Solesence, Inc 10-Q for FY2021 Q3
Solesence, Inc. (SLSN)
About this 10-Q
Solesence, Inc filed this 10-Q on November 4, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.92M
- up 103.8% from $3.89M a year earlier
- Net income
- $1.36M
- up 217.0% from net income of $430K a year earlier
- Diluted EPS
- $0.03
- up 200.0% from $0.01 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended:
or
the Securities Exchange Act of 1934
For the transition period from to _______ to _______
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
(I.R.S. Employer |
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incorporation or organization) |
Identification No.) |
(Address of principal executive offices, and zip code)
Registrant’s telephone number, including area code:
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files).
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 filer ☐ |
Accelerated filer ☐ |
Smaller
reporting company |
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Emerging
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 ☐
As of November 4, 2021, there were shares outstanding of common stock, par value $.01, of the registrant.
NANOPHASE TECHNOLOGIES CORPORATION
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2021
INDEX
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited Consolidated Condensed)
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(in
thousands except share |
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ASSETS |
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September
30, |
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December
31, |
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Current assets: |
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Cash |
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$ |
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$ |
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Trade
accounts receivable, less allowance for doubtful accounts of $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Equipment and leasehold improvements, net |
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Operating leases, right of use |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Line of credit, bank |
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$ |
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Line of credit, related party |
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Current portion of long-term debt, related party |
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Current portion of finance lease obligations |
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Current portion of operating lease obligations |
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Accounts payable |
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Deferred revenue |
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Accrued expenses |
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Total current liabilities |
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Long-term portion of finance lease obligations |
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Long-term portion of operating lease obligations |
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Long-term convertible loan, related party |
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PPP Loan (SBA) |
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Asset retirement obligations |
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Total long-term liabilities |
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Contingent liabilities |
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Shareholders’ equity: |
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Preferred stock, $ par value, shares authorized, and shares issued and outstanding |
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Common stock, $ par value, shares authorized; and shares issued and outstanding on September 30, 2021 and December 31, 2020, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total Shareholders’ equity |
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| Total liabilities and shareholder’s equity
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$ |
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$ |
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See Notes to Consolidated Condensed Financial Statements.
3
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited Consolidated Condensed)
(in thousands except share and per share data)
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Three months ended |
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Nine months ended |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue: |
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Product revenue |
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$ |
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$ |
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$ |
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$ |
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Other revenue |
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Total revenue |
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Operating expense: |
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Cost of revenue |
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Gross profit |
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Research and development expense |
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Selling, general and administrative expense |
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Income from operations |
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Interest expense |
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Other income, net |
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( |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Net income per basic share |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of basic common shares outstanding |
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Net income per diluted share |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of diluted common shares outstanding |
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See Notes to Consolidated Condensed Financial Statements.
4
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited Consolidated Condensed)
(in thousands except share data)
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Preferred Stock |
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Common Stock |
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Additional |
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Accumulated |
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Description |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Total |
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Balance on December 31, 2019 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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Net loss for the three months ended March 31, 2020 |
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— |
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— |
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( |
) |
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( |
) |
Balance on March 31, 2020 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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Net income for the three months ended June 30, 2020 |
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— |
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— |
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Balance on June 30, 2020 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock option exercises |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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Net income for the three months ended September 30, 2020 |
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— |
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— |
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Balance on September 30, 2020 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Balance on December 31, 2020 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
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— |
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— |
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Net income for the three months ended March 31, 2021 |
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— |
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— |
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Balance on March 31, 2021 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Stock option exercises |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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Exercise of conversion rights – convertible loan, related party |
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Stock-based compensation |
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— |
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— |
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Net income for the three months ended June 30, 2021 |
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— |
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— |
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Balance on June 30, 2021 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Issuances of shares and stock option exercises |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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Net income for the three months ended September 30, 2021 |
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— |
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— |
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Balance on September 30, 2021 |
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— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See Notes to Consolidated Condensed Financial Statements.
