10-Q - SLSN - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

**☒**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2020

**☐**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ofthe

Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number: 000-22333

Nanophase Technologies Corporation

(Exact name of registrant as specified in its charter)

Delaware	36-3687863
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1319 Marquette Drive, Romeoville, Illinois 60446

(Address of principal executive offices, and zip code)

Registrant’s telephone number, including area code: (630) 771-6708

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated<br>filer ☐	Accelerated<br>filer ☐
Non-accelerated<br>filer ☐	Smaller reporting<br>company ☑
	Emerging<br>growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of May 13, 2020, there were 38,136,792 shares outstanding of common stock, par value $.01, of the registrant.

NANOPHASE TECHNOLOGIES CORPORATION

QUARTER ENDED MARCH 31, 2019

INDEX

		Page
PART I - FINANCIAL INFORMATION		3
Item 1.	Unaudited Consolidated Condensed Financial Statements	3
	Consolidated Balance Sheets (Unaudited Consolidated Condensed) as of March 31, 2020 and December 31, 2019	3
	Consolidated Statements of Operations (Unaudited Consolidated Condensed) for the three months ended March 31, 2020 and 2019	4
	Consolidated Statements of Shareholders’ Equity (Unaudited Consolidated Condensed) for the three months ended March 31, 2020 and 2019	5
	Consolidated Statements of Cash Flows (Unaudited Consolidated Condensed) for the three months ended March 31, 2020 and 2019	6
	Notes to Unaudited Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	22
PART II - OTHER INFORMATION		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURES		24

PART I - FINANCIAL INFORMATION

Item 1. Financial Statement

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited Consolidated Condensed)

(in thousands except share and per share data)

			December 31,
			2019
ASSETS
Current assets:
Cash	951		$	1,194
Trade accounts receivable, less allowance for doubtful accounts of 9 on March 31, 2020 and December 31, 2019, respectively	2,254			970
Inventories, net	2,384			2,554
Prepaid expenses and other current assets	259			267
Total current assets	5,848			4,985
Equipment and leasehold improvements, net	2,351			2,255
Operating leases, right of use	2,037			2,119
Other assets, net	12			13
	10,248		$	9,372
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit, bank	500		$	500
Line of credit, related party	1,400			224
Current portion of long-term debt, related party	500			500
Current portion of finance lease obligations	207			218
Current portion of operating lease obligations	369			357
Accounts payable	1,713			1,748
Current portion of deferred revenue	321			482
Accrued expenses	512			380
Total current liabilities	5,522			4,409
Long-term portion of finance lease obligations	241			288
Long-term portion of operating lease obligations	1,937			2,035
Long-term convertible loan, related party	897			830
Long-term portion of deferred revenue	47			93
Asset retirement obligations	208			206
Total long-term liabilities	3,330			3,452
Contingent liabilities	—			—
Shareholders’ equity:
Preferred stock, .01 par value, 24,088 shares authorized, and no shares issued and outstanding	—			—
Common stock, .01 par value, 55,000,000 shares authorized; 38,136,792 and 33,911,792 shares issued and outstanding on March 31, 2020 and December 31, 2019, respectively	381			381
Additional paid-in capital	101,938			101,886
Accumulated deficit	(100,923	)		(100,756	)
Total Shareholders’ equity	1,396			1,511
	10,248		$	9,372

All values are in US Dollars.

See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited Consolidated Condensed)

(in thousands except share and per share data)

	Three months ended March 31,
	2020			2019
Revenue:
Product revenue	$	3,961		$	3,497
Other revenue		78			258
Total revenue		4,039			3,755
Cost of revenue		3,005			2,871
Gross profit		1,034			884
Operating expense:
Research and development expense		372			477
Selling, general and administrative expense		705			877
Loss from operations		(43	)		(470	)
Interest expense		124			43
Loss before provision for income taxes		(167	)		(513	)
Provisions for income taxes		—			—
Net loss	$	(167	)	$	(513	)
Net loss per share – basic and diluted	$	(0.00	)	$	(0.02	)
Weighted average number of basic and diluted common shares outstanding		38,136,792			33,911,792

See Notesto Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited Consolidated Condensed)

(in thousands except share data)

									Additional
	PreferredStock				CommonStock				Paid-in		Accumulated
Description	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance on December 31, 2018		—	$	—		33,911,792	$	339	$	98,795	$	(97,750	)	$	1,384
Stock-based compensation		—		—		—		—		57		—			57
Net loss for the three months ended March 31, 2019		—		—		—		—		—		(513	)		(513	)
Balance on March 31, 2019		—	$	—		33,911,792	$	339	$	98,852	$	(98,263	)	$	928
Balance on December 31, 2019		—	$	—		38,136,792	$	381	$	101,886	$	(101,756	)	$	1,511
Stock-based compensation		—		—		—		—		52		—			52
Net loss for the three months ended March 31, 2020		—		—		—		—		—		(167	)		(167	)
Balance on March 31, 2020		—	$	—		38,136,792	$	381	$	101,938	$	(100,923	)	$	1,396

See Notes toConsolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited Consolidated Condensed)

	Three months ended March 31,
	2020			2019
	(in thousands)
Operating activities:
Net loss	$	(167	)	$	(513	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		86			77
Loss on disposal of equipment and leasehold improvements		—			16
Share-based compensation		52			57
Amortization of debt discount		67			—
Changes in assets and liabilities related to operations:
Trade accounts receivable		(1,284	)		(1,276	)
Inventories		170			14
Prepaid expenses and other assets		8			(136	)
Accounts payable		(35	)		133
Accrued expenses		133			109
Deferred revenue		(207	)
Other long-term assets and liabilities		(3	)		(18	)
Net cash used in operating activities		(1,180	)		(1,537	)
Investing activities:
Acquisition of equipment and leasehold improvements		(181	)		(240	)
Net cash used in investing activities		(181	)		(240	)
Financing activities:
Principal payments on finance leases		(58	)		(52)
Proceeds from line of credit, bank		500			500
Payments to the line of credit, bank		(500	)		—
Proceeds from line of credit, related party		3,260			2,936
Payments to line of credit, related party		(2,084	)		(2,320	)
Net cash provided by financing activities		1,118			1,064
Decrease in cash and cash equivalents		(243	)		(713	)
Cash and cash equivalents at beginning of period		1,194			1,345
Cash and cash equivalents at end of period	$	951		$	632
Supplemental cash flow information:
Interest paid	$	57		$	30
Supplemental non-cash investing and financing activities:
Accounts payable incurred for the purchase of equipment and leasehold improvements	$	77		$	40

See Notes toConsolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited Consolidated Condensed)

(in thousands, except share and per share data or as otherwise noted herein)

(1) Basis of Presentation

The accompanying unaudited consolidated condensed interim financial statements of Nanophase Technologies Corporation (“Nanophase”, “Company”, “we”, “our”, or “us”) reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of our financial position and operating results for the interim periods presented. All statements include the results from both Nanophase and our wholly-owned subsidiary, Solesence, LLC (“Solésence,” or our “Solésence® subsidiary”). Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission.

(2)Going Concern / Liquidity

We believe that cash from operations and cash on hand, in addition to unused borrowing capacity, may not be adequate to fund our operating plans through 2020. We are working to reduce these risks, but some of this is dependent on several things over which we have limited control. Our largest customer made up 63% of our 2019 revenue, and expects a reduction in orders from us in 2020, which has limited our flexibility and required us to make cash management a top priority. We have seen an increase in sales of our Solésence® products in the first quarter, which we expect to continue during the balance of 2020. With the current circumstances of, and the impact of the various reactions and policies relating to, the Covid-19 pandemic, it is currently management’s belief that we will achieve growth in Solésence sales in 2020, but not to the extent for which we planned; however, that belief is based on the assumption that negative impacts related to the Covid-19 pandemic and related reactions and policies will substantially improve commencing in the second quarter and continuing thereafter, and such assumption may not prove accurate. This may require additional investment in working capital. Given these issues, and other commercial realities, we are monitoring the additional working capital demands that this could create as we continue to execute on our Solésence® growth strategy. It is also management’s belief that the Covid-19 pandemic, related governmental reaction, and resulting economic slow-down has, and is expected to continue, to affect certain consumer behaviors and markets could have a negative impact on its Personal Care Ingredients customers during the second quarter of 2020. Management believes the outlook after the second quarter is uncertain, but a continuation of the Covid-19 pandemic and related reactions and policies after the second quarter of 2020 would be expected to increase the negative impact on the Company and its businesses. Management believes the negative impacts in the second quarter and, if applicable, thereafter, are not currently quantifiable. The timing of cash flows is critical. If cash generated from operations is not materially consistent with our plans, we believe that we may need to seek additional funding to address working capital demands. The trading volume of our stock has been low enough that we expect it would be difficult to sell enough shares, assuming our shareholders would approve the authorization of additional shares, to generate additional capital via the OTC market. These uncertainties have caused us to be unable to assert that, for the next twelve months, we have enough current cash, guaranteed access to financing to fund operations, or access to cash in the equity markets to continue with our current growth strategy in terms of investment in capital equipment and in operating expenses related to Solesence®.

