See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited Consolidated Condensed)

See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited Consolidated Condensed)

(In thousands except share data)

See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited Consolidated Condensed)

See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited Consolidated Condensed)

(in thousands, except share and per share data)

See Notes to Consolidated Condensed Financial Statements. 

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited Consolidated Condensed)

(in thousands except share and per share data)

See Notes to Consolidated Condensed Financial Statements. 

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(Unaudited Consolidated Condensed)

(In thousands except share data)

See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited Consolidated Condensed)

See Notes to Consolidated Condensed Financial Statements.

NANOPHASE TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED CONDENSED 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 presentation of our financial position and operating results for the interim periods presented. All statements include the results from both Nanophase and our wholly-ownedwholly owned subsidiary, Solesence,Solésence, LLC (“Solésence,sence®,” or our “Solésence^®sence® subsidiary”). Operating results for the three and nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.   2020.

These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2018,2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the Securities and Exchange Commission.

(2)         Going Concern / Liquidity

We believe that cash from operations and cash on hand, cash from our May 13, 2019 and November 13, 2019 financings, in addition to unused borrowing capacity, shouldmay not be adequate to fund our operating plans through 2019,September 30, 2021. We are working to reduce these risks, but some of this is dependent on several things, oversome of which we have limited control. Our largest customer consistingmade up 63% of 64%our 2019 revenue and has seen a significant reduction in orders placed to us in 2020. We have also seen a rapid increase in sales of revenue for the nine-months ended September 30, 2019, had a revenue decreaseour Solésence® products, adding working capital pressure in terms of 20% from the same time last year. This decline hasadditional inventory and accounts receivable. Both of these issues have limited our flexibility and required us to make cash management a top priority. TheAfter April 17, 2020, some of this pressure was mitigated due to our receipt of a $952 loan under the Paycheck Protection Program (the “PPP”), as discussed more fully below. We also have a $500 term loan, and revolving credit facility with a maximum credit limit of $2,750, both described more fully below, with principal due on March 31, 2021. In the event that we are unable to either extend the maturity, or potentially refinance this loan, we may have difficulty funding ongoing operations. Notwithstanding the fact that visibility into the ongoing impact of the various reactions and policies relating to, the Covid-19 pandemic is limited, it is currently management’s belief that we will continue to achieve strong growth in our Solésence^® business increased 56% forsence® sales through 2020. Given these issues, and other commercial realities, we are monitoring the nine months ended September 30, 2019 compared to the same time last year. Weadditional working capital demands that this could create as we continue to viewexecute on our Solésence^® as a critical strategic undertakingsence® growth strategy. It is also management’s belief that the Covid-19 pandemic, related governmental reaction, and may require additional investment in working capital. Our current planresulting economic slow-down has, and is expected to continue, to investaffect certain consumer behaviors and markets has had a negative impact on its Personal Care Ingredients customers during 2020, with a current lack of visibility as to how far this impact may extend in Solésence^®-related operating expensesto 2021. Management believes the outlook after the fourth quarter is uncertain, but a continuation of the Covid-19 pandemic and capital equipment. Givenrelated reactions and policies going forward would be expected to maintain a degree of negative impact on the decline related toCompany and its businesses. While customer demand over the next several months is currently known, Management believes the negative impacts late in the fourth quarter and, if applicable, thereafter, are not currently quantifiable. The timing of cash flows is critical. If cash generated from operations is not materially consistent with our largest customer, as well as our investment in Solésence^®, it is possibleplans, we believe that we may need to seek additional funding to address working capital demands withindemands. The trading volume of our stock has been low enough that we expect it would be difficult to sell enough shares, assuming our shareholders would approve the authorization of additional shares, to generate additional capital via the OTC market. These uncertainties have caused us to be unable to assert that, for the next twelve months.months, we have enough current cash, guaranteed access to financing to fund operations, or access to cash in the equity markets to continue with our current growth strategy in terms of investment in capital equipment and in operating expenses related to Solésence®.

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (SARS-CoV-2) to be a global pandemic (COVID-19), which continues to spread throughout the United States and around the world. On April 23, 2020, the Governor of the State of Illinois extended his order that all non-essential businesses cease all activities within the State of Illinois except for certain minimum basic operations through May 30, 2020, and such executive order has been temporarily lifted. Given the uncertain progress toward combatting the SARS-CoV-2 virus, we expect there to be further disruptions in the local, national, and global economies. During these disruptions, we are doing everything we can to allow as many of our employees as possible to shelter-in-place. Relative to any further executive orders in Illinois, management believes that Nanophase Technologies and its Solésence® subsidiary qualify as essential businesses as defined, due to our product offerings supporting healthcare, and critical manufacturing and chemical products within sectors that have been designated as critical infrastructure, the continued operation of which is vital for national public health, economic security, and safety.

The Company believes that its customers and suppliers may have similar disruptions, which may lead to greater reductions in their normal operations as a result of responses to the coronavirus pandemic in Illinois and in other jurisdictions in the United States and worldwide.  Currently, the Company is consequently aware of changes in its business as a result of the coronavirus pandemic, but uncertain of the impacts of those changes on its consolidated statements of position, operations or cash flows.  As of the date of this filing, we are reasonably confident in customer demand through 2020 and in to the first quarter of 2021. Demand for the second quarter of 2021, and the subsequent quarter, is not yet clear to management. We believe thatthe resulting cessations, reductions, and disruptions in its customers’ and suppliers’ operations could be temporary; however, the Company’s management also believes the duration and, hence, the potential impact of such cessations, reductions, and disruptions is currently unknowable.  As a result, although we will be able to secure additional financing, butbelieve we do not have any financing commitments in place. However, we may not be able to secure additional financing in a timely manner under commercially reasonable terms, or at all. Ifacceptable visibility through the first quarter of 2021, conditions are fluid and our estimates regarding the first quarter and beyond could prove inaccurate. Moreover, we are unable to secure additional financing, we would need to reevaluateclearly estimate the Company’s strategy, includingpotential impact on our Solésence^® growth strategy, and lower investment and expenses accordingly. This could impede growth in 2020 and beyond. business for the balance of the year as of the date of this filing.

