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 _______
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Indicate
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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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As of August 15, 2022, there were shares outstanding of common stock, par value $.01, of the registrant.
NANOPHASE TECHNOLOGIES CORPORATION
QUARTER ENDED JUNE 30, 2022
INDEX
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited Consolidated Condensed)
(in thousands except share and per share data) | ||||||||
ASSETS | June 30, 2022 | December 31, 2021 | ||||||
Current assets: | ||||||||
Cash | $ | $ | ||||||
Trade accounts receivable, less allowance for doubtful accounts of $ | ||||||||
Inventories, net | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Equipment and leasehold improvements, net | ||||||||
Operating leases, right of use | ||||||||
Other assets, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Line of credit, related party | $ | $ | ||||||
Current portion of finance lease obligations | ||||||||
Current portion of operating lease obligations | ||||||||
Accounts payable | ||||||||
Current portion of deferred revenue | ||||||||
Accrued expenses | ||||||||
Total current liabilities | ||||||||
Long-term portion of finance lease obligations | ||||||||
Long-term portion of operating lease obligations | ||||||||
Long-term debt, related party | ||||||||
Long-term portion of deferred revenue | ||||||||
Asset retirement obligations | ||||||||
Total long-term liabilities | ||||||||
Contingent liabilities | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock, $ | par value, shares authorized, and shares issued and outstanding||||||||
Common stock, $ | par value, and shares authorized; and shares issued and outstanding on June 30, 2022 and December 31, 2021, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Shareholders’ equity | ||||||||
Total liabilities and shareholders’ equity | $ | $ |
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)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue: | ||||||||||||||||
Product revenue | $ | $ | $ | $ | ||||||||||||
Other revenue | ||||||||||||||||
Total revenue | ||||||||||||||||
Operating expense: | ||||||||||||||||
Cost of revenue | ||||||||||||||||
Gross profit | ||||||||||||||||
Research and development expense | ||||||||||||||||
Selling, general and administrative expense | ||||||||||||||||
Income from operations | ||||||||||||||||
Interest expense | ||||||||||||||||
Other income, net | ( | ) | ||||||||||||||
Income before provision for income taxes | ||||||||||||||||
Provision for income taxes | ||||||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Net income per basic share | $ | $ | $ | $ | ||||||||||||
Weighted average number of basic common shares outstanding | ||||||||||||||||
Net income per diluted share | $ | $ | $ | $ | ||||||||||||
Weighted average number of diluted common shares outstanding |
See Notes to Consolidated Condensed Financial Statements
4
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited Consolidated Condensed)
Preferred Stock | Common Stock | Additional
Paid-in | Accumulated | |||||||||||||||||||||||||
Description | Shares | Amount | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||
Balance on December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Stock-based compensation | — | — | ||||||||||||||||||||||||||
Net income for the three months ended March 31, 2021 | — | — | ||||||||||||||||||||||||||
Balance on March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Stock option exercises | — | |||||||||||||||||||||||||||
Exercise of conversion rights – convertible loan, related party | — | |||||||||||||||||||||||||||
Stock-based compensation | — | — | ||||||||||||||||||||||||||
Net income for the three months ended June 30, 2021 | — | — | ||||||||||||||||||||||||||
Balance on June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Balance on December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Issuance of shares and stock option exercises | — | |||||||||||||||||||||||||||
Stock-based compensation | — | — | ||||||||||||||||||||||||||
Net income for the three months ended March 31, 2022 | — | — | ||||||||||||||||||||||||||
Balance on March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Issuance of shares and stock option exercises | — | |||||||||||||||||||||||||||
Stock-based compensation | — | — | ||||||||||||||||||||||||||
Net income for the three months ended June 30, 2022 | — | — | ||||||||||||||||||||||||||
Balance on June 30, 2022 | $ | $ | $ | $ | ( | ) | $ |
See Notes to Consolidated Condensed Financial Statements.
5
NANOPHASE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited Consolidated Condensed)
Six months ended June 30, | ||||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Operating activities: | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Share-based compensation | ||||||||
Gain on PPP loan forgiveness | ( | ) | ||||||
Amortization of operating lease, right of use asset | ||||||||
Amortization of debt discount | ||||||||
Changes in assets and liabilities related to operations: | ||||||||
Trade accounts receivable | ( | ) | ( | ) | ||||
Inventories | ( | ) | ( | ) | ||||
Prepaid expenses and other assets | ( | ) | ( | ) | ||||
Accounts payable | ||||||||
Accrued expenses | ||||||||
Deferred revenue | ( | ) | ||||||
Operating lease obligations | ( | ) | ( | ) | ||||
Net cash (used in) provided by operating activities | ( | ) | ||||||
Investing activities: | ||||||||
Acquisition of equipment and leasehold improvements | ( | ) | ( | ) | ||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Financing activities: | ||||||||
Principal payments on finance leases | ( | ) | ( | ) | ||||
Proceeds from line of credit, bank | ||||||||
Payments to the line of credit, bank | ( | ) | ||||||
Proceeds from line of credit, related party | ||||||||
Payments to line of credit, related party | ( | ) | ( | ) | ||||
Proceeds from term loan, related party | ||||||||
Payments from exercise of stock options | ||||||||
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 $2M convertible loan, related party | $ | $ | ||||||
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 six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission.