5
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited Consolidated Condensed)
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Nine months ended September 30, |
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2021 |
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2020 |
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(in thousands) |
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Operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to cash used in operating activities: |
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Depreciation and amortization |
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Share-based compensation |
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Gain on PPP loan forgiveness |
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( |
) |
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Amortization of debt discount |
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Changes in assets and liabilities related to operations: |
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Trade accounts receivable |
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( |
) |
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( |
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Inventories |
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( |
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( |
) |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable |
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( |
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Accrued expenses |
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Deferred revenue |
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( |
) |
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( |
) |
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Other long-term assets and liabilities |
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( |
) |
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( |
) |
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Net cash provided by (used in) operating activities |
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( |
) |
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Investing activities: |
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Acquisition of equipment and leasehold improvements |
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( |
) |
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( |
) |
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Net cash used in investing activities |
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( |
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( |
) |
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Financing activities: |
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Principal payments on finance leases |
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( |
) |
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( |
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Proceeds from line of credit, bank |
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Payments to the line of credit, bank |
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( |
) |
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( |
) |
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Proceeds from line of credit, related party |
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Payments to line of credit, related party |
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( |
) |
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( |
) |
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Proceeds from term loan, related party |
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Proceeds from PPP / SBA loan |
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Proceeds from stock option exercises |
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|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Accounts payable incurred for the purchase of equipment and leasehold improvements |
|
$ |
|
|
|
$ |
|
|
|
Conversion of $ |
|
$ |
|
|
|
$ |
|
|
|
Interest paid via stock issuance, convertible loan, related party |
|
$ |
|
|
|
$ |
|
|
See Notes to Consolidated Condensed Financial Statements.
6
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 statement 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, Solésence, LLC (“Solésence,” or our “Solésence® subsidiary”). Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 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 existing borrowing capacity, which has recently been increased, may not be adequate to fund our operating plans through the next twelve months. See Note 7 for a discussion of both expanded capacity and available capacity at September 30, 2021. We are working to reduce these risks and the results of the Company in this regard have improved markedly, but some of this is dependent on several things over which we have limited control. The significant revenue growth that we have experienced has required additional investment in both working capital and capital equipment. This has constrained liquidity and made cash management a top priority. To support our growth and reduce costs, we also intend to invest in additional capital equipment through 2021 and in 2022. 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. 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. This uncertainty has caused us to be unable to assert that, for the next twelve months, we have enough current cash and guaranteed access to financing to fund operations, and to continue with our current growth strategy in terms of investment in capital equipment and in operating expenses related to Solésence, without securing additional financing.
These circumstances raise substantial 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 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.
We believe that we will be able to secure additional financing if needed, 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, and impact cost savings anticipated in 2022.
7
(3) Description of Business
Nanophase Technologies Corporation (“Nanophase,” “Company,” “we,” “our,” or “us”) is a science-driven company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence subsidiary”), is focused in various beauty- and life-science markets. Skin health and medical diagnostics combined currently make up the great majority of our business and drive our forward growth strategy. We offer engineered materials, formulation development and commercial manufacturing through an integrated family of technologies. Our expertise in materials engineering allows us to effectively coat and disperse particles on a nano and “non-nano” scale for use in a variety of markets in skin care, including for use in sunscreens as active ingredients and as fully developed prestige skin care products, marketed and sold through our Solésence subsidiary. In terms of our life sciences focus, we have seen conditions since early 2020 lead to a significant increase in demand for our medical diagnostics ingredients. We believe that the advent of the SARS-CoV-2 (“COVID-19”) Pandemic has driven significantly increased demand for our medical diagnostics materials during 2020 and the first half of 2021, after which demand has lessened. It is our expectation that future demand may not reach the same volumes, but should remain greater than historic demand experienced prior to 2020. Additionally, we continue to sell products in markets for architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, and surface finishing technologies (polishing) applications— all of which, along with medical diagnostics, fall into the advanced materials product category.
