NANOPHASE TECHNOLOGIES Corp

Previous wording

Nanophase is a health-oriented, science-driven company, which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused on 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 decreased demand for our medical diagnostics ingredients, which are used in testing for various viruses. 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.

Current wording

Nanophase is a health-oriented, science-driven company, which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused on 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 decrease demand for our medical diagnostics ingredients, which are used in testing for various viruses. 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.

Previous wording

Polymerase Chain Reaction (“PCR”) testing for various viruses, most notably SARS-CoV-2 (“COVID-19”), has become a important use of our technology in the life science space. However, we have seen current conditions decrease demand for our medical diagnostics ingredients, which are used in testing for various viruses. 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.

Current wording

Polymerase Chain Reaction (“PCR”) testing for various viruses, most notably SARS-CoV-2 (“COVID-19”), has become an important use of our technology in the life science space. However, we have seen current conditions decrease demand for our medical diagnostics ingredients, which are used in testing for various viruses. 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.

Previous wording

Total revenue increased to $13,046 for the three months ended June 30, 2024, compared to $11,872 for the same period in 2023. Total revenue increased to $22,914 for the six months ended June 30, 2023, compared to $21,329 for the same period in 2023. A substantial majority of our revenue was from our four largest customers for the three- and six-month periods ended June 30, 2024, and 2023, respectively. This reflects sales of APIs to our largest customer in skin care and sunscreen applications and, our three largest customers for our finished skin health products marketed through our Solésence subsidiary. This is the revenue breakdown, as a percentage of total revenue, from the four customers referenced above:

Current wording

Total revenue increased to $16,866 for the three months ended September 30, 2024, compared to $7,958 for the same period in 2023. Total revenue increased to $39,780 for the nine months ended September 30, 2024, compared to $29,286 for the same period in 2023. Much of our revenue was from our largest customers for the three- and nine-month periods ended September 2024, and 2023, respectively. This reflects sales to our largest customers for our finished skin health products marketed through our Solésence subsidiary and sales of APIs to our largest customer in skin care and sunscreen applications. This is the revenue breakdown, as a percentage of total revenue, from the customers referenced above during the three- and nine- months periods ended September 2024, and 2023 respectively:

Previous wording

Product revenue, the primary component of our total revenue, increased to $12,923 for the three months ended June 30, 2024, compared to $11,844 during the same period of 2023, and increased to $22,694 for the six months ended June 30, 2024, compared to $21,180 during the same period of 2023. This increase was due to continued growth in the adoption of our Solésence® products, partially offset by a decrease in API sales to our largest customer in our personal care ingredients business. We saw little revenue from medical diagnostics materials in 2024 and 2023.

Current wording

Product revenue, the primary component of our total revenue, increased to $16,785 for the three months ended September 30, 2024, compared to $7,746 during the same period of 2023, and increased to $39,479 for the nine months ended September 30, 2024, compared to $28,925 during the same period of 2023. The three-month and nine-month increase in product revenue were due to higher sales in our Solésence® and Personal Care Ingredients product categories offset by lower sales in our Advanced Materials product category.

Previous wording

Other revenue increased to $123 and $220 for the three- and six-month periods ended June 30, 2024, compared to $28 and $149 for the same periods in 2023, respectively. Other revenue is typically comprised primarily of developmental or licensing fees.

Current wording

Other revenue decreased to $81 and $301 for the three- and nine-month periods ended September 30, 2024, respectively, compared to $212 and $361 for the same periods in 2023, respectively. Other revenue is typically comprised primarily of developmental or licensing fees.

Previous wording

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $9,306 for the three months ended June 30, 2024, compared to $8,197 for the same period in 2023, and increased to $15,594 for the six months ended June 30, 2024, compared to $15,505 for the same period in 2023. The increase for the three months in the cost of revenue was driven by higher demand and manufacturing inefficiencies. The increase for the six months in cost of revenue was primarily driven by increased volume and manufacturing inefficiencies related to Solésence® product launches. While we typically pass-through costs to our customers, we sometimes cannot pass through 100% of pricing increases on raw materials, and even with pass throughs, our gross margin percentage is negatively impacted by higher material costs.

