, if we did $5 9 million less revenues the first out of the yard.

It wouldn't have even it would've been negligible.

Wouldn't have even been noticed because their revenues were so ridiculously large, but unfortunately because of the year and if we report.

Fourth quarter net income number we would have reported with a $5 9 million dollar write off which frankly I think would have been misleading so rather than doing that we gave you the full year numbers.

So you know.

Our numbers you know, we still did $21 8 million of revenues.

Not counting of course, you've got a cost of $5 9 million, but I just wanted to give you a fair.

Picture on what our fourth quarter looked like not counting the $5 9 million, we would've reported $1 8 million of net income and Furthermore, we had.

<unk> payments related to our testing activities throughout the year, which actually probably should've been expense throughout the year that hit the fourth quarter, so because all of that hit the quarter.

We had the $1 8 million and net income, but that had been expense throughout the year. Our net income would have been significantly over $2 million of net income, but we do have we did account for those performance payments.

In the fourth quarter, and so and then of course, we have the $5 9 million dollar write off which right now looks like two other things to mention very quickly.

Why is your SG&A, so hi, actually it's because of that $5 9 million that's the jumping at CNA.

And finally, our accounts receivable, while our accounts receivable it looks like it hasnt changed understand it's because we're still doing ongoing testing first of all a part of the couch receivables trade receivables related to nebula genomics and formalized manufacturing.

But of course, the bulk is from testing, but understand that as we get paid by insurance companies. We have new test that creates no accounts receivable and as I noted there was a backlog because we had all of these patients.

We tested this is not like working walking into a doctor's office, where you stop at the front desk.

You fill out all these forms give your insurance card. It takes 15 minutes. It's all in the system. These are people a lot of our testing to more people walking up to attempt and getting a quick COVID-19 tests taken a quick persimmon without the sophisticated equipment and without taking the time to properly collect the patient insurance information.

So what's interesting now we've now.

We're working with a couple of different companies, one in particular or another country, whereas like 50 people working on this working through all of our accounts receivable, what you're talking about literally tens of thousands.

Test in patients and they're working through every single one of them and they're doing a fantastic job and I can tell you it's not.

I had a billing just Washington few off just before this call and she said she had great news for me.

And basically we're working through that accounts receivable very quickly we're always going to have some accounts receivable, while we're doing testing.

Because at the end of the day.

We have to organize the information get it through the insurance companies and the insurance companies take 468 weeks, sometimes the pet at its high quality accounts receivable, but nonetheless.

It's still picks up 48 weeks, so it's always going to be rolling where we always have new accounts receivable, replacing old accounts receivable, having said that I believe that our accounts receivable is going to be significant is going to be less well report report first quarter second quarter, it's going to be significantly less so anybody who's concerned about accounts receivable that was a long winded way of saying don't be.

Are you concerned about it at all it's coming down to reasonable levels. In addition to that we may be able to find insurance.

And patience.

Previously did not provide any.

Sure that is not in our accounts receivable. It is not in our revenue and so we may actually get some nice bonuses.

Down a year from that so not only do we have a squeaky clean.

Naturals.

With our new Finance Department team of experts, but in addition to that we may actually have some upside in the coming quarters.

So I dressed a few quick questions I know you know.

I've never been speaking for about 25 minutes.

I covered an awful lot I just want to review before I open it up to Q&A. If there if I want to mention anything else I said, I think I pretty much covered it look.

At the end of the day I personally have executed my entire career.

Our holders that nobody for a long time know that.

The people that I hire our people that execute and.

And I tell them that and you know what for every three.

Senior level people that are higher one works out, but the one that works out first of all I go through an incredible screening process. So the three are all great, but having said that you never know until you hire somebody.

And so we've gone through a transformation in terms of our management team over the last couple of years, where it just gets better and better and better we have a kick <expletive> management team.

Literally not just our finance department all the people in it.

It starts with my son, Jason Clark is our head of I T. It's amazing Sergio Marias outlook, Leroy who does so much not only in the lab, but also on the Biopharma side.

Its loyal people in the world.