We target markets, primarily related to skin health products and ingredients, and diagnostic life sciences ingredients where we believe our materials and products offer practical and competitive minerals-based solutions. We traditionally work closely with current 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® products to cosmetics and skin care brands. Over the past few years, we have expanded our marketing efforts for our Solésence products and have seen customers responding to our successful products being sold into their markets. Recently developed technologies have made certain new products possible and opened potential new markets. During 2015 we were granted a patent on a new type of particle surface treatment (coating) — now called Active Stress Defense ™ Technology — 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 subsidiary, we utilize this particle surface treatment to manufacture and sell fully developed solutions to targeted customers in the skin care industry, in addition to the ingredients we have traditionally sold in the personal care area.
Although our primary strategic focus has been the North American market, we currently sell materials 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 Consolidated 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.
8
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|||||
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Three Months Ended |
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Nine Months Ended |
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2021 |
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2020 |
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2021 |
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2020 |
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Numerator: (in Thousands) |
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||||
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Net income |
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$ |
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$ |
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$ |
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$ |
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Denominator: |
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Weighted average number of basic common shares outstanding |
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Weighted average additional shares assuming conversion of in-the-money stock options to common shares |
|
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|
Weighted average number of diluted common shares outstanding |
|
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Basic earnings per common share: |
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|
Net income per share – basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
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|
Diluted earnings per common share: |
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|
|
|
|
|
|
Net income per share – diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(6) Financial Instruments
We follow 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, any cash equivalents, accounts receivable, accounts payable and accrued expenses, along with the promissory note with no related borrowings described in Note 7, any borrowings on the working capital line of credit from Libertyville Bank and Trust, and any borrowings on the working capital line of credit and the term loan from Beachcorp, LLC, described in Note 7 below. The fair values of all financial instruments were not materially different from their carrying values.
There were no financial instruments adjusted to fair value on September 30, 2021 and December 31, 2020.
9
(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 $
We have a Business Loan Agreement with Libertyville Bank and Trust Company, a Wintrust Community Bank (“Libertyville”). Under the Business Loan Agreement, Libertyville will provide a maximum of (i) $
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 affiliate Grace Investments, Ltd., beneficially owned approximately
On November 20, 2019, we entered into a
10
On September 30, 2021, the balance on the term loan was $
On April 17, 2020, we entered into a Promissory Note (the “PPP Note”), dated as of April 16, 2020, in favor of Libertyville in the principal amount of $
(8) Inventories
Inventories consist of the following:
|
|
|
September 30, |
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|
December 31, |
|
||
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|
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Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
| Inventories, gross
|
|
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|
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|
|
|
|
Allowance for excess inventory quantities |
|
|
( |
) |
|
|
( |
) |
| Inventories, net
|
|
$ |
|
|
|
$ |
|
|
(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.
11
As of September 30, 2021, the operating lease right-of-use “ROU” asset had a balance of $
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:
|
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||||
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Three Months Ended |
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Nine Months Ended |
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||||||||||
|
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|
2021 |
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|
2020 |
|
|
2021 |
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|
2020 |
|
||||
|
Components of lease cost |
|
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Finance lease cost components: |
|
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|
|
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|
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|
|
|
|
|
|
|
|
Amortization of finance lease assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest on finance lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance lease costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating lease cost components: |
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Variable lease cost |
|
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Short-term lease cost |
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|
|
Total operating lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information related to leases is as follows for the nine-month period ended September 30:
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash outflow from operating leases |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term-finance leases (in years) |
|
|
|
|
|
|
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|
|
Weighted-average remaining lease term-operating leases (in years) |
|
|
|
|
|
|
|
|
|
Weighted-average discount rate-finance leases |
|
|
|
% |
|
|
|
% |
|
Weighted-average discount rate-operating leases |
|
|
|
% |
|
|
|
% |
12
The future maturities of the Company’s finance and operating leases as of September 30, 2021 is as follows:
|
|
|
Finance |
|
|
Operating |
|
|
Total |
|
|||
|
2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
2022 |
|
|
|
|
|
|
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2023 |
|
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2024 |
|
|
— |
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|
|
|
|
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2025 |
|
|
— |
|
|
|
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|
|
|
|
|
|
2026 and thereafter |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total payments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less amounts representing interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total minimum payments required: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The future maturities of the Company’s finance and operating leases as of September 30, 2020 is as follows:
|
|
|
Finance |
|
|
Operating |
|
|
Total |
|
|||
|
2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
2025 and thereafter |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total payments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less amounts representing interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total minimum payments required: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 $
As of September 30, 2021, there was approximately $ 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 years.