These circumstances raise significant doubt as to the Company’s ability to operate as a going concern under U.S. GAAP. The accompanying financial statements have been prepared on a going concern basis in accordance with U.S. GAAP. As such, no adjustments have been made to the unaudited condensed consolidated financial statements for the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue operating as a going concern.

(3) Summary of Significant Accounting Policies

Recently Adopted Financial Accounting Standards

On January 1, 2019,April 17, 2020, the Company adopted Accounting Standards Updatereceived funding in the form of a loan under the “PPP,” under Division A, Title I of Coronavirus Aid, Relief, and Economic Security Act (“ASU”CARES Act”) No. 2016-02, Leases, ASU No. 2018-10, Codification Improvements to Topic 842 (Leases) and ASU No. 2018-11, Targeted Improvements to Topic 842 (Leases).  The guidance is intended to increase transparency and comparability among companies for leasing transactions, including a requirement for companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations created by those leases. The guidance also provides for disclosures that allow the users of financial statements to assess, in the amount timing,of $952 which helped us to continue to pay our people, rent and uncertaintyutilities during the second quarter. Under the PPP, the Company may apply for forgiveness of cash flows arising from leases.

The Company adopted the guidanceamount due on January 1, 2019 using the modified retrospective method without restatementloan in an amount equal to the sum of comparative periods. As such, periods prior tothe following costs incurred during the 24-week period beginning on the date of adoption are presentedthe first disbursement of the Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with ASC 840 - Leases.the terms of the CARES Act. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. The principal amount of the PPP note accrues interest at the rate of 1.00% per year. The Company utilized the available practical expedient that allowed for the Companywill be required to not reassess whether existing contracts contain a leasepay any unforgiven principle and interest under the new definitionPPP note in eighteen equal monthly installments, with the first payment being due on a date yet to be determined. The Company is in the process of a lease, lease classificationapplying for existing leasesloan forgiveness and whether previously capitalized initial direct costs would qualify for capitalization underdoes not expect resolution until the new guidance.first quarter of 2021.

(3) Description of Business

The adoption of this guidance had a material impact on the Consolidated Condensed Balance Sheet as of September 30, 2019 due to the recognition of equal right-of-use assets and lease liabilities for the Company’s portfolio of operating leases. The right-of-use asset balance was then adjusted by the reclassification of pre-existing accrued rent balances from other line items within the Consolidated Condensed Balance Sheet. The adoption had an immaterial impact to the Consolidated Condensed Statement of Cash Flows and to the Consolidated Condensed Statement of Operations for the three and nine months ended September 30, 2019. The adoption had no impact to the Consolidated Condensed Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019. Additional information and disclosures required by the new standard are contained in Note 10, Leases.

(4) Description of Business

Nanophase Technologies Corporation (“Nanophase,” “Company,” “we,” “our,” or “us”) is a skinscientifically-driven company which, along with its wholly-owned subsidiary, Solésence, LLC (our “Solésence^® subsidiary”), is focused in various beauty- and sun care focused company that offerslife-science markets. Skin health and medical diagnostics combined currently make up the great majority of our business and drive our forward growth strategy. We offer engineered materials, formulation development and commercial manufacturing withthrough an integrated family of technologies. We look at our productsOur expertise in three major product categories; Personal Care Ingredients,material engineering allows us to effectively coat and disperse particles on a nano and “non-nano” scale for use in a variety of markets in skin care, including for use in sunscreens as active ingredients; Solésence, including full formulations ofingredients and as fully developed prestige skin care products, marketed and sold bythrough our wholly-owned subsidiary, Solesence, LLC (“Solésence,” or our “Solésence^® subsidiary”); and Advanced Materials, includingsubsidiary. In terms of our life sciences focus, we have seen current conditions significantly increase demand for our medical diagnostics ingredients, as testing for various viruses, most notably Covd-19, has become a critical use of our technology. Additionally, we continue to sell products in markets for architectural andcoatings, industrial coating applications, abrasion-resistant additives, plastics additives, medical diagnostics, and a variety of surface finishing technologies (polishing). applications— all of which, along with medical diagnostics, fall into the advanced materials product category.

We target markets, in whichprimarily related to skin health products and ingredients, and diagnostic life sciences ingredients where we believe our materials and products offer practical solutions may be found using our products.and competitive minerals-based solutions. We traditionally work closely with current and potential customers in these target markets to identify their material and performance requirements and market our materials to various end-use applications manufacturers, and our Solésence^® products to cosmetics and skin care brands. Over the past few years, we have expanded our marketing efforts for our Solésence products and are seeing more customers responding to our successful products being sold into their markets. Recently developed technologies have made certain new products possible and opened potential new markets. TheDuring 2015 we were granted a patent granted in 2015, foron a new type of particle surface treatment (coating) — now called Active Stress Defense™Defense ™ Technology — which became the cornerstone of our new product development in personal care.care, with first revenue recognized during 2016. In addition, through the creation of our Solésence^® subsidiary, we utilize this particle surface treatment to manufacture and sell fully developed solutions to targeted customers in the skin care industry, in addition to the ingredients we have traditionally sold in the personal care area. We are currently in the process of expanding our patented technologies relating to Solesence applications. 