I've worked with for the last couple of years several dealer has been an unbelievable additions to our team he he's.

Leading the way in Abu Dhabi, He has a multiyear relationship with some very big players in Abu Dhabi and around the world and helping us become a global company I don't want to leave anybody out those are the some of the senior people, we hired a great guide said lacking.

Who may become a senior executive right now he's a senior advisory to our company, but it's working.

Working virtually full time with us he has decades of experience.

Entrepreneur and as the CEO of other small cap development stage companies I'm sure I'm, leaving somebody out I apologize if I am but I'm really really excited about the team that we have and I'm really excited about the assets that we're now developing it as my destiny to build a multibillion dollar company.

And I believe.

That we now have the assets to develop that can make that a reality and again I just want to highlight.

Everything that I tell you I believe in my heart number one and number two if I tell you. We're working on something we're really working on and if I tell you. We're working on global initiatives our level companies really working on global initiatives.

So please stay tuned I think that there's a lot more to come.

Without <unk> I would like to open it up to questions I hope that there are some questions lining up I'll hand, it back over to you.

Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the.

To withdraw from the question queue. Please press Star then two.

And at this time, we will pause momentarily to assemble our roster.

Today's first question comes from E. Chen with H C. Wainwright. Please go ahead.

Thank you for taking my questions.

My first question is could you comment on the current trend Covid testing sure.

Sure so.

Obviously, it's slowing.

I think it was lab.

Labcorp won one of the largest labs in the country. So that they expect the COVID-19 testing to be done 90%. This year now whats interesting about our testing.

Is that we black at New York City with tests.

And people are still.

By obtaining asleep walking up to these tests to get tested there's still people when it's convenient for them. They still want to get tested so it's not like the testing is going away, it's no different than when I walk into the gym and there are still people wearing masks.

Alright, so people are still being cautious so if you've got COVID-19.

Oh, the best thing you can do is get tested to confirm you have covered if you do what's the quantity.

People finally realized that vaccines don't prevent you from getting Covid and now it's coming out that actually it might actually be more dangerous been getting COVID-19 and so people are still getting tested our testing is clearly dropping.

And it's becoming a less and less significant or important piece of our company and certainly from a value proposition point of view I highlighted all the other divisions that are doing so much better. So there's no question that the trends in Covid testing is going to continue to grow having said that.

You know I have to figure out what I can say right now we're still going to have a solid first quarter and we're still doing COVID-19 testing and where.

We when we got into the business, we blew way, 95% of labs and I bet, we're still outperforming 95%. So while our COVID-19 testing is dropping it's it's not dropping as much.

As it is in the industry.

I I apologize here that I can.

We don't give future estimates and we don't give more detailed information I hope that answers. Your question. That's the best I can do on the call for now.

You mentioned that you expect neighborhood genomics to grow with more than 100%.

2023, and also the manufacturing subsidiary.

Grow up to 100% year over year just years. So I don't know if you can provide some general comments regarding the.

Total revenue top line growth in 2023.

Sure.

Compared to June .

Sure so.

With our formalized manufacturing.

And I don't have the exact numbers and I don't and I don't know that we reported and so I don't want to give numbers that were not reported maybe I'll do an updated press release I know it's farm lives.

I believe at the top of my head, we did about seven or $8 million in revenues.

Last year, and our goal is about $25 million and.

In 2024, and I think that we will continue to grow after 2024.

Quite frankly, I think we could do $50 million in that.

I think we have demand for a $50 million of business annually. If we had the capacity. It's just a matter of how quickly we build out the capacity. So we're starting with <unk>, we're buying individual pieces of equipment right now that are <unk>.

Ramping up as we speak there are larger pieces of equipment on a whole new laws and slide that we're building that'll happen in the fourth quarter. This year. So fourth quarter is really going to jump once that's operational so our numbers are growing we're at capacity, it's not clear exactly what our numbers will be this year, they're going to grow significantly this year, but between.

2022 where we did seven or $8 million you know right now were targeting $25 million approximately in 2024 and it'll be somewhere in between as far as nebula genomics is concerned.