|
|
|
|
|
|
|
|
||
|
|
|
Nine Months Ended |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Stock options granted |
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
Proceeds to Nanophase from exercises |
|
$ |
|
|
|
$ |
|
|
|
Stock options forfeited |
|
|
|
|
|
|
|
|
|
Stock option expirations |
|
|
|
|
|
|
|
|
|
Stock options outstanding |
|
|
|
|
|
|
||
|
Weighted average exercise price per share |
|
$ |
|
|
$ |
|
||
13
|
For the three months ended |
|
September 30, |
|
|
September 30, |
|
||
|
Weighted-average risk-free interest rates |
|
|
|
% |
|
|
n/a |
|
|
Dividend yield |
|
|
|
% |
|
|
n/a |
|
|
Weighted-average expected life of the option |
|
|
years |
|
|
|
n/a |
|
|
Weighted-average expected stock price volatility |
|
|
|
% |
|
|
n/a |
|
|
Weighted-average fair value of the options granted |
|
$ |
|
|
|
n/a |
|
|
|
For the nine months ended |
|
September 30, |
|
|
September 30, |
|
||
|
Weighted-average risk-free interest rates |
|
|
|
% |
|
|
|
% |
|
Dividend yield |
|
|
|
% |
|
|
|
% |
|
Weighted-average expected life of the option |
|
|
years |
|
|
|
years |
|
|
Weighted-average expected stock price volatility |
|
|
|
% |
|
|
|
% |
|
Weighted-average fair value of the options granted |
|
$ |
|
|
$ |
|
||
As of September 30, 2021, we did not have any unvested restricted stock or performance shares outstanding.
(11) Significant Customers and Contingencies
We had five significant customers for the three- and nine-month periods ending September 30, 2021.
|
|
|
|
|
For the three months ended |
|
|
For the nine months ended |
|
||||||
|
|
|
|
|
September 30 |
|
|
September 30 |
|
||||||
|
Customer # |
|
Product |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
1 |
|
Personal Care Ingredients |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
2 |
|
Solésence® |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
3 |
|
Solésence® |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
4 |
|
Solésence® |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
5 |
|
Medical Diagnostics |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
Total |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
14
Accounts receivable balances for these five customers were approximately:
|
|
For the nine months ended |
|
|||||
|
Product Category |
|
2021 |
|
|
2020 |
|
||
|
Personal Care Ingredients |
|
$ |
|
|
|
$ |
|
|
|
Solésence® |
|
|
|
|
|
|
|
|
|
Solésence® |
|
|
|
|
|
|
|
|
|
Solésence® |
|
|
|
|
|
|
- |
|
|
Medical Diagnostics |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
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.
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
These financial condition covenants, and the related “trigger,” ceased to remain in effect when the Company achieved six consecutive quarters of operating income which in the aggregate exceeds $
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 the greater of
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.
15
(12) Business Segmentation and Geographical Distribution
Revenue from international sources approximated $
Our Operations comprise a single business segment and all our long-lived assets are located within the United States. We categorize our revenue stream into three main product categories, Personal Care Ingredients, Advanced Materials and Solésence®. The revenues for the three months and nine months ended September 30, 2021 and 2020, by category, are as follows:
|
|
For the three months ended September 30 |
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For the nine months ended September 30 |
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Product Category |
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2021 |
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|
2020 |
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|
2021 |
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|
2020 |
|
||||
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Personal Care Ingredients |
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$ |
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|
|
$ |
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|
$ |
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|
|
$ |
|
|
|
Advanced Materials |
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|
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|
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Solésence® |
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Total Revenue |
|
$ |
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|
$ |
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|
|
$ |
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$ |
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Nanophase is a skin health focused company whose primary products are fully developed prestige skin care formulations, marketed and sold through our Solésence subsidiary, enabled by our proprietary Active Pharmaceutical Ingredients (“APIs”) which are also marketed as APIs for sale to manufacturers of other types of skin health products, including sunscreens and daily care products. In terms of the balance of our life sciences focus, we have seen conditions since early 2020 lead to a significant increase in demand for our medical diagnostics ingredients, which are used in testing for various viruses, most notably COVID-19. Additionally, we continue to sell products in markets for architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, and surface finishing technologies (polishing) applications— all of which, along with medical diagnostics, currently fall into the advanced materials product category.