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (SARS-CoV-2) to be a global pandemic (COVID-19), which continues to spread throughout the United States and around the world. On April 23, 2020, the Governor of the State of Illinois extended his order that all non-essential businesses cease all activities within the State of Illinois except for certain minimum basic operations through May 30, 2020, and such executive order may be extended. During this disruption, we are doing everything we can to allow as many of our employees as possible to shelter-in-place. Relative to the executive order in Illinois, management believes that Nanophase Technologies and its Solésence® subsidiary qualify as essential businesses as defined, due to our product offerings supporting healthcare, and critical manufacturing and chemical products within sectors that have been designated as critical infrastructure, the continued operation of which is vital for national public health, economic security, and safety.

The Company believes that its customers and suppliers may have similar disruptions, which may lead to greater reductions in their normal operations as a result of responses to the coronavirus pandemic in Illinois and in other jurisdictions in the United States and worldwide. Currently, the Company is consequently aware of changes in its business as a result of the coronavirus pandemic, but uncertain of the impacts of those changes on its consolidated statements of position, operations or cash flows. As of the date of this filing, customer demand for the third and fourth quarters is not yet clear to management. We believe the resulting cessations, reductions, and disruptions in its customers’ and suppliers’ operations could be temporary; however, the Company’s management also believes the duration and, hence, the potential impact of such cessations, reductions, and disruptions is currently unknowable. As a result, although we believe we have acceptable visibility through the second quarter of 2020, conditions are fluid and our estimates regarding the second quarter could prove inaccurate. Moreover, we are unable to estimate the potential impact on our business for the balance of the year as of the date of this filing.

These circumstances raise significant doubt as to the Company’s ability to operate as a going concern under U.S. GAAP. The accompanying financial statements have been prepared on a going concern basis in accordance with U.S. GAAP. As such, no adjustments have been made to the consolidated condensed financial statements for the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue operating as a going concern.

On April 17, 2020, the Company received funding in the form of a loan under the Paycheck Protection Program (the “PPP”), under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), in the amount of $952 which will help us to continue to pay our people, rent and utilities. Should it become necessary, we believe that we may be able to secure additional financing, but we do not have any additional financing commitments in place as of today. However, we may not be able to secure additional financing in a timely manner under commercially reasonable terms, or at all. If we are unable to secure additional financing, the operations of the Company might need to be curtailed to a certain degree, and we would need to delay capital expenditures related to our Solésence® growth strategy, which could impede growth in 2020 and 2021.

(3) Description of Business

Nanophase Technologies Corporation (“Nanophase,” “Company,” “we,” “our,” or “us”) is a skin and sun care focused company that offers engineered materials, formulation development and commercial manufacturing with an integrated family of technologies. Our expertise in nanoscale engineering allows us to effectively coat and disperse particles on a nano and “non-nano” scale for use in a variety of diverse markets: personal care ingredients, including sunscreens as active ingredients; full formulations of skin care products, marketed and sold by our wholly-owned subsidiary, Solesence, LLC (our “Solésence® subsidiary”), which comprise two of our three major product categories; and in architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, medical diagnostics, and a variety of surface finishing technologies (polishing) applications, including optics — all of which fall in to the advanced materials product category.

Although our primary strategic focus has been the North American market, we currently sell material to customers overseas and have been working to expand our reach within foreign markets. Our common stock trades on the OTCQB marketplace under the symbol NANX.

While product sales comprise the majority of our revenue, we also recognize revenue from other sources from time to time. These activities are not expected to drive the long-term growth of the business. For this reason, we classify such revenue as “other revenue” in our Statements of Operations, as it does not represent revenue directly from the sale of our products.

(4) Revenues

Revenues are generally recognized at a point in time, typically when control of the promised goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods.

Deferred Revenue includes customer deposits and other receipts that are recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s Consolidated Condensed **** Statement of Operations. Customer deposits, $368, as of March 31, 2020, have been classified as deferred revenue. At December 31, 2019, customer deposits amounted to $575.

On July 31, 2019, we entered into a Joint Development Agreement (“JDA”), with an initial term of ten years, with Sumitomo Corporation of Americas (“SCOA”) to jointly develop certain coated materials for the use in the personal care market. In return for the Company’s exclusive efforts on SCOA’s behalf, SCOA has paid a commitment fee of $250 and will pay two subsequent payments, of $125 each, for the development of products. The two subsequent payments are contingent upon the achievement of certain performance obligations as defined in the agreement. We began recognizing revenue recognizing revenue from the commitment fee in November 2019 and will continue to do so as we fulfill our contractual performance obligations. In the case of the SCOA JDA, the Company is recognizing revenue over time using an input method. If the Company elects to terminate the agreement within the terms allowed and prior to achieving the initial performance obligations, the original $250 must be refunded.

As of March 31, 2020, the Company has recognized $86 in cumulate revenue from the SCOA JDA, of which $65 was recognized in the first quarter of 2020. The Company has recognized this revenue proportionally, based upon its estimate of the period over which the performance obligation is expected to be completed.

(5) Earnings Per Share

Earnings (loss) per share is computed using the Treasury Stock Method. Options to purchase approximately 1,000 and 766,000 shares of common stock that were outstanding as of March 31, 2020 and 2019, respectively, were not included in the computation of earnings (loss) per share for the three-month period ended March 31, 2020 and 2019, respectively, as the impact of such shares would be anti-dilutive.

(6) Financial Instruments

We follow the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.

Our financial instruments include cash, accounts receivable, accounts payable and accrued expenses, along with any borrowings on the working capital line of credit from Libertyville Bank and Trust and any borrowings under the Master Agreement from Beachcorp, LLC described below in Note 7. The fair values of all financial instruments were not materially different from their carrying values. There were no financial assets or liabilities adjusted to fair value on March 31, 2020 or December 31, 2019.

(7) Notes and Line of Credit

During July 2014 we entered into a bank-issued letter of credit and related promissory note for up to $30 in borrowings to support our obligations under our facility lease agreement. No borrowings have been incurred under this promissory note. Should any borrowings occur in the future, the interest rate would be the prime rate plus 1%, with the bank having the right to “set off” or apply unpaid balances against our checking account if we fail to meet our obligations under any borrowings under the note. It is our intention to renew this note annually, for as long as we need to do so pursuant to the terms of our facility lease agreement. This note currently expires on July 1, 2020 and management expects it to be renewed. Because there were no amounts outstanding on the note at any time during 2020 or 2019, we have recorded no related liability on our consolidated balance sheet.

On March 22, 2019, we executed a New Business Loan Agreement, dated as of March 4, 2019 (the “Loan Agreement”), with Libertyville Bank and Trust Company, a Wintrust Community Bank (“Libertyville”), our primary bank, which replaced the Line of Credit Agreement with Libertyville having a maturity date of March 4, 2019. Under the Loan Agreement, Libertyville will provided a maximum of (i) $500 or (ii) two times the sum of (a) 75% our eligible accounts receivables and (b) our cash deposited with Libertyville, whichever is less, of revolving credit to us, collateralized by a senior priority lien on our accounts receivable, inventory, equipment, general intangibles and fixtures. Interest was payable monthly on any advances at a floating interest rate of the prime rate at the time plus 1%. We were required to have $500 in cash, inclusive of the borrowed amount, at Libertyville on the date of any advance. Advances could only occur at the beginning or end of a fiscal quarter and were required to be repaid in full within five business days of the advance. Amounts due under the Loan Agreement were required to be paid in full at its maturity on April 4, 2020. Libertyville is seeing very high levels of underwriting activity relating to the PPP (see Note 2), and has yet to renew this facility. Based upon conversations with Libertyville, it is management’s expectation that this facility will be renewed during the second quarter of 2020. We borrowed $500 on March 30, 2020, and repaid it on April 2, 2020. We borrowed $500 on December 31, 2019 and repaid it on January 2, 2020.