It's a little more complicated because people order tests.

And then sometimes it all it takes them a while before they send in a test to be processed.

In some cases they.

Hey.

Aren't built for the subscription where we really make the money is in the subscription will sell the test across that that's how we will continue to be the low cost provider of whole genome sequencing as Godfrey nobody can compete with us.

And this business is in its first getting the business going to explore it. There's no question about that but right now the way our business model works is when you purchased the test.

Which were selling at approximately at cost.

The real money is made him a subscription although if you don't send it and then we make the money on purchasing the chatbot to subscription, but we didn't have to process. The tests that we saved a lot of money. There. So we still make a lot of money, but in any event, we don't get the book.

<unk> revenues for the subscription until they send the testing. So there is a lot with deferred revenues. The other thing is that.

And that happened was historically.

Our lifetime subscriptions, we had to book the revenues over three years. So there's a lot of deferred revenues I think we have fixed that issue now we have changed.

The agreements that you signed when you purchased the test so that we will be able to book the revenues. The same within 12 months of protein a lifetime subscription will be a I mean, it's really kind of silly its an accounting issue, where we sell a subscription we get the money upfront, but we can't bucket as revenues.

Until the we provided the service for that subscription, but now we're working at in a way, where we're actually getting paid for the setup as opposed to the ongoing subscription. So in any event I I apologize I'm sharing a complicated GAAP accounting matter and we're working through that now.

And I'll give more details maybe in a in a press release, but what I can tell you is nebula genomics numbers are growing dramatically.

I want to say that we have a target.

Oh.

I guess, if I I don't know if I'm allowed to say this or not.

Let's move on to your next question.

But suffice it to say.

Our Netherlands genomics is probably growing at an even faster rate than our manufacturing.

And I would say that our revenues and that would be all of genomics will be are going to be greater than or manufacturing revenues. This year, how much greater I, just don't Wanna get more specific but nebula genomics as the <unk>.

A business, where we could be doing 100 million $200 million in revenues or more it could be valued at $1 billion, one day and I'm not saying, we'll still own. It then.

But certainly I think it's worth a lot more than what's represented in the stock price today.

Got it Okay. My last question is the operating expenses in the first quarter to be significantly higher so do you expect to.

This operating expenses level 2023, and also do you have enough capital to do that well continue to buy back shares.

Great question. So first of all I will never buy back shares if it puts us in jeopardy, It's number one the buyback of shares.

It's not.

Significant relative to the amount of working capital and even cash that we have.

We have a significant amount of cash.

At our books and our net working capital of over 40 million. So buying back stock doesn't really play a role that's number one number two as I mentioned.

With the fourth quarter that onetime SG&A write off is when it hit the fourth quarter, which made our operating expenses look hi, I am I I make a point to be very very efficient with our operating expenses. So one we had performance payouts that shows that.

We're going to try to spread them out over the year going forward as opposed to them just hitting the fourth quarter, so, but because those performance pay payoffs were paid out in the fourth quarter expect for the fourth quarter that showed up in our fourth quarter, which really understates.

How strong our fourth quarter really was but having said that the bigger expense with V. F. E. N. A that was a one time event and as I explained before if anything.

We're now in the opposite position, where we have been testing.

That is not on our books that is not under our accounts receivable that we believe.

But we're not going to find insurance for some of these patients because there are there are ways. There are companies that can do research to actually find insurance on patients that had been tested even though they didn't provide their insurance information and we're now starting to uncover that information so if anything our operating expenses.

It could be less going forward at the same time.

That we could have some surprises and collect and so when I say, our operating expenses are going to be less let me, let me just be let.

Let me just pull back a second on that statement, we're building four or five subsidiaries that have enormous potential.

Formalize we're building, although our revenues are growing at such a fast clip, it's gonna be profitable no matter how much we spend.

And then it's just a question of how much of that with the equipment. We purchased is going to be capitalized and how much of it is going to be expense, we have an enormous amount of equipment.

That gets depreciated very very quickly, even though that equipment could last for 20 years. It gets depreciated very very quickly. So a lot of these are these are noncash expenses.