Leveraging a platform of integrated patented and proprietary technologies, we create products with unique performance to enhance consumers’ health and well-being. We offer soup-to-nuts production, from engineered materials, formulation development, and finished product development to commercial manufacturing and packaging capabilities. Our expertise in materials engineering allows us to effectively coat and disperse materials on a nano and “non-nano” scale for use in a variety of markets in skin health, including for use in sunscreens as APIs and as fully developed prestige skin care products, marketed and sold through our Solésence beauty science subsidiary. We believe that we have developed technological advantages with respect to our APIs sold for use as ingredients, while our Solésence beauty science technologies lead to enhanced efficacy in our finished products.
We believe that the advent of the SARS-CoV-2 (“COVID-19”) Pandemic has driven significantly increased demand for our medical diagnostics materials during 2020 and the first half of 2021, after which demand has lessened. It is our expectation that future demand may not reach the same volumes, but should remain greater than historic demand experienced prior to 2020. Polymerase Chain Reaction (“PCR”) testing for various viruses, most notably “COVID-19,” has become a critical use of our technology in the life science space. While it is difficult to predict to what extent the increased demand for our medical diagnostic materials used in COVID-19 testing will continue, we believe that our deep expertise in materials science has created advantages that enable performance in certain tests that may not be achievable through other materials. Outside of life science, we continue to sell advanced materials for use in legacy applications, all of which, along with medical diagnostics, currently fall into the advanced materials product category.
16
Given our technological position, in addition to the historical market acceptance of our APIs for use in skin health products and sunscreens, rapidly growing sales for our suite of Solésence® finished products, and growing use of our diagnostic materials in aiding the fight to curb the spread of COVID-19 and other viruses, we have reoriented our Company strategy. We are seeing unprecedented demand in both beauty science and life science areas. The markets for both have shown an appetite for what we are producing, and management believes that this growth is happening now due to a confluence of our technology, market conditions that favor what we produce, and our expanded expertise in these areas.
Nanophase and Solésence are now focusing our combined business-, ingredient-, and product-development capabilities on products with unique performance that enhance consumers’ wellbeing through beauty science and life science applications — in skin health and medical diagnostics, respectively. While we will continue to produce and sell materials to our other advanced materials customers, it is not our strategic focus. We may develop additional technologies or find unique applications outside of our core markets in the future, but to maximize the use of our resources today, we plan on expanding efforts in areas where we have proven we can deliver innovation and growth.
Results of Operations
Total revenue increased to $7,924 for the three months ended September 30, 2021, compared to $3,888 for the same period in 2020. Total revenue increased to $22,110 for the nine months ended September 30, 2021 from $12,262 for the same period in 2020. A substantial majority of our revenue for both periods was from our five largest customers, reflecting sales of APIs to our largest customer in skin care and sunscreen applications, our three largest customers for our finished skin health products marketed through our Solésence subsidiary, and a medical diagnostics customer. This is the revenue breakdown, as a percentage of total revenue, from the five customers referenced:
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|
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|
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For the three months
ended |
|
|
For the nine months ended
|
|
||||||
|
Customer # |
|
|
Product Category |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
1 |
|
|
Personal Care Ingredients |
|
27 |
% |
|
18 |
% |
|
24 |
% |
|
32 |
% |
|
2 |
|
|
Solésence® |
|
21 |
% |
|
16 |
% |
|
17 |
% |
|
13 |
% |
|
3 |
|
|
Solésence® |
|
17 |
% |
|
16 |
% |
|
16 |
% |
|
14 |
% |
|
4 |
|
|
Solésence® |
|
7 |
% |
|
0 |
% |
|
13 |
% |
|
0 |
% |
|
5 |
|
|
Medical Diagnostics |
|
5 |
% |
|
30 |
% |
|
10 |
% |
|
20 |
% |
|
|
|
|
Total |
|
77 |
% |
|
80 |
% |
|
80 |
% |
|
79 |
% |
Product revenue, the primary component of our total revenue, increased to $7,896 for the three months ended September 30, 2021, compared to $3,827 during the same period of 2020. Product revenue increased to $21,971 for the nine months ended September 30, 2021 from $11,929 for the same period in 2020. This increase was due to continued growth in the adoption of our Solésence® products, along with an increase in API sales to our largest customer in our personal care ingredients business, and a significant three-month decrease leading to a modest nine-month decrease in our medical diagnostics materials.