Although our primary strategic focus has been the North American market, we currently sell material to customers overseas and have been working to expand our reach within foreign markets. The Company was incorporated in Illinois on November 25, 1989 and became a Delaware corporation during November 1997. 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 Condensed Statements of Operations, as it does not represent revenue directly from the sale of our products.

(5)

(4) Revenues

Revenues are recognized at a point in time, typically when control of the promised goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods.

CustomersDeferred revenue includes customer deposits deferred revenue and other receipts that are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s Consolidated Condensed Statement of Operations. Customer deposits, $344$309 as of September 30, 2019,2020, have been classified as deferred revenue. At December 31, 2018,2019, customer deposits were immaterial.amounted to $575.

On July 31, 2019, we entered into a Joint Development Agreement (“JDA”), with an initial term of ten years, with Sumitomo Corporation of Americas (“SCOA”) to jointly develop certain coated materials for the use in the personal care market. In return for the Company’s exclusive efforts on SCOA’s behalf, SCOA has agreed to paypaid a commitment fee of $250 and will pay two subsequent payments, of $125 each.each, for the development of products. The two subsequent payments are contingent upon the achievement of certain performance obligations as defined in the agreement.

We began recognizing revenue from the commitment fee in November 2019 and will continue to do so as we fulfill our contractual performance obligations. In the case of the SCOA JDA, the Company is recognizing revenue over time using an input method. If the Company elects to terminate the agreement within the terms allowed and prior to achieving the initial performance obligations, the original $250 must be refunded.

As of September 30, 2019,2020, the Company has not yet started fulfillingrecognized $250 in cumulative revenue from the SCOA JDA, of which $47 and $229 was recognized in the three and nine months ended September, 30 of 2020. The Company has recognized this revenue proportionally, based upon its performance obligations, and as such, the $250 received is recorded as deferred revenue, split between current and long-term, based on the Company’s estimate of the period over which the performance obligation willis expected to be completed. Revenue will be recognized proportionally to the Company’s completion of the performance obligations.

(6)(5) Earnings Per Share

Earnings (Loss) per share is computed using the Treasury Stock Method. Options to purchase approximately 165,000 and 497,000 shares of common stock that were outstanding as of September 30, 2019 for the three and nine months ended September 30, 2019, respectively, were not included in the computation of diluted earnings (loss) per share, as the impact of such shares would be anti-dilutive. Options to purchase approximately 1,119,000 and 820,000 shares of common stock that were outstanding as of September 30, 2018 were not included in the computation of loss per share for the three and nine months ended September 30, 2018,2019, respectively, as the impact of such shares would be anti-dilutive.

(7)(6) Financial Instruments

We follow the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 and cash equivalents, accounts receivable, accounts payable and accrued expenses, along with the promissory note with no related borrowings described in Note 8,7, and any borrowings on the working capital line of credit from Libertyville Bank and Trust and any borrowings under the Master Agreement from Beachcorp, LLC described below in Note 8.7. The fair values of all financial instruments were not materially different from their carrying values. There were no financial assets or liabilities adjusted to fair value on September 30, 20192020 or December 31, 2018.2019.

(8)

(7) Notes and Line of Credit

During July 2014 we entered into a bank-issued letter of credit and related promissory note for up to $30 in borrowings to support our obligations under our facility lease agreement. No borrowings have been incurred under this promissory note. Should any borrowings occur in the future, the interest rate would be the prime rate plus 1%, with the bank having the right to “set off” or apply unpaid balances against our checking account if we fail to meet our obligations under any borrowings under the note. It is our intention to renew this note annually, for as long as we need to do so pursuant to the terms of our facility lease agreement. This note was renewed through July 1, 2020.2021. Because there were no amounts outstanding on the note at any time during 20192020 or 2018,2019, we have recorded no related liability on our balance sheet.

On March 22, 2019, we executed a New Business Loan Agreement, dated as of March 4, 2019 (the “Loan Agreement”), with Libertyville Bank and Trust Company, a Wintrust Community Bank (“Libertyville”), our primary bank, the maturity of which replaces the Linewas extended until April 20, 2021 pursuant to an amended and restated Promissory Note executed on June 25, 2020, and dated as of Credit Agreement with Libertyville having a maturity date of March 4, 2019. The New Business Loan Agreement matures on MarchApril 4, 2020. Under the New Business Loan Agreement, Libertyville will provideprovided a maximum of (i) $500 or (ii) two times the sum of (a) 75% our eligible accounts receivables and (b) our cash deposited with Libertyville, whichever is less, of revolving credit to us, collateralized by a senior priority lien on our accounts receivable, inventory, equipment, general intangibles and fixtures. Interest iswas payable monthly on any advances at a floating interest rate of the prime rate at the time plus 1%. We mustare required to have $500 in cash, inclusive of the borrowed amount, at Libertyville on the date of any advance. Advances maycould only occur at the beginning or end of a fiscal quarter and mustwere required to be repaid in full within five business days of the advance. As ofWe borrowed $500 on September 29, 2020 and repaid it on October 2, 2020. We borrowed $500 on June 29, 2020 and repaid it on July 1, 2020. We borrowed $500 on March 30, 2019, the outstanding balance2020 and repaid it on this loan was $500. There was no outstanding balanceApril 2, 2020. We borrowed $500 on this loan at December 31, 2018.2019 and repaid it on January 2, 2020.