And that's just the cost of building our businesses. So we're growing at a rapid rate. We're building businesses that I think ultimately could make us a multibillion dollar company. So you have to put it in that perspective, So I can't tell you exactly what the operating expenses, but I can tell you the amount of management, we have over we haven't we have.

Pales in comparison to the value of the businesses that we're building.

I really believe we're one of the most efficient efficiently run small cap development stage companies.

I'll ever come across and that's why all these other companies to raise capital two years ago first with their capital their stocks trade down 90% aren't coming back can't raise capital. We did the opposite every dollar that we spend we generated and created two or three or $5 of value.

And that's why after we raised capital two years later, we still have more capital than what we raised two years ago, well, probably not only fantastic, making all these fantastic acquisition.

So our operating expenses, yeah, I know youre, an analyst and youre going to get into the numbers.

Our operating expenses do you have to take out the SG&A, which is one time.

And the performance payouts will be spread out over time, instead of hitting the fourth quarter in the future. So I would not take our fourth quarter number and say those are operating expenses, they're not.

Okay. Thank you.

That looks like.

Thanks, So much for following our company really appreciate your support and thank you so much for the questions and Jake can we go to the next caller. Please.

Yes. The next question is from Hunter Diamond with Diamond equity Research. Please go ahead.

Firstly congratulations on the recent progress can you provide more details on the esophageal diagnostic test and potential economics.

Yeah, that's great that's excellent question.

Sure.

So first of all we can commercialize this is a cash only test, but until the key opinion leaders.

And cancer institutions, and the insurance companies get behind you.

Question is how effective will we be distributing that test and therefore, even if we commercialize. It later this year I have no idea what the numbers are I'm, certainly not gonna projected or rely on revenues from this year from a cash only test it it'll be a good way to start we might hire some salespeople to get the business off the <unk>.

Ground, but where the real money is when we get to see P. T coach alright.

And again, the CPT codes CPT codes.

You get reimbursed.

It's based on the complexity of the test we believe we estimate that the CPT code will potentially reimburses for 1000 to $2000.

Right now.

One estimate that the test.

Cost us under $500.

So that means you know the gross profit margins could be anywhere from let's say, 50% to 75%. However, once we start doing those tests in volume.

It's possible that Tesla costs was $300 or $250 or even less and at that point the gross profit margins become ridiculously large.

And again.

We're going after first of all there's over $70 million.

Endoscopies performed per year.

Specific to G is it's over $50 million I only focused on the first $2 million, which are people with barrick's esophagus, but understand these tests can be performed by more people than just people's Barrick's esophagus. So the starting point is to go after those 2 million.

People, they get an endoscopy every year and understand and an endoscopy, they're removing biopsy seven or eight tissue samples were just simply taking a sliver of a tissue sample running it through our test to predict whether or not youre going to get esophageal cancer.

If you have barra facade buckets and you have one out of 50 or one out of 100 people get esophageal cancer.

Barracuda, others that may not sound like a lot of unless you're the person embarrassed topic.

Well all of a sudden you think Oh my God I may buy alright, just think about it you're the person.

Even if you had to pay catch you wouldnt pay a thousand or $2000 either know youre going to get a stoppage you'll capture down the road and you can do an ablation to destroy the precast yourselves before he got esophageal cancer or when you want to know for peace of mind, no you're not going to get esophageal cancer, either way, who wouldn't pay that thousands of $2000, especially since you're getting endoscopy anyway from an insurance company's point of view.

We believe they're going to be motivated because people right now that are diagnosed and parts of south because they're getting endoscopies every year, which cost the insurance company, two or three or $4000 and they get them every year year after year after year and the insurance company or wouldn't be insurance company, rather pay a thousand or $2000 one time.

Also for the people, who actually get esophageal cancer.

If we can prevent them from getting a stoppage of cancer to think of how much money that Stacy insurance companies. So we believe that the insurance companies for a monetary points of view are going to be motivated to provide us with the CPT codes and the way to get the CPT codes is to get the key opinion leaders in cancer institutions behind you and that's what we're doing right now.