(2) 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 beauty science subsidiary”), is focused in various beauty- and life-science markets. Using consumer health as our end-goal and science and innovation to guide the path, 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 skin health markets, including for use in sunscreens as active ingredients and as fully developed prestige skin care and cosmetics products, marketed and sold through our Solésence beauty science subsidiary. In terms of our life sciences focus, we have seen demand significantly decrease for our medical diagnostics ingredients during 2022. Additionally, we continue to sell products in legacy markets, including 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, as well as 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. We market our materials to various end-use applications manufacturers, and our Solésence® products to cosmetics and skin care brands.
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. Active Stress Defense™ now refers to a suite of three proprietary technologies — Original Active Stress Defense™, Kleair™, and Bloom™ — all three of which either utilize a unique and proprietary, mineral-based technology or work synergistically with one of our unique and proprietary, mineral-based technologies to improve performance and/or aesthetics. Our ongoing innovation efforts include new IP in areas that advance environmental protection, align with market needs, and complement our existing technologies Through the creation of our Solésence beauty science subsidiary, we utilize our technology suite to manufacture and sell fully developed solutions to targeted customers in the skin care industry, typically in prestige skin care and cosmetics markets, 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.
(3) Revenues
Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration we expect to receive in exchange for those goods. When our ingredients and finished products are shipped, with control being transferred at the shipping point almost universally, is the point in time at which we recognize the related revenue.
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Customers’ deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in our statements of operations.
Contract balances at June 30, 2022, December 31, 2021, and December 31, 2020 are as follows:
Accounts Receivable | Contract Assets | Contract Liabilities | |||||||||||
Balance, December 31, 2020 | $ | $ | $ | ||||||||||
Balance, December 31, 2021 | |||||||||||||
Balance, June 30, 2022 |
7
The
contract asset balance at June 30, 2022, December 31, 2021, and December 31, 2020 consists of $
Revenue
recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $
Other
revenue may include revenue from technology license fees and paid development projects. Technology license fees and paid development
projects are recognized over time when the obligations under the agreed upon contractual arrangements are performed on our
part. Other revenue recognized over time was $
Options to purchase approximately and shares of common stock that were outstanding as of June 30, 2022 were included in the computation of earnings per share for the three months and six months ended June 30, 2022, respectively. Options to purchase approximately and shares of common stock that were outstanding as of June 30, 2021 were included in the computation of earnings per share for the three months and six months ended June 30, 2021, respectively.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: (in Thousands) | ||||||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Denominator: | ||||||||||||||||
Weighted average number of basic shares outstanding | ||||||||||||||||
Weighted average additional shares assuming conversion of in-the-money stock options to common shares | ||||||||||||||||
Weighted average number of diluted common shares outstanding | ||||||||||||||||
Basic earnings per common share: | ||||||||||||||||
Net income per share – basic | $ | $ | $ | $ | ||||||||||||
Diluted earnings per common share: | ||||||||||||||||
Net income per share – diluted | $ | $ | $ | $ |
(5) 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
any short term and long-term borrowings as described in Note 6. There were
(6) Notes and Lines of Credit
Notes and lines of credit consist of the following:
As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||||
Rate | Total Borrowing Capacity | Outstanding Borrowed Balance | Total Borrowing Capacity | Outstanding Borrowed Balance | ||||||||||||||
$ | $ | n/a | n/a | |||||||||||||||
n/a | n/a | $ | $ | |||||||||||||||
n/a | n/a |
Related party interest summary:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Interest expense, related parties | $ | $ | $ | $ | ||||||||||||
Accrued interest expense, related parties |
8
1) |
2) |
3) |
Beachcorp, LLC and Strandler, LLC are affiliates of Mr. Bradford T. Whitmore, who beneficially owns a majority of the Company’s common stock and is the brother of Ms. R. Janet Whitmore, a director of the Company and the chair of the Company’s board of directors. The A/R Revolver Facility, the Inventory Facility and the New Term Loan are all secured by all the unencumbered assets of the Company and subordinated to the Company’s letters of credit with Libertyville Bank & Trust.
Since
July 2014, we have maintained a bank-issued letter of credit for up to $
(7) Inventories
Inventories consist of the following:
June
30, 2022 | December
31, 2021 | |||||||
Raw materials | $ | $ | ||||||
Finished goods | ||||||||
Total inventories, net | $ | $ |
(8) 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. During the first seven months of the term of our newly leased building, we have subleased a portion of the unused floorspace on a temporary basis. This sublease has converted to a month-to-month lease as of June 30, 2022.
