ProPhase Labs Inc Corporate Update call
Jan 10, 2017 AM EST
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
PRPH - ProPhase Labs Inc
ProPhase Labs Inc Corporate Update call
Jan 10, 2017 / 09:30PM GMT
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Corporate Participants
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* Ted Karkus
ProPhase Labs, Inc. - CEO
* Robert Cuddihy, Jr.
ProPhase Labs, Inc. - COO and CFO
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Presentation
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Operator [1]
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Good afternoon and welcome to the investors' call. My name is Angela and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. For those of you on the stream, please take note of the options available on your event console. At this time, I would like to turn the show over to Ted Karkus. You may begin.
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Ted Karkus, ProPhase Labs, Inc. - CEO [2]
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Thank you, Angela and thank you to everyone for joining us for this call today and for your support over the past years. I'm pleased to announce the sale of Cold-EEZE brand to a division of Mylan for $50 million. We're all really excited about this. Before I get into the details, I do have Robert Cuddihy, Jr. here with me. He is both our COO and CFO and he's been with me since the beginning here and he's going to read the necessary forward-looking statements and then I'll take it back over. I'm going to go through, you know I've been jotting down some notes throughout the day today and I'm trying to put them all together, I got a lot to cover, and I'll try and condense it at the end and maybe I'll take 20 minutes of talking and then we'll hand it over for a Q&A, hopefully it's a lively Q&A.
I don't ask people to ask questions, I don't set up for softball questions, but I'm open to fielding every question that you might have. Hopefully you'll prepare your questions because I really prefer that you ask questions at the end of this call as opposed to me fielding telephone calls all day tomorrow. I am very, very careful and cognizant of Reg FD and I really don't want shareholders calling me tomorrow asking me questions to discuss topics that are not discussed on this call. So I try and keep this a fair and level playing field but also please feel free, don't hesitate, don't be shy asking your questions at the end of my prepared comments. With that, Bob, thank you for joining me today and please take it away.
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Robert Cuddihy, Jr., ProPhase Labs, Inc. - COO and CFO [3]
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Thank you Ted. At this point, I will read the forward-looking statements that are contained in yesterday's press release on the Investor Relations section of our website and within our 10-Qs and 10-K filings with the Securities and Exchange Commission. Except for the historical information contained therein, certain statements in our press release and on today's call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements relating to our Cold-EEZE brand, our new line of TK Supplements and our new product Legendz XL, and the engagement of and retention of Bourne Partners, a boutique investment bank.
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, the difficulty of predicting and accepting the demands for our products, the impact of competitive products and pricing, the nature of the transaction that we're about to discuss, issues associated with manufacturing and marketing of Cold-EEZE products and the timely development and launch of new products and other risk factors that are listed in our 10-K and annual report from time to time as well as our quarterly reports and any subsequent SEC filings.
Additionally, we'd like to advise you that the statements made during this call are made as of this date and listeners may replay should understand that the passage of time by itself will diminish the quality of these statements. Ted, back to you.
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Ted Karkus, ProPhase Labs, Inc. - CEO [4]
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Thanks, Bob. So as I mentioned, we announced yesterday the sale of the Cold-EEZE brand to a division of Mylan for $50 million. We of course perceive this as a win-win transaction. For Mylan, it provides them with the ability to leverage their portfolio of OTC products and their infrastructure. For ProPhase, it provides us with significant liquidity, which was sorely needed and the ability to take the Company into new directions. I feel like this is a point in time where we have completed [Phase 1 or Phase 10] of many phases to come and I feel like it's a good time to take a breather and start with a few really important acknowledgments.
Overall, I'd first like to talk about our employees in general. I really believe that we have an A-Team here. When I first took over, there were 26 employees; managed our Company just in our headquarters. I currently count 11 employees including management. We've made great strides, certainly is reflected in the sale of the brand and so I'm really proud of the accomplishments of all of our employees both in our headquarters as well as in our manufacturing facility in Lebanon.
I should also point out that I've always made decisions in the past and will continue to make decisions at present and into the future with a goal to optimize our Company's terminal value on a per share basis. What does that mean? That means that my goal is of course to increase the value of our Company but while also being mindful of the number of shares outstanding because after all, I could have issued a lot of shares over the last couple of years, but then when you divide that by the value of our Company on a per share basis, it would be less. So it's critically important. Certainly I feel that way, all managements of all public companies should feel that way. In any event, together, our team has been able to build tens of millions of dollars of value in our Company over the past several years and while our stock price may not have moved significantly over the past couple of years from a dollar perspective, it certainly tripled over the past few years and almost doubled from just a year ago. So I think that we've made some really nice progress. Obviously, I would like to make more and I believe that there is still more to come.
In terms of acknowledgments, this is my opportunity to acknowledge Bob Cuddihy. I don't see how we possibly could have accomplished this transaction without Bob. I feel like he worked virtually 24/7 over the past six months. It was truly a herculean task on his part working through all of the agreements and all of the schedules. I'm going to get into the agreements in a moment. Basically there were three main agreements and more schedules than I can count and Bob worked on every one of them and all I could do is say way to go Bob over these past couple of months and I really appreciate your efforts, so thank you.
I'd also like to acknowledge [Dr. Ralf Cuderry]. He oversaw over these past many years all of the research, development, formulation and manufacturing for all of our new and premium Cold-EEZE products. Our product offerings and product pipeline clearly played a role in the ultimate value that we achieved. I'd also like to acknowledge foreign partners. I mentioned to all of you several months ago that we hired [Bourne] and people asked why did we hire him. Well, now you know why. I think it was a phenomenal decision on our part as they attracted interest from over 70 companies both domestic and international and of course, the end result clearly speaks for itself.