On November 16, 2018, we entered into a Business Loan Agreement (the “Master Agreement”) with Beachcorp, LLC. Beachcorp, LLC is managed by Bradford T. Whitmore, who, together with his affiliates Grace Brothers, Ltd. and Grace Investments, Ltd., beneficially owned approximately 53%63% of the outstanding shares of our common stock as of May 13, 2019, pursuant to our 2019 financing.September 30, 2020. The Master Agreement relates to two loan facilities, each evidenced by separate promissory notes, each dated November 16, 2018: a term loan to the Company of up to $500 to be disbursed in a single advance (the “Term Loan”) with a fixed annual interest rate of 8.25%, payable quarterly, accruing from the date of such advance and with principal due on December 31, 2020; and an asset-based revolving loan facility for the Company of up to $2,000 (the “Revolver Facility”), with floating interest accruing at the prime rate plus 3% (8.25% minimum) per year, with a borrowing base consisting of qualified accounts receivable of the Company, and with all principal and accrued interest initially to be due March 31, 2020. On March 23, 2020, the Company and Beachcorp, LLC executed the First Amendment to our Master Agreement that extends the maturities of both the Term Loan and the Revolver Facility to March 31, 2021. On September 8, 2020, the Company executed an updated Promissory Note to, and a Second Amendment to the Business Loan Agreement with Beachcorp, LLC, expanding the capacity of the Revolver Facility from $2,000 to $2,750. The Term Loan and Revolver Facility are secured by all the unencumbered assets of the Company and subordinated to Libertyville’s secured interest under the New Business Loan Agreement. The Master Agreement substantially restricts the Company’s ability to incur additional indebtedness during the terms of both the Term Loan and the Revolver Facility. On September 30, 2019,2020, the balance on the term loan was $500 and the balance on the Revolver Facility was $1,103. For$1,541. There was $34 in related interest expense during the three monthsquarter ended September 30, 2020, of which $12 was accrued and nine months$22 paid by the end of the quarter. There was $47 in related interest expense during the quarter ended September 30, 2019, interest expense was $47 and $140, respectively, compared to the same periods in 2018 of $12 and $32, respectively. For the nine months ended September 30, 2019, $14which $9 was accrued and $126 paid.$18 paid by the end of the quarter. As Beachcorp, LLC is an affiliate of one of our shareholders, $91 isMr. Whitmore, this amounts to interest withto be paid to a related party, of which $77 was paid and $14 was owed. There was a one-time amendment to the credit agreement allowing a 30 day extended Account Receivable eligibility for one of our largest customers. With this amendment,party. On September 30, 2019 borrowings were within2020, the amended credit agreement line, with an additional $233 available.Company had $734 in excess borrowing capacity over the $1,541 balance on the Revolver Facility. The balance of borrowing base, loan amount, and any excess payments required over the available borrowing base will change as frequently as daily, given the operational nature of the elements of the Revolver Facility.

(9)

On November 20, 2019, we entered into a 2% Secured Convertible Promissory Note with Bradford T. Whitmore in the principal amount of $2,000 (the “Convertible Note”). The principal amount is payable in a single payment on May 15, 2024 (the “Maturity Date”). The principal amount of the Convertible Note accrues interest at the rate of 2.0% per year, which interest is payable semi-annually on the 15th day of May and November, commencing on May 15, 2020. The principal amount and, at the holder’s option, accrued interest under the Convertible Note is convertible at the holder’s option into additional shares of the Company’s common stock in whole or in part and from time to time up to the Maturity Date at a conversion price of $0.20 per share. The convertible note contains a beneficial conversion feature since the Company’s stock was trading at $0.32 per share on the date the Company entered into the agreement. The intrinsic value of the beneficial conversion feature was $1.2 million on November 20, 2019 and is recorded as a discount on the convertible note. The discount will be accreted to the convertible note over the life of the note using the straight-line method. The offset to these discounts will be interest expense. For the three and nine months ended September 30, 2020, the Company accreted $67 and $200, respectively. The balance on the convertible note was $1,030 and $830, net of discounts of $1,103 and $1,170 at September 30, 2020 and December 31, 2019, respectively.

On September 30, 2020, the balance on the term loan was $500, the balance on the Revolver Facility was $1,541, the balance on the Convertible Note was $2,000. In the nine months ended September 30, 2020, there was $334 in interest expense relating to these credit facilities held by Beachcorp, LLC. The accrued interest expense balance on these related party credit facilities amounted to $27, and $10, at September 30, 2020 and December 31, 2019, respectively. The obligations under the Convertible Note are secured by a security interest in all of the Company’s personal property pursuant to a Commercial Security Agreement among Mr. Whitmore, the Company and Solésence, LLC, the Company’s sole subsidiary. Given that Beachcorp, LLC is an affiliate of Mr. Whitmore, this amounts to all of this interest being owed to a related party.

On April 17, 2020, we entered into a Promissory Note, dated as of April 16, 2020, in favor of Libertyville in the principal amount of $952 for our loan under the PPP. The Company may apply for forgiveness of the amount due on the loan in an amount equal to the sum of the following costs incurred during the 24-week period beginning on the date of the first disbursement of the Loan: (a) payroll costs, (b) any payment of interest on a covered obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), (c) any payment on a covered rent obligation, and (d) any covered utility payment, calculated in accordance with the terms of the CARES Act. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part. The principal amount of the PPP note accrues interest at the rate of 1.00% per year. The Company will be required to pay any unforgiven principle and interest under the PPP note in eighteen equal monthly installments, with the first payment being due on November 17, 2020 and continuing on the same day of each subsequent month until April 17, 2022. On September 30, 2020, the balance under the PPP note was $952.

(8) Inventories

Inventories consist of the following:

(10)(9) Leases

The Company’sCompany's operating lease portfolio is comprised of operating leases for office, warehouse space and equipment. Certain of the Company’sCompany's leases include one or more options to renew or terminate the lease at the Company’sCompany'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.