As
of June 30, 2022, the 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:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Components of lease cost | ||||||||||||||||
Finance lease cost components: | ||||||||||||||||
Amortization of finance lease assets | $ | $ | $ | $ | ||||||||||||
Interest on finance lease liabilities | ||||||||||||||||
Total finance lease costs | $ | $ | $ | $ | ||||||||||||
Operating lease cost components: | ||||||||||||||||
Operating lease cost | ||||||||||||||||
Variable lease cost | ||||||||||||||||
Short-term lease cost | ||||||||||||||||
Sublease income | ( | ) | ( | ) | ||||||||||||
Total operating lease costs | ||||||||||||||||
Total lease cost | $ | $ | $ | $ |
9
Supplemental cash flow information related to leases is as follows for the six months ended June 30, 2022 and 2021:
2022 | 2021 | |||||||
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) | ||||||||
Weighted-average remaining lease term-operating leases (in years) | ||||||||
Weighted-average discount rate-finance leases | % | % | ||||||
Weighted-average discount rate-operating leases | % | % |
The future maturities of the Company’s finance and operating leases as of June 30, 2022 are as follows:
Finance Leases | Operating Leases | Total | ||||||||||
2022 | $ | $ | $ | |||||||||
2023 | ||||||||||||
2024 | ||||||||||||
2025 | ||||||||||||
2026 | ||||||||||||
Thereafter | ||||||||||||
Total payments | $ | $ | $ | |||||||||
Less amounts representing interest | ( |
) | ( |
) | ( |
) | ||||||
Total minimum payments required | $ | |
$ | $ |
The future maturities of the Company’s finance and operating leases as of June 30, 2021 were as follows:
Finance Leases | Operating Leases | Total | ||||||||||
2021 | $ | $ | $ | |||||||||
2022 | ||||||||||||
2023 | ||||||||||||
2024 | ||||||||||||
2025 | ||||||||||||
Thereafter | ||||||||||||
Total payments | $ | $ | $ | |||||||||
Less amounts representing interest | ( |
) | ( |
) | ( |
) | ||||||
Total minimum payments required | $ | $ | $ |
(9) Significant Customers and Contingencies
We had five significant customers for the three and six months ended June 30, 2022 and 2021, respectively. Revenue from these five customers constituted the following percentages of total revenue:
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||
Customer # | Product Category | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
1 | Personal Care Ingredients | % | % | % | % | ||||||||||||||
2 | Solésence® | % | % | % | % | ||||||||||||||
3 | Solésence® | % | % | % | % | ||||||||||||||
4 | Solésence® | % | % | % | % | ||||||||||||||
5 | Advanced Materials (Medical Diagnostics customer) | % | % | % | % | ||||||||||||||
Total | % | % | % | % |
10
Accounts receivable balances for these five customers were approximately:
June 30, | June 30, | ||||||||||
Customer # | Product Category | 2022 | 2021 | ||||||||
1 | Personal Care Ingredients | $ | $ | ||||||||
2 | Solésence® | ||||||||||
3 | Solésence® | ||||||||||
4 | Solésence® | ||||||||||
5 | Advanced Materials (Medical Diagnostics customer) | ||||||||||
Total | $ | $ |
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. 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
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.
(10) Business Segmentation and Geographical Distribution
Revenue
from international sources approximated $
Our operations comprise a single business segment and all of 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, by category, for the three and six months ended June 30, 2022 and 2021 are as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
Product Category | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Solésence | $ | $ | $ | $ | ||||||||||||
Personal Care Ingredients | ||||||||||||||||
Advanced Materials | ||||||||||||||||
Total Sales | $ | $ | $ | $ |
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Nanophase is a health-oriented, science-driven company, which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused in various beauty- and life-science markets. Our primary skin health products are fully developed prestige skin care formulations with mineral-based UV protection, marketed and sold through our Solésence beauty science 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 current conditions significantly increase 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 legacy markets including 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 end-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 and aesthetics in our finished products, which have received broad acceptance in the marketplace. Due to the enhanced efficacy and aesthetic qualities offered by our proprietary technology platform, Solésence finished products satisfy growing consumer demands around “clean” and inclusive beauty. Solésence beauty science also benefits from the Company’s vertical integration with each product’s key active ingredient that delivers its point-of-difference. This vertical integration helps us to improve efficiency and avoid potential major supply chain challenges while also addressing ongoing sustainability efforts.
We do not anticipate any supply disruptions directly related to the Russian invasion of Ukraine as we do not knowingly source any materials directly from either country.
Since mid-2020, we have seen significantly increases in demand for our medical diagnostics materials. Polymerase Chain Reaction (“PCR”) testing for various viruses, most notably SARS-CoV-2 (“COVID-19”), has become a critical use of our technology in the life science space. After a historic peak in volume during 2020, we saw reduced demand for these materials in 2021. It is difficult to predict whether the increased demand for our medical diagnostic materials used in COVID-19 testing will expand from 2021 levels over the next few years. Our expectation is that we may establish a new sales volume “floor” over the next few years as we continue through the unprecedented period of testing utilization and awareness of the way viruses impact all of us. 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.
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 the expanded use of our diagnostic materials in aiding the fight to curb the spread of COVID-19 and other viruses, in 2021 we announced that we reoriented our Company strategy. We continue to see 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, is 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 $11,222 for the three months ended June 30, 2022, compared to $7,114 for the same period in 2021. Total revenue increased to $19,378 for the six months ended June 30, 2022, compared to $14,186 for the same period in 2021. A substantial majority of our revenue was from our four- and five largest customers for the three- and six-month periods ended June, 2022, and 2021, respectively. This reflects 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, during the three- and six months ended June 30, 2021, a medical diagnostics customer. Please see Note 10 in the Financial Statements, “Business Segmentation and Geographical Distribution,” for a breakdown of revenue from the customers discussed above.