And last but not least, Herb Kozlov, a senior partner at Reed Smith, he's been with me since the beginning of this venture back when we did our proxy contest. I have had nothing but success with him and the entire Reed Smith law firm. He put together an awesome team to work on this transaction and I'm very pleased with how the final agreements turned out and there's no question that Reed Smith played a significant role in these agreements.
As I mentioned, there were three main agreements to this transaction. The APA, which is the Asset Purchase Agreement, the MSA, which is the Manufacture and Supply Agreement, and the TSA, which is a Transition Services Agreement. It is really important to view this transaction as an integrated transaction. All three of these agreements, you have to look at them in the whole, in terms of the big picture, in terms of what was paid for the brand and so forth. I can't say that we would have entered into the MSA or TSA on these terms were it not for the value for which Cold-EEZE was sold. So you have to look at it in that regard and so I don't want to get into too many details on the anticipated margins and anticipated profits on the Manufacture and Supply Agreement. There are too many variables out there, but I assume it will be roughly a breakeven business in 2017. We are optimistic that Mylan with its enormous resources can grow the Cold-EEZE volumes and as volumes grow, the supply agreements will look better over time.
And again, would we have entered into this exact arrangement with a third party that was not paying $50 million to buy the brand, probably not, but as part of an integrated transaction, this arrangement is in the Company's best interest. I'm trying to anticipate some of your questions and I'll just talk about the use of funds [and] net proceeds. First, don't get distracted by the headline number of $50 million. There are banking and legal fees to pay, taxes. Yes, we do have an NOL, but the sale was more than what our NOL is and in addition to that, there is alternative minimum tax that plays a role. So there's no question we're going to have to pay significant taxes on the transaction. As I mentioned, there are also investment banking fees, legal fees. Second half of the year, there's possible restructuring and severance and so forth and other one-time charges.
Furthermore, we will have significant overhead in place to manage the transition of the brand to Mylan as well as to develop our dietary supplements business. What is our planned strategy going forward and I know I'm going to get plenty of questions on this. Nothing is off the table right now. We now have the resources to continue to grow our dietary supplement business and support Pharmaloz with the goal of developing our manufacturing business not only manufacturing more Cold-EEZE and more lozenges, doing more contract manufacturing and expanding. We now have the resources to look at every opportunity that may present itself or which we may find to enhance shareholder values. We are not locked into the consumer product category or other business categories. We will look at everything.
However, to be clear, over the next couple of months, our focus is 100% on completing and closing this deal. There is a process that we have to go through. It includes putting together, preparing a proxy, having the SEC review our proxy and then reaching out to all of the shareholders, having those shareholders vote on the proxy. It's assuming that there aren't too many hang ups with the SEC. You can assume it's going to be a couple of months process before we close this deal at which point, as I mentioned, we will be open to any and every possible avenue and direction that we could take the Company in. We're clearly going to develop our dietary supplement product line. I think I've pretty much relayed to all of you in the past that right now, it's on hold as we attempt to gain retail distribution of our lead product Legendz XL male enhancement. Right now, the prospects look good. I would expect that before mid-year, we will have enough retail distribution to warrant an advertising and media campaign to support it. So we'll see how that goes. It somewhat on hold right now. We did develop a direct response TV spot last year. We optimized it during the optimization period. We were able to significantly decrease the [quest for order], however not to the point where it could fully pay for the media, which meant that if we had ramped up the media last year, we could have ramped up sales of our products, but it would have been at a loss and it's the old joke, we'll make it up in volume where I didn't want to lose more money by building volume.
So we are going into the second stage of our dietary supplement business which is getting the retail distribution and then using TV to both support sales in retail stores and also drive consumers to purchase the products either online on the web and so forth. So that's to come. That's something we'll develop in the second half of the year while we're also developing our manufacturing facility and then exploring other opportunities. I mentioned that we also have a Transition Service Agreement in place. First of all, until we close on this deal obviously, we own and we'll be managing the Cold-EEZE brand.
There will then be a three-month period where we provide transition services to Mylan at their option. They can then ask us to continue to manage the transition services and to help manage the brand for up to an additional six months. So this is going to be a very fluid situation. It's necessarily going to require us to have significant overhead in place. Some of that will be offset by the Transition Services Agreement and other of the overhead will be required anyway to develop our dietary supplement business and to oversee and manage our manufacturing facility. So in any event, for now, it's business as usual. As I mentioned, we'll roughly maintain the same overhead and we're going to play this [by ear] in the coming months. Certainly, I expect that we're still going to own and manage the brand as I mentioned for at least another couple of months and at that point, we're still going to be working very closely with Mylan in the transition of the brand over to them.
That concludes all of my prepared comments and I would like to go to the Q&A in a minute. I just want to have a couple of ground rules. One, I'm not going to talk about Mylan, I'm only here to talk about Prophase Labs. If you have questions for Mylan, please contact them directly. Two, if you have a question, as I mentioned, please ask it now as opposed to calling me tomorrow. I'm not going to provide any answers to anyone that I don't provide on this call. Three, as I mentioned, I don't ask anyone to ask me softball questions. I haven't asked anybody to call in. My goal is to be as open as I can. This is my philosophy internally with our employees and it's my philosophy with our shareholders. My only constraints relate to not teaching our competitors about our activities and not speaking on behalf of Mylan. So with that, Angela, if you could open up the lines and set this up for hopefully a lively Q&A, I would appreciate it.