On November 16, 2018, we entered into a Business Loan Agreement (the “Master Agreement”) with Beachcorp, LLC. Beachcorp, LLC is managed by Bradford T. Whitmore, who, together with his affiliates Grace Brothers, Ltd. and Grace Investments, Ltd., beneficially owned approximately 63% of the outstanding shares of our common stock as of March 31, 2020. The Master Agreement relates to two loan facilities, each evidenced by separate promissory notes, each dated November 16, 2018: a term loan to the Company of up to $500 to be disbursed in a single advance (the “Term Loan”) with a fixed annual interest rate of 8.25%, payable quarterly, accruing from the date of such advance and with principal due on December 31, 2020; and an asset-based revolving loan facility for the Company of up to $2,000 (the “Revolver Facility”), with floating interest accruing at the prime rate plus 3% (8.25% minimum) per year, with a borrowing base consisting of qualified accounts receivable of the Company, and with all principal and accrued interest due March 31, 2020. On March 23, 2020, the Company and Beachcorp, LLC executed the First Amendment to our Master Agreement that extends the maturities of both the Term Loan and the Revolver Facility to March 31, 2021. The Term Loan and Revolver Facility are secured by all the unencumbered assets of the Company and subordinated to Libertyville’s secured interest under the New Business Loan Agreement. The Master Agreement substantially restricts the Company’s ability to incur additional indebtedness during the terms of both the Term Loan and the Revolver Facility. On March 31, 2020, the balance on the term loan was $500 and the balance on the Revolver Facility was $1,400. There was $25 in related interest expense during the quarter ended March 31, 2020, of which $9 was accrued and $16 paid by the end of the quarter. There was $26 in related interest expense during the quarter ended March 31, 2019, of which $13 was accrued and $13 paid by the end of the quarter. As Beachcorp, LLC is an affiliate of one of Mr. Whitmore, this amounts to interest to be paid to a related party. On March 31, 2020 borrowings were within the credit agreement limit with an additional $599 available. The balance of borrowing base, loan amount, and any excess payments required over the available borrowing base will change as frequently as daily, given the operational nature of the elements of the Revolver Facility.

On November 20, 2019, we entered into a 2% Secured Convertible Promissory Note with Bradford T. Whitmore in the principal amount of $2,000,000 (the “Convertible Note”). The principal amount is payable in a single payment on May 15, 2024 (the “Maturity Date”). The principal amount of the Convertible Note accrues interest at the rate of 2.0% per year, which interest is payable semi-annually on the 15th day of May and November, commencing on May 15, 2020. The principal amount and, at the holder’s option, accrued interest under the Convertible Note is convertible at the holder’s option into additional shares of the Company’s common stock in whole or in part and from time to time up to the Maturity Date at a conversion price of $0.20 per share. The convertible note contains a beneficial conversion feature since the Company’s stock was trading at $0.32 per share on the date the Company entered into the agreement. The intrinsic value of the beneficial conversion feature was $1.2 million on November 20, 2019 and is recorded as a discount on the convertible note. The discount will be accreted to the convertible note over the life of the note using the straight-line method. The offset to these discounts will be interest expense. For the three months ended March 31, 2020, the Company accreted $67. The balance on the convertible note was $897 and $830, net of discounts of $1,103 and $1,170 at March 31, 2020 and December 31, 2019, respectively.

On March 31, 2020, the balance on the term loan was $500, the balance on the Revolver Facility was $1,400, and the balance on the Convertible Note was $2,000. In the first quarter of 2020, there was $35 in interest expense relating to these credit facilities held by Beachcorp, LLC. The accrued interest expense balance on these related party credit facilities amounted to $13, and $6, at March 31, 2020 and December 31, 2019, respectively. The obligations under the Convertible Note are secured by a security interest in all of the Company’s personal property pursuant to a Commercial Security Agreement among Mr. Whitmore, the Company and Solésence, LLC, the Company’s sole subsidiary. Given that Beachcorp, LLC is an affiliate of Mr. Whitmore, this amounts to all of this interest being owed to a related party.

(8) Inventories

Inventories consist of the following:

	March 31, 2020			December 31, 2019
Raw materials	$	1,423		$	1,425
Finished goods		991			1,170
****		2,414			2,595
Allowance for excess inventory quantities		(30	)		(41	)
****	$	2,384		$	2,554

(9) Leases

The Company’s operating lease portfolio is comprised of operating leases for office, warehouse space and equipment. Certain of the Company’s leases include one or more options to renew or terminate the lease at the Company’s discretion. The Company regularly evaluates the renewal and termination options and when they are reasonably certain of exercise, includes the renewal or termination option in our lease term.

As of March 31, 2020, the operating lease right-of-use “ROU” asset had a balance of $2,037 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities related to the ROU asset of $369 and $1,937 respectively. As of December 31, 2019, the ROU asset had a balance of $2,119 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities related to the ROU asset of $357 and $2,035 respectively. These are included in the “Current portion of operating lease obligations” and “Long-term operating lease obligations, net of current portion” line items of these condensed consolidated financial statements. The discount rates used for leases accounted for under ASC 842 are based on an interest rate yield curve developed for the leases in the Company’s portfolio.

The office leases contain variable lease payments which consist primarily of rent escalations based on an established index or rate and taxes, insurance, and common area or other maintenance costs, which are paid based on actual costs incurred by the lessor.

Quantitative information regarding the Company’s leases is as follows:

****	ThreeMonths Ended March 31, 2020		ThreeMonths Ended March 31, 2019
Components of lease cost
Finance lease cost components:
Amortization of finance lease assets	$	17	$	17
Interest on finance lease liabilities		11		16
Total finance lease costs		28		33
Operating lease cost components:
Operating lease cost		140		123
Variable lease cost		27		27
Short-term lease cost		2		22
Total operating lease costs		169		172
Total lease cost	$	197	$	205

Supplemental cash flow information related to leases is as follows for the period ended March 31:

****	2020			2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	171		$	168
Weighted-average remaining lease term-finance leases (in years)		1.7			2.7
Weighted-average remaining lease term-operating leases (in years)		2.7			3.7
Weighted-average discount rate-finance leases		9.3	%		9.1	%
Weighted-average discount rate-operating leases		14.6	%		14.4	%

The future maturities of the Company’s finance and operating leases as of March 31, 2020 is as follows:

****	FinanceLeases			OperatingLeases			Total
2020	$	189		$	506		$	695
2021		196			687			883
2022		109			705			814
2023		5			690			695
2024		—			580			580
2025 and thereafter		—			—			—
Total payments	$	499		$	3,168		$	3,667
Less<br> amounts representing interest		(51	)		(862	)		(913	)
Total minimum payments required:	$	448		$	2,306		$	2,754

(10) Share-Based Compensation

We follow FASB ASC Topic 718, Compensation – Stock Compensation, in which compensation expense is recognized only for share-based payments expected to vest. We recognized compensation expense related to stock options of $52 and $57 for each of the three-month periods ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was approximately $256 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock option plans. That cost is expected to be recognized over a remaining weighted-average period of 1.7 years.

Stock Options and Stock Grants

No stock options were exercised during the three months ended March 31, 2020, or March 31, 2019. During the three months ended March 31, 2020, there were no stock options granted, compared to 8,000 stock options granted during the same period in 2019. During the three months ended March 31, 2020, 241,000 stock options expired, and 140,000 stock options were forfeited compared to 4,000 stock options expired, and 11,000 stock options were forfeited during the same period in 2019. We had 3,332,000 stock options outstanding at a weighted average exercise price of $0.63 on March 31, 2020, compared to 3,408,000 stock options outstanding at a weighted average exercise price of $0.67 on March 31, 2019.