Product revenue, the primary component of our total revenue, increased to $10,796 for the three months ended June 30, 2022, compared to $7,025 during the same period of 2021, and increased to $18,842 for the six months ended June 30, 2022, compared to $14,075 during the same period of 2021.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. We saw little revenue from medical diagnostics materials in 2022.
Other revenue increased to $426 and $536 for the three- and six-month periods ended June 30, 2022, compared to $89 and $111 for the same periods in 2021, respectively. Other revenue is typically comprised primarily of developmental or licensing fees.
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Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $8,486 for the three months ended June 30, 2022, compared to $4,600 for the same period in 2021, and increased to $14,474 for the six months ended June 30, 2022, compared to $9,642 for the same period in 2021. The increase in cost of revenue was primarily driven by increased volume and price inflation on materials and manufacturing inefficiencies related to growing Solésence® demand. We are also using overtime to keep up with demand during a period where we have had difficulty hiring additional experienced labor. We have also been unable to complete a series of capital and engineering projects to increase efficiencies and reduce unit costs due to the near complete absorption of our internal engineering resources in addressing current demand. Additionally, during the second half of 2021, we added personnel in the supply chain function and incurred costs to rent temporary warehouse space, which represent and ongoing expense through June of 2022. 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. In total, these factors have resulted in a significant reduction in our gross margin percentage. We believe this to be temporary, in light of current circumstances which we believe we will be able to address effectively during the balance of 2022.
Our business has a certain cyclicality of demand, often based upon seasonal demands, industry launch cycles, or a confluence of both. Our lack of burst capacity has created 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. Our planning has had us adding to our current fixed manufacturing cost structure in early 2022 to accommodate additional growth, and to build a better base for further growth beyond that level. 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 significant percentage growth in our gross margins through 2022, depending 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 $797 for the three months ended June 30, 2022, compared to $536 for the same period in 2021. For the six months ended June 30, 2022 research and development expense increased to $1,463, compared to $1,035 for the same period in 2021. Most of this increase was due to expanded staffing to aid in supporting new product development for current and future customers. Management expects research and development expense to increase at a slower rate during the balance of 2022 to support continued revenue- and customer-expansion.
Selling, general and administrative expense increased to $1,816 for the three months ended June 30, 2022, compared to $1,018 for the same period in 2021. For the six months ended June 30, 2022, selling, general and administrative expense increased to $3,213, compared to $2,052 for the same period in 2021. We have added to our Sales, Marketing, and Business Development team during 2021, and more significantly during the first half of 2022. This was done to ready the Company to support expanded, and expected expanding, sales with a higher degree of customer service. We have also augmented our sales operations function, marketing, and new business development to stimulate additional growth. Additionally, compensation expense has also increased generally, beginning in the second half of 2021 through the current period due to wage inflation. We expect this trend to moderate to an extent in 2022. We also saw many of our business insurance costs increase during April, 2022, when several coverages were renewed. We recognized $104 in bad debt expense during the second quarter of 2022, which has been a relatively rare occurrence in the past. Much of this has been a function of our expansion, along with market conditions. Lastly, in June we accrued for a one-time consulting expense of approximately $180 relating to our application for an Employee Retention Credit. This expense, once paid, will be recoverable ratably to the extent any portion of the requested credit is disallowed. Management expects to receive this credit within approximately five months, but has elected not to reflect any of this gain in our financial statements until it is realized.
Inflation
We believe inflation has not had a material effect on our operations or financial position to date. However, supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, will likely have a material effect on our operations and financial position in 2022 and beyond if we are unable to pass through any applicable increases under our present contracts or through to our markets in general. We are in the process of adjusting our pricing to the extent supported by the markets we are in and under the contracts we may have.
Liquidity and Capital Resources
Cash, cash proceeds and use of cash for the three months ended June 30, 2022, 2021, and year ended December 31, 2021 were:
Six
months ended | Six
months ended | Year
ended | ||||||||||
Total cash | $ | 664 | $ | 1,077 | $ | 657 | ||||||
Cash (used in) provided by operating activities | (3,381 | ) | 488 | 2,321 | ||||||||
Net cash used in investing activities | (1,128 | ) | (508 | ) | (1,874 | ) | ||||||
Net cash provided by financing activities | 4,516 | 140 | (747 | ) |
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The net cash used during the six months ended June 30, 2022 was primarily a due to the expansion of accounts receivable, a function of our growth, and inventories. Management has followed a strategy thus far in 2022 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 responds both to additional demand and shipping difficulties created by several factors, including a shortage of labor in the United States. 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 was attributable to expenditures on capital equipment for all periods presented above.