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Questions and Answers
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Operator [1]
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(Operator Instructions). [William Left].
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Unidentified Participant [2]
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Hi Ted, congratulations on getting the sale done.
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Ted Karkus, ProPhase Labs, Inc. - CEO [3]
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Thank you.
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Unidentified Participant [4]
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I have a few questions. I'm not sure, maybe I didn't hear everything. Did you give an estimate of the net proceeds. I know its $50 million, but have you given any ballpark estimate of [$50 million net after legal fees and underwriting and investment banker expenses].
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Ted Karkus, ProPhase Labs, Inc. - CEO [5]
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That's a great question and I'm sure everybody on this call wants to know that answer but number one, my lawyers have told me at least three times, not to answer that question and its putting me in a real tough pickle. In addition to that, I can't provide an accurate answer because we don't know what the taxes will be because we don't know what our operating income or loss will be for this year, which will have a significant impact on the taxes. Since we will be in a position where we are paying taxes this year, to the extent that we have losses whether that's restructuring fees, severance, bonuses, investment banking fees, legal fees, all of that will reduce our tax exposure.
So I can tell you in ballpark, we're going to have millions of dollars in taxes, we're going to have a couple million dollars in legal and banking fees, we're going to have a few million dollars in overhead, we're going to have restructuring fees later in the year. So that's about the best answer I can give you right now. We can't fine tune that right now and frankly, I don't want to a gun held to my head to give a more specific answer unfortunately.
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Unidentified Participant [6]
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Okay, what was the loss carry forward? That's part of your statement, in other words what is your tax loss carryforward, I'm not sure. I don't know what it is.
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Robert Cuddihy, Jr., ProPhase Labs, Inc. - COO and CFO [7]
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Approximately $37 million.
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Ted Karkus, ProPhase Labs, Inc. - CEO [8]
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And Bill, to be clear, while its $37 million, there is also alternative minimum tax that comes into play. So it's not like you just subtract the [$37].
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Unidentified Participant [9]
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No, I understand. Maybe not [fee] dollar for dollar, okay. Is the concept in the -- first of all, I looked at the 8-K and the filing, you haven't -- is it true you have not filed the purchase agreement, you just filed the boarding agreements. Did I miss something? Have you filed the formal acquisition agreement or you're going to do that when you do the proxy?
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Robert Cuddihy, Jr., ProPhase Labs, Inc. - COO and CFO [10]
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Those will be filed as part of the proxy. So that will be filed shortly, but we're preparing the proxy at this point. The only definitive agreements that we provided in the 8-K are the rights agreement, the voting agreement, and the two press releases. The subsequent documents will be following fairly shortly.
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Unidentified Participant [11]
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And when do you expect to have that proxy out? (multiple speakers).
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Robert Cuddihy, Jr., ProPhase Labs, Inc. - COO and CFO [12]
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We're drafting currently. Our timeline is to do it within the two weeks.
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Ted Karkus, ProPhase Labs, Inc. - CEO [13]
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And Bill, to be clear, we literally just came to this agreement. Maybe it was midnight on Friday and we could not prepare the proxy. So we knew who we were doing the deal with, what the terms were, and what the final agreements look like. So we are working on this diligently but give us two weeks to prepare the proxy and then -- and the 30 days for the SEC to review assuming that there's no error and then 20 days for the shareholders. (multiple speakers).
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Unidentified Participant [14]
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Is there any Hart-Rodino-Scott filing that could slow this up?
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Ted Karkus, ProPhase Labs, Inc. - CEO [15]
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Not that we're aware of.
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Unidentified Participant [16]
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Okay all right, but the concept is after the sale is -- I don't know what you can say Ted and what you can't, but as to pursue your other things with this cash, is there any contemplated cash distribution to the shareholders or is this going to be a blank check that management goes ahead and is able to use the funds to do what they want?
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Ted Karkus, ProPhase Labs, Inc. - CEO [17]
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Well, clearly, I have the authority, but the answer is, I take my fiduciary responsibility very seriously. I'm also a large shareholder of the Company. So you can characterize it however you want to, but we're going to be a Company sitting on tens of millions of dollars and your management team is going to be making determinations over time as to what to do with that cash. We have not come to any determinations currently, but I will tell you that any decisions that are made will be in the interest of all shareholders and beyond that, I can't comment further at this time because I don't have the answer. We haven't closed the deal. We have to focus on closing the deal first. I will tell you in general, my personal opinion is I tend to be against dividends simply because it's not a tax effective way for shareholders to benefit and at the end of the day, that's what I care about the most. Everything else is on the table.
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Unidentified Participant [18]
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Except to the extent, you have shelter on some of this with the tax loss carryforward, once you determine it, but I'm just trying to understand what the transaction means to the shareholders and the future? So I mean I know you have to wait till everything settles and to return what the net is and where you go from there? Can you give us any color on how the other dietary supplement business is doing and how that's looking at this juncture?
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Ted Karkus, ProPhase Labs, Inc. - CEO [19]
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Sure, we have a couple of concepts in there. One is that we sell the Cold-EEZE brand and we're coming into a block of money. The other is, what are we going to do with that block of money and what are we going to do with our Company, what is the strategy over time? So let's start with the current. We have a manufacturing facility. I did share with you that I expected to be somewhere in the neighborhood of breakeven for the year and again as I mentioned, you have to look at the manufacturing agreement within the context and perspective of the overall agreement of what we sold the brand for.