The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $2,556 with a corresponding right-of-use (“ROU”) asset of $2,212 based on the present value of the minimum rental payments of such leases. The variance between the ROU asset balance and the lease liability is deferred rent liability that existed prior to the adoption of the ASC 842 and was offset against the ROU asset balance during the adoption.

As of September 30, 2019,2020, the ROUoperating lease right-of-use “ROU” asset had a balance of $2,198$1,917 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities related to the ROU asset of $361$411 and $2,128 respectively,$1,766 respectively. As of December 31, 2019, the ROU asset had a balance of $2,119 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities related to the ROU asset of $357 and $2,035 respectively. These are included in the “Current portion of operating lease obligations” and “Long-term portion of operating lease obligations”obligations, net of current portion” line items of these condensed consolidated financial statements. 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. The Company has elected to utilize the available practical expedient to not separate lease and non-lease components.

Quantitative information regarding the Company’s leases is as follows:

Supplemental cash flow information related to leases is as follows for the nine months ended September 30, 2019:ended:

The future maturities of the Company’s finance and operating leases as of September 30, 20192020 is as follows:

(11)(10) Share-Based Compensation

We follow FASB ASC Topic 718, Compensation – Stock Compensation, in which compensation expense is recognized only for share-based payments expected to vest. We recognized compensation expense related to stock options of $48 and $147 for the three and nine months ended September 30, 2020, respectively, compared to $64 and $179 for the three and nine months ended September 30, 2019, respectively, compared to $58 and $146 for the three and nine months ended September 30, 2018, respectively.

As of September 30, 2019,2020, there was approximately $422$290 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock option plans. That cost is expected to be recognized over a remaining weighted-average period of 1.8 years.

Stock Options and Stock Grants

During the nine months ended September 30, 2020, 78,277 stock options were exercised for $23. During the nine months ended September 30, 2019, 36,000 stock options were exercised for $16.  During the nine months ended September 30, 2018, 63,999 shares of common stock were issued pursuant to stock option exercises for proceeds of $29.  During the nine months ended September 30, 2019, 547,5002020, 535,000 stock options were granted, compared to 570,500547,500 stock options granted during the same period in 2018.2019. During the nine months ended September 30, 2019, 130,5002020, 460,640 stock options expired compared to 188,504130,500 for the same period in 2018.2019. For the nine months ended September 30, 2019, 48,6002020, 202,134 stock options were forfeited compared to 31,60148,600 for the same period in 2018.2019. We had 3,507,073 stock options outstanding at a weighted average exercise price of $0.58 on September 30, 2020, compared to 3,747,400 stock options outstanding at a weighted average exercise price of $0.64 on September 30, 2019, compared to 3,415,000 stock options outstanding at a weighted average exercise price of $0.67 on December 31, 2018.2019.

No stock options were granted in the three-month periods ending September 30, 20192020 and 2018.2019.

The following table illustrates the various assumptions used to calculate the Black-Scholes option pricing model for stock options granted during the three months and nine months periods presented:

As of September 30, 2019,2020, we did not have any unvested restricted stock or performance shares outstanding.

(12)(11) Significant Customers and Contingencies

Revenue from threefour customers constituted approximately 75%30%, 5%18%, 16% and 4%16%, respectively, of our total revenue for the three months ended September 30, 2020. For the nine months ended September 30, 2020, revenue from the same four customers was approximately 20%, 32%, 13% and 14%, respectively. Amounts included in accounts receivable on September 30, 2020 relating to these four customers were approximately $901, $328, $291 and $420, respectively. Revenue from these four customers constituted approximately 0%, 75%, 0% and 4%, respectively, for the three months ended September 30, 2019. For the nine months ended September 30, 2019, revenue from the same threefour customers was approximately 4%, 64%, 3%0%, and 9%, respectively. Amounts included in accounts receivable on September 30, 2019 relating to these threefour customers were approximately $0, $1,042, $116$0 and $122, respectively.  Revenue from these three customers constituted approximately 73%, 4% and 12%, respectively, for the three months ended September 30, 2018. For the nine months ended September 30, 2018, revenue from the same three customers was approximately 73%, 3% and 8%, respectively. Amounts included in accounts receivable on September 30, 2018 relating to these three customers were approximately $1,171, $120 and $388, respectively. The loss of one of these significant customers, a significant decrease in revenue from one or more of these customers, or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.

We currently have exclusive supply agreements with BASF Corporation (“BASF”), our largest customer, that have contingencies outlined which could potentially result in the license of technology and/or the sale of production equipment from the Company to the customer intended to provide capacity sufficient to meet the customer’s production needs. This outcome may occur if we fail to meet certain performance requirements, certain other obligations and/or certain financial condition covenants. The financial condition covenants in one of our supply agreements with BASF “trigger” a technology transfer right (license and equipment sale at BASF’s option) in the event (a) that earnings for the twelve-month period ending with our most recently published quarterly financial statements are less than zero and a minimum of $1 million in total of certain assets of which at least $500 must be in cash, cash equivalents and certain investments, with the balance being composed of certain inventory and receivables, is not maintained or (b) of an acceleration of any debt maturity having a principal amount of more than $10 million. There are certain minimum finished goods inventory requirements with the 2019 amendment to the supply agreement. This agreement also requires Nanophase to maintain certain finished goods inventory levels as “safety stock,” beginning in the first quarter of 2019, and increasing through the third quarter of 2019 to a negotiated level based on agreed demand metrics, in order to maintain the $500 non-cash component discussed above. After September 30, 2019, should our safety stock fall below the prescribed amount of material, the quarter-end cash requirement would revert to $1,000 in cash, cash equivalents, and certain investments. As of September 30, 2019, safety stock did not meet the prescribed amount of material. However, cash, cash equivalents, and eligible accounts receivable exceeded the minimum $1,000 required as of September 30, 2019. The safety stock requirement may be adjusted upon mutual agreement.