On January 28, 2022, the Company and Beachcorp, LLC, and Strandler, LLC entered in to an Amended and Restated Master Agreement (“Agreement”). Both entities are managed by Bradford T. Whitmore, who is a significant shareholder in Nanophase and, as such, these loans are classified as related party transactions. Under this Agreement, and amended agreements governed by this Agreement, the Company now has a $1,000 term loan with Strandler, LLC, which was fully drawn in January 2022, with the proceeds used to retire the previously existing $1,000 term loan with Beachcorp. The new term loan expires on March 31, 2024, and has a fixed interest rate of 4.00%, representing the Prime rate plus 0.75% as of the new Agreement date. Under this Agreement, the Company amended its existing accounts receivable-based revolving loan (“A/R Revolver”) to carry a floating interest rate of Prime plus 0.75%, with an increased borrowing cap of $8,000, and an expiration of March 31, 2024. The Company drew funds from the A/R Facility in January of 2022. Further under this Agreement, the Company entered into an additional revolving loan agreement based on the Company’s inventory balances (the “Inventory Facility”). The Company drew funds from the Inventory Facility in May of 2022. This facility will allow the Company to borrow up to $4,000 in total, based on the terms of the loan. All borrowing will be at a floating rate of Prime plus 0.75%, with a March 31, 2024 expiration. We also maintain letters of credit through Libertyville Bank & Trust. These credit facilities are more fully described in Note 6 to our Financial Statements in Part I, Item 1 of this Form 10-Q.
Our actual future capital requirements in 2022 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, and conditions within the markets supplying labor and materials for capital equipment, we expect that capital spending relating to currently known capital needs for 2022 will be between $3 million and $6 million, to be funded by profit from operations, our existing loans and lines of credit, and possible new debt financing. 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 expenditures may fall below the lower end of the range. Similarly, substantial success in business development projects may cause the actual 2022 capital investment to exceed the top of this range.
We have federal net operating loss carryforwards for tax purposes of approximately $62 million on December 31, 2021. Because the Company may experience “ownership changes” within the meaning of the U.S. Internal Revenue Code (“IRC”) in connection with any future equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, $57 million of this loss carryforward will expire between 2022 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 do not expire. We have Illinois net loss deduction carryforwards for tax purposes of approximately $21 million on December 31, 2021. Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2029 and 2039.
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.
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 2022 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.
14
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, other than the previously identified material weakness discussed below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at reaching that level of reasonable assurance. Management identified a material weakness in the way the Company tracked and accounted for its inventory at December 31, 2021, as disclosed in our 10-K, filed on March 31, 2022. Controls were not effectively designed, documented, and maintained to verify that the existence of all inventories subject to physical inventory counts were correctly counted, and our process for compiling and communicating inventory data to ensure accurate reporting in our financial statements was not effective, including inadequate verification for completeness and accuracy of key reports used to review and monitor inventory balances. A consequence of this was that the process of conducting a full physical inventory required an inordinate amount of time to establish an accurate valuation. We are in the process of remediating this control issue, and believe that, while incomplete, we have made progress since March 31, 2022. Notwithstanding such material weakness in internal control over inventory, our management concluded that our consolidated financial statements in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).
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.
15
Item 6. Exhibits
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 June 30, 2022, 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. |
16
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: August 15, 2022 | By: | /s/ JESS A. JANKOWSKI | |
Jess A. Jankowski | |||
President and Chief Executive Officer | |||
(principal executive officer, and principal financial officer) |
17
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:
1. I have reviewed this quarterly report on Form 10-Q of Nanophase Technologies Corporation;
2. 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;
3. 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;
4. 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
5. 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: August 15, 2022
/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:
1. I have reviewed this quarterly report on Form 10-Q of Nanophase Technologies Corporation;
2. 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;
3. 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;
4. 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
5. 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: August 15, 2022
/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 second quarter ending June 30, 2022 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:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 15, 2022
/s/ JESS A. JANKOWSKI | ||
Jess A. Jankowski | ||
Chief Executive Officer | ||
(principal executive officer, and principal financial officer) |
CONSOLIDATED BALANCE SHEETS (Unaudited Consolidated Condensed) (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 161 | $ 60 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, authorized | 24,088 | 24,088 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized | 60,000,000 | 55,000,000 |
Common Stock, Shares, Issued | 49,137,030 | 48,893,573 |
Common stock, outstanding | 49,137,030 | 48,893,573 |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited Consolidated Condensed) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
Revenue: | ||||
Total revenue | $ 11,222 | $ 7,114 | $ 19,378 | $ 14,186 |
Operating expense: | ||||
Cost of revenue | 8,486 | 4,600 | 14,474 | 9,642 |
Gross profit | 2,736 | 2,514 | 4,904 | 4,544 |
Research and development expense | 797 | 536 | 1,463 | 1,035 |
Selling, general and administrative expense | 1,816 | 1,018 | 3,213 | 2,052 |
Income from operations | 123 | 960 | 228 | 1,457 |
Interest expense | 73 | 919 | 116 | 1,058 |
Other income, net | (952) | |||
Income before provision for income taxes | 50 | 41 | 112 | 1,351 |
Provision for income taxes | ||||
Net income | $ 50 | $ 41 | $ 112 | $ 1,351 |
Net income per basic share | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.03 |
Weighted average number of basic common shares outstanding | 49,045,047 | 44,367,496 | 49,014,847 | 41,294,394 |
Net income per diluted share | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.03 |
Weighted average number of diluted common shares outstanding | 51,008,047 | 46,362,496 | 50,990,847 | 43,078,394 |
Product [Member] | ||||
Revenue: | ||||
Total revenue | $ 10,796 | $ 7,025 | $ 18,842 | $ 14,075 |
Product and Service, Other [Member] | ||||
Revenue: | ||||
Total revenue | $ 426 | $ 89 | $ 536 | $ 111 |
Basis of Presentation |
6 Months Ended |
---|---|
Jun. 30, 2022 | |
Accounting Policies [Abstract] | |
Basis of Presentation | (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 six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission. |
Description of Business |
6 Months Ended |
---|---|
Jun. 30, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business | (2) 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 beauty science subsidiary”), is focused in various beauty- and life-science markets. Using consumer health as our end-goal and science and innovation to guide the path, 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 skin health markets, including for use in sunscreens as active ingredients and as fully developed prestige skin care and cosmetics products, marketed and sold through our Solésence beauty science subsidiary. In terms of our life sciences focus, we have seen demand significantly decrease for our medical diagnostics ingredients during 2022. Additionally, we continue to sell products in legacy markets, including 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, as well as 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. We market our materials to various end-use applications manufacturers, and our Solésence® products to cosmetics and skin care brands.