With that, our goal will be to build the manufacturing facility. We will now have a base of business because we will be manufacturing Cold-EEZE for the new owner. We also have some contract manufacturing. Currently, all of third-party contract manufacturing we have now is at very low margin, but we'll have a goal to build up our manufacturing, we'll have more time to do so and it will be more of a focus over the next year or two and we'll see how that plays out. So that's number one, that's kind of a base.
Number two, with the dietary supplement business, we have formulated three products. We've packaged all three products. We think all three are great products. Our lead product, we did clinical studies on them for which we got superb results. We really think our Legendz XL dietary supplement for men's whether you want to call it male enhancement or libido, really is a great product and we have to figure out the best way to ramp that up. I've done my best to manage the dollars that we spent while developing it. I can point to examples of companies spending tens -- literally tens of millions of dollars to develop a line of products only to watch them fail. We spent pennies and dollars compared to what other companies have spent and so we have a nice line of product.
I don't want to spend a lot of money, I don't want to spend the money carelessly and so, as I already mentioned, the goal now is to get retail distribution. We are kind of on hold for the dietary supplement development until we get retail distribution, but I'm optimistic that we're going to get distribution in the first half of this year with at least one major retailer, but understand that this distribution overall might put us into 3,000 to 5,000 stores. Cold-EEZE was in 35,000 to 40,000 stores and when we had new Cold-EEZE products, typically we were in 15,000 to 20,000 stores and maybe the magic number is 10,000 stores let's say. So, I do expect 5,000 that will be a starting point, it will get the product on the shelf. It will warrant some advertising. We'll optimize the advertising to hopefully drive consumers both into the retail stores and to buy it online and we're just going to have to wait and see, but that's a second half of the year development project and it's something we're not going to know for at least 12 months whether that's going to be successful or not.
Besides our manufacturing and our dietary supplement business, we then have, as I mentioned, we have a Transition Services Agreement where we are going to be, first of all, managing the brand for the next couple of months for our own benefit and then once the deal closes, we will be helping transition over to Mylan, the management of the brand but we're going to be intricately involved in that and that could lead to all sorts of opportunities into the future.
Unfortunately it means that we're also going to have significant overhead in our Company for the balance of this year and so to the extent that there is restructuring, that's more than likely towards the end of the year. Beyond that, once we're done with the closing and again our primary focus right now is going to be closing this deal and the other things that I just mentioned. Once we close this deal, we are going to explore all opportunities, both within the consumer products category as well as outside of.
I think I may have mentioned once upon a time that there were some technology companies that I was looking at and we're going to be open to everything, but we're not aggressively pursuing anything until we close this deal. I'm sorry I can't be more specific, but it happens to be the case that we'll be sitting on a large block of cash and you're going to have to wait for developments to occur in order to know what those developments are. I can't predict them right now because there's nothing in stone. There isn't even anything hot on the stove.
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Unidentified Participant [20]
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Okay, is there any conditions in the purchase agreement that we should be aware. We haven't seen the definitive purchase agreement that may or may not -- could be a problem on closing the deal. Do you see any roadblocks? I mean shareholder approval.
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Ted Karkus, ProPhase Labs, Inc. - CEO [21]
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That sounds like a loaded attorney's question. There isn't a chance that I'm going to answer that question. (multiple speakers). Bill, let me finish my response or we're going to move on. Okay? Don't interrupt me please. You asked a question. I'm not going to get into any details about agreements that we haven't filed yet. You can wait the number of days it's going to take until they're filed. If anyone has questions following the filing of the agreements, I'll be happy to answer questions, but I will tell you I have the utmost confidence both in Bob Cuddihy and our attorneys and our investment bankers, all of whom did a super job, worked around the clock, was meticulously careful with regards to the agreements as was Mylan. I think that we came out with very fair agreements on both sides. I'm really pleased with them. I wouldn't be overly concerned.
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Unidentified Participant [22]
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Okay, thank you. (multiple speakers).
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Operator [23]
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Steve Lucas.
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Unidentified Participant [24]
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Hi, congratulations. To follow-up the previous caller's question, I have a question since you said that you're not really a fan of a special dividend or a dividend. Would there be the possibility of the Company having a tender offer for shares back essentially so you cash out current shareholders that may or may not want to be a part of any future I guess special purpose acquisition that you may be doing in the future. It seems to be that there's not really an exit other than sell your shares and if [they're in illiquid form] when you have the cash available but maybe turnover the shareholder base that might want to move forward versus the shareholder base that currently is in place now.
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Ted Karkus, ProPhase Labs, Inc. - CEO [25]
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Steve, that is an excellent question. I love the way you asked it and I agree with everything that you said. I'm not indicating what we're actually going to do, but in theory I agree with you that going forward, I want shareholders that believe in management. Let's face it, everybody who is an investor primarily in Cold-EEZE. Cold-EEZE is no longer going to be a part of our Company. So I certainly recognize that for those shareholders that were only an investor for Cold-EEZE that want to sell, they should be able to sell their stock without pushing the stock down significantly when it's illiquid.
By the same token, those shareholders that are here because they believe in management and while the future is not certain, believe that management is going to make some smart moves in the future, especially given management's done a pretty good job in the last few years and management owns a lot of stock. For those people, I want to support them and I want to do what's best for the shareholders that stay. Obviously, there'll be a large block of money. I would like a significant block of that money to stay within the Company to develop the Company.
