☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
the Securities Exchange Act of 1934

Registrant’s telephone number, including area code: (~~(630)~~630) 771-6708

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~November 4, 2021,~~May 16, 2022, there were ~~48,725,473~~49,026,741 shares outstanding of common stock, par value $.01, of the registrant.


	(in thousands except share and per share data)						(in thousands except share and per share data)
ASSETS	September 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
Current assets:
Cash	$	1,380		$	957		$	897		$	657
Trade accounts receivable, less allowance for doubtful accounts of $9 for both September 30, 2021 and December 31, 2020		4,723			2,932
Trade accounts receivable, less allowance for doubtful accounts of $80 for March 31, 2022, and $60 for December 31, 2021								5,274			3,937
Inventories, net		6,327			4,340			8,559			6,095
Prepaid expenses and other current assets		698			606			1,005			910
Total current assets		13,128			8,835			15,735			11,599

Equipment and leasehold improvements, net		4,014			2,868			4,997			4,712
Operating leases, right of use		1,679			1,827			11,718			12,075
Other assets, net		9			10			7			8
Total assets	$	18,830		$	13,540		$	32,457		$	28,394
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit, bank	$	—		$	500
Line of credit, related party		3,740			2,155			3,709			1,351
Current portion of long-term debt, related party		1,000			500
Current portion of finance lease obligations		137			177			70			105
Current portion of operating lease obligations		521			431			890			589
Accounts payable		2,436			2,126			4,953			3,566
Deferred revenue		388			411
Current portion of deferred revenue								848			783
Accrued expenses		1,251			484			961			946
Total current liabilities		9,473			6,784			11,431			7,340

Long-term portion of finance lease obligations		11			110			4			6
Long-term portion of operating lease obligations		1,385			1,651			11,389			11,700
Long-term convertible loan, related party		—			1,097
PPP Loan (SBA)		—			952
Long-term debt, related party								1,000			1,000
Long-term portion of deferred revenue								661			661
Asset retirement obligations		220			214			224			222
Total long-term liabilities		1,616			4,024			13,278			13,589

Contingent liabilities		—			—			—			—
Shareholders’ equity:

Preferred stock, $.01 par value, 24,088 shares authorized, and 0 shares issued and outstanding		—			—			—			—
Common stock, $.01 par value, 55,000,000 shares authorized; 48,725,473 and 38,221,292 shares issued and outstanding on September 30, 2021 and December 31, 2020, respectively		487			382
Common stock, $.01 par value, 60,000,000 shares authorized; 49,026,741 and 48,893,573 shares issued and outstanding on March 31, 2022 and December 31, 2021, respectively								490			489
Additional paid-in capital		104,307			102,117			104,643			104,423
Accumulated deficit		(97,053	)		(99,767	)		(97,385	)		(97,447	)
Total Shareholders’ equity		7,741			2,732			7,748			7,465
Total liabilities and shareholder’s equity	$	18,830		$	13,540
Total liabilities and shareholders’ equity							$	32,457		$	28,394


	Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
	2021		2020		2021			2020		2022		2021
										(in thousands except share and per share data)
Revenue:
Product revenue	$	7,896	$	3,827	$	21,971		$	11,929	$	8,046	$	7,050
Other revenue		28		61		139			333		110		22
Total revenue		7,924		3,888		22,110			12,262		8,156		7,072

Operating expense:
Cost of revenue		4,946		2,201		14,588			7,832		5,988		5,042
Gross profit		2,978		1,687		7,522			4,430		2,168		2,030

Operating expense:
Research and development expense		635		405		1,670			1,134		666		499
Selling, general and administrative expense		942		730		2,994			2,133		1,397		1,034
Income from operations		1,401		552		2,858			1,163		105		497
Interest expense		38		122		1,096			368		43		139
Other income, net		—		—		(952	)		—		—		(952	)
Income before provision for income taxes		1,363		430		2,714			795		62		1,310
Provision for income taxes		—		—		—			—		—		—

Net income	$	1,363	$	430	$	2,714		$	795	$	62	$	1,310

Net income per basic share	$	0.03	$	0.01	$	0.06		$	0.02
Net income per share-basic										$	0.00	$	0.03

Weighted average number of basic common shares outstanding		48,566,431		38,141,741		43,756,300			38,138,453		48,984,312		38,221,292

Net income per diluted share	$	0.03	$	0.01	$	0.06		$	0.02
Net income per share-diluted										$	0.00	$	0.03

Weighted average number of diluted common shares outstanding		50,728,431		38,432,741		45,726,300			38,228,453		51,064,312		39,811,292


	Nine months ended September 30,						Three months ended March 31,
	2021			2020			2022			2021
	(in thousands)						(in thousands)
Operating activities:
Net income	$	2,714		$	795		$	62		$	1,310
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization		328			265			136			101
Share-based compensation		124			147			148			42
Gain on PPP loan forgiveness		(952	)		—			—			(952	)
Amortization of debt discount		903			200			—			67
Changes in assets and liabilities related to operations:
Trade accounts receivable		(1,791	)		(1,481	)		(1,337	)		(896	)
Inventories		(1,988	)		(1,030	)		(2,464	)		(661	)
Prepaid expenses and other assets		(91	)		(332	)		(94	)		(47	)
Accounts payable		282			(284	)		1,347			253
Accrued expenses		791			267			15			571
Deferred revenue		(23	)		(266	)		65			84
Other long-term assets and liabilities		(28	)		(13	)		347			(9	)
Net cash provided by (used in) operating activities		269			(1,732	)
Net cash used in operating activities								(1,775	)		(137	)

Investing activities:
Acquisition of equipment and leasehold improvements		(1,445	)		(448	)		(378	)		(166	)
Net cash used in investing activities		(1,445	)		(448	)		(378	)		(166	)

Financing activities:
Principal payments on finance leases		(139	)		(172	)		(38	)		(46	)
Proceeds from line of credit, bank		500			1,500			—			500
Payments to the line of credit, bank		(1,000	)		(1,500	)		—			(500	)
Proceeds from line of credit, related party		19,525			10,390			8,125			6,500

Payments to line of credit, related party		(17,939	)		(9,073	)		(5,767	)		(5,289	)
Proceeds from term loan, related party		500			—
Proceeds from PPP / SBA loan		—			952
Proceeds from stock option exercises		152			23
Payments from exercise of stock options								73			—
Net cash provided by financing activities		1,599			2,120			2,393			1,165
Increase in cash and cash equivalents		423			(60	)		240			862
Cash and cash equivalents at beginning of period		957			1,194			657			957
Cash and cash equivalents at end of period	$	1,380		$	1,134		$	897		$	1,819

Supplemental cash flow information:
Interest paid	$	178		$	152		$	27		$	51

Supplemental non-cash investing and financing activities:
Accounts payable incurred for the purchase of equipment and leasehold improvements	$	28		$	204		$	40		$	69
Conversion of $2M convertible loan, related party	$	2,000		$	—
Interest paid via stock issuance, convertible loan, related party	$	19		$	—

(in thousands, except share and per share data or as otherwise noted herein)

The accompanying unaudited consolidated condensed interim financial statements of Nanophase Technologies Corporation (“Nanophase”, “Company”, “we”, “our”, or “us”) reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of our financial position and operating results for the interim periods presented. All statements include the results from both Nanophase and our wholly-owned subsidiary, Solésence, LLC (“Solésence,” or our “Solésence® subsidiary”). Operating results for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022.

These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, ~~2020,~~2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the Securities and Exchange Commission.