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. Active Stress Defense™ now refers to a suite of three proprietary technologies — Original Active Stress Defense™, Kleair™, and Bloom™ — all three of which either utilize a unique and proprietary, mineral-based technology or work synergistically with one of our unique and proprietary, mineral-based technologies to improve performance and/or aesthetics. Our ongoing innovation efforts include new IP in areas that advance environmental protection, align with market needs, and complement our existing technologies Through the creation of our Solésence beauty science subsidiary, we utilize our technology suite to manufacture and sell fully developed solutions to targeted customers in the skin care industry, typically in prestige skin care and cosmetics markets, 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. |
Revenues |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | (3) Revenues
Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration we expect to receive in exchange for those goods. When our ingredients and finished products are shipped, with control being transferred at the shipping point almost universally, is the point in time at which we recognize the related revenue.
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Customers’ deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in our statements of operations.
Contract balances at June 30, 2022, December 31, 2021, and December 31, 2020 are as follows:
The contract asset balance at June 30, 2022, December 31, 2021, and December 31, 2020 consists of $179 of contract assets reported within prepaid expenses and other current assets.
Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $89 and $145, for the three months ended June 30, 2022 and 2021, respectively, and $212 and $221 for the six months ended June 30, 2022 and 2021, respectively.
Other revenue may include revenue from technology license fees and paid development projects. Technology license fees and paid development projects are recognized over time when the obligations under the agreed upon contractual arrangements are performed on our part. Other revenue recognized over time was $76 and $89, for the three months ended June 30, 2022 and 2021, respectively, and $186 and $111 for the six months ended June 30, 2022 and 2021, respectively. Other revenue recognized at a point in time was $350 and $0, for the three months ended June 30, 2022 and 2021, respectively, and $350 and $0 for the six months ended June 30, 2022 and 2021 respectively. |
Earnings Per Share |
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Earnings Per Share |
Options to purchase approximately and shares of common stock that were outstanding as of June 30, 2022 were included in the computation of earnings per share for the three months and six months ended June 30, 2022, respectively. Options to purchase approximately and shares of common stock that were outstanding as of June 30, 2021 were included in the computation of earnings per share for the three months and six months ended June 30, 2021, respectively.
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Financial Instruments |
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Investments, All Other Investments [Abstract] | |
Financial Instruments | (5) 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 any short term and long-term borrowings as described in Note 6. There were no financial instruments adjusted to fair value on June 30, 2022 and December 31, 2021. |
Notes and Lines of Credit |
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Notes and Lines of Credit | (6) Notes and Lines of Credit
Notes and lines of credit consist of the following:
Related party interest summary:
Beachcorp, LLC and Strandler, LLC are affiliates of Mr. Bradford T. Whitmore, who beneficially owns a majority of the Company’s common stock and is the brother of Ms. R. Janet Whitmore, a director of the Company and the chair of the Company’s board of directors. The A/R Revolver Facility, the Inventory Facility and the New Term Loan are all secured by all the unencumbered assets of the Company and subordinated to the Company’s letters of credit with Libertyville Bank & Trust.
Since July 2014, we have maintained a bank-issued letter of credit for up to $30 in borrowings to support our obligations under our Romeoville, Illinois facility lease agreement. No borrowings have been incurred under this promissory note. On December 21, 2021, Libertyville issued a letter of credit for up to $500 in borrowings to support our obligations under our newly leased manufacturing and warehouse space in Bolingbrook, Illinois. For both letters of credit, interest on drawn balances will be at the prime rate plus 1%. We expect to renew these agreements annually, as the respective leases require. |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Inventories | (7) Inventories
Inventories consist of the following:
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Leases |
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Leases | (8) 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. During the first seven months of the term of our newly leased building, we have subleased a portion of the unused floorspace on a temporary basis. This sublease has converted to a month-to-month lease as of June 30, 2022.
As of June 30, 2022, the ROU asset had a balance of $11,418, which is included in the “Operating lease right-of-use assets” line item of these consolidated financial statements and current and non-current lease liabilities related to the ROU asset of $1,161 and $11,067, respectively. As of December 31, 2021, the ROU asset had a balance of $12,075 which is included in the “Operating lease right-of-use assets” line item of these consolidated financial statements and current and non-current lease liabilities related to the ROU asset of $589 and $11,700, respectively. 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:
Supplemental cash flow information related to leases is as follows for the six months ended June 30, 2022 and 2021:
The future maturities of the Company’s finance and operating leases as of June 30, 2022 are as follows:
The future maturities of the Company’s finance and operating leases as of June 30, 2021 were as follows:
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Significant Customers and Contingencies |
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Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Customers and Contingencies | (9) Significant Customers and Contingencies
We had five significant customers for the three and six months ended June 30, 2022 and 2021, respectively. Revenue from these five customers constituted the following percentages of total revenue:
Accounts receivable balances for these five customers were approximately:
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. 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.