By the same token, it would be great to provide liquidity for anybody that wants out. I absolutely, even if my best friends want to sell their stock, I would have no issue with that whatsoever. I wouldn't want anyone to be locked in as a shareholder that didn't want to be now that we're selling the Cold-EEZE brand. I can't answer today what is going to happen and my attorneys would yell at me if I even indicated what I would like to do, but suffice it to say that once we close this deal in roughly two months, we will explore all opportunities and of course, we'll look at all of our alternatives. I want to make all shareholders happy and I'll do my best to do so.
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Unidentified Participant [26]
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Okay and then I had just one quick follow-up question regarding the listing. Have you guys spoken to the exchange regarding the transaction. I'm sure your [attorneys just said it they] certain agreed to make sure that you're not, if you do have other business going forward that you're not considered in their opinion a [non-offer to sell]. I don't believe you are, but again that's a regulators call to make.
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Ted Karkus, ProPhase Labs, Inc. - CEO [27]
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I'm not aware a single issue in that regard and we are still going to be an operating company going forward. We have a significant manufacturing facility with 45 or 50 employees. We're going to be doing millions of dollars of business. So we're clearly an operating company. We're [just an operating company] that sits on a large block of cash.
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Operator [28]
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Brad Leonard.
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Unidentified Participant [29]
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Hi Ted, congratulations on getting the deal done.
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Ted Karkus, ProPhase Labs, Inc. - CEO [30]
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Thank you very much, appreciate it. Appreciate your support also Brad.
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Unidentified Participant [31]
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Okay, great. You covered a lot of my stuff, but I guess just to clarify here on bookkeeping, on the NOL from the K -- the 10-K, I thought it was $44.5 million for federal and $21.9 million for the state. And then Bob said, $37 million, so if you could just help me understand that and see what that means.
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Robert Cuddihy, Jr., ProPhase Labs, Inc. - COO and CFO [32]
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What's in the K is correct as of the time of the publication of the 10-K. So as numbers get updated and based upon what falls in and out of the NOL based upon the history of the NOLs that are still available to be carried forward and restrictions and that sort of thing, the number that we've been using is roughly $40 million, $37 million number. It will ultimately be fine-tuned, it's one of the reasons why there isn't an exact number that we can provide anybody today.
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Unidentified Participant [33]
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Okay. So I think on our last call, you guys said it wouldn't be a significant amount of taxes and Ted, today you're saying maybe it is a significant amount of taxes?
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Ted Karkus, ProPhase Labs, Inc. - CEO [34]
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That's a great question and I know you're trying to fine tune it. If I'm sitting in your chair, I want to fine tune it too because I want -- as a shareholder, I'd want to figure out well, what's my stock worth? What is it on a per share basis? What can I get for it? And unfortunately, we can't really answer those questions today, but what I can say is the word significant in and of itself means different things to different people. Obviously, we're talking about a several million dollar tax hit. Is it going to be under $10 million? Yes. Is it going to be more than $1 million? Yes. Where it falls in between, I don't know -- I honestly don't know. I don't want to mislead shareholders. I sincerely am frustrated I can't give a more definitive answer, but I also don't want to give the wrong answer and then somebody does a transaction to buy or sell their stock based on the tax number and we're up by few million dollars and then we're in litigation again (multiple speakers) but I hope that answers your question for now.
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Unidentified Participant [35]
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Fair enough, we'll look forward in the future. That's not a big deal. So I know you talked a little bit about the contract manufacturing business on a go-forward and you said you thought that would be breakeven for 2017. So does that mean breakeven as a public company or is it [not being] breakeven as a contract manufacturing operations, then you have the headquarters fees?
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Ted Karkus, ProPhase Labs, Inc. - CEO [36]
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I'm so happy you asked that question. This is a perfect example why I shouldn't get into this because if you didn't ask that question, it could have misled a lot of shareholders. This is just the manufacturing entity itself because people want to value the manufacturing facility and I don't want to guess what our breakeven manufacturing operation looks like, but it could be around breakeven because we're not going to make much of anything initially on the contract with Mylan and again that's within the perspective of what they paid for the brand. So we had to accommodate them and accommodate their gross margins going forward.
If we charged more to sell them Cold-EEZE products that we would manufacture for them, they would have calculated that into the contribution numbers, the cash flow numbers and the multiple that they put on it and they would have valued the [brand less]. So it's a trade-off but -- so I'm just trying to give you some perspective just on the manufacturing facility itself as a stand-alone operation it will be somewhere around breakeven. Could it be plus or minus $1 million, it could be plus or minus $1 million, but it'll be somewhere around breakeven (multiple speakers).
Separate from that, we have several million dollars of overhead managing our Company and that's going to stay in place this year and again while the Transition Services Agreement isn't going to -- we're going to, in effect, lose money on that. This is actually a good deal for Mylan because they're going to -- we're going to provide them with some great services and we were happy to do that because of what they're paying for the brand. We could have negotiated for a TSA where they pay us significantly but again they would have reduced what they would have paid us for the brand.
So the bottom line is we're going to have several million dollars in losses this year. I don't know what that number is from an operating business but that's tied directly into the sale of the brand and so you have to look at the big picture and I had to decide what was best, where we're going to be one year from today. Yes, we'll have several million in losses, but yes we also sold the brand for a significant price. And so, I consider that the cost of having sold the brand.