~~We believe that cash from operations and cash on hand, in addition to existing borrowing capacity,~~ ~~which has recently been increased~~, may not be adequate to fund our operating plans through the next twelve months. See Note 7 for a discussion of both expanded capacity and available capacity at September 30, 2021. We are working to reduce these risks and the results of the Company in this regard have improved markedly, but some of this is dependent on several things over which we have limited control. The significant revenue growth that we have experienced has required additional investment in both working capital and capital equipment. This has constrained liquidity and made cash management a top priority. To support our growth and reduce costs, we also intend to invest in additional capital equipment through 2021 and in 2022. Given these issues, and other commercial realities, we are monitoring the additional working capital demands that this could create as we continue to execute on our Solésence growth strategy. The timing of cash flows is critical. If cash generated from operations is not materially consistent with our plans, we believe that we may need to seek additional funding to address working capital demands. This uncertainty has caused us to be unable to assert that, for the next twelve months, we have enough current cash and guaranteed access to financing to fund operations, and to continue with our current growth strategy in terms of investment in capital equipment and in operating expenses related to Solésence, without securing additional financing.

These circumstances raise substantial 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 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.

We believe that we will be able to secure additional financing if needed, but we do not have any additional financing commitments in place as of today. However, we may not be able to secure additional financing in a timely manner under commercially reasonable terms, or at all. If we are unable to secure additional financing, the operations of the Company might need to be curtailed to a certain degree, and we would need to delay capital expenditures related to our Solésence growth strategy, which could impede growth, and impact cost savings anticipated in 2022.

Nanophase Technologies Corporation (“Nanophase,” “Company,” “we,” “our,” or “us”) is a science-driven company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused in various beauty- and life-science markets.  ~~Skin~~Using consumer health as our end-goal and science and innovation to guide the path, skin health and medical diagnostics combined currently make up the great majority of our business and drive our forward growth strategy.  We offer engineered materials, formulation development and commercial manufacturing through an integrated family of technologies. Our expertise in materials engineering allows us to effectively coat and disperse particles on a nano and “non-nano” scale for use in a variety of ~~markets in~~ skin ~~care,~~health markets, including for use in sunscreens as active ingredients and as fully developed prestige skin care and cosmetics products, marketed and sold through our Solésence beauty science subsidiary.  In terms of our life sciences focus, we have seen current conditions ~~since early 2020 lead to a significant~~significantly increase in demand for our medical diagnostics ~~ingredients. We believe that the advent~~ingredients, as testing for various viruses, most notably COVID-19, has become a critical use of ~~the SARS-CoV-2 (“COVID-19”) Pandemic has driven significantly increased demand for~~ our medical diagnostics materials during 2020 and the first half of 2021, after which demand has lessened. It is our expectation that future demand may not reach the same volumes, but should remain greater than historic demand experienced prior to 2020. technology. Additionally, we continue to sell products in legacy markets, ~~for~~including architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, and surface finishing technologies (polishing) ~~applications—~~applications, all of which, along with medical diagnostics, fall into the advanced materials product category.

We target markets, primarily related to skin health products and ingredients, ~~and~~as well as diagnostic life sciences ingredients where we believe our materials and products offer practical and competitive minerals-based solutions. We traditionally work closely with current customers in these target markets to identify their material and performance ~~requirements and~~requirements. We 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 have seen 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. During 2015 we were granted a patent on a new type of particle surface treatment (coating) — now called Active Stress Defense ™ Technology — which became the cornerstone of our new product development in personal care, with first revenue recognized during 2016. ~~In addition, through~~Active Stress Defense™ now refers to a suite of three proprietary technologies — Original Active Stress Defense™, Kleair™, and Bloom™ — all three of which either utilize a unique and proprietary, mineral-based technology or work synergistically with one of our unique and proprietary, mineral-based technologies to improve performance and/or aesthetics. Our ongoing innovation efforts include new IP in areas that advance environmental protection, align with market needs, and complement our existing technologies Through the creation of our Solésence beauty science subsidiary, we utilize ~~this particle surface treatment~~our technology suite to manufacture and sell fully developed solutions to targeted customers in the skin care industry, typically in prestige skin care and cosmetics markets, in addition to the ingredients we have traditionally sold in the personal care area.

Although our primary strategic focus has been the North American market, we currently sell materials to customers overseas and have been working to expand our reach within foreign markets. Our common stock trades on the OTCQB marketplace under the symbol NANX.

While product sales comprise the majority of our revenue, we also recognize revenue from other sources from time to time. These activities are not expected to drive the long-term growth of the business. For this reason, we classify such revenue as “other revenue” in our Consolidated Statements of Operations, as it does not represent revenue directly from the sale of our products.

Revenues are ~~generally~~ 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~~we expect to ~~be entitled to~~receive in exchange for those goods. When our ingredients and finished products are shipped, with control being transferred at the shipping point almost universally, is the point in time at which we recognize the related revenue.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Customers’ deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in our statements of operations.

The contract asset balance at March 31, 2022 consists of $50 of unbilled receivables and $179 of other contract assets reported within prepaid expenses and other current assets. The contract asset balance at December 31, 2021 consists of $179 of contract assets reported within prepaid expenses and other current assets.

Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $123 and $142 for the three months ended March 31, 2022 and 2021, respectively.

Other revenue may include revenue from technology license fees and paid development projects. Technology license fees and paid development projects are recognized over time when the obligations under the agreed upon contractual arrangements are performed on our part. Other revenue recognized over time was $110 and $22 for the three months ended March 31, 2022 and 2021, respectively.

Options to purchase approximately 2,080,000 shares of common stock that were outstanding as of March 31, 2022 were included in the computation of earnings per share for the three months ended March 31, 2022. Options to purchase approximately 1,590,000 shares of common stock that were outstanding as of March 31, 2021 were included in the computation of earnings per share for the three months ended March 31, 2021.

Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows:

We follow ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.

Our financial instruments include cash, any cash equivalents, accounts receivable, accounts payable and accrued expenses, along with ~~the promissory note with no related~~any short term and long-term borrowings as described in Note 7, any borrowings on the working capital line of credit from Libertyville Bank and Trust, and any borrowings on the working capital line of credit and the term loan from Beachcorp, LLC, described in Note 7 below. The fair values of all financial instruments were not materially different from their carrying values.

6. There were no0 financial instruments adjusted to fair value on ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

On January 28, 2022 the Company entered into the A&R Loan Agreement and ~~Line~~a new revolving loan agreement (“Inventory Facility”) with Beachcorp, LLC, and a new promissory note in order to evidence the Inventory Facility. The maximum borrowing amount under the Inventory Facility is $4,000, with a borrowing base consisting of ~~Credit~~up to 50% of the value of qualified inventory of the Company. The interest rate for the Inventory Revolver is at the prime rate plus 0.75%, and it matures on March 31, 2024. The Company is finalizing the documentation for this loan and, as such, has yet to draw any funds from it.

Beachcorp, LLC and Strandler, LLC are affiliates of Mr. Bradford T. Whitmore, who beneficially owns a majority of the Company’s common stock and is the brother of Ms. R. Janet Whitmore, a director of the Company and the chair of the Company’s board of directors. The A/R Revolver Facility, the Inventory Facility and the New Term Loan are all secured by all the unencumbered assets of the Company and subordinated to the Company’s credit facility with Libertyville Bank & Trust.

Since July 2014, we ~~entered into~~have maintained a bank-issued letter of credit ~~and related promissory note~~ for up to $30$30 in borrowings to support our obligations under our Romeoville, Illinois facility lease agreement. No borrowings have been incurred under this promissory note. ~~Should any~~On December 21, 2021, Libertyville issued a letter of credit for up to $500 in 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~~support our obligations under ~~any borrowings under~~our newly leased manufacturing and warehouse space in Bolingbrook, Illinois. For both letters of credit, interest on drawn balances will be at the ~~note. It is our intention~~prime rate plus 1%. We expect to renew ~~this note~~these agreements annually, ~~for~~ as ~~long as we need to do so pursuant to~~ the ~~terms~~respective leases require. These letters of ~~our facility lease agreement. Because there were no amounts outstanding on the note at any time during 2021 or 2020, we have recorded no related liability on our consolidated balance sheet.~~

We have a Business Loan Agreement with Libertyville Bank and Trust Company, a Wintrust Community Bank (“Libertyville”). Under the Business Loan Agreement, Libertyville will provide a maximum of (i) $~~500~~ ~~or (ii)~~ 2 ~~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 is payable monthly on any advances at a floating interest rate of the ~~prime rate~~ ~~at the time plus~~ 1~~%. We must have $500~~ in cash, inclusive of the borrowed amount, at Libertyville on the date of any advance. Advances may only occur at the beginning or end of a fiscal quarter and must be repaid in full within five business days of the advance. There were no amounts due under the Business Loan Agreement as of September 30, 2021.