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.

Current cash and credit availability should be sufficient (see the description of our New Line of Credit Agreement with Libertyville and the Master Agreement with Beachcorp, LLC (described in Note 8) to operate our business through the balance of 2019. 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. Finally, any shortfall in capital needed to operate the business as management intends, including with respect to avoiding this triggering event as described above, may result in a curtailment of certain activities or anticipated investments.

We expect to expend resources on research, development and product testing, and in expanding current capacity or capability for new business. In addition, we may incur significant costs in preparing, filing, prosecuting, maintaining and enforcing our patents and other proprietary rights. We may need additional financing if we were to lose an existing customer or suffer a significant decrease in revenue from one or more of our customers or because of currently unknown capital requirements, new regulatory requirements or the need to meet the cash requirements discussed above to avoid a triggering event under our BASF agreement. Given our expected growth in our Solésence^®sence® business, we may also have temporary working capital demands that we cannot fund with existing capital, while remaining in compliance with the covenants included in our BASF agreement described above. If necessary, we may seek funding through public or private financing and through contracts with governmental entities or other companies. Additional financing may not be available on acceptable terms or at all, and any such additional financing could be dilutive to our shareholders. If we are unable to obtain adequate funds, we may be required to delay, scale-back or eliminate some of our manufacturing and marketing operations or we may need to obtain funds through arrangements on less favorable terms. Such circumstances could raise doubt as to our ability to continue as a going concern. If we obtain funding on unfavorable terms, we may be required to relinquish rights to some of our intellectual property.

On July 31, 2019, we entered into a Joint Development Agreement, with an initial term of ten years, with Sumitomo Corporation of Americas (“SCOA”) to jointly develop certain coated materials for the use in the personal care market. In return for the Company’s exclusive efforts on SCOA’s behalf, SCOA has agreed to pay a commitment fee of $250 and two subsequent payments, of $125 each. The two subsequent payments are contingent upon the achievement of certain performance obligations as defined in the agreement.

If the Company elects to terminate the agreement within the terms allowed and prior to achieving the initial performance obligations, the original $250 must be refunded. As of September 30, 2019, the Company has not yet started fulfilling its performance obligations, and as such, the $250 received is recorded as deferred revenue, split between current and long-term, based on the Company’s estimate of the period over which the performance obligation will be completed. Revenue will be recognized proportionally to the Company’s completion of the performance obligations.

(13)(12) Business Segmentation and Geographical Distribution

Revenue from international sources approximated $34$1,242 and $2,747 for the three and nine months ended September 30, 2020, respectively, compared to $33 and $734 for the three and nine months ended September 30, 2019, respectively, compared to $152 and $335 for the three and nine months ended September 30, 2018, respectively. All of this revenue was product revenue.

Our operations comprise a single business segment and all our long-lived assets are located within the United States. We categorize our revenue stream into three main product categories, Personal Care Ingredients, Advanced Materials and Solésence^®sence®. The revenues for the three months and nine months ended September 30, 20192020 and 2018,2019, by category, are as follows:

(14) Subsequent Events

On November 13, 2019, we entered into a Securities Purchase Agreement (the “SPA”) with Mr. Whitmore pursuant to which he agreed to purchase a Convertible Note from the Company for $2,000,000 and otherwise including representations, warranties and covenants which are customary for similar transactions.  The transactions contemplated by the SPA are expected to close on November 20, 2019.

Pursuant to the SPA, the Company has agreed to issue a 2% Secured Convertible Promissory Note in the original principal amount of $2,000,000 (the “Convertible Note”), the principal amount of which is payable to the order of Mr. Whitmore and his registered assigns and successors in a single payment on May 15, 2024 (the “Maturity Date”). The principal amount and, at the holder’s option, accrued interest under the Convertible Note is convertible at the holder’s option into additional shares of the Company’s common stock in whole or in part and from time to time up to the Maturity Date at a conversion price of $0.20 per share.

Pursuant to the Convertible Note, we have agreed to reserve sufficient shares of our common stock for the conversion of the Convertible Note. Our Board of Directors has proposed, and has summited to our stockholders for adoption at our 2019 annual meeting, an amendment to our certificate of incorporation to increase the number of authorized shares of common stock (the “Certificate Amendment”). If the Certificate Amendment is adopted by our stockholders and filed with the Delaware Secretary of State, we will be able to reserve a sufficient number of shares for the conversion of the Convertible Note. If the Certificate Amendment is not so filed on or before December 31, 2019, an amount equal to 105% of the outstanding principal amount of the Convertible Note (plus all accrued and unpaid interest, if any) will be immediately due and payable.

If there is a change in control transaction, Mr. Whitmore shall have the right to require the Company or its successor to the Convertible Note, in whole or in part, at a redemption price equal to 105% of the outstanding Principal Amount (plus any accrued interest or applicable late charges) being redeemed.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars are presented in thousands except per share data or unless otherwise stated)

Overview

Nanophase is an advanceda scientifically driven company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence^® subsidiary”), is focused in various beauty- and life-science markets. Skin health and medical diagnostics combined currently make up the great majority of our business and drive our forward growth strategy. We offer engineered materials, and applications developerformulation development and commercial manufacturer withmanufacturing through an integrated family of materials technologies. We produce engineeredOur expertise in material engineering allows us to effectively coat and disperse particles on a nano and “non-nano” materialsscale for use in a variety of diverse markets: personalmarkets in skin care, including for use in sunscreens as active ingredients and inas fully formulated cosmeticsdeveloped prestige skin care products, marketed and sold through our Solésence^® subsidiary. In terms of our own design,life sciences focus, we have seen current conditions significantly increase demand for our medical diagnostics ingredients, as testing for various viruses, most notably Covd-19, has become a critical use of our technology. Additionally, we continue to sell products in markets for architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, medical diagnostics, energy (including solar control) and a variety of surface finishing technologies (polishing) applications, including optics. Finally, we have expanded our offerings beyond active ingredients to include targeted full formulationsapplications— all of skin care products, marketed and sold by our wholly-owned subsidiary, Solesence, LLC (“Solésence,” or our “Solésence® subsidiary”).which, along with medical diagnostics, fall into the advanced materials product category.

