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Significant Customers and Contingencies

9 Months Ended

Sep. 30, 2021

(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 Category	2021		2020		2021		2020
1	Personal Care Ingredients	27	%	18	%	24	%	32	%
2	Solésence®	21	%	16	%	16	%	14	%
3	Solésence®	17	%	16	%	17	%	13	%
4	Solésence®	7	%	0	%	13	%	0	%
5	Medical Diagnostics	5	%	30	%	10	%	20	%
	Total	77	%	80	%	80	%	79	%

Accounts receivable balances for these five customers were approximately:

	For the nine months ended September 30
Product Category	2021		2020
Personal Care Ingredients	$	817	$	328
Solésence®		1,604		420
Solésence®		470		291
Solésence®		314		-0-
Medical Diagnostics		382		901
Total	$	3,587	$	1,940

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 zero and a minimum of $1 million in total of certain assets of which at least $500 must be in cash, cash equivalents and certain investments, with the balance being composed of certain inventory and receivables, is not maintained 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, including certain finished goods inventory levels as “safety stock,”, in order to maintain the $500 non-cash component discussed above. Should our safety stock fall below the prescribed amount of material, the quarter-end cash requirement would revert to $1,000 in cash, cash equivalents, and certain investments. The safety stock requirement may be adjusted upon mutual agreement.

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 income in the amount of $3.9 million, which management believes permanently relieves the previously discussed financial covenants and the related “trigger.”

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 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 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.