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 affiliate Grace Investments, Ltd., beneficially owned approximately 62% of the outstanding shares of our common stock as of September 30, 2021. At inception, the Master Agreement related to two loan facilities, each evidenced by a separate promissory note dated November 16, 2018: a term loan to the Company of $~~500~~ ~~which was 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 initially 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 accrued 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 due~~ ~~March 31, 2020. On March 23, 2020, the Company and Beachcorp, LLC executed the First Amendment to our Master Agreement that extended the maturities of both the Term Loan and the Revolver Facility to~~ ~~March 31, 2021. Effective September 8, 2020, the Company and Beachcorp, LLC executed the Second Amendment to our Master Agreement that expanded the limit on the Revolver Facility from $2,000~~ ~~to $2,750. On December 23, 2020, the Company and Beachcorp, LLC executed the Third Amendment to our Master Agreement that expanded the limit on the Revolver Facility from $2,750~~ ~~to $4,000~~ ~~and extended the maturities of both the Term Loan and the Revolver Facility to~~ ~~March 31, 2022. On April 21, 2021, the Company and Beachcorp, LLC executed the Fourth Amendment to our Master Agreement that expanded the limit on the Revolver Facility from $4,000~~ ~~to $6,000, extended its maturity to~~ ~~March 31, 2023, and reduced interest on outstanding borrowings from the~~ ~~prime rate~~ ~~plus~~ 3~~%, with an~~ ~~8.25% minimum floor, to the~~ ~~prime rate~~ ~~plus~~ 2~~%, with no minimum rate floor. Additionally, the Fourth Amendment increased the amount of the Term Loan from $500~~ ~~to $1,000, and its fixed interest rate was reduced from~~ ~~8.25% per year to~~ ~~5.25% per year. The maturity date of the Term Loan remains~~ ~~March 31, 2022. The Term Loan and Revolver Facility~~ are secured by all the unencumbered assets of the Company, and ~~subordinated~~have superior collateral rights to Libertyville’s secured interest under the 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 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 was payable in a single payment on~~ ~~May 15, 2024~~ ~~(the “Maturity Date”). The principal amount of the Convertible~~ ~~Note accrued interest at the rate of~~ 2~~.0% per year, which~~ ~~interest was 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 was 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 contained 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 was recorded as a discount on the convertible note. The discount was to be accreted to the convertible note over the life of the note using the straight-line method. The offset to these discounts was interest expense. Mr. Whitmore chose to exercise his conversion rights effective May 7, 2021, requesting that any accrued interest be paid him in the form of shares, as allowed in the Convertible Note. In addition to the ~~10,000,000~~ ~~shares issued upon conversion, the Company issued~~ ~~95,555~~ ~~shares of additional stock to Mr. Whitmore in lieu of cash for the $~~19 ~~in accrued interest owed at May 7, 2021.~~ ~~For the three and nine months ended September 30, 2021, the Company accreted interest of $~~0 ~~and $903, respectively, with the acceleration of the balance of the convertible discount being recorded in May, 2021. The balance on the convertible note was $~~0 ~~and $1,097, at September 30, 2021 and December 31,~~ ~~2020, respectively. At December 31, 2020, the balance shown was~~ ~~net of discounts of $903~~.

~~On September 30, 2021, the balance on the term loan was $1,000, and the balance on the Revolver Facility was $3,740. On September 30, 2021 borrowings were within the credit agreement limit with an additional $721~~ ~~available. In the nine months ended September 30, 2021, and 2020, there was $156~~ ~~and $334, respectively, in interest expense relating to these~~those credit facilities ~~held by Beachcorp, LLC. The accrued interest expense balance on these related party credit facilities amounted to $~~17~~, and $~~20, at September 30, 2021 and December 31, 2020, respectively. The obligations under the Convertible Note were 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 thatwith Beachcorp, LLC ~~is an affiliate~~and Strandler, LLC. Because there were no amounts outstanding on either letter of ~~Mr. Whitmore, this amounts to all of this interest being owed to a~~credit at any time during 2022 or 2021, we have recorded no related ~~party.~~liability on our balance sheet.

~~On April 17, 2020, we entered into a Promissory Note (the “PPP Note”), dated as of April 16, 2020, in favor of Libertyville in the principal amount of $952~~ for our loan under the Paycheck Protection Program (“PPP”). The Company was allowed to apply for forgiveness of the amount due on the PPP Note 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. The principal amount of the PPP Note would have accrued interest at the rate of ~~1.00% per year. Management applied for loan forgiveness in February 2021 and~~ ~~received notice of~~ ~~PPP~~ ~~Loan forgiveness in June, 2021~~. ~~The date that the loan was officially forgiven by the Small Business Administration was February 12, 2021, although it wasn’t communicated as such directly to management.~~ On ~~September~~ ~~30, 2021, the balance under the PPP note was $~~0.

The Company’s operating lease portfolio is comprised of operating leases for office, warehouse space and equipment. Certain of the Company’s leases include one or more options to renew or terminate the lease at the Company’s discretion. The Company regularly evaluates the renewal and termination options and when they are reasonably certain of exercise, includes the renewal or termination option in our lease term. During the first seven months of the term of our newly leased building, we have subleased a portion of the unused floorspace on a temporary basis. This sublease may convert to a month-to-month lease upon expiration.

As of ~~September 30, 2021,~~March 31, 2022, the ~~operating lease right-of-use “ROU”~~ROU asset had a balance of $~~1,679~~11,718, 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 $~~521~~890 and $~~1,385~~11,389, respectively. As of December 31, ~~2020,~~2021, the ROU asset had a balance of $~~1,827~~12,075 which is included in the “Operating lease right-of-use assets” line item of these ~~condensed~~ consolidated financial ~~statements and~~statements. The Company has reclassified a portion of the current ROU liability to non-current as of December 31, 2021, to be consistent with the classifications adopted for the quarter ended March 31, 2022. This reclassification resulted in current and non-current lease liabilities related to the ROU asset of $~~431~~589 and $~~1,651~~11,700 ~~respectively.~~, respectively, as of December 31, 2021. These amounts are included in the “Current portion of operating lease obligations” and “Long-term portion of operating lease ~~obligations, net of current portion”~~obligations” 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. Additionally, the Company subleases space within its Bolingbrook, IL facility for which the term ends June 30, 2022. As of the date of filing the tenant has neither renewed the sublease nor expressed an intent to do so.

Supplemental cash flow information related to leases is as follows for the ~~nine-month period~~three months ended ~~September 30:~~March 31, 2022 and 2021:

The future maturities of the Company’s finance and operating leases as of ~~September 30, 2021 is~~March 31, 2022 are as follows:

The future maturities of the Company’s finance and operating leases as of ~~September 30, 2020 is~~March 31, 2021 were as follows:

We follow ~~FASB~~ ASC Topic 718, ~~Compensation – Stock Compensation~~,Share-Based Payments, in which compensation expense is recognized only for share-based payments expected to vest. ~~We recognized compensation expense related to stock options of $~~29 ~~and $124~~ ~~for the three and nine months ended September 30, 2021, respectively, compared to $~~48 ~~and $147~~ ~~for the three and nine months ended September 30, 2020, respectively.~~

~~As of September 30, 2021, there was approximately $146~~ 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 ~~1.6~~ ~~years.~~

The following table ~~illustrates~~summarizes the ~~various assumptions used to calculate the Black-Scholes~~ option ~~pricing model~~activity for ~~stock options granted~~our employees and directors during the ~~three-month and nine-month periods presented:~~three months ended March 31, 2022:

~~As of September 30, 2021, we did not have any unvested restricted stock or performance shares outstanding.~~