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.
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Business Segmentation and Geographical Distribution |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segmentation and Geographical Distribution | (10) Business Segmentation and Geographical Distribution
Revenue from international sources approximated $435 and $490 for the three and six months ended June 30, 2022, respectively, compared to $1,138 and $2,423 for the three and six months ended June 30, 2021, respectively. All of 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 stream into three main product categories, Personal Care Ingredients, Advanced Materials and Solésence. The revenues, by category, for the three and six months ended June 30, 2022 and 2021 are as follows:
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Revenues (Tables) |
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Contract balances at June 30, 2022, December 31, 2021, and December 31, 2020 are as follows: | Contract balances at June 30, 2022, December 31, 2021, and December 31, 2020 are as follows:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows: |
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Notes and Lines of Credit (Tables) |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes and lines of credit consist of the following: | Notes and lines of credit consist of the following:
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Related party interest summary: | Related party interest summary:
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Inventories (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Inventories consist of the following: | Inventories consist of the following:
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quantitative information regarding the Company’s leases is as follows: | Quantitative information regarding the Company’s leases is as follows:
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Supplemental cash flow information related to leases is as follows for the six months ended June 30, 2022 and 2021: | Supplemental cash flow information related to leases is as follows for the six months ended June 30, 2022 and 2021:
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The future maturities of the Company’s finance and operating leases as of June 30, 2022 are as follows: | The future maturities of the Company’s finance and operating leases as of June 30, 2022 are as follows:
The future maturities of the Company’s finance and operating leases as of June 30, 2021 were as follows:
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Significant Customers and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from these five customers constituted the following percentages of total revenue: | We had five significant customers for the three and six months ended June 30, 2022 and 2021, respectively. Revenue from these five customers constituted the following percentages of total revenue:
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Accounts receivable balances for these five customers were approximately: | Accounts receivable balances for these five customers were approximately:
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Business Segmentation and Geographical Distribution (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The revenues, by category, for the three and six months ended June 30, 2022 and 2021 are as follows: | Our operations comprise a single business segment and all of 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, by category, for the three and six months ended June 30, 2022 and 2021 are as follows:
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Contract balances at June 30, 2022, December 31, 2021, and December 31, 2020 are as follows: (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
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Revenue from Contract with Customer [Abstract] | |||
Accounts receivable net | $ 6,537 | $ 3,937 | $ 2,932 |
Contract assets | 179 | 179 | 179 |
Contract liabilities | $ 1,384 | $ 1,444 | $ 411 |
Revenues (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
Dec. 31, 2020 |
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Disaggregation of Revenue [Line Items] | ||||||
Contract assets | $ 179 | $ 179 | $ 179 | $ 179 | ||
Revenue recognized included in contract liability balance at beginning of period | 89 | $ 145 | 212 | $ 221 | ||
Revenue | 11,222 | 7,114 | 19,378 | 14,186 | ||
Product and Service, Other [Member] | ||||||
Disaggregation of Revenue [Line Items] | ||||||
Revenue | 426 | 89 | 536 | 111 | ||
Product and Service, Other [Member] | Transferred over Time [Member] | ||||||
Disaggregation of Revenue [Line Items] | ||||||
Revenue | 76 | 89 | 186 | 111 | ||
Product and Service, Other [Member] | Transferred at Point in Time [Member] | ||||||
Disaggregation of Revenue [Line Items] | ||||||
Revenue | $ 350 | $ 0 | $ 350 | $ 0 |
Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows: (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2022 |
Mar. 31, 2022 |
Jun. 30, 2021 |
Mar. 31, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Numerator: (in Thousands) | ||||||
Net income | $ 50 | $ 62 | $ 41 | $ 1,310 | $ 112 | $ 1,351 |
Denominator: | ||||||
Weighted average number of basic shares outstanding | 49,045,047 | 44,367,496 | 49,014,847 | 41,294,394 | ||
Weighted average additional shares assuming conversion of in-the-money stock options to common shares | 1,963,000 | 1,995,000 | 1,976,000 | 1,784,000 | ||
Weighted average number of diluted common shares outstanding | 51,008,047 | 46,362,496 | 50,990,847 | 43,078,394 | ||
Basic earnings per common share: | ||||||
Net income per share – basic | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.03 | ||
Diluted earnings per common share: | ||||||