We target markets, in whichprimarily related to skin health products and ingredients, and diagnostic life sciences ingredients where we believe our materials and products offer practical solutions may be found using our products.and competitive minerals-based solutions. We traditionally work closely with current and potential customers in these target markets to identify their material and performance requirements and market our materials to various end-use applications manufacturers, and our Solésence® solutionssence^® products to cosmetics and skin care brands. Over the past few years, we have expanded our marketing efforts for our Solésence products and are seeing more customers responding to our successful products being sold into their markets. Recently developed technologies have made certain new products possible and opened potential new markets. For example, we have applied our skills at producing precisely defined nanomaterials to now create and sell larger, “non-nano” material products. Our focus is on customer need where we believe we have an advantage, as opposed to finding uses for one particular technology. We expect growth in end-user (manufacturing customers, including customers of our customers) adoption in 2019 and beyond. Our initiatives in targeted market areas are progressing at differing rates of speed, but we have been broadly moving through testing and development cycles, and in a number of cases believe we are approaching first revenue or next stage revenue with particular customers in the industries referenced above. For example, duringDuring 2015 we were granted a patent on a new type of particle surface treatment (coating), — now called Active Stress Defense ™ Technology — which became the cornerstone of our new product development in personal care, with first revenue recognized during 2016. In addition, through the creation of our Solésence®sence^® subsidiary, we useutilize this particle surface treatment to manufacture and sell fully developed solutions to targeted customers in the cosmetics and skin care industry, in addition to the additivesingredients we have traditionally sold in the personal care area. During 2015

With the current circumstances of, and 2016 we developedthe impact of the various reactions and began to sell solutions in the energy management (particularly solar control) industry. We believe that the products that we have designed for this industry remain valuablepolicies relating to, the market, although we areCovid-19 pandemic, it is currently focusing the greatest part of our business development efforts on building and expanding our Solésence® brand and product suite. We believe that successful introduction of our finished skin care products and materials with manufacturers may lead to follow-on orders for other finished products and materials in their applications. We expectmanagement’s belief that we will both work more deeply with current customers and attract additional customers, which should help uscontinue to achieve growth in theseSolésence® sales through 2020. We are also expecting additional Solésence growth in 2021, but management believes the outlook in to 2021 remains uncertain, with a continuation of the Covid-19 pandemic and related reactions and policies having the potential to limit new product sales growth, and having further potential negative impact on the Company, its customers, and the markets it serves.

It is also management’s belief that the Covid-19 pandemic, related governmental reaction, and resulting economic slow-down has, and is expected to continue, to affect certain consumer behaviors and markets. This has had a negative impact on our Personal Care Ingredients business during 2020, and could continue to some extent in 2019to 2021. Management believes the negative impacts in the fourth quarter and, beyond.if applicable, thereafter, are not currently quantifiable.

Results of Operations

Total revenue decreasedincreased to $3,069$3,888 for the three months ended September 30, 2019,2020, compared to $4,022$3,069 for the same period in 2018.2019. Total revenue decreasedincreased to $10,118$12,262 for the nine months ended September 30, 20192020 from $11,036$10,118 for the same period 2018.in 2019. A substantial majority of our revenue for both periods was from our largest customers, in particular, sales to our largest customer in personal care and sunscreen applications. Revenue from our top threefour customers wasconstituted approximately 75%30%, 5%18%, 16% and 4%16%, respectively, of our total revenue for the three months ended September 30, 2020, and approximately 20%, 32%, 13% and 14%, respectively, for the nine months ended September 30, 2020. Revenue from these four customers constituted approximately 0%, 75%, 0% and 4%, respectively, for the three months ended September 30, 2019 and approximately 4%, 64%, 3%0% and 9%, respectively, for the nine months ended September 30, 2019. Revenue from these three customers constituted approximately 73%, 4% and 12%, respectively for the three months ended September 30, 2018 and approximately 73%, 3% and 8%, respectively, for the nine months ended September 30, 2018. Product revenue, the primary component of our total revenue, decreasedincreased to $3,043$3,827 for the three months ended September 30, 2019,2020, compared to $3,998$3,043 for the same period in 2018.2019. The decreaseincrease was primarily due to reduced order flow from several of our larger customers, including our largest customer in personal care.sales to Roche Laboratories for Covid19 testing kits. Product revenue decreasedincreased to $9,797$11,929 for the nine months ended September 30, 2019,2020, compared to $10,908$9,797 for the same period in 2018.2019. Solésence^®sence® product revenue increased approximately 56%164% for the nine months ended September 30, 20192020 compared to the same period for 2018.2019. The total decreaseincrease in product revenue is attributed to order flow fromincreased sales of our Solésence products and ingredients sold to Roche Diagnostics, offset by significantly reduced sales of sunscreen actives into our Personal Care Ingredients markets through our largest personal care customer.