Our significant customers are as follows for the ~~three- and nine-month~~ periods ending ~~September 30, 2021.~~March 31, 2022, and 2021:

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~~0 ~~and a minimum of $1 million~~ ~~in total of certain assets of which at least $500~~ must be in cash, cash equivalents and certain investments, with the balance being composed of certain inventory and receivables, is not maintained or (b) of an acceleration of any debt maturity having a principal amount of ~~more than~~ $~~10 million. There are certain minimum finished goods inventory requirements, including certain finished goods inventory levels as “safety stock,”, in order to maintain the $500~~ ~~non-cash component discussed above. Should our safety stock fall below the prescribed amount of material, the quarter-end cash requirement would revert to $1,000~~ ~~in cash, cash equivalents, and certain investments. The safety stock requirement may be adjusted upon mutual agreement.~~

~~These financial condition covenants, and the related “trigger,” ceased to remain in effect when the Company achieved six consecutive quarters of operating income which in the aggregate exceeds $1.5 million, calculated in accordance with GAAP, applied on a consistent basis. From the six-quarter period of April 1, 2020 through September 30, 2021, the Company had cumulative net income in the amount of $3.9 million, which management believes permanently relieves the previously discussed financial covenants and the related “trigger.”~~

requirements. Our supply agreements with BASF also “trigger” a technology transfer right in the event of our insolvency, as further defined within the agreements. In the event of an equipment sale, upon incurring a triggering event, the equipment would be sold to the customer at either 115% of the equipment’s net book value or the greater of 30% of the original book value of such equipment, and any associated upgrades to it, or 115% of the equipment’s net book value, depending on the equipment and related products.

If a triggering event were to occur and BASF elected to proceed with the license and related equipment sale mentioned above, we would receive royalty payments from this customer for products sold using our technology; however, we would lose both significant revenue and the ability to generate significant revenue to replace that which was lost in the near term. Replacement of necessary equipment that could be purchased and removed by the customer pursuant to this triggering event could take in excess of twelve months. Any additional capital outlays required to rebuild capacity would probably be greater than the proceeds from the purchase of the assets as dictated by our agreement with the customer. Similar consequences would occur if we were determined to have materially breached certain other provisions of the supply agreement with BASF. Any such event would also likely result in the loss of many of our key staff and line employees due to economic realities. We believe that our employees are a critical component of our success, and it could be difficult to replace them quickly. Given the occurrence of any such event, we might not be able to hire and retain skilled employees given the stigma relating to such an event and its impact on us.

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.

~~(12)~~(11) Business Segmentation and Geographical Distribution

Revenue from international sources approximated $~~585~~55 and $~~3,008~~1,285 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~respectively, compared to $1,242~~respectively. ~~and $2,747~~ ~~for the three and nine months ended September 30, 2020, respectively. All of this revenue was product revenue.~~

Our ~~Operations~~operations comprise a single business segment and all of our long-lived assets are located within the United States. We categorize our revenue stream into three main product categories, Personal Care Ingredients, Advanced Materials and Solé~~sence®.~~sence. The revenues, by category, for the three months ended March 31, 2022 and ~~nine months ended September 30,~~ 2021 ~~and 2020, by category,~~ are as follows:

	For the three months ended September 30				For the nine months ended September 30				Three months ended March 31,
Product Category	2021		2020		2021		2020		2022		2021
Solésence									$	5,560	$	4,299
Personal Care Ingredients	$	2,171	$	753	$	5,347	$	4,190		2,382		1,395
Advanced Materials		1,182		1,582		3,394		3,678		214		1,378
Solésence^®		4,571		1,553		13,369		4,394
Total Revenue	$	7,924	$	3,888	$	22,110	$	12,262
Total Sales									$	8,156	$	7,072

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

Overview

Nanophase is a health-oriented, science-driven company, which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused in various beauty- and life-science markets. Our primary skin health~~focused company whose primary~~ 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 ~~since early 2020 lead to a significant~~significantly increase in demand for our medical diagnostics ingredients, which are used in testing for various viruses, most notably COVID-19.  Additionally, we continue to sell products in legacy markets ~~for~~including architectural coatings, industrial coating applications,, abrasion-resistant additives, plastics additives, and surface finishing technologies (polishing) ~~applications~~—applications— all of which,, along with medical diagnostics, currently fall into the advanced materials product ~~category~~category. .

Leveraging a platform of integrated patented and proprietary technologies, we create products with unique performance to enhance ~~consumers’~~end-consumers’ health and well-being. We offer soup-to-nuts production, from engineered materials, formulation development, and finished product development, to commercial manufacturing and packaging capabilities. Our expertise in materials engineering allows us to effectively coat and disperse materials on a nano and “non-nano” scale for use in a variety of markets in skin health, including for use in sunscreens as APIs and as fully developed prestige skin care products, marketed and sold through our Solésence beauty science subsidiary. We believe that we have developed technological advantages with respect to our APIs sold for use as ingredients, while our Solésence beauty science technologies lead to enhanced efficacy and aesthetics in our finished ~~products.~~products, which have received broad acceptance in the marketplace. Due to the enhanced efficacy and aesthetic qualities offered by our proprietary technology platform, Solésence finished products satisfy growing consumer demands around “clean” and inclusive beauty. Solésence beauty science also benefits from the Company’s vertical integration with each product’s key active ingredient that delivers its point-of-difference. This vertical integration helps us to improve efficiency and avoid potential major supply chain challenges while also addressing ongoing sustainability efforts. 

Given the Russian invasion of Ukraine, we do not anticipate any directly related supply disruptions as we do not knowingly source any materials directly from either country.

We ~~believe that the advent of the SARS-CoV-2 (“COVID-19”) Pandemic has driven~~have seen recent conditions significantly ~~increased~~increase demand for our medical diagnostics materials during 2020 and the first half of 2021, after which demand has lessened. It is our expectation that future demand may not reach the same volumes, but should remain greater than historic demand experienced prior to 2020.materials. Polymerase Chain Reaction (“PCR”) testing for various viruses, most notably ~~“COVID-19,”~~SARS-CoV-2 (“COVID-19”), has become a critical use of our technology in the life science space. While we saw reduced demand for these materials in 2021, it is difficult to predict ~~to what extent~~whether the increased demand for our medical diagnostic materials used in COVID-19 testing will expand from 2021 levels over the next few years. Our expectation is that we may establish a new sales volume “floor” over the next few years as we continue wethrough the unprecedented period of testing utilization and awareness of the way viruses impact all of us. We believe that our deep expertise in materials science has created advantages that enable performance in certain tests that may not be achievable through other materials. Outside of life science, we continue to sell advanced materials for use in legacy applications, all of which, along with medical diagnostics, currently fall into the advanced materials product category.

Given our technological position, in addition to the historical market acceptance of our APIs for use in skin health products and sunscreens, rapidly growing sales for our suite of Solésence® finished products, and ~~growing~~the expanded use of our diagnostic materials in aiding the fight to curb the spread of COVID-19 and other viruses, in 2021 we ~~have~~announced that we reoriented our Company strategy. We ~~are seeing~~continue to see unprecedented demand in both beauty science and life science areas. The markets for both have shown an appetite for what we are producing, and management believes that this growth is happening now due to a confluence of our technology, market conditions that favor what we produce, and our expanded expertise in these areas. 

Nanophase, and Solésence, ~~are~~is now focusing our combined business-, ingredient-, and product-development capabilities on products with unique performance that enhance consumers’ wellbeing through beauty science and life science applications — in skin health and medical diagnostics, respectively. While we will continue to produce and sell materials to our other advanced materials customers, it is not our strategic focus. We may develop additional technologies, or find unique applications outside of our core markets in the future, but to maximize the use of our resources today, we plan on expanding efforts in areas where we have proven we can deliver innovation and growth.