Net income per share – diluted | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.03 |
Earnings Per Share (Details Narrative) - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Earnings Per Share [Abstract] | ||||
Weighted average additional shares assuming conversion of in-the-money stock options to common shares | 1,963,000 | 1,995,000 | 1,976,000 | 1,784,000 |
Financial Instruments (Details Narrative) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Investments, All Other Investments [Abstract] | ||
Financial instruments adjusted to fair value | $ 0 | $ 0 |
Notes and lines of credit consist of the following: (Details) - USD ($) $ in Thousands |
6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
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Strandler LLC [Member] | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Line of Credit Facility, Description | [1] | Strandler, LLC | ||||||
Rate | [1] | 4.00% | ||||||
Total Borrowing Capacity | [1] | |||||||
Outstanding Borrowed Balance | [1] | $ 1,000 | ||||||
Beachcorp, LLC [Member] | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Line of Credit Facility, Description | [1] | Beachcorp, LLC | ||||||
Rate | [1] | 5.25% | ||||||
Total Borrowing Capacity | [1] | $ 1,000 | ||||||
Outstanding Borrowed Balance | [1] | 1,000 | ||||||
Beachcorp, LLC One [Member] | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Line of Credit Facility, Description | [2] | Beachcorp, LLC | ||||||
Rate | [2] | 5.50% | ||||||
Total Borrowing Capacity | [2] | $ 5,938 | 3,753 | |||||
Outstanding Borrowed Balance | [2] | $ 3,835 | $ 3,365 | |||||
Beachcorp, LLC Two [Member] | ||||||||
Line of Credit Facility [Line Items] | ||||||||
Line of Credit Facility, Description | [2] | Beachcorp, LLC | ||||||
Rate | [3] | 5.50% | ||||||
Total Borrowing Capacity | [3] | $ 3,780 | ||||||
Outstanding Borrowed Balance | [3] | $ 2,000 | ||||||
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Related party interest summary: (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
Debt Disclosure [Abstract] | ||||
Interest expense, related parties | $ 68 | $ 911 | $ 107 | $ 1,042 |
Accrued interest expense, related parties | $ 29 | $ 17 | $ 29 | $ 17 |
Inventories consist of the following: (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 6,579 | $ 4,796 |
Finished goods | 2,370 | 1,299 |
Total inventories, net | $ 8,949 | $ 6,095 |
Quantitative information regarding the Company’s leases is as follows: (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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Finance lease cost components: | ||||
Amortization of finance lease assets | $ 11 | $ 14 | $ 22 | $ 28 |
Interest on finance lease liabilities | 1 | 5 | 3 | 11 |
Total finance lease costs | 12 | 19 | 25 | 39 |
Operating lease cost components: | ||||
Operating lease cost | 375 | 146 | 738 | 290 |
Variable lease cost | 160 | 29 | 332 | 60 |
Short-term lease cost | 29 | 11 | 50 | 21 |
Sublease income | (184) | (367) | ||
Total operating lease costs | 380 | 186 | 753 | 371 |
Total lease cost | $ 392 | $ 205 | $ 778 | $ 410 |
Supplemental cash flow information related to leases is as follows for the six months ended June 30, 2022 and 2021: (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
Leases | ||
Operating cash outflow from operating leases | $ 474 | $ 368 |
Weighted-average remaining lease term-finance leases (in years) | 3 months 18 days | 1 year 1 month 6 days |
Weighted-average remaining lease term-operating leases (in years) | 9 years 1 month 6 days | 2 years 10 months 24 days |
Weighted-average discount rate-finance leases | 7.60% | 9.30% |
Weighted-average discount rate-operating leases | 7.60% | 13.40% |
Leases (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Leases | ||
Operating leases, right of use | $ 11,418 | $ 12,075 |
Current portion of operating lease obligations | 1,161 | 589 |
Long-term portion of operating lease obligations | $ 11,067 | $ 11,700 |
Accounts receivable balances for these five customers were approximately: (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Jun. 30, 2021 |
---|---|---|
Accounts receivable | $ 4,013 | $ 2,379 |
Customer One - Personal Care Ingredients [Member] | ||
Accounts receivable | 1,737 | 609 |
Customer Two - Solesence [Member] | ||
Accounts receivable | 798 | 422 |
Customer Three - Solesence [Member] | ||
Accounts receivable | 1,470 | 1,048 |
Customer Four - Solesence [Member] | ||
Accounts receivable | 3 | 194 |
Customer Five - Medical Diagnostics [Member] | ||
Accounts receivable | $ 5 | $ 106 |
Significant Customers and Contingencies (Details Narrative) |
Jun. 30, 2022 |
---|---|
Supply Commitment [Line Items] | |
Equipment sale - net book value | 115.00% |
Supply Commitment [Member] | |
Supply Commitment [Line Items] | |
Equipment sale - net book value | 115.00% |
Equipment sale- original book value | 30.00% |
The revenues, by category, for the three and six months ended June 30, 2022 and 2021 are as follows: (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
Revenue from External Customer [Line Items] | ||||
Sales | $ 11,222 | $ 7,114 | $ 19,378 | $ 14,186 |
Solesence [Member] | ||||
Revenue from External Customer [Line Items] | ||||
Sales | 7,099 | 4,499 | 12,659 | 8,797 |
Personal Care Ingredients [Member] | ||||
Revenue from External Customer [Line Items] | ||||
Sales | 3,305 | 1,780 | 5,687 | 3,176 |
Advanced Materials [Member] | ||||
Revenue from External Customer [Line Items] | ||||
Sales | $ 818 | $ 835 | $ 1,032 | $ 2,213 |
Business Segmentation and Geographical Distribution (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
Product [Member] | Non-US [Member] | ||||
Revenue from External Customer [Line Items] | ||||
Revenues | $ 435 | $ 1,138 | $ 490 | $ 2,423 |
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