Other revenue decreased to $28 and $139 for the three- and nine-month periods ended September 30, 2021, compared to $61 and $333 for the same periods in 2020, respectively. Other revenue is typically comprised primarily of developmental or licensing fees.
17
Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $4,946 for the three months ended September 30, 2021, compared to $2,201 for the same period in 2020. Cost of revenue increased to $14,588 for the nine months ended September 30, 2021, compared to $7,832 for the same period in 2020. 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. Additionally, during the third quarter of 2021, we have added personnel in the supply chain function and incurred costs to rent temporary warehouse space. 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 2021 and beyond.
At current revenue levels we have generated a positive gross margin, though margins can be impeded by the cyclicality of our demand, often leading to the Company not having enough revenue to efficiently absorb manufacturing overhead that is required to work with current customers and expected future customers. Another issue relating to demand cyclicality is that we have seen our lack of burst capacity creating strains, in terms of people and costs, when new product launches occur at the same time that we are experiencing demand from previously launched products. Since late 2020, the Company has found itself in a situation where our ability to produce and ship materials has been exceeded by customer demand. It is a key area of focus to increase throughput first, followed quickly by increased cost efficiency once we can achieve greater scale. We believe that our current fixed manufacturing cost structure is sufficient to support higher levels of revenue volume, but will need to be enhanced moving in to 2022 to accommodate what we expect to be additional growth. The extent to which margins grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to cut 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, as product revenue volume increases, our fixed manufacturing costs will be more efficiently absorbed, which should lead to increased margins as we grow. While additional production capacity is our most critical operational issue today, 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 2021 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 finished product formulations for skin care, new product applications for our skin care ingredients, advancement of our medical diagnostics ingredient knowledge, and the cost of enhancing our manufacturing processes. As an example, we are currently focusing the bulk of our resources on developing new product formulations, and related new technologies, as we expand marketing and sales efforts relating to our Solésence products. This work has led to several new products and additional potential new products. Our efforts in research and development, cosmetic formulating, process engineering and advanced engineering groups are focused in three major areas: 1) application development for our products; 2) creating or obtaining additional core materials technologies and/or materials that have the capability to serve multiple skin health-related markets; and 3) continuing to improve our core technologies to improve manufacturing operations and reduce costs.
Research and development expense increased to $635 for the three months ended September 30, 2021, compared to $405 for the same period in 2020. For the nine months ended September 30, 2021, research and development expense increased to $1,670, compared to $1,134 for the same period in 2020. Management expects research and development expense to increase during the balance of 2021, with enhancements in product development investment planned for 2022.
Selling, general and administrative expense increased to $942 for the three months ended September 30, 2021, compared to $730 for the same period in 2020. For the nine months ended September 30, 2021, selling, general and administrative expense increased to $2,994, compared to $2,133 for the same period in 2020. We have added to our Sales, Marketing, and Business Development team in 2021, with a few more staff additions planned through early-mid-2022. Compensation expense has also been up generally in 2021, and we expect this trend to continue in 2022.
18
The Company recognized $952 in other income relating to the forgiveness of its Paycheck Protection Program (“PPP”) Loan by the SBA in the nine months ended September 30, 2021. The Company applied for PPP Loan forgiveness in February 2021, due to management’s belief that the Company expended the proceeds of the PPP loan for forgivable purposes under the CARES Act. The loan was legally forgiven in February 2021, although the Company did not directly receive notice of PPP Loan forgiveness until June 2021.