No stock options were granted during the three-month period ended March 31, 2020. The following table illustrates the various assumptions used to calculate the Black-Scholes option pricing model for stock options granted during the three-months ended March 31, 2019:

Weighted-average risk-free interest rates:	2.5%
Dividend yield:	—
Weighted-average expected life of the option:	7 years
Weighted-average expected stock price volatility:	94%
Weighted-average fair value of the options granted:	$0.75

(11) Significant Customers and Contingencies

Revenue from three customers constituted approximately 46%, 15% and 15%, respectively, of our total revenue for the three months ended March 31, 2020. Amounts included in accounts receivable on March 31, 2020 relating to these three customers were approximately $896, $31 and $593, respectively. Revenue from these three customers constituted approximately 54%, 0% and 18%, respectively, of our total revenue for the three months ended March 31, 2019. Amounts included in accounts receivable on March 31, 2019 relating to these three customers were approximately $631, $0 and $673, respectively. The loss of one of these significant customers, a significant decrease in revenue from one or more of these customers, or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition. Further, as mentioned earlier (see Note 2), if the Covid-19 Pandemic and related reactions and policies were to negatively affect certain behaviors and markets it could create significant reductions in customer purchases during and after the second quarter of 2020. Our outlook in this regard is currently unclear. Although we believe we have acceptable visibility through the second quarter of 2020, conditions are fluid and our estimates regarding the second quarter could prove inaccurate. Moreover, we are unable to estimate the potential impact on our business for the balance of the year as of the date of this filing.

We currently have exclusive supply agreements with BASF Corporation (“BASF”), our largest customer, that have contingencies outlined which could potentially result in the license of technology and/or the sale of production equipment from the Company to the customer intended to provide capacity sufficient to meet the customer’s production needs. This outcome may occur if we fail to meet certain performance requirements, certain other obligations and/or certain financial condition covenants. The financial condition covenants in one of our supply agreements with BASF “trigger” a technology transfer right (license and equipment sale at BASF’s option) in the event (a) that earnings for the twelve-month period ending with our most recently published quarterly financial statements are less than zero and our cash, cash equivalents and certain investments are less than $500,000, or (b) of an acceleration of any debt maturity having a principal amount of more than $10 million. There are certain minimum finished goods inventory requirements with the 2019 amendment to the supply agreement. This agreement also requires Nanophase to maintain certain finished goods inventory levels as “safety stock,” beginning in the first quarter of 2019, and increasing through the third quarter of 2019 to a negotiated level based on agreed demand metrics, in order to maintain the $500,000 non-cash component discussed above. After September 30, 2019, should our safety stock fall below the prescribed amount of material, the quarter-end cash requirement would revert to $1,000,000 in cash, cash equivalents, and certain investments. The safety stock requirement may be adjusted upon mutual agreement. Historically, we have relied on our Loan Agreement with Libertyville and predecessor facilities in order to satisfy the quarterly financial testing under the BASF supply agreement. As of the date of this filing, the Loan Agreement has not been renewed, but management expects the facility will be renewed in the second quarter of 2020 (see note 7).

Our supply agreements with BASF also “trigger” a technology transfer right in the event of our insolvency, as further defined within the agreements. In the event of an equipment sale, upon incurring a triggering event, the equipment would be sold to the customer at either 115% of the equipment’s net book value or the greater of 30% of the original book value of such equipment, and any associated upgrades to it, or 115% of the equipment’s net book value, depending on the equipment and related products.

We believe that we should have sufficient cash and credit availability (See the description of our Loan Agreement with Libertyville and the Master Agreement with Beachcorp, LLC (described in Note 7) and our PPP Loan (described in Note 13) to operate our business during 2020, but this is dependent on several things over which we have limited control, including the renewal of the Loan Agreement during the second quarter of 2020. If a triggering event were to occur and BASF elected to proceed with the license and related equipment sale mentioned above, we would receive royalty payments from this customer for products sold using our technology; however, we would lose both significant revenue and the ability to generate significant revenue to replace that which was lost in the near term. Replacement of necessary equipment that could be purchased and removed by the customer pursuant to this triggering event could take in excess of twelve months. Any additional capital outlays required to rebuild capacity would probably be greater than the proceeds from the purchase of the assets as dictated by our agreement with the customer. Similar consequences would occur if we were determined to have materially breached certain other provisions of the supply agreement with BASF. Any such event would also likely result in the loss of many of our key staff and line employees due to economic realities. We believe that our employees are a critical component of our success and it could be difficult to replace them quickly. Given the occurrence of any such event, we might not be able to hire and retain skilled employees given the stigma relating to such an event and its impact on us. Finally, any shortfall in capital needed to operate the business as management intends, including with respect to avoiding this triggering event as described above, may result in a curtailment of certain activities or anticipated investments.

We expect to expend resources on research, development and product testing, and in expanding current capacity or capability for new business. In addition, we may incur significant costs in preparing, filing, prosecuting, maintaining and enforcing our patents and other proprietary rights. We may need additional financing if we were to lose an existing customer or suffer a significant decrease in revenue from one or more of our customers or because of currently unknown capital requirements, new regulatory requirements or the need to meet the cash requirements discussed above to avoid a triggering event under our BASF agreement. Given our expected growth in our Solésence^®^ business, we may also have temporary working capital demands that we cannot fund with existing capital, while remaining in compliance with the covenants included in our BASF agreement described above. If necessary, we may seek funding through public or private financing and through contracts with governmental entities or other companies. Additional financing may not be available on acceptable terms or at all, and any such additional financing could be dilutive to our shareholders. If we are unable to obtain adequate funds, we may be required to delay, scale-back or eliminate some of our manufacturing and marketing operations or we may need to obtain funds through arrangements on less favorable terms. Such circumstances could raise doubt as to our ability to continue as a going concern. If we obtain funding on unfavorable terms, we may be required to relinquish rights to some of our intellectual property.

(12) Business Segmentation and Geographical Distribution

Revenue from international sources approximated $304 and $457 for the three months ended March 31, 2020 and 2019, respectively. All this revenue was product revenue.

Our Operations comprise a single business segment and all of our long-lived assets are located within the United States. We categorize our revenue streams into three main product categories, Personal Care Ingredients, Advanced Materials and Solésence^®^. The revenues for the three months ended March 31, 2020 and 2019, respectively, by category, are as follows:

Product Category	2020		2019
Personal Care Ingredients	$	1,932	$	2,009
Advanced Materials		584		850
Solésence^®^		1,523		896
Total Revenue	$	4,039	$	3,755

(13) Subsequent Events

On April 17, 2020, we received funding from Libertyville in the amount of $962 at a fixed annual interest rate of 1% per year (the “PPP Loan”) under the Paycheck Protection Program (“PPP”) under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Under the PPP, the Company may apply for forgiveness of the PPP Loan in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of the first disbursement of the PPP Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with the terms of the CARES Act. If the Company meets certain criteria, it may be eligible for forgiveness under the stated terms of the PPP Loan as described in the CARES Act.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Nanophase is an advanced materials and applications developer and commercial manufacturer with an integrated family of materials technologies. In recent years, we have advanced and expanded our expertise in nanoscale engineering to include non-nano materials as well as an array of skin care formulations designed to address skin health while imparting an excellent sensory experience. We produce materials for use in three business areas: personal care ingredients, including ingredients for use in sunscreens as active ingredients; fully formulated cosmetics of our own design which are developed, marketed and distributed under the Solésence® brand name by our wholly owned subsidiary Solesence, LLC (identified throughout this report as our Solésence® subsidiary); and, to a lesser extent, in our advanced materials products, which include architectural coatings, industrial coatings, abrasion-resistant additives, plastics additives, medical diagnostics, and a variety of surface finishing technologies (polishing) applications, including optics.

We target markets in which we believe practical solutions may be found using our products. We work closely with current and potential customers in these target markets to identify their material and performance requirements and market our materials to various end-use applications manufacturers, and our Solésence® solutions to cosmetics and skin care brands. Recently developed technologies have made certain new products possible and opened potential new markets. Our focus is on customer need where we believe we have an advantage, as opposed to finding uses for one particular technology. We expect growth in end-user adoption in 2020 and beyond. Our initiatives in targeted market areas are progressing at differing rates of speed, but we have been broadly moving through testing and development cycles, and in a number of cases believe we are approaching first revenue or next stage revenue with particular customers in the industries referenced above. For example, during 2015 we were granted a patent on a new type of particle surface treatment (coating), which became the cornerstone of our new product development in personal care, with first revenue recognized during 2016. In addition, through the creation of our Solésence®, LLC subsidiary, we use this particle surface treatment to manufacture and sell fully developed solutions to targeted customers in the cosmetics and skin care industry, in addition to the additives we have traditionally sold in the personal care area. We are currently focusing the greatest part of our business development efforts on building and expanding our Solésence® brand and product suite. We believe that successful introduction of our finished skin care products and materials with manufacturers may lead to follow-on orders for other finished products and materials in their applications. We expect that we will both work more deeply with current customers and attract additional customers, which should help us achieve growth in these markets in 2020 and beyond.