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Unidentified Participant [37]
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I got you. That's fair enough. So I guess at some point, you think about this and I think everybody is trying to figure out what is this business going be worth. How much is left, we're going to find out how much is left out of the $50 million as time goes forward and that's fine and then what's left, I mean obviously you have a contract manufacturing business. It does, I don't know, it looks like it was trending towards $5 million or $6 million this year maybe in revenue. I think if I backed it out of the Qs, maybe it was -- but it was up significantly this year.
I don't know if that's sustainable or one-time large orders or what not, but obviously that's worth something. You own the facility. It's 57,000 square feet. I think you paid [$4 million for it 20 years ago, maybe], if my memory is correct and so that's obviously worth something, is that a business, I mean I know everything is on the table, but it seems like running a $10 million, I'm just throwing the number out there, hypothetical $10 million contract manufacturing operation that maybe makes a little bit of money and then you have the public company cost that is really not viable long-term.
And then if you ramp up the dietary supplements, it's kind of like, how are we other than the fact we have a lot of cash and we have a new product versus an old product that was well-known and kind of stable, how do we go from being able to leverage and not lose a bunch of money every quarter and you just kind of end up back with three years later and you lost $6 million -- I don't know what it is, I mean depends how much you're going to advertise, but how do we know that we're not going to be back in this situation and clearly you own 3 million shares, so you don't want that to happen and I own 2 million shares, I don't want that to happen.
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Ted Karkus, ProPhase Labs, Inc. - CEO [38]
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Brad, let me answer your question. I understand your question entirely, all right. The answer in a nutshell is we're going to lose a block of money this year, but the block of money is tied directly into the sale of the brand. Come the end of this year, if we don't ramp up our dietary supplement business in a significant way, we will downsize our overhead dramatically. So we're going to have to play that by year, by the same token there maybe all sorts of opportunities to work with Mylan going forward later in this year and we're going to have to see how that goes. So, those questions are up in the air.
I think your real question, what you're trying to get at is, and by the way, with regard to manufacturing, this year, ballpark number, maybe we'll be around $4 million in revenues, but it's $4 million of breakeven revenue. I'm not going to guesstimate what the value of that is. I don't want to even be on record in case some and we're not negotiating currently but if somewhere down the road, we are negotiating, I don't want to be held to a number that I say now, but you have to decide for yourself what a manufacturing business that's operating at breakeven doing about $4 million in revenues is worth and it's worth less if you are liquidating the facility versus if you're selling it to somebody that wants to build it and synergies and all that kind of thing. So, you're going to have to figure out what the manufacturing facility is worth.
But the real answer to your question is, I did like backwards and I think I alluded to this before. I was semi-retired 10 years ago and I came out of semi-retirement to run this Company and I've never been more motivated to do something in a really big way and I didn't think that I could get there with Cold-EEZE. For one thing, our cash levels are abysmally low at the moment. Bob hates me saying that. They'll be significantly higher in a month simply because we're at the low point in our cycle because we're a seasonal business, but the fact that we're at such a low level of cash right now left my hands really tied towards doing anything in developing our Company and seeking options, other companies, other brands, making an acquisition. When you don't have any cash and you have a low priced stock, it's just -- the dilution would have been tremendous.
There are opportunities out there to acquire a brand, but it would have valued our stock at half of what it was worth, which meant that any acquisition we would have made, I would have had to double the value of it just to get us right back to where we are with regards to our Company on a per share basis. And again, I always focus on the terminal value on a per share basis and I mean that and so if we couldn't do an acquisition that wasn't significantly dilutive to current shareholders, I wasn't going to do it. So I left my hands tied with just managing the Cold-EEZE brand. I could sit back and just manage that brand for a long time till shareholders yelled at me and they could sell you their shares and I could have been stubborn about it and I could've continued to collect my salary and it would've been a cushy job.
I am so motivated to do something so much bigger and selling the Cold-EEZE brand does two things, it allows shareholders that want out to get out, it allows shareholders who want to support me and our management team going forward to support us and trust us and if you don't trust me, you're going to have to sell your stock. If you do trust me, wait and see what I do next. I don't know exactly what I'm going to do next, but I can tell you I've never been more motivated. I have a couple of decades of experience on Wall Street. I've worked with and consulted to and studied and invested in hundreds of companies and has a unique experience of having worked on Wall Street and now manage as CEO a company for the last seven years.
It's very rare that somebody has the opportunity to see it from both sides and I promise you, I'm going to take all my decades of experience and work my butt off to try and build this into a really big company. That is my goal, I'm going to do it with this Company. My goal is to keep a significant block of the cash that's in the Company to develop the Company. It's not going to be distributed to shareholders, but by the same token, any shareholders that want out after we close and after we can explore what shareholders want out, what the real issues are, I'm going to do my best to satisfy the shareholders that want out while also supporting the shareholders who want to support me moving forward.
Sorry if I don't have a better answer for you but that truly is the honest answer and we'll know a lot more in two months. I know you've owned the stock for a couple of years and most people on this call have owned the stock for years. So if you could all be patient until we close this deal, I'll be happy to entertain all options. All options are on the table. I won't do anything to take advantage of anybody and like I said, anybody who wants out will be allowed out. Anybody who wants to support me and our management team in the future will be welcome to do so. My shares for the most part will certainly be betting on the future of the Company.