Results of Operations

Total revenue increased to ~~$7,924~~$8,156 for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$3,888~~$7,072 for the same period in ~~2020. Total revenue increased to $22,110 for the nine months ended September 30, 2021 from $12,262 for the same period in 2020.~~2021. A substantial majority of our revenue ~~for both periods~~ was from our four- and five largest customers ~~reflecting~~for the three months ended March 31, 2022, and 2021, respectively. This reflects sales of APIs to our largest customer in skin care and sunscreen applications, our three largest customers for our finished skin health products marketed through our Solésence subsidiary, and, during the three months ended March 31, 2021, a medical diagnostics customer. This is the revenue breakdown, as a percentage of total revenue, from the five customers referenced:

		For the three months ended September 30				For the nine months ended September 30					For the three months ended March 31
Customer #	Product Category	2021		2020		2021		2020		Product Category	2022			2021
1	Personal Care Ingredients	27	%	18	%	24	%	32	%	Personal Care Ingredients		29	%		20	%
2	Solésence®	21	%	16	%	17	%	13	%	Solésence®		18	%		17	%
3	Solésence®	17	%	16	%	16	%	14	%	Solésence®		13	%		10	%
4	Solésence®	7	%	0	%	13	%	0	%	Solésence®		9	%		24	%
5	Medical Diagnostics	5	%	30	%	10	%	20	%	Medical Diagnostics		0	%		15	%
	Total	77	%	80	%	80	%	79	%
										Total		69	%		86	%

Product revenue, the primary component of our total revenue, increased to ~~$7,896~~$8,046 for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$3,827~~$7,050 during the same period of ~~2020. Product revenue increased to $21,971 for the nine months ended September 30, 2021 from $11,929 for the same period in 2020.~~2021. This increase was due to continued growth in the adoption of our Solésence® products, along with an increase in API sales to our largest customer in our personal care ingredients ~~business, and~~business. We saw a significant three-month ~~decrease leading to a modest nine-month~~ decrease in our medical diagnostics materials.

Other revenue ~~decreased~~increased to ~~$28 and $139~~$110 for the ~~three- and nine-month periods~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$61 and $333~~$22 for ~~the same periods in 2020, respectively.~~2021. Other revenue is typically comprised primarily of developmental or licensing fees.

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to ~~$4,946~~$5,988 for the three months ended ~~September 30, 2021,~~three months ended March 31, 2022, compared to ~~$2,201~~$5,042 for the same period in ~~2020. Cost of revenue increased to $14,588 for the nine months ended September 30, 2021, compared to $7,832 for the same period in 2020.~~2021. The increase in cost of revenue was primarily driven by increased volume and price inflation on materials and manufacturing inefficiencies related to Solésence® product launches. Additionally, during the ~~third quarter~~second half of 2021, we ~~have~~ added personnel in the supply chain function and incurred costs to rent temporary warehouse space. 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. ~~We expect to continue new advanced material development relating to personal care ingredients and for our formulated Solésence® products during 2021 and beyond.~~

~~At current revenue levels we have generated~~Our business has a ~~positive gross margin, though margins~~ ~~can be impeded~~ by ~~the~~certain cyclicality of ~~our~~ demand, often ~~leading to the Company not having enough~~ ~~revenue~~ ~~to efficiently absorb~~ ~~manufacturing overhead~~ ~~that is required~~ to ~~work with current customers and expected future customers. Another issue relating to demand cyclicality is that we have seen our~~based upon seasonal demands, industry launch cycles, or a confluence of both. Our lack of burst capacity ~~creating~~has created strains, in terms of people and costs, when new product launches occur at the same time that we are experiencing demand from previously launched products. Since late 2020, the Company has found itself in a situation where our ability to produce and ship materials has been exceeded by customer demand. It is a key area of focus to increase throughput first, followed quickly by increased cost efficiency once we can achieve greater scale. ~~We believe that~~Our planning has had us adding to our current fixed manufacturing cost structure ~~is sufficient to support higher levels of revenue volume, but will need to be enhanced moving~~ in toearly 2022 to accommodate ~~what we expect~~additional growth, and to ~~be additional growth.~~build a better base for further growth beyond that level. The extent to which margins grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to cut costs and pass commodity market-driven raw materials increases on to customers, and the speed and efficiency with which we are able to scale up production for our Solésence products. We expect that,, as product revenue volume increases,, our fixed manufacturing costs will be more efficiently absorbed, which should lead to increased margins as we grow. While additional production capacity is our most critical operational issue today, we expect to continue to focus on reducing controllable variable product manufacturing costs, with potential variability related to the commodity metals markets, but may or may not realize ~~absolute dollar~~significant percentage growth in our gross ~~margin growth~~margins through ~~2021~~ ~~and beyond, dependent~~2022, depending upon the factors discussed above.

Research and development expense, which includes all expenses relating to the technology and advanced engineering groups, primarily consists of costs associated with the development or acquisition of new finished product formulations for skin care, new product applications for our skin care ingredients, advancement of our medical diagnostics ingredient knowledge, and the cost of enhancing our manufacturing processes. As an example, we are currently focusing the bulk of our resources on developing new product formulations, and related new technologies, as we expand marketing and sales efforts relating to our Solésence ~~products~~. products. This work has led to several new products and additional potential new products. Our efforts in research and development, cosmetic formulating, process engineering and advanced engineering groups are focused in three major areas: 1) application development for our ~~products~~; products; 2) creating or obtaining additional core materials technologies and/or materials that have the capability to serve multiple skin health-related markets; and 3) continuing to improve our core technologies to improve manufacturing operations and reduce ~~costs~~costs..

Research and development expense increased to ~~$635~~$666 for the three months ended ~~September 30, 2021,~~three months March 31, 2022, compared to ~~$405~~$499 for the same period in ~~2020. For the nine months ended September 30, 2021, research~~2021. Most of this increase was due to expanded staffing to aid in supporting new product development for current and ~~development expense increased to $1,670, compared to $1,134 for the same period in 2020.~~future customers. Management expects research and development expense to increase at a slower rate during the balance of ~~2021, with enhancements in product development investment planned for 2022.~~ 2022 to support continued revenue- and customer-expansion.

Selling, general and administrative expense increased to ~~$942~~$1,397 for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$730~~$1,034 for the same period in ~~2020. For the nine months ended September 30, 2021, selling, general and administrative expense increased to $2,994, compared to $2,133 for the same period in 2020.~~2021. We have added to our Sales, Marketing, and Business Development team induring 2021, and during the first quarter of 2022. This was done to ready the Company to support expanded, and expected expanding, sales with a ~~few more staff additions planned through early-mid-2022. Compensation~~higher degree of customer service. We have also augmented our sales operations function, marketing, and new business development to stimulate additional growth. Additionally, compensation expense has also ~~been up~~increased generally, beginning in the second half of 2021 ~~and we~~through the current period due to wage inflation. We expect this trend to ~~continue~~moderate to an extent in 2022.

Inflation

The Company recognized $952 in other income relating to the forgiveness of its Paycheck Protection Program (“PPP”) Loan by the SBA in the nine months ended September 30, 2021. The Company applied for PPP Loan forgiveness in February 2021, due to management’s belief that the Company expended the proceeds of the PPP loan for forgivable purposes under the CARES Act. The loan was legally forgiven in February 2021, although the Company did not directly receive notice of PPP Loan forgiveness until June 2021.

~~Inflation~~

We believe inflation has not had a material effect on our operations or financial ~~position.~~position to date. However, supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, ~~may~~will likely have a material effect on our operations and financial position in ~~2021~~2022 and beyond if we are unable to pass through any applicable increases under our present contracts or through to our markets in general. We are in the process of adjusting our pricing to the extent supported by the markets we are in and under the contracts we may have.