With the current circumstances of, and the impact of the various reactions and policies relating to, the Covid-19 pandemic, it is currently management’s belief that we will achieve growth in Solésence sales in 2020, but not to the extent for which we planned; however, that belief is based on the assumption that negative impacts related to the Covid-19 pandemic and related reactions and policies will substantially improve commencing in the second quarter and continuing thereafter, and such assumption may not prove accurate. It is also management’s belief that the Covid-19 pandemic, related governmental reaction, and resulting economic slow-down has, and is expected to continue, to affect certain consumer behaviors and markets could have a negative impact on its Personal Care Ingredients customers during the second quarter of 2020. Management believes the outlook after the second quarter is uncertain, but a continuation of the Covid-19 pandemic and related reactions and policies after the second quarter of 2020 would be expected to increase the negative impact on the Company and its businesses. Management believes the negative impacts in the second quarter and, if applicable, thereafter, are not currently quantifiable.

Results of Operations

Total revenue increased to $4,039,000 for the three months ended March 31, 2020, compared to $3,755,000 for the same period in 2019.

A substantial majority of our revenue for both periods was from our largest customers, in particular, sales to our largest customer in personal care and sunscreen applications. Revenue from our top three customers was approximately 46%, 15% and 15%, respectively, of our total revenue for the three months ended March 31, 2020, compared to 54%, 0% and 18%, respectively, for the same customers during the same period in 2019. Product revenue, the primary component of our total revenue, increased to $3,961,000 for the three months ended March 31, 2020, compared to $3,497,000 for the same period in 2019. The increase was primarily due to increased orders from our Solésence customers.

Other revenue decreased to $78,000 for the three months ended March 31, 2020, compared to $258,000 for the three months ended March 31, 2019. Other revenue is typically comprised primarily of developmental or licensing fees. For the three months ended March 31, 2020, other revenue included $65,000 relating to our JDA with SCOA. For the three months ended March 31, 2019, other revenue included $211,000 relating to a one-time buy out of bulk material and customer samples.

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $3,005,000 for the three months ended March 31, 2020, compared to $2,871,000 for the same period in 2019. The increase in cost of revenue was primarily driven by increased volume and price inflation on materials and manufacturing inefficiencies related to Solésence® product launches. While we typically pass through costs to our customers, we sometimes cannot pass through 100% of pricing increases on raw materials, and even with pass throughs, our gross margin percentage is negatively impacted by higher material costs. We expect to continue new advanced material development relating to personal care ingredients and for our formulated Solésence® products during 2020 and beyond. At current revenue levels we have generated a positive gross margin, though margins have been impeded by not having enough revenue to efficiently absorb manufacturing overhead that is required to work with current customers and expected future customers. We believe that our current fixed manufacturing cost structure is sufficient to support higher levels of revenue volume. The extent to which margins may grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to manage costs and pass commodity market-driven raw materials increases on to customers, and the speed and efficiency with which we are able to scale up production for our Solésence® products. We expect that product revenue volume increases would result in our fixed manufacturing costs being more efficiently absorbed, which should lead to increased margins. We expect to continue to focus on reducing controllable variable product manufacturing costs, with potential variability related to the commodity metals markets, but may or may not realize absolute dollar gross margin growth through 2020 and beyond, dependent upon the factors discussed above.

Research and development expense, which includes all expenses relating to the technology and advanced engineering groups, primarily consists of costs associated with the development or acquisition of new product applications, and finished product formulations for our Solésence® business. As an example, we have been, and continue to be, engaged in product development work for our new fully-formulated finished skincare products marketed through Solésence®. Much of this work has led to several new products and additional potential new products. We are also engaged in a series of in-vitro, ex-vivo, and in-vivo tests to determine the productiveness of our Solésence® products, as well as to provide our customers with support for a consumer claims set. We are not certain when or if any significant revenue will be generated from the production of the materials described above.

Research and development expense decreased to $372,000 for the three months ended March 31, 2020, compared to $477,000 for the same period in 2019. The primary reasons for this decrease were timing related to salary reductions and outside product testing and evaluation costs related to our Solésence® products. We expect quarterly research and development expense to increase during the remainder of 2020.

Selling, general and administrative expense decreased to $705,000 for the three months ended March 31, 2020, compared to $877,000 for the same period in 2019. Much of this was attributed to decreased salary costs, no recruiting costs and lower legal and consulting fees. We expect selling, general and administrative expense to remain at current levels during the remainder of 2020.

Inflation

We believe inflation has not had a material effect on our operations or financial position. However, supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, may have a material effect on our operations and financial position in 2020 and beyond if we are unable to pass through any applicable increases under our present contracts or through to our markets in general.

Liquidity and Capital Resources

Our cash and cash equivalents amounted to $951,000 on March 31, 2020, compared to $1,194,000 on December 31, 2019 and $632,000 on March 31, 2019. The net cash used in our operating activities was $1,180,000 for the three months ended March 31, 2020, compared to $1,537,000 for the same period in 2019. The net use of cash during both periods was driven primarily by a significant increase in accounts receivable at the end of the period. Net cash used in investing activities was $181,000 during the three months ended March 31, 2020, compared to $240,000 for the three months ended March 31, 2019. Capital expenditures amounted to $181,000 and $240,000 for the three months ended March 31, 2020 and 2019, respectively. Net cash provided by financing activities was $1,118,000 during the three months ended March 31, 2020, compared to $1,064,000 net cash used for the three months ended March 31, 2019. On March 23, 2020, the Company and Beachcorp, LLC executed the First Amendment to our Master Agreement that extends the maturities of both the Term Loan and the Revolver Facility to March 31, 2021. We paid $58,000 for finance lease obligations during the three months ended March 31, 2020 compared to $52,000 in the same period in 2019. On March 30, 2020, we drew $500,000 on the line of credit with Libertyville. The balance was $500,000 at December 31, 2019, but repaid in January, 2020. On March 22, 2019 we entered the new Loan Agreement with Libertyville for $500,000 which replaced the expiring prior year agreement. Under that new Loan Agreement, we borrowed $500,000 on March 30, 2019, which was subsequently repaid on April 3, 2019. During the three months ending March 31, 2020, we drew nine times from the Master Agreement totaling $3,260,000 with repayment of $2,084,000. The net borrowings for the three months ended March 31, 2020 was $1,176,000. During the three months ending March 31, 2019, we drew six times from the Master Agreement totaling $2,936,000 with repayment of $2,320,000. The net borrowings for the three months ended March 31, 2019 was $616,000. Accretion related to the Secured Convertible Promissory Note to Bradford T. Whitmore was $67,000 at March 31, 2020. The balance of this long-term convertible loan was $897,000 and $830,000 at March 31, 2020, and at December 31, 2019, respectively.

On May 13, 2019, we sold approximately 4.2 million shares of our common stock to our largest investor for approximately $1.7 million in proceeds. No selling commission or other remuneration was paid in connection with this transaction. We used these proceeds for the purchase of capital equipment and general corporate purposes.

Our supply agreements with our largest customer, BASF, contain certain financial covenants which could potentially impact our liquidity. The most restrictive financial covenants under these agreements require that we maintain a minimum of $1 million in total of at least $500,000 in cash, cash equivalents, and certain investments, with the balance being composed of certain inventory and receivables, and that we not have the acceleration of any debt maturity having a principal amount of more than $10 million, in order to avoid triggering the customer’s potential right to transfer certain technology and equipment to that customer at a contractually-defined price. We had approximately $951,000 in cash on March 31, 2020, with $500,000 borrowings on our Line of Credit. This supply agreement and its covenants are more fully described in Note 11, and our line of credit is more fully described in Note 7, to our Financial Statements in Part I, Item 1 of this Form 10-Q.