Other revenue increased to $26$61 for the three months ended September 30, 2019,2020, compared to $24$26 for the same period in 2018.2019. Other revenue increased to $321$333 for the nine months ended September 30, 2019,2020, compared to $128$321 for the same period in 2018.2019. Other revenue is typically comprised of royalties and shipping costs paid by customers. Shipping revenue in 2020 is included in product revenue. For the nine months ended September 30, 2019, other revenue included a unique bulk buyout of $211 in Q1 of 2019.

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue decreased to $2,506$2,201 for the three months ended September 30, 2019,2020, compared to $2,965$2,506 for the same period in 2018.2019. Cost of revenue decreased to $7,839$7,832 for the nine months ended September 30, 2019,2020, compared to $8,164$7,839 for the same period in 2018.2019. The decrease in cost of revenue was primarily driven by decreased volumemanufacturing efficiencies related to Solésence® products coupled with lower managerial payroll offset by price inflation on materials and manufacturing inefficiencies related to Solésence^® product launches.materials. While we typically pass through costs to our customers, we sometimes cannot pass through 100% of pricing increases on raw materials. Evenmaterials, and even with pass throughs, our gross margin percentage is negatively impacted by higher material costs.

We expect to continue new advanced material development relating to personal care ingredients, medical diagnostic materials, and for our formulated Solésence^®sence® products during 2019through 2020 and beyond. At current revenue levels we have generated a positive gross margin, though margins have been impededare greatly impacted by not having enough revenue to efficiently absorbvolume, with higher volumes generally allowing for better absorption of manufacturing overhead. We believe that our current fixed manufacturing cost structure is sufficient to support higher levels of revenue volume. The extent to which margins may grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to manage 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^®sence® products. We expect that product revenue volume increases wouldwill result in our fixed manufacturing costs being more efficiently absorbed, which should lead to increased margins. We expect to continue to focus on reducing controllable variable product manufacturing costs, with potential variability related to the commodity metals markets, but may or may not realize absolute dollar gross margin growth through 20192020 and beyond, dependent upon the factors discussed above.

Research and development expense, which includes all expenses relating to the technology and advanced engineering groups, primarily consists of costs associated with the development or acquisition of new product applications, and finished product formulations for our Solésence^®sence® business. As an example, we have been, and continue to be, engaged in product development work for our new fully-formulatedfully formulated finished skincare products marketed through Solésence^®sence®. Much of this work has led to several new products and additional potential new products. We are also engagedengage in a series of in-vitro, ex-vivo, and in-vivo tests to determine the efficacy of our Solésence^®sence® products, as well as to provide our customers with support for a consumer claims set. We are not certain when or if any significant revenue will be generated from the production of the materials described above.

Research and development expense increaseddecreased to $488$405 for the three months ended September 30, 2019,2020, compared to $416$488 for the same period in 2018.2019. For the nine months ended September 30, 20192020 research and development expense decreased to $1,450,$1,134 compared to $1,513$1,450 for the same period in 2018. 2019.

The primarymain reasons for this decrease were timing related towas a reduction in total staffing (not filling empty positions during the ongoing Covid-19 pandemic) and a reduction on outside product testing and evaluation costs related toincurred as our Solésence^® products.  We expect quarterlysence® products have entered the market and the current testing requirements are lower than they were during our startup phase. Legal expenses pertaining to intellectual property, also part of research and development expense, to increase duringwere up for the remainder of 2019.nine-month period.

Selling, general and administrative expense increaseddecreased to $890$730 for the three months ended September 30, 2019,2020, compared to $765$890 for the same period in 2018.2019. For the nine months ended September 30, 2019,2020, selling, general and administrative expense increaseddecreased to $2,711,$2,133 compared to $2,299$2,711 for the same period in 2018. Expenses associated with launching the Solésence^® brand contributed to the increase. We expect selling, general and administrative expense to remain at current levels during the remainder of 2019.

For both the three- and nine-month periods in 2020, compensation expense was down due to a reorganization of some of the functions in this area, consulting expenses were lower due, to a great extent the initial Solésence® launch work has been completed, and travel and entertainment expenses were down as a product of the ongoing Covid-19 pandemic and its impact on air travel, live trade shows, and in-person meetings.

Inflation

We believe inflation has not had a material effect on our operations or financial position. However, supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, may have a material effect on our operations and financial position in 20192020 and beyond if we are unable to pass through any applicable increases under our present contracts or through to our markets in general.

Liquidity and Capital Resources

Our cash and cash equivalents amounted to $1,134 on September 30, 2020, compared to $1,194 on December 31, 2019 and $962 on September 30, 2019, compared to $1,345 on December 31, 2018 and $1,034 on September 30, 2018.2019. The net cash used in our operating activities was $2,161$1,732 for the nine months ended September 30, 2019,2020, compared to $921$2,161 for the same period in 2018.2019. The net use of cash during the period ended September 30, 2019both periods was driven primarily by ana significant increase in accounts receivable coupled withbetween the beginning and end of each period. In 2019, we also had a decrease in accounts payables, comparednet loss of $2,022, which contributed further to the same period in 2018 which had significant increases in accounts receivable and inventory with a decrease in accounts payable.use of cash during the nine months ended September 30, 2019. Net cash used in investing activities, specifically capital expenditures, was $523$448 during the nine months ended September 30, 2019,2020, compared to $115$523 for the nine months ended September 30, 2018.2019. Net cash provided by financing activities was $2,120 and $2,301 during the nine months ended September 30, 2020, and 2019, compared to $115 net cash provided for the same time period for 2018.respectively. We paid $162$172 for capital lease obligations during the nine months ended September 30, 20192020 compared to $114$162 in the same period in 2018.  2019.