Liquidity and Capital Resources

Cash, cash proceeds and use of cash for the three months ended March 2022, 2021, and year ended December 31, 2021 were:

	Three months ended March 31, 2022			Three months ended March 31, 2021			Year ended December 31, 2021
Total cash	$	897		$	1,819		$	657
Cash provided by (used in) operating activities		(1,775	)		(137	)		2,321
Net cash used in investing activities		(378	)		(166	)		(1,874	)
Net cash provided by (used in) financing activities		(2,393	)		1,165			(747	)

~~Our cash and cash equivalents amounted to $1,380 on September 30, 2021, compared to $957 on December 31, 2020 and $1,134 on September 30, 2020.~~ The net cash ~~provided by our operating activities was $269 for~~used during the ~~nine~~three months ended ~~September 30, 2021, compared to $1,732~~ of ~~net cash used in our operating activities for the same period in 2020. The net cash provided during the nine months ended September 30, 2021~~March 31, 2022 was primarily a ~~function of increased profits, offset by~~due to the expansion of inventories. Management ~~has adopted~~continues to follow a strategy in ~~2021~~2022 to ameliorate supply chain risk to a degree by ordering raw materials and components further in advance than we typically have in the lessen the impact of delays and shortages brought on by competition for limited resources as the global economy ~~gears up for post COVID-19 demand.~~responds both to additional demand and shipping difficulties created by several factors, including a shortage of labor in the United States. It is our expectation that this will not continue indefinitely, and that our cash position will benefit when a more “normal” supply chain situation returns.

Net cash used in investing activities ~~which~~ was attributable to expenditures on capital equipment for ~~both~~all periods ~~was $1,445 during nine months ended September 30, 2021, compared to $448 for the nine months ended September 30, 2020.~~ presented above.

~~Net cash provided by financing activities was $1,599 during the nine months ended September 30, 2021, compared to $2,120 for the nine months ended September 30, 2020.~~

On ~~March 23, 2020,~~January 28, 2022, the Company and Beachcorp, LLC, ~~executed the First Amendment~~and Strandler, LLC entered in to ~~our~~an Amended and Restated Master Agreement ~~that extends~~(“Agreement”). Both entities are managed by Bradford T. Whitmore, who is a significant shareholder in Nanophase and, as such, these loans are classified as related party transactions. Under this Agreement, and amended agreements governed by this Agreement, the ~~maturities of both~~Company now has a $1,000 term loan with Strandler, LLC, which was fully drawn in January 2022, with the ~~Term Loan and~~proceeds used to retire the ~~Revolver Facility to~~previously existing $1,000 term loan with Beachcorp. The new term loan expires on March 31, ~~2021. Effective September 8, 2020,~~2024, and has a fixed interest rate of 4.00%, representing the Prime rate plus 0.75% as of the new Agreement date. Under this Agreement, the Company amended its existing accounts receivable-based revolving loan (“A/R Revolver”) to carry a floating interest rate of Prime plus 0.75%, with an increased borrowing cap of $8,000, and ~~Beachcorp, LLC executed~~an expiration of March 31, 2024. The Company drew funds from the ~~Second Amendment to our Master~~A/R Facility in January of 2022. Further under this Agreement, ~~that expands~~ the ~~limit~~Company entered into an additional revolving loan agreement based on the ~~Revolver Facility from $2,000 to $2,750. On December 23, 2020, the Company and Beachcorp, LLC executed the Third Amendment to our Master Agreement that expands the limit~~Company’s inventory balances (the “Inventory Facility”). No funds were drawn on ~~the Revolver Facility from $2,750 to $4,000 and extends the maturities of both the Term Loan and the Revolver Facility~~this facility prior to March 31, 2022. ~~On April 21, 2021, the~~The Company ~~and Beachcorp, LLC executed the Fourth Amendment~~will have access of up to ~~our Master Agreement that expands the limit on the Revolver Facility from~~ $4,000 ~~to $6,000, extends its maturity to~~of additional funding, borrowed at a floating rate of Prime plus 0.75%, with a March 31, 2023, and reduces interest on outstanding borrowings from the prime rate plus 3%, with an 8.25% minimum floor, to the prime rate plus 2%, with no minimum rate floor. Additionally, the Fourth Amendment increased the amount of the Term Loan from $500 to $1,000, and its fixed interest rate was reduced from 8.25% per year to 5.25% per year. The maturity date of the Term Loan remains March 31, 2022.

We paid $139 for principal on finance lease obligations during the nine months ended September 30, 2021 compared to $172 in the same period in 2020. The balance of the line of credit with Libertyville was $0 at September 30, 2021, compared to $500 at December 31, 2020. When money is borrowed, the line of credit is repaid during the month following the end of the reporting period. This line of credit expired on April 4, 2021 and was extended to April 4, 2022 in May 2021, with an effective date of April 4, 2021. During the nine months ending September 30, 2021, we drew $19,525, of which $17,939 was repaid under the Master Agreement. The net borrowings for the nine months ended September 30, 2021 were $1,585. During the nine months ending September 30, 2020, we drew $10,390, of which $9,073 was repaid under the Master Agreement. The net borrowings for the nine months ended September 30, 2020 were $1,317. Accretion related to the Secured Convertible Promissory Note to Bradford T. Whitmore was $836 and $200 for the nine months ending September 30, 2021 and 2020, respectively. The balance of this long-term convertible loan was $0 and $1,097 at September 30, 2021, and at December 31, 2020, respectively. Mr. Whitmore chose to exercise his conversion rights effective May 7, 2021, requesting that any accrued interest be paid him in the form of shares, as allowed in the Convertible Note. This exercise ~~resulted in the accelerated recognition of the remaining discount on the Convertible Note, all of which was recognized as interest expense in the second quarter of 2021.~~

~~On April 17, 2020, we received a loan of $952 from Libertyville under the Paycheck Protection Program (“PPP~~”). Under the PPP, the Company applied 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. The Company applied for PPP Loan forgiveness in February 2021, compelled by its belief that it expended the proceeds of the PPP loan for forgivable purposes under the CARES Act. ~~The~~ ~~loan was~~ ~~legally forgiven in February 2021, although the Company received notice of PPP Loan forgiveness in June 2021.~~

Our supply agreements with our largest customer, BASF, contain certain financial covenants which could potentially impact our liquidity. Historically, the most restrictive financial covenants under these agreements required that we maintained a minimum of $1,000 in certain current assets; which may have been be composed of no less than $500 cash, cash equivalents, and certain investments, no more than a combined $500 of certain related inventory, of which no more than $250 can be raw material, and certain receivables.2024 expiration. These covenants also dictated that we not have the acceleration of any debt maturity having a principal amount of more than $10 million. Both covenants were consistently met by the Company in order to avoid triggering the customer’s potential right to transfer certain technology and equipment to that customer at a contractually-defined price. These financial condition covenants, and the related “trigger,” ceased to remain in effect when the Company achieved six consecutive quarters of operating income which in the aggregate exceeds $1.5 million, calculated in accordance with GAAP, applied on a consistent basis. From the six-quarter period of April 1, 2020 through September 30, 2021, the Company had cumulative net operating income in the amount of $3.9 million, which management believes permanently relieves the previously discussed financial covenants and the related “trigger.” We had approximately $1,380 in cash on September 30, 2021. This supply agreement and its covenantsloans are more fully described in Note ~~11, and our credit facilities are more fully described in Note 7,~~6 to our Financial Statements in Part I, Item 1 of this Form 10-Q.

We believe that cash from operations and cash on hand, in addition to unused borrowing capacity, which has recently been increased (see Note 7 to the Financial Statements), may not be adequate to fund our operating plans through 2022, particularly when considering management’s inventory and expansion strategy. We are working to reduce these risks, but some of this is dependent on several things over which we have limited control. We have seen an increase in sales of our Solésence products through 2020, and the first nine months of 2021, which we expect to continue in to 2022. If that does continue, we will require additional investment in working capital. Given these issues, and other commercial realities, we are monitoring the additional working capital demands that this could create as we continue to execute on our Solésence growth strategy. The timing of cash flows is critical. If cash generated from operations is not materially consistent with our plans, we believe that we may need to seek additional funding to address working capital demands. This uncertainty has caused us to be unable to assert that, for the next twelve months, we have enough current cash and guaranteed access to financing to fund operations, and to continue with our current growth strategy in terms of investment in capital equipment and in operating expenses related to Solésence, without securing additional financing. We believe that we will be able to secure additional financing if needed, but we do not have any additional financing commitments in place as of today. However, we may not be able to secure additional financing in a timely manner under commercially reasonable terms, or at all. If we are unable to secure additional financing, the operations of the Company might need to be curtailed to a certain degree, and we would need to delay capital expenditures related to our Solésence growth strategy, which could impede growth through the end of 2021 and 2022.