We believe that cash from operations, proceeds from our PPP Loan (more fully described in Note 13 to our Financial Statements) and other cash on hand, in addition to unused borrowing capacity under the Master Agreement with Beachcorp, LLC and a renewal of the Loan Agreement with Libertyville should be adequate to fund our operating plans through 2020. However, Libertyville is seeing very high levels of underwriting activity relating to the PPP, and has yet to renew the Loan Agreement. Based upon conversations with Libertyville, it is management’s expectation that this facility will be renewed during the second quarter of 2020.

Given our expected growth in our Solésence® business, we are monitoring the temporary working capital demands that this could create, with timing being the most critical variable. Our actual future capital requirements in 2020 and beyond will depend on many factors, including customer acceptance of our current and potential advanced materials, applications and product, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, the costs necessary to increase and expand our manufacturing capabilities and to market and sell our advanced materials, applications and products, and the impacts of the Covid-19 pandemic and related reactions and policies if those impacts do not substantially improve in the second quarter of 2020 and continuing thereafter.

Other important issues that will drive future capital requirements will be the development of new markets and new customers as well as the potential for significant unplanned growth with existing customers. Depending on the success of certain projects, and the as yet unclear demand for the second half of 2020, we expect that capital spending relating to currently known capital needs for the remainder of 2020 will be between $400,000 and $950,000, and we could enter into one or more financing leases to finance these acquisitions, subject to the provisions of a replacement for our Loan Agreement with Libertyville and to the provisions of our Master Agreement with Beachcorp, LLC. If the Company’s demand from customers is significantly lower than expected prior to the commencement of the Covid-19 Pandemic, if those projects are delayed or ultimately prove unsuccessful, or if we fail to obtain financing on terms acceptable to us, we would expect our capital spending to be below the lower end of that range. Similarly, substantial success in business development projects may cause the actual capital investment for the remainder of 2020 to exceed the top of this range.

Should events arise that make it appropriate for us to seek additional financing, such additional financing may not be available on acceptable terms or even at all, and any such additional financing could be dilutive to our shareholders. Such financing could be necessitated by such things as the loss of one or more existing customers; a significant decrease in revenue from one or more of our customers; temporary working capital demands resulting from our expected growth in our Solésence® business that we cannot fund with existing capital; currently unknown capital requirements in light of the factors described above; new regulatory requirements that are outside our control; the need to meet previously discussed cash requirements to avoid a triggering event under our BASF agreement; the continuation of the Covid-19 pandemic and related reactions and policies after the second quarter of 2020; or various other circumstances coming to pass that we currently do not anticipate. The failure to have access to sufficient capital to fund our business plans may result in a curtailment or other change in those plans, and under such circumstances, may raise doubt as to our ability to continue as a going concern.

On March 31, 2020, we had a net operating loss carryforward of approximately $101 million for income tax purposes. Because we may have experienced “ownership changes” within the meaning of the U.S. Internal Revenue Code in connection with our various prior equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the Internal Revenue Code. If not utilized, the carryforward will expire at various dates between January 1, 2020 and December 31, 2036. Under recent changes in the Internal Revenue Code, losses incurred after January 1, 2018 carry forward indefinitely. As a result of the annual limitation and uncertainty as to the amount of future taxable income that will be earned prior to the expiration of the carryforward, we have concluded that it is likely that a substantial portion of this carryforward will expire before ultimately becoming available to reduce income tax liabilities. Changes in Illinois state law that began in 2011 will impact net loss carryforward duration and utilization on the state tax level.

Off−Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purposes of raising capital, incurring debt or operating our business. We do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.

As more fully described in Note 7 to our Financial Statements, in Part I, Item I of this Form 10-Q, during 2014 we entered into a letter of credit and promissory note for up to $30,000 supporting our obligations under our facility lease agreement. No borrowings have been incurred under this promissory note.

Safe Harbor Provision

We want to provide investors with more meaningful and useful information. As a result, this Quarterly Report on Form 10-Q (the “Form 10-Q”) contains and incorporates by reference certain “forward-looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements reflect our current expectations of the future results of our operations, performance and achievements. Forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these statements by using words such as “anticipates”, “believes”, “estimates”, “expects”, “plans”, “intends” and similar expressions. These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance or achievements in 2020 and beyond to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties and factors include, without limitation: our ability to be consistently profitable despite the losses we have incurred since our incorporation; a decision by a customer to cancel a purchase order or supply agreement in light of our dependence on a limited number of key customers; the terms of our supply agreements with BASF, which could trigger a requirement to transfer technology and/or sell equipment to that customer; our potential inability to obtain working capital when needed on acceptable terms or at all; our ability to obtain materials at costs we can pass through to our customers, including Rare Earth elements, specifically cerium oxide, as well as high purity zinc; uncertain demand for, and acceptance of, our nanocrystalline materials and Solésence® products; our manufacturing capacity and product mix flexibility in light of customer demand; our limited marketing experience, including with our suite of Solésence® products; changes in development and distribution relationships; the impact of competitive products and technologies; our dependence on patents and protection of proprietary information; the resolution of litigation or other legal proceedings in which we may become involved; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations that could be difficult to respond to or costly to comply with; and the development and continuation of the ongoing Covid-19 pandemic and related reactions and policies. In addition, our forward-looking statements could be affected by general industry and market conditions and growth rates. Readers of this Quarterly Report on Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.

Item 4. Controls and Procedures

Disclosure controls

We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures. It should be noted that in designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and that our management necessarily was required to apply its judgment regarding the design of our disclosure controls and procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision (and with the participation) of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at reaching that level of reasonable assurance.

Internal control over financial reporting

The Company’s management, including the CEO (who is also currently acting as both the Company’s principal executive officer and the Company’s principal financial officer), confirm that there was no change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceedings or claims that we believe will result in a material adverse effect on our business, financial condition, or operating results.

Item 1A. Risk Factors

Not required for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit 10.1	Promissory Note, dated April 8, 2020, made by Nanophase Technologies Corporation payable to Libertyville Bank & Trust Company, N.A., evidencing a loan under the Paycheck Protection Program.
Exhibit 10.2	Loan Agreement, dated April 16, 2020, by and between Nanophase Technologies Corporation and Libertyville Bank & Trust Company, N.A., relating to a loan under the Paycheck Protection Program.
Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.
Exhibit 31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.
Exhibit 32	Certification of the Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
Exhibit 101	The following materials from Nanophase Technologies Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (1) the Balance Sheets, (2) the Statements of Operations, (3) the Statements of Shareholders Equity, (4) the Statements of Cash Flows, and (5) the Notes to Unaudited Consolidated Condensed Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NANOPHASE TECHNOLOGIES CORPORATION
Date:<br> May 13, 2020	By:	/s/<br> JESS A. JANKOWSKI
			Jess<br> A. Jankowski
			President<br> and Chief Executive Officer
			(principal<br> executive officer, and principal financial officer)

Nanophase Technologies Corporation 10-Q

Exhibit 10.1

U.S. Small Business Administration
PPP LoanDocument Input Requirements
---	---
SBA Loan#	31931171-00
SBA Loan Name	Nanophase Technologies Corporation
Approval Date	Apr 08, 2020
SBA Loan App #
Date of Documents	Apr 16, 2020
Loan Amount	951,600.00
Loan Payment Amount (to the penny)	53,290.05
Lender Name	Libertyville Bank & Trust Company, N.A.
Lender Address
Lender’s Signer	Ben Johnson
Lender’s Signer Title	Bank Officer
Borrower’s Legal Name	Nanophase Technologies Corporation
Borrower’s Address	1319 MARQUETTE DR, Romeoville, Illinois, 60446
Borrower’s Signer #1	Jess Jankowski
Borrower’s Signer Title #1	President
Borrower’s Signer #2
Borrower’s Signer Title #2
U.S. Small Business Administration
---
NOTE
SBA Loan #	31931171-00
---	---
SBA Loan Name	Nanophase Technologies Corporation
Date	Apr 16, 2020
Loan Amount	951,600.00
Interest Rate	1.00% fixed
Borrower	Nanophase Technologies Corporation
Lender	Libertyville Bank & Trust Company, N.A.
1.	PROMISE TO PAY:
---	---

In return for the Loan, Borrower promises to pay to the order of Lender the amount of 951,600.00 , interest on the unpaid principal balance, and all other amounts required by this Note.