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Unidentified Participant [39]
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No, I think that's fair and I know you can't have specifics. I guess my thinking though is if it's kind of a seller's market, and this is why we sold Cold-EEZE and if you want to go out there and acquire a new product or you want to take one of your dietary supplement products and you have to do the level of advertising to support that, I mean aren't we going to be losing money again or are we going to pay a lot for an acquisition. I know you don't want to pay a lot, but if it's a seller's market, it can't very well easily be a buyer's market.
Doesn't mean you couldn't find a diamond in the rough, but it just seems like we're kind of, we're going to back to losing money again. And you might be developing a brand that you could sell off later, but I don't know if that moves the ball forward and I think you probably want to do something smart with it because you own a lot of stock but it seems potentially challenging and also -- so I'll leave it at that, but it also seems like to be a publicly traded company, it'll be so much easier for you to do this without the publicly traded cost and without having to deal with outside shareholders.
It seems like it would -- you guys could tender for whoever wants out and you take it private and you go that route and you could own this, the TK Supplements as you mentioned before. Their developmental stage are probably not worth a lot to shareholders. I would give them to you for free and say -- I mean if we're talking about the business and I'd say, well listen, you know, what's the cash on the books? I'll take cash on the books for my shares. You can have the facility, you have the headquarters and [if] you go from there.
I think a lot of shareholders might take that. I mean is that a fair. Is that a --
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Ted Karkus, ProPhase Labs, Inc. - CEO [40]
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I'm willing to explore all options, but I am not looking to take the Company private per se. People have suggested to me to delist from NASDAQ to go to the pink sheets because it decreases our reporting requirements, it decreases some overhead, but I don't know if I take that message seriously and again I'm not going to explore those options till after -- we have to close the deal first. I hear what you're saying.
I will tell you I am looking for the diamond in the rough. I'm also looking for something that I can dramatically grow. I'm not looking to overpay in a seller's market just to acquire another brand similar to Cold-EEZE. That would be preposterous. If we're going to make an acquisition, it's going to be a smart acquisition and the reason we will be making the acquisition is because I believe that we can grow it significantly. If it isn't something that we can grow significantly that we get at a fair value, I won't do the acquisition, but again, we're going to have to get through this year, we're going to have to get through the transition, we're going to have to get through the Transition Services Agreement with Mylan, we're going to have to see how the dietary supplement business does in the second half of the year.
While all of these things are going on, I will be aggressively pursuing other opportunities. It's very difficult to pursue these opportunities, but [we didn't have any cash and we had a low price stock], the opportunities are going to open up now and so once we close this deal, I'll be both looking for opportunities to grow the Company, looking for acquisitions and at the same time, working on options to satisfy all shareholders, which I can't go into more now and honestly I don't even want to consider them right now. I want to get through the proxy and closing of the deal first.
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Unidentified Participant [41]
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Fair enough. And then last question for me is the details of the how -- like the length of the manufacturing agreement. Are those going to be in the proxy?
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Ted Karkus, ProPhase Labs, Inc. - CEO [42]
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Bob says yes. He's [nodding a definitive yes] and if anybody has any questions on the agreements, look at the agreements first, it's going to take you a long time to read through them. I'll be really impressed if anybody actually reads through all of the agreements. Bob had to, our attorneys had to. I defy anyone on this call to read through them. If you do, you are better and bester than I am. I wish you luck and if you still have questions after that, send them over to Bob or to our attorneys, don't send them to me.
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Operator [43]
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(Operator Instructions) [Pete Alderlin].
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Unidentified Participant [44]
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Thank you. I got cut off the call for a couple of minutes. So if you answered some of this, I apologize.
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Ted Karkus, ProPhase Labs, Inc. - CEO [45]
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Pete, I answered all of it, but go ahead, give it a shot.
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Unidentified Participant [46]
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Sounded like you did actually. You mentioned that as of last Friday, you weren't sure who was going to be the party on the other side of the deal, so the question then sort of comes up, how many finalists were there that you were negotiating with in the late stages of doing this deal?
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Ted Karkus, ProPhase Labs, Inc. - CEO [47]
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I hate to tell you this answer this way, but I'm not going to answer that question. I can only tell you that our investment bankers did a great job of initially reaching out to over 70 companies. I believe 30 or 35 actually signed NDAs. You start with a teaser where you don't put the Cold-EEZE brand name on it and its sort of a one-pager we put together and then that goes into -- we had a presentation and everyone had to sign NDAs to get the presentation and then we fine-tuned it. Based on those who were really interested, then did more serious due diligence, they then provided refined offers and then we met with several interested parties.
Beyond that, I am not going to and I apologize, it serves no purpose to get into any final details. What I really meant to say was, it was around Friday I think at midnight that we finally planned, might even been Saturday, I don't remember, that we finalized the agreement and my point simply was, we couldn't start work on our proxy until we knew that we had definitive agreements in place. We had a price in place, we have agreements in place, we have the buyer in place and all that came together Friday night or Saturday. So we're just now working on the proxy and give us -- shouldn't be -- at most two weeks and then that proxy has to be sent up to the SEC for review. It's up to them how long it takes, typically it's 10 days to 30 days before it goes to shareholders for a vote.
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Unidentified Participant [48]
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Okay and how broadly does the non-compete clause define the area that you're not going to be in?
