Business context and reporting period
This is Nanophase Technologies Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2015. The request metadata names SOLESENCE, INC., but the filing identifies Nanophase Technologies Corporation (OTCQB: NANX). Nanophase develops and manufactures engineered nano- and sub-micron materials for personal care, coatings, polishing, energy and other markets.
Financial results and liquidity
Amounts below are in thousands of dollars, except per-share data and percentages.
| Metric | Q1 2015 | Q1 2014 / prior period |
|---|---|---|
| Total revenue | $2,310 | $2,585 |
| Gross profit / margin | $565 / 24.5% | $708 / 27.4% |
| Operating loss | ($603) | ($427) |
| Net loss | ($606); ($0.02) per share | ($429); ($0.02) per share |
| Cash used in operating activities | ($612) | ($1,068) |
| Cash and cash equivalents at period end | $1,207 | $2,148 at March 31, 2014 |
| Capital lease obligations | $168 total | $191 at December 31, 2014 |
Revenue fell about 11% year over year, primarily due to lower volume from the largest customer, partly offset by increased sales to other customers. Cost of revenue also declined, but gross margin contracted. SG&A rose to $866 from $798, while R&D declined to $302 from $337. Cash decreased $655 during the quarter. Current assets were $3,645 and current liabilities $1,479 at March 31, 2015; the filing reports no outstanding borrowings under its revolving credit facility. Accounts receivable increased to $1,259 from $388 at year-end, while accounts payable increased to $1,009 from $493.
Outlook, risks and unusual items
- Management expected customer adoption and growth in 2015 and beyond, citing accelerating order flows in polishing applications and commercial testing of energy-management products. It cautioned that timing and revenue from development efforts were uncertain.
- Management expected R&D expense to rise by more than 10% from Q1 levels during the remainder of 2015, and SG&A to remain at similar levels. Planned capital spending for the rest of 2015 was estimated at $200–$300, subject to project outcomes.
- Management believed cash, operating cash flow and unused borrowing capacity would fund operating plans through 2015. This outlook is subject to customer demand, working-capital needs, project spending and access to financing.
- Three customers represented approximately 59%, 10% and 8% of Q1 revenue. The company warned that customer loss or reduced orders could materially harm results.
- BASF supply agreements contain provisions that may give BASF technology-transfer and equipment-purchase rights if specified conditions are met, including trailing 12-month losses combined with cash and certain investments below $1 million. Quarter-end cash was approximately $1.2 million. The company said a triggering event could cause substantial revenue and capacity loss.
- A $300 revolving credit facility, limited to the lesser of $300 or 75% of eligible receivables, was entered into in March; no advances had been made. Separately, a $30 lease-support note had no borrowings outstanding.
- On May 4, 2015, after quarter-end, Nanophase gave notice that its Altana supply agreement would end August 20, 2015. It reported no termination penalty and intended to negotiate a new agreement.
- The company reported no material pending legal proceedings, no material change in internal control over financial reporting, and effective disclosure controls. It reported an approximately $80 million tax net operating loss carryforward, some of which may expire unused or be limited.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is Nanophase Technologies Corporation, not SOLESENCE, INC.
- Track cash burn, receivables collection and the cash threshold in the BASF agreements, including the precise contract conditions and any related technology or equipment rights.
- Assess customer concentration and the effect of the Altana agreement’s scheduled expiration, including whether a replacement agreement is reached.
- Compare subsequent revenue, gross margins, R&D spending and capital expenditures with management’s expectations.
- Evaluate whether available cash and borrowing capacity remain sufficient to fund operations and planned investments without dilutive financing.