2.	DEFINITIONS:

“Loan” means the loan evidenced by this Note.

“Loan Documents” means the documents related to this loan signed by Borrower.

“SBA” means the Small Business Administration, an Agency of the United States of America.

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3.	PAYMENT TERMS:

Borrower must make all payments at the place Lender designates. The payment terms for this Note are:

Initial Deferment Period: No payments are due on this loan for 6 months from the date of first disbursement of this Loan. Interest will continue to accrue during the deferment period.

Loan Forgiveness: Borrower may apply to Lender for forgiveness of the amount due on this Loan in an amount equal to the sum of the following costs incurred by Borrower during the 8-week period beginning on the date of first disbursement of this Loan:

a.	Payroll costs;
b.	Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation);
---	---
c.	Any payment on a covered rent obligation; or
---	---
d.	Any covered utility payment.
---	---

The amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more than 25% of the amount forgiven can be attributable to non-payroll costs.

Maturity: This Note will mature two years from date of first disbursement of this Loan.

Repayment Terms: The interest rate on this Note is one percent per year. The interest rate is fixed and will not be changed during the life of the loan.

For any amounts that remain owing on this Note as of the date that is six (6) months from the date of this Note, Borrower must pay principal and interest payments, beginning seven (7) months from the month this Note is dated, in such amount as is required to fully amortize the unpaid balance of this Note over the remaining term of eighteen (18) months. Payments must be made on the same calendar day as the day this Note is dated in the months they are due.

Lender will apply each installment payment first to pay interest accrued to the day Lender received the payment, then to bring principal current, and will apply any remaining balance to reduce principal.

Loan Prepayment: Notwithstanding any provision in this Note to the contrary:

Borrower may prepay this Note at any time without penalty. Borrower may prepay 20 percent or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20 percent and the Loan has been sold on the secondary market, Borrower must: a. Give Lender written notice; b. Pay all accrued interest; and c. If the prepayment is received less than 21 days from the date Lender received the notice, pay an amount equal to 21 days interest from the date Lender received the notice, less any interest accrued during the 21 days and paid under b. of this paragraph. If Borrower does not prepay within 30 days from the date Lender received the notice, Borrower must give Lender a new notice.

Non-Recourse. Lender and SBA shall have no recourse against any individual shareholder, member or partner of Borrower for non-payment of the loan, except to the extent that such shareholder, member or partner uses the Loan proceeds for an unauthorized purpose.

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4. DEFAULT:

Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower:

A.	Fails to do anything required by this Note and other Loan Documents;
B.	Defaults on any other loan with Lender;
---	---
C.	Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;
---	---
D.	Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;
---	---
E.	Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect Borrower’s ability to pay this Note;
---	---
F.	Fails to pay any taxes when due;
---	---
G.	Becomes the subject of a proceeding under any bankruptcy or insolvency law;
---	---
H.	Has a receiver or liquidator appointed for any part of their business or property;
---	---
I.	Makes an assignment for the benefit of creditors;
---	---
J.	Has any adverse change in financial condition or business operation that Lender believes may materially affect Borrower’s ability to pay this Note;
---	---
K.	Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent; or
---	---
L.	Becomes<br>the subject of a civil or criminal action that Lender believes may materially affect Borrowers’ ability to pay this<br>Note.
---	---
5.	LENDER ’S RIGHTS IF THERE IS A DEFAULT:
---	---

Without notice or demand and without giving up any of its rights, Lender may:

A.	Require immediate payment of all amounts owing under this Note;
B.	Collect all amounts owing from any Borrower; or
---	---
C.	Take any action necessary to collect amounts owing on this Note.
---	---
6.	LENDER’S GENERAL POWERS:
---	---

Without notice and without Borrower’s consent, Lender may:

A.	Release anyone obligated to pay this Note;
B.	Incur expenses to collect amounts<br>due under this Note, enforce the terms of this Note or any other Loan; or
---	---
C.	Take any action necessary to collect amounts owing on this Note.
---	---

7. WHEN FEDERAL LAW APPLIES:

When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. ender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

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8.	SUCCESSORS AND ASSIGNS:

Under this Note, Borrower includes the successors of Borrower, and Lender includes its successors and assigns.

9.	GENERAL PROVISIONS:
A.	All individuals and entities signing this Note are jointly and severally liable.
---	---
B.	Borrower waives all suretyship defenses.
---	---
C.	Borrower must sign all documents necessary at any time to comply with the Loan Documents.
---	---
D.	Lender may exercise any of its rights separately or together, as many times and in any order it chooses. Lender may delay or forgo enforcing any of its rights without giving up any of them.
---	---
E.	Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.
---	---
F.	If any part of this Note is unenforceable, all other parts remain in effect.
---	---
G.	To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor.
---	---
10.	PAYROLL PROTECTION PROGRAM PROVISIONS:
---	---
A.	Payment, as set forth in Section 3 above, shall be deferred as prescribed by the CARES Act. Borrower may elect to defer payment for up to six (6) months from the date the Loan is funded.
---	---
B.	Interest on the Loan will accrue as described in Section 3 for the duration of any deferral.
---	---
C.	Borrower may apply for forgiveness of certain amounts under this Note as set forth in the CARES Act.
---	---

Re m a i n d e r of pa g e l ef t b l ank i n t e n t i ona l l y – s i gn a t u r e pa g e t o f o l l o w .

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By signing below, each individual or entity becomes obligated under this Note as Borrower.

BORROWER:

Nanophase Technologies Corporation
By:
Name:	Jess Jankowski
Its:	President
By:
---
Name:
Its:

Page 5/5

Nanophase Technologies Corporation 10-Q

Exhibit 10.2

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Agreement”) is made between Nanophase Technologies Corporation (“Borrower”), and Libertyville Bank & Trust Company, N.A. (“Lender”).

The U.S. Small Business Administration (“SBA”) has authorized a guaranty (“Authorization”) of a loan from Lender to Borrower (“Loan”) having 2020 SBA Loan Number 31931171-00 which may be evidenced by an agreement between SBA and Lender for the amount and under the terms stated in the Authorization. In consideration of the promises in this Agreement and for other good and valuable consideration, Borrower and Lender agree as follows:

1.	Subject to the terms and conditions of the Authorization and SBA’s Participating Lender Rules as defined in the Guarantee Agreement between Lender and SBA and the program requirements of the SBA’s Paycheck Protection Program, as set out in the Coronavirus Aid, Relief, and, Economic Security Act and SBA regulations promulgated thereunder (collectively, the “Act”), Lender agrees to make the Loan if Borrower complies with the following “Borrower Requirements.” Borrower must:
a.	Provide Lender with all certifications, documents or other information Lender is required by the Act and the Authorization to obtain from Borrower or any third party;
---	---
b.	Execute a note (“Note”) and any other documents required by Lender (“Loan Documents”); and
---	---
c.	Do everything necessary for Lender to comply with the terms and conditions of the Act and the Authorization.
---	---
2.	The terms and conditions of this Agreement:
---	---
a.	Are binding on Borrower and Lender and their successors and assigns; and
---	---
b.	Will remain in effect after the closing of the Loan.
---	---
3.	Failure to abide by any of the Borrower Requirements will constitute an event of default under the note and other loan documents.
---	---
4.	Borrower further certifies to Lender as follows:
---	---
a.	Borrower was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
---	---
b.	Current economic uncertainty makes this loan request necessary to support the ongoing operations of Borrower.
---	---
c.	The loan proceeds will be used to retain workers and maintain payroll; up to 25 percent of the loan proceeds may be used for mortgage interest payments, lease payments, and utility payments, and any other uses allowable under the Act and applicable regulations. Borrower understands and acknowledges that if the funds are used for unauthorized purposes, the SBA will direct Borrower to repay those amounts without potential eligibility for loan forgiveness (as described in paragraph 4(e) of this Agreement); if funds are knowingly used for unauthorized purposes, the federal government may hold Borrower legally liable for fraudulent use of funds.
---	---