That's what we're building right now so when you read about.

How our scientists are going as they did just a few weeks ago to present their findings and our.

Cancer tests at these at these major conferences.

It's all about building momentum and getting the key opinion leaders and catcher institution behind you and look we're involved with Mayo clinic and the United States I mentioned that we're also working globally, which means that were working with major institutions.

And companies and other countries that are just as big as Mayo clinic, and so I. That's the only the tip of the iceberg I haven't even gotten into this but there may we may be developing a.

Even more effective and easier to use test that could be done on more than just people with endoscopies potential.

Potentially it could be done in a doctor's office and it has the potential of this test.

Is enormous and I can just tell you we have a phenomenal relationship with Doctor Hartley at Mayo Clinic My team.

Seeks to him on almost a daily basis, we just met with a Castro surging last night, who was hugely behind this test and he is just as excited.

And we're now working with health care companies and other countries, who are excited about the test. So there's a lot behind this the numbers have enormous potential but understand it's a development stage patches, it's no different.

Then a cancer drug.

That's been under development for 10 years, and then one day cause commercialize. It also is worth billions of dollars, where I believe in the eighth inning of developing our esophageal cancer tests.

I hope that gave you some perspective.

Appreciate the question.

Hunter do you have another no. It definitely did want yeah, one more but no I agree endoscopies are sort of the standard of care. So I mean, I think it's definitely a needed offering shifting shifting over to nebula. I know you recently announced the pricing that youre looking to differentiate on lower price can you comment on other aspects, how you're going to do.

Differentiate other than price and how much price do you view as a component of those consumers purchasing a genome sequencing.

Yeah. So.

There's really two components there's price.

And there is turnaround time and reliability and service.

Our lab just happened to have better turnaround times reliability and service at Berkeley any lab in the country, which is why we went over all of these customers two years ago, why our business has exploded and we outperformed 95% of the labs in the country.

So we have that down Pat having said and we are building out our genomics lab as we speak and Oh by the way I didn't mention to everybody I just walked into our lab downstairs for the first time in a few weeks.

It blew me away the carpeting isn't all the equipment is that we have a full built out clinical lab, that's absolutely beautiful blew my mind cant believe how nice it is and then the same thing happened with our genetics lab genomics lab, that's going to do the whole genome sequencing again. These labs are really impressive anybody in the Garden City, New York area, you ever want to come and visit.

Promise you will be impressed ive looked at 60 labs to acquire.

In the last year or two all paled in comparison to rollout.

Number one from a low point of view.

Yeah.

Hands down people are going to come to our company to do whole genome sequencing and and genomic testing number two.

Price.

For the university's prices key and also the direct to consumer prices keep the reason why the major companies like <unk> 3 million ancestry Dot com never got into whole genome sequencing is because historically it was so expensive you can't tell.

A test to consumers.

At $1000, there's just not going to pay for it.

So whole genome sequencing and so expenses. So they instead had built their whole model based on a technology that study is a very small percentage of your genome, which is all you need to get fantastic.

For your information, especially when you test as many people as they have around the world you tie. It all together you don't have to study a big percentage of your genome to get very accurate accessory information, but as they try and get into health related information. The problem is they're doing it with a test of studies in small percentages genome, which means that it's not going to give you. The type of results that you get with holds.

Okay perfect.

It's like apples and oranges technically.

Our whole genome sequencing test provides more than a thousand times more data points than what these other companies provide where their test. So that's number one number two universities doing research clearly theyre going to whole genome sequencing.

That's not even a question, but with the universities there on tight budgets.

And so it is critically important to them when they have a certain budget. They want a test as many people as they can within the budget price is critical.

So first of all the consumers consumers aren't going to pay a fortune. So if we can provide a whole genome sequencing test that costs, how can anybody compete first of all because of our relationships.

With.

The global leaders, we literally.

Our working with the global leaders, who in turn want us to be their number one lab in the United States represented.