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 2021 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 $1,380 on September 30, 2021, compared to $957 on December 31, 2020 and $1,134 on September 30, 2020. The net cash provided by our operating activities was $269 for the nine months ended September 30, 2021, compared to $1,732 of net cash used in our operating activities for the same period in 2020. The net cash provided during the nine months ended September 30, 2021 was primarily a function of increased profits, offset by the expansion of inventories. Management has adopted a strategy in 2021 to ameliorate supply chain risk to a degree by ordering raw materials and components further in advance than we typically have in the lessen the impact of delays and shortages brought on by competition for limited resources as the global economy gears up for post COVID-19 demand. It is our expectation that this will not continue indefinitely, and that our cash position will benefit when a more “normal” supply chain situation returns.
Net cash used in investing activities, which was attributable to expenditures on capital equipment for both periods, was $1,445 during nine months ended September 30, 2021, compared to $448 for the nine months ended September 30, 2020.
Net cash provided by financing activities was $1,599 during the nine months ended September 30, 2021, compared to $2,120 for the nine months ended September 30, 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. Effective September 8, 2020, the Company and Beachcorp, LLC executed the Second Amendment to our Master Agreement that expands the limit on the Revolver Facility from $2,000 to $2,750. On December 23, 2020, the Company and Beachcorp, LLC executed the Third Amendment to our Master Agreement that expands the limit on the Revolver Facility from $2,750 to $4,000 and extends the maturities of both the Term Loan and the Revolver Facility to March 31, 2022. On April 21, 2021, the Company and Beachcorp, LLC executed the Fourth Amendment to our Master Agreement that expands the limit on the Revolver Facility from $4,000 to $6,000, extends its maturity to March 31, 2023, and reduces interest on outstanding borrowings from the prime rate plus 3%, with an 8.25% minimum floor, to the prime rate plus 2%, with no minimum rate floor. Additionally, the Fourth Amendment increased the amount of the Term Loan from $500 to $1,000, and its fixed interest rate was reduced from 8.25% per year to 5.25% per year. The maturity date of the Term Loan remains March 31, 2022.
We paid $139 for principal on finance lease obligations during the nine months ended September 30, 2021 compared to $172 in the same period in 2020. The balance of the line of credit with Libertyville was $0 at September 30, 2021, compared to $500 at December 31, 2020. When money is borrowed, the line of credit is repaid during the month following the end of the reporting period. This line of credit expired on April 4, 2021 and was extended to April 4, 2022 in May 2021, with an effective date of April 4, 2021. During the nine months ending September 30, 2021, we drew $19,525, of which $17,939 was repaid under the Master Agreement. The net borrowings for the nine months ended September 30, 2021 were $1,585. During the nine months ending September 30, 2020, we drew $10,390, of which $9,073 was repaid under the Master Agreement. The net borrowings for the nine months ended September 30, 2020 were $1,317. Accretion related to the Secured Convertible Promissory Note to Bradford T. Whitmore was $836 and $200 for the nine months ending September 30, 2021 and 2020, respectively. The balance of this long-term convertible loan was $0 and $1,097 at September 30, 2021, and at December 31, 2020, respectively. Mr. Whitmore chose to exercise his conversion rights effective May 7, 2021, requesting that any accrued interest be paid him in the form of shares, as allowed in the Convertible Note. This exercise resulted in the accelerated recognition of the remaining discount on the Convertible Note, all of which was recognized as interest expense in the second quarter of 2021.
19
On April 17, 2020, we received a loan of $952 from Libertyville under the Paycheck Protection Program (“PPP”). Under the PPP, the Company applied for forgiveness of the amount due on the loan in an amount equal to the sum of the following costs incurred during the 24-week period beginning on the date of the first disbursement of the 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. The Company applied for PPP Loan forgiveness in February 2021, compelled by its belief that it expended the proceeds of the PPP loan for forgivable purposes under the CARES Act. The loan was legally forgiven in February 2021, although the Company received notice of PPP Loan forgiveness in June 2021.