Current wording

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $10,764 for the three months ended September 30, 2024, compared to $6,428 for the same period in 2023, and increased to $26,358 for the nine months ended September 30, 2024, compared to $21,932 for the same period in 2023. The increase for the three months in the cost of revenue was primarily driven by increased volume, manufacturing operating inefficiencies, and facilities improvements. The increase for the nine months in cost of revenue was primarily driven by increased volume, price inflation on materials, manufacturing operating inefficiencies and facilities improvements. 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.

Previous wording

Our business has a certain cyclicality of demand, often based upon seasonal demands, industry launch cycles, or a confluence of both. Capacity 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 through 2024 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. We expect to continue to focus on reducing controllable variable product manufacturing costs, with potential variability related to the commodity metals markets and cost and wage inflation but may or may not realize gross margin percentage growth through 2024 and beyond, dependent upon the factors discussed above.

Current wording

Capacity 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 through 2024 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. Our most critical operational issue today is reducing controllable variable product manufacturing costs.

Previous wording

Research and development expense decreased to $864 for the three months ended June 30, 2024, compared to $991 for the same period in 2023. For the six months ended June 30, 2024 research and development expense decreased to $1,776 compared to $1,994 for the same period in 2023. The decrease is due in large part to decreased legal costs related to research and development in 2024 compared to 2023.

Current wording

Research and development expense decreased to $970 for the three months ended September 30, 2024, compared to $1,057 for the same period in 2023. For the nine months ended September 30, 2024 research and development expense decreased to $2,746 compared to $3,052 for the same period in 2023. The decrease is due in large part to decreased legal costs related to research and development, and salaries in 2024 compared to 2023.

Previous wording

Selling, general and administrative expense decreased to $1,829 for the three months ended June 30, 2024, compared to $2,105 for the same period in 2023. For the six months ended June 30, 2024, selling, general and administrative expense decreased to $3,388, compared to $4,255 for the same period in 2023. The decrease is due in large part to decreased legal costs in 2024 compared to 2023.

Current wording

Selling, general and administrative expense increased to $1,934 for the three months ended September 30, 2024, compared to $1,695 for the same period in 2023. The increase is due to an increase in the allowance for credit loss and increased employee-related costs in 2024 to when compared to 2023. For the nine months ended September 30, 2024, selling, general and administrative expense decreased to $5,321, compared to $5,951 for the same period in 2023. The decrease is due to lower legal costs in 2024 when compared to 2023.

Previous wording

Cash, cash proceeds and use of cash for the six months ended June 30, 2024, 2023, and year ended December 31, 2023 were:

Current wording

Cash, cash proceeds and use of cash for the nine months ended September 30, 2024, 2023, and year ended December 31, 2023 were:

Previous wording

The net cash used during the six months ended June 30, 2024 was primarily due to increased inventory and changes in the accounts receivable and accounts payable balances. Net cash used in investing activities was attributable to expenditures on capital equipment for all periods presented above. The net cash provided by financing activities was attributable to the issuance of preferred stock subsequently converted to common stock. The Company’s loan agreements with Strandler, LLC and Beachcorp. LLC currently are set to expire on October 1, 2025.

Current wording

The net cash used in operating activities during the nine months ended September 30, 2024 was primarily due to increased accounts receivable and inventory offset by net income and increased customer deposits. Net cash used in investing activities was attributable to expenditures on capital equipment for all periods presented above. The net cash provided by financing activities was attributable to the issuance of additional common stock.

Previous wording

Our actual future capital requirements in 2024 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 2024 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 2024 capital investment to exceed the top of this range.

Current wording

Our actual future capital requirements in 2024 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 2024 will be between $1 million and $2 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 2024 capital investment to exceed the top of this range.

Previous wording

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 2024 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 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 Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federa…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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 2024 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 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 a…

Excerpt shortened here; the source contains the full paragraph.