Our actual future capital requirements in ~~2021~~2022 and beyond will depend on many factors, including customer acceptance of our current and potential finished Solésence products, APIs sold as ingredients in to the skin health markets, medical diagnostics ingredients, and other engineered materials, applications, and products, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand our manufacturing capabilities and to market and sell these products and ingredients. Other important issues that will drive future capital requirements will be the development of new markets and new customers as well as the potential for significant unplanned growth with existing customers. Depending on the success of certain projects, and conditions within the markets supplying labor and materials for capital equipment, we expect that capital spending relating to currently known capital needs ~~during the balance of 2021~~for 2022 will be between ~~$900~~$3.5 million and ~~$1,400.~~$7 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 ~~spending~~expenditures may fall below the lower end of the range. Similarly, substantial success in business development projects may cause the actual 2022 capital investment ~~for the balance of 2021~~ to exceed the top of this range.

In the likely event that we will need to seek additional financing, such additional financing may not be available on acceptable terms or even at all, and any such additional financing could be dilutive to our shareholders. Such financing could be necessitated by such things as the loss of an existing customer; a significant decrease in revenue from one or more of our customers; temporary working capital demands resulting from our expected growth in our Solésence business that we cannot fund with existing capital; currently unknown capital requirements considering the factors described above; new regulatory requirements that are outside our control; the need to meet previously discussed cash requirements to avoid a triggering event under our BASF agreement; or various other circumstances coming to pass that we currently do not anticipate. The failure toWe have access to sufficient capital to fund our business plans may result in a curtailment or other change in those plans, and under such circumstances, this raises doubt as to our ability to continue as a going ~~concern under U.S. GAAP~~.

~~On December 31, 2020, we had a~~federal net operating loss ~~carryforward~~carryforwards for tax purposes of approximately ~~$67~~$62 million ~~for income tax purposes.~~on December 31, 2021. Because the Company may ~~have experienced~~experience “ownership changes” within the meaning of the U.S. Internal Revenue Code (“IRC”) in connection with ~~its various prior~~any future equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, ~~approximately $62~~$57 million of ~~the~~this loss carryforward will expire between ~~2021~~2022 and 2037. Given changes to the IRC, net operating loss carryforwards generated after January 1, 2018 do not expire, therefore, $5 million in net operating losses generated since January 1, 2018 ~~will~~do not expire. We have Illinois net loss deduction carryforwards for tax purposes of approximately $21 million on December 31, 2021. Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2029 and 2039.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purposes of raising capital, incurring debt or operating our business. We do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.

~~As more fully described in Note 7 to our Financial Statements~~, in Part I, Item I of this Form 10-Q, during 2014 we entered into a letter of credit and promissory note for up to $30 supporting our obligations under our facility lease agreement. No borrowings have been incurred under this promissory note.

Safe Harbor Provision

We want to provide investors with more meaningful and useful information. As a result, this Quarterly Report on Form 10-Q (the “Form 10-Q”) contains and incorporates by reference certain “forward-looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements reflect our current expectations of the future results of our operations, performance,, and achievements. Forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these statements by using words such as “anticipates”, “believes”, “estimates”, “expects”, “plans”, “intends” and similar expressions. These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance, or achievements in ~~2021~~2022 and beyond to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties and factors include, without limitation: our ability to be consistently profitable despite the losses we have incurred since our incorporation; a decision by a customer to cancel a purchase order or supply agreement in light of our dependence on a limited number of key customers; the terms of our supply agreements with BASF which could trigger a requirement to transfer technology and/or sell equipment to that customer; our potential inability to obtain working capital when needed on acceptable terms or at all; our ability to obtain materials at costs we can pass through to our customers, including Rare Earth elements, specifically cerium oxide, as well as high purity zinc; uncertain demand for, and acceptance of, our Solésence products, and our advanced materials; our manufacturing capacity and product mix flexibility in light of customer demand; our limited marketing experience, including with our suite of Solésence products; changes in development and distribution relationships; the impact of competitive products and technologies; our dependence on patents and protection of proprietary information; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations, especially any new governmental regulations focusing on the processing, handling, storage or sale of nanomaterials, that could be difficult to respond to or costly to comply with; business interruptions due to unexpected events or public health crises, including viral pandemics such as COVID-19; and the resolution of litigation or other legal proceedings in which we may become involved. In addition, our forward-looking statements could be affected by general industry and market conditions and growth rates. Readers of this Quarterly Report on Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

Item 3. Quantitative andand Qualitative Disclosures About Market Risk

Not required for a smaller reporting company.

Item 4. Controls and ~~Procedur~~Procedureses

Disclosure controls

We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures. It should be noted that in designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and that our management necessarily was required to apply its judgment regarding the design of our disclosure controls and procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision (and with the participation) of our management, including our Chief Executive Officer, Chief Financial Officer, and Chief ~~Financial~~Operating Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our Chief Executive Officer, ~~and~~ Chief Financial Officer (which roles are currently filled by the same person), and Chief Operating Officer have concluded that as a result of the material weakness, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Disclosure Controls were not effective. Management identified a material weakness in the way the Company tracked and accounted for its inventory at December 31, 2021, as disclosed in our 10-K, filed on March 31, 2022. Controls were not effectively designed, documented, and maintained to verify that the existence of all inventories subject to physical inventory counts were correctly counted, and our process for compiling and communicating inventory data to ensure accurate reporting in our financial statements was not effective, including inadequate verification for completeness and accuracy of key reports used to review and monitor inventory balances. A consequence of this was that the process of conducting a full physical inventory required an inordinate amount of time to establish an accurate valuation. We are still in the process of remediating this control issue. Notwithstanding such material weakness in internal control over inventory, our management concluded that our ~~disclosure controls~~consolidated financial statements in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial position, results of operations and ~~procedures were effective at reaching that level~~cash flows as of ~~reasonable assurance.~~the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

Internal control over financial reporting

The Company’s management, including the CEO (who is also currently acting as both the Company’s principal executive officer and the Company’s principal financial officer), confirm that there was no change in the Company’s internal control ~~other than pursuing affirmative confirmation of future singular transactions, similar to the PPP Loan forgiveness,~~ over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal PProceedings~~roceedings~~

We are not a party to any pending legal proceedings or claims that we believe will result in a material adverse effect on our business, financial condition, or operating results.

Item 1A. Risk Factors

Not required for a smaller reporting company.

Item 2. ~~Unregister~~edUnregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine ~~Safet~~ySafety Disclosures

Not applicable.

Item 5. Other ~~Inform~~Information~~ation~~

None.

Item 6. ~~Exh~~Exhibits~~ibits~~

	Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.

	Exhibit 31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.

	Exhibit 32	Certification of the Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

	Exhibit 101	The following materials from Nanophase Technologies Corporation’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in XBRL (Extensible Business Reporting Language): (1) the Balance Sheets, (2) the Statements of Operations, (3) the Statements of Shareholders Equity, (4) the Statements of Cash Flows, and (5) the Notes to Unaudited Consolidated Condensed Financial Statements.