Our supply agreements with our largest customer, BASF, contain certain financial covenants which could potentially impact our liquidity. Historically, the most restrictive financial covenants under these agreements required that we maintained a minimum of $1,000 in certain current assets; which may have been be composed of no less than $500 cash, cash equivalents, and certain investments, no more than a combined $500 of certain related inventory, of which no more than $250 can be raw material, and certain receivables. These covenants also dictated that we not have the acceleration of any debt maturity having a principal amount of more than $10 million. Both covenants were consistently met by the Company in order to avoid triggering the customer’s potential right to transfer certain technology and equipment to that customer at a contractually-defined price. These financial condition covenants, and the related “trigger,” ceased to remain in effect when the Company achieved six consecutive quarters of operating income which in the aggregate exceeds $1.5 million, calculated in accordance with GAAP, applied on a consistent basis. From the six-quarter period of April 1, 2020 through September 30, 2021, the Company had cumulative net operating income in the amount of $3.9 million, which management believes permanently relieves the previously discussed financial covenants and the related “trigger.” We had approximately $1,380 in cash on September 30, 2021. This supply agreement and its covenants are more fully described in Note 11, and our credit facilities are 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 and cash on hand, in addition to unused borrowing capacity, which has recently been increased (see Note 7 to the Financial Statements), may not be adequate to fund our operating plans through 2022, particularly when considering management’s inventory and expansion strategy. We are working to reduce these risks, but some of this is dependent on several things over which we have limited control. We have seen an increase in sales of our Solésence products through 2020, and the first nine months of 2021, which we expect to continue in to 2022. If that does continue, we will 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. 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. This uncertainty has caused us to be unable to assert that, for the next twelve months, we have enough current cash and guaranteed access to financing to fund operations, and to continue with our current growth strategy in terms of investment in capital equipment and in operating expenses related to Solésence, without securing additional financing. We believe that we will be able to secure additional financing if needed, 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 through the end of 2021 and 2022.
20
Our actual future capital requirements in 2021 and beyond will depend on many factors, including customer acceptance of our current and potential finished Solésence products, APIs sold as ingredients in to the skin health markets, medical diagnostics ingredients, and other engineered materials, applications, and products, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand our manufacturing capabilities and to market and sell these products and ingredients. 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, we expect that capital spending relating to currently known capital needs during the balance of 2021 will be between $900 and $1,400. If those projects are delayed or ultimately prove unsuccessful, or if we fail to be able to support the additional cost of funding them in the near term, we expect our capital spending may fall below the lower end of the range. Similarly, substantial success in business development projects may cause the actual capital investment for the balance of 2021 to exceed the top of this range.
In the likely event that we will need 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 an existing customer; 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 considering 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; 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, this raises doubt as to our ability to continue as a going concern under U.S. GAAP.
On December 31, 2020, we had a net operating loss carryforward of approximately $67 million for income tax purposes. Because the Company may have experienced “ownership changes” within the meaning of the U.S. Internal Revenue Code (“IRC”) in connection with its various prior equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, approximately $62 million of the carryforward will expire between 2021 and 2037. Given changes to the IRC, net operating loss carryforwards generated after January 1, 2018 do not expire, therefore, $5 million in net operating losses generated since January 1, 2018 will not expire.
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 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 2021 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 Solésence products, and our advanced materials; 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; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations, especially any new governmental regulations focusing on the processing, handling, storage or sale of nanomaterials, that could be difficult to respond to or costly to comply with; business interruptions due to unexpected events or public health crises, including viral pandemics such as COVID-19; and the resolution of litigation or other legal proceedings in which we may become involved. 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.
21
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.
22
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, other than pursuing affirmative confirmation of future singular transactions, similar to the PPP Loan forgiveness, 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
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Exhibit 101 |
The following materials from Nanophase Technologies Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, 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. |
23
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.
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NANOPHASE TECHNOLOGIES CORPORATION |
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Date: November 4, 2021 |
|
By: |
/s/ JESS A. JANKOWSKI |
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|
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Jess A. Jankowski |
|
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|
|
President and Chief Executive Officer |
|
|
|
|
(principal executive officer, and principal financial officer) |
24