So we literally are getting the best deals of any company in the country for not only for their equipment, but for their consumables. So at the end of the day the consumables is what drives price.

So we don't believe that there's anybody that can actually process.

Whole genome sequencing tests as inexpensively as we can and then selling it to the consumers. We can sell it of course because of our model or subscription model, where we sell a subscription we make all the money on the subscription.

So I don't see how anybody can compete with us and then as far as the universities are concerned I'd say, 80% of decision. It's actually based on price. So clearly we're going to walk up the price if we're not selling them a subscription we're going to mark up the price. So that we make a profit, but even in marking up the price, we're still going to be able to offer it to them than anybody else and then maybe.

While the universities doing research and personalized precision medicine that business exploding where in the first inning in the amount of research that's going to be ongoing in the coming years is going to be ridiculously large again, it's like the Internet 20 years ago. We are so well positioned our company is so well positioned.

It's like if you found a leading.

Internet Company 20 years ago, you didn't know in advance and you just wrote it.

And for a few years, it's amazing how much money you would've made well it's the same thing with what we're doing now in the field of genomics, where their whole genome sequencing where in the first inning. We're a leader in terms of our lab and our reputation and our turnaround times are customer service and then number two we're working with the largest companies in the world who are providing us with the least expensive consume.

So nobody can compete with US and then in addition to that we're working on potential strategic initiatives with some of the other largest companies in the world that want to partner with us that are really impressed with our library and other strategic initiatives and these are global companies that wants to partner or potentially partner with us not only in genomics, but also with this topic.

Cancer tests and also with their line background.

And they might even want to white label, our whole genome sequencing tests that we're going to be selling into retail stores. They may want to take our test.

Our packaging, let us do everything because we're experts of that and they want us to ship it and distributed for them in other countries. So it's really far ranging and it really leverages all of the assets of our company hope.

Hope that accurately answered your question.

No. It absolutely did I think it's a it's a great growth area and like you mentioned, it's just the whole industries in hyper growth right. So you're ideally positioning yourself that it's a very you know high.

High growth arena in the market. So again, thank you for taking my questions.

Of course Hunter. Thanks, so much thanks for your interest in our company as well.

And Ajay back.

Our next questioner please.

Thank you. The next question comes from Patrick E. Patterson retail Investor. Please go ahead.

Yeah.

Good morning, Chad Thanks, very much for everything you're working on just sounds great.

Thank you you are quite welcome and thanks for your continued support Pat.

Chad I wanted to ask a question about the genomics also I mean, it's pretty clear from just your discussion just now.

Uh huh.

Nebula genomics is just a really important ingredient in the company's future and yet it doesn't even seem to be included in our market cap and stock price.

Just wonder if you've given thought to what we could do to try to.

Literally uncork nebula pent up value could you talk about that some.

Sure sure sure sure Great Great question and it's.

Interesting you should ask that because I was just having a discussion about that this morning.

Yes.

Look theres a lot of strategic initiatives that we're working on and there's a lot of things we're doing with our company when when you build a company.

That has assets with big potential. It gives you a lot of options on what to do with those assets now in my mind, if I take an asset is worth.

Hundreds of millions of dollars I'm not going to sell it for 50 or $100 million of I think that asset is worth billions of dollars of makes itself with $250 million.

I think somebody asked me I was going to a virtual non deal Roadshow Qual and somebody asked me you know would you sell yourself and Jim cancer tests I can't remember, you said $150 million and 250, I'm like I wouldn't even consider selling them right now.

Why.

Could you imagine.

Amazon or Tesla when whatever the market cap is 10 years ago somebody says Oh, I'll give you 50% more parts they've been forced to take it well if I really believe in the assets that we're developing and I really do why would I sell any of them now so with something like Nebula honestly I think that we could sell the business right now.

Now.

And create significant value for shareholders today, but I think that a year from now and that would be it was going to be worth dramatically more quite frankly, I think I've mentioned this once before.

I was having a conversation with George Church, who is world renowned and genomics.

You could have retired on all the companies who founded he is a professor of up at Harvard and he does that because of his love of genomics. He doesn't do it for money.