~~SIGNA~~~~TURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NANOPHASE TECHNOLOGIES CORPORATION

Date: ~~November 4, 2021~~ May 16, 2022		By:	/s/ JESS A. JANKOWSKI
			Jess A. Jankowski
			President and Chief Executive Officer
			(principal executive officer, and principal financial officer)

24 18

Delaware	36-3687863
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ☑

	Emerging growth company ☐

	Accounts Receivable		Contract Assets		Contract Liabilities
Balance, December 31, 2021	$	3,937	$	179	$	1,444
Balance, March 31, 2022		5,274		229		1,509

				As of March 31, 2022				As of December 31, 2021
	Rate			Available		Outstanding Balance		Available		Outstanding Balance
Strandler, LLC ⁽¹⁾		4.00	%		1,000		1,000		n/a		n/a
Beachcorp, LLC ⁽¹⁾		5.25	%		n/a		n/a		1,000		1,000
Beachcorp, LLC ⁽²⁾		4.00	%		4,972		3,709		3,753		3,365

	September 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021

Raw materials	$	4,727		$	2,825		$	6,385		$	4,819
Finished goods		1,630			1,545			2,374			1,682
Inventories, gross		6,357			4,370			8,759			6,501
Allowance for excess inventory quantities		(30	)		(30	)		(200	)		(406	)
Inventories, net	$	6,327		$	4,340		$	8,559		$	6,095

				Page
PART I - FINANCIAL INFORMATION

	Item 1.	Unaudited Consolidated Condensed Financial Statements	3
		3
		Consolidated Balance Sheets (Unaudited Consolidated Condensed) as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	3
		3
		Consolidated Statements of Operations (Unaudited Consolidated Condensed) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	4
		4
		Consolidated Statements of Stockholders’ Equity (Unaudited Consolidated Condensed) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021 ~~and 2020~~	5
		5
		Consolidated Statements of Cash Flows (Unaudited Consolidated Condensed) for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	6
		6
		Notes to Unaudited Consolidated Condensed Financial Statements	7
	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	22
	Item 4.	Controls and Procedures	17
				22

PART II - OTHER INFORMATION			17
	23
	Item 1.	Legal Proceedings	17
	23
	Item 1A.	Risk Factors	17
	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
	23
	Item 3.	Defaults Upon Senior Securities	17
	23
	Item 4.	Mine Safety Disclosures	17
	23
	Item 5.	Other Information	17
	23
	Item 6.	Exhibits	17
				23

SIGNATURES			18	24


	Preferred Stock				Common Stock				Additional Paid-in		Accumulated
Description		Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance on December 31, 2019		—	$	—		38,136,792	$	381	$	101,886	$	(100,756	)	$	1,511

Stock-based compensation		—		—		—		—		52		—			52
Net loss for the three months ended March 31, 2020		—		—		—		—		—		(167	)		(167	)
Balance on March 31, 2020		—	$	—		38,136,792	$	381	$	101,938	$	(100,923	)	$	1,396

Stock-based compensation		—		—		—		—		47		—			47
Net income for the three months ended June 30, 2020		—		—		—		—		—		532			532
Balance on June 30, 2020		—	$	—		38,136,792	$	381	$	101,985	$	(100,391	)	$	1,975

Stock option exercises		—	$	—		78,227	$	1	$	22	$	—		$	23

Stock-based compensation		—		—		—		—		48		—			48
Net income for the three months ended September 30, 2020		—		—		—		—		—		430			430
Balance on September 30, 2020		—	$	—		38,215,069	$	382	$	102,055	$	(99,961	)	$	2,476

Balance on December 31, 2020		—	$	—		38,221,292	$	382	$	102,117	$	(99,767	)	$	2,732
Stock-based compensation		—		—		—		—		42		—			42
Net income for the three months ended March 31, 2021		—		—		—		—		—		1,310			1,310
Balance on March 31, 2021		—	$	—		38,221,292	$	382	$	102,159	$	(98,457	)	$	4,084

Stock option exercises		—	$	—		143,500	$	2	$	76	$	—		$	78
Exercise of conversion rights – convertible loan, related party						10,095,555		101		1,918					2,019
Stock-based compensation		—		—		—		—		53		—			53
Net income for the three months ended June 30, 2021		—		—		—		—		—		41			41
Balance on June 30, 2021		—	$	—		48,460,347	$	485	$	104,206	$	(98,416	)	$	6,275

Issuances of shares and stock option exercises		—	$	—		265,126	$	2	$	72	$	—		$	74

Stock-based compensation		—		—		—		—		29		—			29

Net income for the three months ended September 30, 2021		—		—		—		—		—		1,363			1,363
Balance on September 30, 2021		—	$	—		48,725,473	$	487	$	104,307	$	(97,053	)	$	7,741


	Preferred Stock				Common Stock				Additional
									Paid-in		Accumulated
Description	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance on December 31, 2020		—	$	—		38,221,292	$	382	$	102,117	$	(99,767	)	$	2,732
Stock-based compensation		—		—		—		—		42		—			42
Net income for the three months ended March 31, 2021		—		—		—		—		—		1,310			1,310
Balance on March 31, 2021		—	$	—		38,221,292	$	382	$	102,159	$	(98,457	)	$	4,084

Balance on December 31, 2021		—	$	—		48,893,573	$	489	$	104,423	$	(97,447	)	$	7,465
Issuance of shares and stock option exercises		—		—		133,168		1		72		—			73
Stock-based compensation		—		—		—		—		148		—			148
Net income for the three months ended March 31, 2022		—		—		—		—		—		62			62
Balance on March 31, 2022		—	$	—		49,026,741	$	490		104,643	$	(97,385	)	$	7,748

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Components of lease cost
Finance lease cost components:
Amortization of finance lease assets	$	11		$	14
Interest on finance lease liabilities		2			6
Total finance lease costs		13			20
Operating lease cost components:
Operating lease cost		363			144
Variable lease cost		172			31
Short-term lease cost		21			10
Sublease income		(183	)		—
Total operating lease costs		373			185
Total lease cost	$	386		$	205

	2022			2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	190		$	183

Weighted-average remaining lease term-finance leases (in years)		0.6			1.3
Weighted-average remaining lease term-operating leases (in years)		9.3			3.1
Weighted-average discount rate-finance leases		7.6	%		10.1	%
Weighted-average discount rate-operating leases		7.5	%		14.2	%

	Finance Leases			Operating Leases			Total
2022	$	70		$	1,267		$	1,337
2023		6			2,099			2,105
2024		0			2,025			2,025
2025		—			1,470			1,470
2026		—			1,468			1,468
Thereafter		—			8,668			8,668
Total payments	$	76		$	16,997		$	17,073
Less amounts representing interest		(2	)		(4,719	)		(4,721	)
Total minimum payments required	$	74		$	12,278		$	12,352

				Weighted
				Average
				Exercise Price
Options	Shares			per Share
Outstanding on January 1, 2022		3,193,216		$	1.18

Granted		80,000		$	3.65
Exercised		(120,516	)
Forfeited or expired		(12,000	)

Outstanding on March 31, 2022		3,140,700		$	1.26

For the three months ended	September 30, 2021			September 30, 2020
Weighted-average risk-free interest rates		1.0	%		n/a
Dividend yield		0.00	%		n/a
Weighted-average expected life of the option		7 years			n/a
Weighted-average expected stock price volatility		65	%		n/a
Weighted-average fair value of the options granted	$	2.45			n/a

For the nine months ended	September 30, 2021			September 30, 2020
Weighted-average risk-free interest rates		1.0	%		0.5	%
Dividend yield		0.00	%		0.00	%
Weighted-average expected life of the option		7 years			7 years
Weighted-average expected stock price volatility		65	%		94	%
Weighted-average fair value of the options granted	$	2.45		$	0.36

		For the three months ended				For the nine months ended
		September 30				September 30					For the three months ended March 31,
Customer #	Product Category	2021		2020		2021		2020		Product Category	2022			2021
1	Personal Care Ingredients	27	%	18	%	24	%	32	%	Personal Care Ingredients		29	%		20	%
2	Solésence®	21	%	16	%	16	%	14	%	Solésence®		18	%		17	%
3	Solésence®	17	%	16	%	17	%	13	%	Solésence®		13	%		10	%
4	Solésence®	7	%	0	%	13	%	0	%	Solésence®		9	%		24	%
5	Medical Diagnostics	5	%	30	%	10	%	20	%	Advanced Materials (Medical Diagnostics customer)		—			15	%
	Total	77	%	80	%	80	%	79	%	Total		69	%		86	%

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