d.	Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered lease payments, and covered utilities for the eight- week period after the loan is made will be provided to Lender.
e.	In accordance with the then-applicable law and guidance of the United States Treasury Department and the SBA and subject to Paragraph 4(j) of this Agreement, Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered lease payments, and covered utilities, except that not more than 25 percent of the forgiven amount may be for non-payroll costs.
---	---
f.	During the period beginning on February 15, 2020 and ending on December 31, 2020, Borrower has not and will not receive another loan under this program.
---	---
g.	The information provided in<br>this Agreement and Borrower’s Loan application submitted to Lender, and the information provided in all supporting<br>documents and forms is true and accurate in all material respects. Borrower understands that knowingly making a false<br>statement to obtain a guaranteed loan from the SBA is punishable under the law, including: (i) under 18 USC 1001 and 3571 by<br>imprisonment of not more than five years and/or a fine of up to $250,000; (ii)<br>under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, (iii) if submitted to<br>a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more<br>than $1,000,000.
---	---
h.	Borrower has the right and<br>power and is duly authorized to execute and deliver each Loan Document to which it is a party and to perform and observe the<br>provisions of the Loan Documents to which it is a party; Borrower is duly authorized to borrow monies hereunder; the<br>individual(s) executing the Loan Documents on behalf of Borrower has been duly authorized to execute the Loan Documents on<br>behalf of Borrower. The execution, delivery and performance by Borrower of each Loan Document to which it is a party, and the<br>borrowings by the Borrower hereunder, do not and will not (a) require any consent or approval of any Governmental Authority<br>or agency (other than any consent or approval that has been obtained and is in full force and effect), or (b) conflict with,<br>violate, result in any breach of any of the provisions of, or constitute a default under, (i) any law, rule, regulation,<br>order, writ, judgment, injunction, decree, determination or award that is applicable to or binding on any Borrower, (ii) the charter, by-laws or other<br>organizational documents of Borrower or (iii) any agreement, indenture, instrument or other document, or any judgment, order<br>or decree, that is binding upon any Borrower.
---	---

i.	Borrower is eligible to receive the Loan under the rules that have been issued by the SBA implementing the Paycheck Protection Program under the Act. Borrower shall comply with all rules and regulations of the Paycheck Protection Program in existence at the time of the Loan and thereafter promulgated.
j.	Borrower understands and acknowledges that forgiveness of the Loan is only available for principal that is used for the limited purposes that qualify for forgiveness under the Paycheck Protection Program under the Act and the rules and regulations promulgated thereunder. Forgiveness is not automatic, and Borrower must request forgiveness and provide Lender with documentation in accordance with the rules and regulations implementing the Paycheck Protection Program. Borrower understands and acknowledges that Borrower shall remain responsible under the Loan for any amounts not forgiven. Borrower acknowledges that it is not relying on Lender for its understanding of the Paycheck Protection Program requirements for forgiveness.
---	---
k.	Borrower acknowledges and agrees that Borrower’s liability under the Note for the Loan will continue with respect to any amounts the SBA may pay Lender based on an SBA guarantee of the Note. Any agreement between the Lender and SBA under which SBA may guarantee the Note does not create any third party rights or benefits for Borrower, and regardless if SBA pays Lender under any such agreement, SBA or Lender may seek recovery from Borrower of all amounts due on the Loan under the Note.
---	---
5.	Borrower has received a copy of the Equal Employment Opportunity Poster (SBA Form 722), and will display such poster at Borrower’s place of business where it is clearly visible to employees, job applicants, and the general public.
---	---
6.	Borrower understands, acknowledges and agrees that Lender is relying solely on Borrower’s representations, warranties, certifications, confirmations or other statements of, and information from, the Borrower and/or any of its affiliates, officers, directors, owners, principals, agents, and/or controlling persons as to the Borrower, its business or activities, its eligibility for the proposed Loan, its use of the proceeds or any other benefits of the Loan, the existence of any hardship or other condition, the eligibility of the Borrower for forgiveness of all or any portion of the Loan, the amount of any Loan forgiveness, or any other matters of compliance with the Act or SBA requirements without limitation or without Lender’s examination of any other information not included in the Borrower’s Loan application which may be in Borrower’s possession.
---	---
7.	Waiver; Amendments. No failure or delay on the part of the Lender in the exercise of any right, power, privilege or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right, power, privilege or remedy preclude other or further exercise thereof, or the exercise of any other right, power, privilege or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and signed and delivered by the Lender (and in the case of an amendment, the Borrower), and then such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
---	---

8.	Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Borrower and rights of the Lender expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law.
9.	Waiver of Class Actions. The terms “Claim” or “Claims” refer to any disputes, controversies, claims, counterclaims, allegations of liability, theories of damage, or defenses between Borrower, its subsidiaries and affiliates, on the one hand, and the Lender, on the other hand (all of the foregoing each being referred to as a “Party” and collectively as the “Parties”). Whether in state court, federal court, or any other venue, jurisdiction, or before any tribunal, the Parties agree that all aspects of litigation and trial of any Claim will take place without resort to any form of class or representative action. Thus the Parties may only bring Claims against each other in an individual capacity and waive any right they may have to do so as a class representative or a class member in a class or representative action. THIS CLASS ACTION WAIVER PRECLUDES ANY PARTY FROM PARTICIPATING IN OR BEING REPRESENTED IN ANY CLASS OR REPRESENTATIVE ACTION REGARDING A CLAIM.
---	---
10.	INDEMNIFICATION BY THE BORROWER. IN CONSIDERATION OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE LENDER AND THE AGREEMENT TO EXTEND THE COMMITMENTS PROVIDED HEREUNDER, THE BORROWER HEREBY AGREES TO INDEMNIFY, EXONERATE AND HOLD THE LENDER AND EACH OF THE LENDER’S OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, LENDER AGENTS AND OTHER AGENTS (EACH A “LENDER PARTY”) FREE AND HARMLESS FROM AND AGAINST ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, LOSSES, LIABILITIES, DAMAGES AND EXPENSES, INCLUDING ATTORNEY COSTS (COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”), INCURRED BY THE LENDER PARTIES OR ANY OF THEM AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) THE LENDER’S ACTIONS ARISING FROM OR RELATED TO THE ACT, AND (B) THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY ANY OF THE LENDER PARTIES, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE APPLICABLE LENDER PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A FINAL, NONAPPEALABLE JUDGMENT OF A COURT OF COMPETENT JURISDICTION. IF AND TO THE EXTENT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, THE BORROWER HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES THAT IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION SHALL SURVIVE REPAYMENT OF THE LOAN, CANCELLATION OF THE NOTE, OR ANY MODIFICATION, RELEASE, DISCHARGE OR TERMINATION OF, ANY OR ALL OF THIS AGREEMENT.
---	---

11.	FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
12.	WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
---	---

11.

FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

12.

WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

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Remainder of page left blank intentionally – signature page to follow.

BORROWER:

Nanophase Technologies Corporation
By:		Date:	Apr 16, 2020
Name:	Jess Jankowski
Its:	President
By:	Date:	Apr 16, 2020
---	---	---
Name:
Its:

LENDER:

Libertyville Bank & Trust Company, N.A.
By:		Date:	Apr 16, 2020
Name:	Ben Johnson
Its:	Bank Officer

Nanophase Technologies Corporation 10-Q

Exhibit 31.1

Certification of the Chief Executive Officer

Pursuant to

Rules 13a-14(a) and 15d-14(a) under the Exchange Act

I, Jess A. Jankowski, certify that:

I have reviewed this quarterly report on Form 10-Q of Nanophase Technologies Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2020
	/s/ JESS A. JANKOWSKI
	Jess A. Jankowski
	(principal executive officer, and principal financial officer)

Nanophase Technologies Corporation 10-Q

Exhibit 31.2

Certification of the Principal Financial Officer

Pursuant to

Rules 13a-14(a) and 15d-14(a) under the Exchange Act

I, Jess Jankowski, certify that:

I have reviewed this quarterly report on Form 10-Q of Nanophase Technologies Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2020
	/s/ JESS A. JANKOWSKI
	Jess A. Jankowski
	(principal executive officer, and principal financial officer)

Nanophase Technologies Corporation 10-Q

Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with this quarterly report of Nanophase Technologies Corporation (the “Company”) on Form 10-Q for the quarter ending March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jess A. Jankowski, Chief Executive Officer, and acting as Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 13, 2020
	/s/ JESS A. JANKOWSKI
	Jess A. Jankowski
	Chief Executive Officer
	(principal executive officer, and principal
	financial officer)