And.

I don't even know I don't want to speak out of turn but he he's he's made an enormous amount of money probably more than the hallmark of our company and one one day I was joking with a minute during one of our advisory Board meeting and I said.

You know, we might we might potentially have a buyer for nebula genomics up a 100 million. He said don't you dare sell nebula genomics for 100 million don't like he was met and he was like don't you even consider it I said no no no George don't worry, we're not going to.

So I hope that gives you some perspective.

But at the rate of growth and you got to understand.

Over the last two years the market has not.

Put a multiple on our revenues or earnings.

Because they didn't believe that they would be long term and they were correct.

It turned out a couple of testing lasted a year longer than anybody expected, we did significantly more business than anybody expected lots a year longer than anybody expected and yet at the same time, we never got a multiple of those or any of those revenues and earnings ever on.

On the other hand.

I believe that as nebula grows this year and the numbers really start to pop from a small base to a bigger base.

We could get an enormous multiple of revenues.

On a company like that would be all especially when its peers have no revenues at all of that 1500 billion dollar valuation.

So the type of valuation so look hypothetically.

Hypothetically, we could I P O W. I happened to be working on some other things.

But I wanted to do first but hypothetically.

There are companies. So I think it was Alibaba just announced the stock's up based on the fact that they want to split up into six separate companies you can unlock a lot of value with ipos.

So it is possible down the road that I could I P O natural I'd, rather do that than sell it if I think it's gonna be worth so much more.

One two and three years I wouldn't want to sell it.

Because if the company doesn't need the money right now all of our shareholders for the most part of long term shareholders and I want to build value over the next 2345 years I don't want to sell it short because we can make a quick buck over the next three to six months. So it just it gives you an idea of how I'm thinking I'm thinking for long term shareholders, but having said that long term doesn't have to be five to 10 years. It can be one to two year.

With what we're working on it so we just have to wait and see how this plays out but an IPO of nebula is why it is a possibility I would consider that before I would consider sale just because it has so much potential and it's growing so quickly and all systems are go.

Yes.

Thank you Chad I appreciate it.

Yeah I really appreciate your continued support pattern I really do and thanks for the call MTA onto the next one please.

The next question is from Fred Mcdonald private Investor. Please go ahead.

Hi, James how are you doing.

Excellent. Thank you.

For calling in and for your support Fred how can I help you.

In your press release today, you talk about the global opportunity for peace much.

And then previously you indicated digi going over to United Arab Republic, and a couple of weeks is just to close the deal with D. Smart G 42.

[laughter] so.

Actually.

As they message Sam dealer has been.

He's our chief strategy officer with Nebula.

It has tremendous relationships with companies, including <unk> 42, health care, which was acquired.

By Mubadala, which is a $43 billion company.

And.

They are very very big in health care, It's a primary focus of theirs.

They are huge and genomics. They are responsible for the N. Marathi genome program, which is to test 1 million residents in the UAE for hope to do a whole genome sequencing.

So this is a prime focus of the Earth and then at the same time, they have a tremendous lab, which I toward.

I don't remember the last time I was over in Abu Dhabi, there might have been six weeks ago I toward their lab and it's really interesting we're building out our lab here almost in parallel it's really interesting the equipment. That's in both and then what's an interesting coincidence is we have very specialized equipment that.

That we used to do our esophageal cancer testing and what a coincidence.

For it to health care happens to have that exact same equipment.

And so and he understands he 42 health care isn't the only.

Large company over there that we're talking to and so theres a lot going on both with nebula genomics as well as where they are.

With our best Smart esophageal cancer tests.

It's just not appropriate for me to get more specific when I have something to announce I'll announce it I don't want to mislead anybody I don't want to say, we're about to announce a big deal or are there some big deal or not.

Anything like that I'm I'm, just working I'm, just working developing the value of our assets Theres a lot of opportunities. We're working on a lot of opportunities, but what I can tell you is.

What we're working on number one is very real and number two.