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Ted Karkus, ProPhase Labs, Inc. - CEO [49]
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I'd rather you get into, you see the agreements first. I'd rather not get into that now. It's not, the non-competes aren't going to affect the Company all that much. They affect [Ralf Cuderry], Bob Cuddihy, and me, all right. Me the most in fact. It's most onerous on me, but I did that for the shareholders and the Company and Bob was actually really a standup guy, as was Ralf to agree to the non-competes, but it's not going to affect the Company significantly at all. It's not going to tie our hands from our goals. The non-competes have no impact whatsoever on our dietary supplement business and we have no intention of introducing a product in the cough-cold category anytime soon anyway. So the non-competes are not an issue from a shareholder's perspective.
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Unidentified Participant [50]
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And then how many employees are there in the manufacturing operation at the present time?
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Ted Karkus, ProPhase Labs, Inc. - CEO [51]
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Well, that varies, but it's roughly 50. We have some part-time employees. So the number varies depending on what you consider full-time and part-time and that changes throughout the year. So as a ballpark, I'd say 50.
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Unidentified Participant [52]
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Do you think you will maintain all of those or will there be some restructuring going on there too?
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Ted Karkus, ProPhase Labs, Inc. - CEO [53]
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Well, our manufacturing facility really isn't changing all that much because it's still going to be manufacturing the exact same products tomorrow that its manufacturing today. It's going to be manufacturing the same, roughly the same products two months from now that its manufacturing today. So there might be some minor restructuring that's going on and going on presently, but overall, I don't want to scare our employees over a manufacturing facility. For the most part, most of our employees will stay and the overhead of the operations will roughly remain the same. Not exactly, but roughly.
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Unidentified Participant [54]
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Okay and then as you develop the dietary supplements business, will that be mostly your own manufacturing, some of your own or none of your own?
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Ted Karkus, ProPhase Labs, Inc. - CEO [55]
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We don't manufacture our dietary supplements. We oversee the manufacturing. Our manufacturing facility primarily does hard candies and lozenges. It doesn't currently do tablets and capsules. Our dietary supplements are three products are either capsules or tablets currently. It's possible we could expand our manufacturing facility in the future if our dietary supplement business takes off, there's plenty of room for expansion at our manufacturing facility, but that's something that we would only do if our business takes off. It's premature to consider that now.
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Operator [56]
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[Eric Landry].
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Ted Karkus, ProPhase Labs, Inc. - CEO [57]
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Is senior management's fixed comp going to remain the same even though the topline is now one-fifth of what it was?
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Ted Karkus, ProPhase Labs, Inc. - CEO [58]
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That's a great question. We're still going to be managing and doing everything that we're doing currently for some time. When our business slows, at that point, that will be up for consideration. To be clear, the current year, you have to tie it into the deal. As I said, the manufacturing service agreement, the Transition Services Agreement are all important aspects of this deal. Mylan wouldn't have agreed to the deal otherwise. So we're in place to do what we're doing.
At a later date, will we address that? Absolutely, we'll address that. I think I mentioned earlier in the call that you really have to see how some things play out. If our dietary supplement business ramps up significantly in the second half of the year, we're right back in business. On the other hand, if the dietary supplement business doesn't work out and shuts down at the end of the year and we haven't done anything else and all we have is the manufacturing facility, you can bet that I'm going to significantly restructure and downsize our overhead.
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Unidentified Participant [59]
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Okay. Well, right now from the outside, and I know you said its dormant, but the supplement business looks like it's dead in the water. I mean you guys have six Twitter followers. You had six Twitter followers this time last year. Last review you had on your website was in May of 2016. So I understand you haven't been doing much on it but the momentum of that product is absolutely zero right now.
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Ted Karkus, ProPhase Labs, Inc. - CEO [60]
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Eric, I really find it amazing that we just sold the Cold-EEZE brand for $50 million, dramatically more than what our shareholders would have anticipated and you have the audacity to have these negative sounding comments. I already told you, our dietary supplement business is on a hold. So how many Twitter followers do you expect for a business that's on hold. Thank you for your call. If you don't appreciate what management does in companies when you make money, I can hardly believe the types of questions you ask when you lose money. Angela, are there any other questions for the call?
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Operator [61]
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We have no further questions in queue.
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Ted Karkus, ProPhase Labs, Inc. - CEO [62]
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All right, sorry to end on that last call. That was awfully rude of that individual, but I will tell you, I walked into the call really excited. Our management team is really excited. I know several shareholders that I've talked to are really excited. I believe we have a lot to look forward to into the future. I'm sorry I don't have definitive plans now. I think I answered everybody's questions to the extent that I could answer your questions.
I'm looking forward to a lot more. Once we get through closing the deal, we'll discuss what the future plans of the Company are. If you've been a shareholder for the last couple of years, you can certainly be patient for a couple of months until we close this deal and then I'll be happy to discuss in more detail what the potential is, what the options are and what the alternatives are, what we can and cannot do for shareholders that want to sell, shareholders that don't want to sell. So we'll just have to wait and see. I do appreciate all of your support over the years. I know we have some great shareholders on the call and in our Company that have been incredibly supportive of our management team.
I'd like to think that we have delivered. Certainly, I believe that we've delivered today and I expect to deliver even more into the future for those of you that stay with us. So thank you all for your patience. Thank you all for being on the call today. And once we get through this, the proxy and the shareholder vote, I look forward to reconnecting, have another shareholders conference call where I can update you, I can answer more questions and be a little more definitive about the future. Angela, that's all I have. Shareholders, feel free to disconnect. Thank you again.
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Operator [63]
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And this concludes today's conference call. You may now disconnect.
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