Everyone around us from key opinion leaders to cancer institutions to large health care companies are all interested in what we're doing you all taking our calls they're all talking to us and we're discussing strategies with all of them as I mentioned I just spoke to.

Literally just visited my office last night was a Gi surgeon, who is super excited about our topic Youll cancer tests and at the same time look.

People get esophageal cancer around the World every everybody gets guard that's just in this country.

It's growing at a rapid rate, especially.

With the help apparently people the gain weight have more of an issue with garden.

It's taking them up around the world and it's a big problem over in the UAE and in the main.

No reason in the Middle East North Africa that whole area and so the numbers are taking them off for GERD. The numbers, we've taken them off for barracks itself against and obviously they take it off for esophageal cancer.

And so wouldn't.

The leader.

And Abu Dhabi wasn't he love to take credit for introducing and esophageal cancer tests.

Let's save thousands of lives I mean, it'd be great PR it would be great motivation and he just happens to back the largest.

Health care company not to mention he backs the largest bank in Abu Dhabi and so there's a lot going on over there we have a lot of opportunities and are following up on all of them. When I have more to announce I promise you I will update our shareholders is that as quickly as they can I hope that answered your question appropriately I really don't want to get people too excited.

But by the same token everything we're working on it's awfully excited.

Thanks, Ted Fred I hope that answers your question.

The tender Dietmar technology D be used in other procedures.

So to be more technology is is literally taking a sliver.

Of a biopsy of a tissue biopsy.

We're actually working on other technologies and what's interesting about it what it's actually doing we're studying.

And this is proprietary unique proteins.

Happens is.

Everybody has a mix of proteins people with.

That develop esophageal cancer.

The ratio of certain proteins changes and so the key is to find the right protein markers and from what I understand nobody else has uncovered the protein markers that we're currently working with those same protein markers could.

It could potentially be used.

For more than just esophageal cancer, well first of all it can be used for more than just testing to predict esophageal cancer ultimately understanding more about those protein markers could help us develop a therapeutic to treat.

Osama deal catcher, that's sort our way out there that's sort of phase two and then also at the same time in parallel.

I haven't even you know this is not something I've I've, even gotten into detail on yes, it's possible.

We could develop.

The test.

Work in a different way, where we don't even need an endoscopy, where it's a procedure that can be done in a doctor's office that I don't want to go into more detail than that now.

So those are the first so there's two or three different ways that this esophageal cancer tests could play out all have enormous potential it doesn't exactly answer your question, but I can tell you that that's what we're focused on at the current time.

Great. Thank you Ted.

Oh, you're quite welcome I think that concludes our quote quote I mean, Jay as anyone else.

No more questions in the queue at this time I'll turn it back to you for closing remarks.

Tastic. So look we ended up this was an hour call, which is perfect. That's what I would have targeted.

I hope I Didnt talk too much I hope everyone got an idea of what we're working on everything we're working on is real.

There are no guarantees in life, but if you can invest in small cap development stage companies at least you're investing in a management team that has historically executed I'm also the largest shareholder of the company. So you can bet I'm going to continue to execute on behalf of the shareholders. We have a fantastic management team in place we have a.

Great history, not only over the last 10 years, but over the last two years of executing and now we have horses in the race that we never had before we have assets that we never had before that have enormous potential we executed the other times we had assets.

Cold these when we took it over.

I, even know if that had any potential we turned around and sold over $50 million. What we're working on now 10 to 20 times the potential of what we did with cold. These and then with our lab again, we got into the business. We executed literally from the first week. We were in the business is ridiculous how much business, we did and now we have all these different assets.

And you can bet, whether it's bet against us, but we're developing all of these different assets and I'd be surprised.

If at least one of these assets doesn't turn into something really big and the truth of the matter is I don't see why all of the assets aren't going to turn into something really big and with that I really appreciate everybody joining the call today.

And I really appreciate your time and your support or your potential support and.

I look forward to updating all of our shareholders.

Probably in the not too distant future.

With a lot of good stuff to come with that everybody have a great day and thank you so much and thank you Jay for hosting the call today.

Thank you Ted.

Call has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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Yeah.

Yes.

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